While fashion's big stores struggle, quirky boutiques are finding success with a different business model: small. At the überhip Confederacy in Los Angeles—where customers sip Gimme Coffee that the owners imported from Brooklyn because they miss New York—the economic crunch has only made the selection more special. "Instead of skimping by selling guys T shirts and jeans because that's what they can afford, we sell what excites people," says Ilaria Urbinati, a celebrity stylist, who buys for the store with partner Danny Masterson, an actor and a DJ.
The 5,000-sq.-ft. store, a favorite of actors Ben Foster and Hunter Parrish, is...
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