Nowhere is it tougher to justify real estate costs than in high end retail stores, and few places on our planet offer real estate costs higher than that of retail property on Fifth Avenue in New York.  How about a Fifth Avenue location at Central Park, across from the Plaza Hotel?  That is where FAO Schwarz is reinventing its brand of quality toy experiences.

An article in the December 15, 2006 issue of the Wall Street Journal titled, Reviving FAO Schwarz, outlines CEO Ed Schmults strategy to differentiate itself from competitors and rise above the commoditization of the industry (well, commoditization of every industry) by creating a high level experience that can't be replicated anywhere else.  Just as many people gladly pay double or more for Starbucks rather than a comparable deli coffee, Schmults is betting that our increasingly upgraded and quality demanding society will pay for the privilege of experiencing the finest toy buying experience.

A great book that discusses these phenomena in detail is The Experience Economy by Joseph Pine and James Gilmore.  In fact, they trace the coffee bean from the $.03 per cup price fresh off the tree to the $4.25 mocha latte grande at Starbucks.  A key part of both the Starbucks and FAO Schwarz experiences is their real estate.  In each, you are in a special place designed with colors, aromas, sounds, and a level of service that makes you glad, or at least accepting, of the higher price for value offering.

Most of my consulting projects aren't for retailers, rather, they are office and industrial space users.  Does this mean that their real estate "experience" doesn't matter?  Not at all.  First, the image of your location gives an impression to customers (even if they don't come there to shop), employees (what the company stands for and how it cares for staff needs), and competitors (respect and comparison by competitor employees to their own environment).

Creative methods to reduce square footage and make that space more productive allows companies to spend a bit more making that space first class, with an improved image, functionality, and employee experience.  FAO's chief executive understands this concept.  And, as humor writer Dave Barry says, "I am not making this up", the WSJ article states, "The product methodology goes with Mr. Schmults managing theme: less is more."