When marketers speak of the “advertising environment,” they are usually referring to editorial matter or programming that surrounds their ads. But when Peter Arnell uses the phrase, he is speaking literally.

“I wanted someone to be able to walk through an environment we were creating for print ads,” explained Mr. Arnell, the 29-year-old cofounder of Arnell/Bickford  associates. And so, in major fashion magazines in February, the agency’s ads will herald the arrival of DKNY, a new line of lower-priced “life style” wear from Donna Karan, one of the hottest American fashion designers of the 1980’s.  That same month, shoppers will actually be able to step into the ads, which Arnell/Bickford is translating into designer boutiques in 120 department stores through-out the country.

“This,” Mr. Arnell  said, “is boutique-as-advertising.” Arnell/Bickford, which had $22 million in billings this year, is a small self-consciously trendy New York advertising agency that has seen its Donna Karan, New York account grow from $120,000 to $2.5 million annually in four years. 

The client-agency relationship is close. Whenever Ms. Karan licenses her name for another product, be it hosiery by Hanes or eyewear by Bausch & Lomb, Arnell/Bickford, by contract, becomes the licensee’s agency.

Now, with its effort to create environmental advertising, the agency is becoming architect and interior designer for the brassy couturier, who is showing her spring collection today to the trade and retail buyers.

DKNY’s ads will consist of black-and-while photographs that will depict New York of decades past - a tabloid-filled  Broadway newsstand, Time Square’s towering bill-boards, the Third Avenue El, all with “DKNY” subtly embedded in the scenes. These and other photos will be the foundation of the boutiques. But they will not simply be hung on store walls. In designing the boutiques, Mr. Arnell and his partner, Ted Bickford, 31, say they were inspired by photographs and articles about Edward  Steichen’s legendary 1955 “Family of Man” show at the Museum of Modern Art.

“What was original about, the ‘Family of Man’ was that it was three-dimensional.” said Mr. Arnell, a compact man with an infectious smile and nervous energy that reveals itself in quick cocks of the head. “The photographs were free-floating, hanging from the ceiling, placed at odd angles that reflected the point of view of the photographers.”

So it will be that in the DKNY boutiques, images shot looking up will be hung above the viewer’s eye level. A street scene shot looking down will be placed below eye level. 

The collateral materials and corporate identity program designed for DKNY by Arnell/Bickford also interpret aspects of New York’s streets. The agency has even designed the  inside of the corporate stationery to resemble metal grates on city sidewalks. To instruct individual department store designers on constructing their boutiques, Arnell/Bickford has created a 280-page guide book. Included are instructions for counter displays, lighting design, wall-panel construction, even rules for cropping the 50 photographs that make up the collection’s collection. Mr. Arnell has been appointed DKNY’s director of boutiques and will meet with the department store designers, who may spend as much as $20,000 to create each boutique.

This hands-on approach may be unusual for advertising people, but for Mr. Bickford and Mr. Arnell it represents a return to their roots: they met when Mr. Bickford was studying with the architect Michael Graves at Princeton and Mr. Arnell, a Columbia University dropout, was working for Mr. Graves.

“Ted and I never thought we’d go back to doing blueprints for interior design”, Mr. Arnell said. “But this was the most fulfilling project I ever worked on. It was like being in architecture school and doing a thesis.”