The Nygard Philosophy

The way he tells it, Peter Nygård’s rise to the top of his $500 million sportswear concern is the result of a fluke and someone else’s bad luck. The Canadian executive learned early in his career the value of image in the fashion industry. After 35 years at the helm of the eponymous company he took from the brink of bankruptcy, Nygård has surrounded himself with the symbols of power — glamour, wealth and celebrity.

The story starts in the early Sixties.

"When I came out of university, Eaton’s was doing a study of all their top executives," said the tanned Nygård in a recent interview, referring to the now-defunct T. Eaton Co. Canadian department store chain. "They hired a consulting firm to do a psychological study...to try to determine who their next president would be. It was ageless, genderless, titleless. Everybody just got a number and they did all these tests, and from these tests they would come up and decide and tell the executives, ‘OK, here’s your guy.’"

Nygård had been selected to enter the company’s management-training program and was sent in to take an aptitude test at the same consulting company.

"I got a call from this guy three weeks later," he said. "He said, ‘Peter, congratulations. You’re the next president of Eaton’s.’

"My application got mixed up with all the rest of them and I had done the same test with them. Of all the 225 people they were testing...I was pegged to be the president of Eaton’s," he continued. "They hired me right away, on the spot, so I got one hell of a start."

Nygård attracted some attention as a prodigy executive in his early twenties, but within a few years he was ready to move again.

"There was something restless about me. I kept looking and looking for jobs, even though I was very happy," he said.

One day in 1967, the son of Finnish immigrants said, "I got the most unlikely call for this job."

With this, the yarn enters its second chapter. A Winnipeg, Manitoba, suit maker named Nathan Jacobs asked Nygård to come in for an 8:30 a.m. interview on a Saturday."It was a company on the verge of bankruptcy at the time. It was doing $800,000 [in sales] and he was looking for an answer. He didn’t have any sons and he was looking really to establish his retirement plan," he said. "I joined Dec. 1 [1967] and I wouldn’t join unless I had part of the action. I took a reduction in pay, borrowed the money and bought into the company on a trial basis to see if it would work."

After his first week in the office at Jacob Fashions, two salesmen took Nygård on his first trip for the company, calling on customers in New York. When he next saw his new boss, there was some big news to digest.

"I had met him for about a week in December, he went to the Mayo Clinic Jan. 1, was in there the whole month of January and [Jacobs learned he] had three months to live. And that was the start of my whole career," he said. "I didn’t have two days of training by this time."

As he looks back on the event now, the 61-year-old Nygård — who considers himself something of a maverick in the business world — said he thinks he was lucky to have known so little about the business.

"The blessing was that I was never trained in the industry and I didn’t know how it should be done. I didn’t know that Montreal came down to New York to knock things off. I didn’t know any of that kind of stuff," he said. "This whole industry in Canada was in Montreal and we were located in a place called Winnipeg. I was completely out of the loop. I was there by myself. I had nobody to consult with."

So, with little profits, one factory and about 100 employees, Nygård looked at his new business, which was making two-piece wool suits, and realized he needed to make some changes.

"At that moment, we were making products that were too old for what [consumers] wanted," he said, "not new, fresh stuff."He decided to start making casual double-knit wool suits that came with a jacket, a skirt and a pair of pants.

"A key issue in the skirts was how long it would be," he said, adding that common wisdom held: "They would not buy the skirt if it was below the knee. You had to have it at, like, 18 inches. I did my research, I did my hangtags with questions on them and I found the most common complaint was that [consumers] can’t find a long skirt."

But like many freshly minted executives before and since, Nygård learned one of the frustrating truths of the business world — sometimes the establishment won’t listen to contrarian thinking, even if it is right. Faced with the problem, Nygård saw only one solution.

"I did a very [gutsy] thing. I did tell the customer, my retailers, this [skirt] is going to be shipped at 21 inches," he said. "And I stood there and lied. I shipped it at 23-1/2 inches. I did it because of the market research, not because of what the buyers in the showrooms were trying to tell me."

But even before the days when retail consolidation gave merchants the power to demand markdown money, buyers didn’t take kindly to deception.

"They were going to ship it back," Nygård continued. "They were never going to buy from me again. And I said, ‘Please, leave it in the stores for two weeks.’"

Nygård’s lie worked out to his advantage.

"They called me back two weeks later and said, ‘You were right,’" he said. "My product flew out of the stores."

Having found a niche in the market, Nygård decided he needed to diversify the company’s assortment and production base.

In 1968, he boarded a plane to Japan, to see what the Asian industry was like. In his memory of the trip, "I found myself on the back of ox carts going to the factories."

On account of the visit, he moved fledgling blouse and sweater production operations out of the Winnipeg factory to plants in Hong Kong, Taiwan and South Korea, and began buying fabric for garments made in Asia from Japanese suppliers.Nygård admitted that it took him some time to fit in with the culture of the Japanese trading companies that were then the primary gateway to that country’s mills.

"It was cap-in-hand," he explained. "You were a good boy and relationships were everything. Connections were everything. The protocol was entirely different. You talked differently — the language was different than New York. It was a polite language...you negotiated differently. The mannerisms were different, and the dealings were absolute.

"The way it was is you were lucky to be doing business with them," he said. "It’s not like today, where they are knocking on the door. You’d have to watch very carefully."

It also took him some time to learn how cultures varied within Asia.

"The Japanese almost spoiled you. They did spoil you. They were so good and so dependable and so accurate and so honest, and when they said something, it was absolute," he continued. "Then, when you started dealing with some other cultures, it shocked you. What you had learned to rely on all of a sudden didn’t become reliable any more."

Everything was up for grabs, he realized.

"We got hit many times, just by bad production and bad quality," he said. "The mistakes in the beginning were serious mistakes, quality-wise.

"The most serious issues were dealing with the word ‘fit.’ Necks: You’d get 10,000 garments with the necks that were so tight that they’d make your eyes bulge when you tried to get it over your head. Those were total disasters. Then, when you washed it, it shrunk to the point that you couldn’t get it off the person. You had to make sure you had your own inspectors over there."

That’s a rule Nygård continues to apply today: "Every single country where we operate we have our own office, inspectors and quality control."

The company, now known as Nygård (it dropped the word "International" from its name last week and does not use a corporate suffix), today owns only two factories, both in Winnipeg. It also has exclusive relationships with most of its foreign suppliers. It requires its key suppliers to dedicate particular factories solely to Nygård production. In return, it invests in equipment for the factory and provides close management oversight.The company has five joint-venture factories around Shanghai, China; three in Indonesia; three in Sri Lanka, and smaller investments in Taiwan and Macau. It also has offices in Hong Kong.

Its joint-venture factories tend to average 100,000 square feet in size.

"We have not taken the garment and held it up and said, ‘Who can offer the lowest price for it?’" Nygård explained. "We have gone ahead and figured out how to make that at the lowest price possible in our factories. We’re very much about long-term commitment."

The company produces about 60 percent of the garments it sells in Asia, with the balance split evenly between Canada and Mexico.

The initial Jacob facility in Winnipeg has since closed — the company has closed five Canadian factories in the last five years — but Nygård still employs 650 people in the city. One plant, about 60,000 square feet, employs about 300 and is dedicated to quick-turn production on two styles of pants. It offers 24-hour fulfillment on orders.

The other facility, about 50,000 square feet with about 350 workers, serves as a sample factory and also produces quick-response turnaround on some fashion goods.

In Mexico, the company operates two joint-venture factories, in Pueblo and Actopan. Through his Bahamas-based investment vehicle Emerald Point Inc., Nygård has also taken a 6.4 percent stake in Tarrant Apparel Group, which has operations in Mexico.

After years of growth following the creation of the NAFTA trade bloc in 1994, Mexico’s exports of textiles and apparel to the U.S. have started to decline, largely as a result of Chinese competition. China is giving Mexico a run for its money for the spot of top supplier of apparel and textiles to the U.S.

For the year ended Sept. 30, imports of those products from Mexico to the U.S. were down 9.5 percent to $8.49 billion, according to U.S. government trade data. Over that period, Chinese imports rose 22.6 percent, to $7.97 billion.

Nygård said he believes Mexico will continue to play an important role in the North American supply chain, but he acknowledged that the nation’s apparel industry has some tough years ahead of it‚ particularly 2005, when quotas on textiles and apparel will be dropped among the 144 World Trade Organization nations. That will make Mexico’s NAFTA membership less advantageous, though it will continue to enjoy duty-free status."Mexico, as in any other way the USA does business, enjoyed the big bubble that’s customary in the USA business world anyway. And now the bubble will burst somewhat," Nygård said. "Mexico became the number one supplier to North America in the last years. That won’t be the case in 2005."

For a man with significant investments in Mexican factories, Nygård offered a blunt assessment of Mexico’s problems as a manufacturing location.

"Mexico’s biggest dilemma is that they are a very bad source. They are a very poor supplier," he said. "They are going through the issues that we went through with China 25 years ago. When you compare China production with Mexico, China is absolutely right on. China is Japan today — when they say they are going to do it, they do it absolutely right."

The problem, he contended, is this: "Mexico is only running, in my opinion, at about 30 percent efficiency right now. They have twice as many people working on every product. We may have five people in our cutting room [in Canada] and they have 25 doing the same work. It’s downright silly."

Still, he insisted that he believes Mexican manufacturers will evolve and compete successfully.

"Mexico is going to do what any country does when it gets to these serious issues. It’s going to have to sharpen up. It’s going to sharpen up. It’s going to have a shakeout, the better people are going to stay," he said. "Mexico in the next five years is going to get sharp and it’s going to increase productivity and it’s going to stay in there because of its productivity increase. There’s a lot of great equipment in there, a lot of great potential and a lot of issues are going to be resolved."

Expressing a belief common among sourcing executives, Nygård contended that the biggest question in 2005 will be how quickly China’s exports to the U.S. grow and whether the U.S. takes advantage of the legal tools at its disposal to limit Chinese exports. As part of the terms of its entry into the WTO, China agreed to allow the U.S. and other importing nations to impose temporary duties or quotas onto its imports to limit market disruption.Still, Nygård emphasized that it’s important for manufacturers in all countries to not underestimate the threat that Chinese manufacturers pose.

"The scariest thing about China is that they’re so good. That’s the thing," he said. "Never mind the fact that they have different policies, but they’re so good.

"The fact is that China could produce enough garments for the world. We don’t need any other countries, so the issue of how China is going to control or deal with its garment industry is going to be the key factor. How the USA will temper it themselves is going to be a key factor. These are going to be issues that are politically driven and somewhat economically driven by those two countries.

"Within a formula, the Mexicos of this world and the Indonesias of this world and even the Canadas of this world are going to live. But the formula is going to change dramatically. We don’t have any illusions about the fact that things are going to be considerably different." The potential for Chinese garment exports to disrupt economies around the world has attracted the attention of the U.S. government. As reported, the State Department is preparing a report assessing what effect the 2005 quota phaseout will have on developing nations that rely on their apparel exports as a key source of foreign exchange.

Still, Nygård said that over the long term, China will face competition, particularly as it continues to privatize its industry and allow for more capitalistic practices.

"They can’t keep their costs down forever. China will get into the world business community. The fact that they joined the WTO, they’re going to start playing the game. They’re expected to play the game in the same way," he said. "It will have a way of leveling itself out. You’ve got other countries. You’ve got India, you’ve got Pakistan. India’s got 1 billion people. That’s quite a few people."

China’s population is 1.28 billion.

While China’s potential dominance in 2005 is a key issue on sourcing executives’ minds, for apparel executives on the sales side, a more immediate problem is department-store hegemony and the tyranny of chargebacks.As he looks to build the company’s U.S. sales — Nygård wants to build the firm’s $250 million U.S. sales to $400 million over the next few years — the power of the department stores is something with which his company has to contend.

The firm’s Canadian sales are also around $250 million. One way Nygård’s been skirting the chargeback issue has been concentrating its sales in the U.S. on private label merchandise, which now represent about two-thirds of its volume. The balance is branded goods, including Peter Nygård signature; Bianca Nygård, named for his 25-year-old daughter — the oldest of his seven children — who works in the company’s public relations area; Alia, named for his 22-year-old daughter, who works in the design department; Tan Jay and Nygård Collection. (He also has four sons, Kai, 19; Mika, 15; Jassar, 14, and Xar, 2, and another daughter, Scarlet, 6.)

"We’re developing in-house national brands [for retailers] and trying to dominate that business," Nygård said. "We probably do about two-thirds private brands and one-third national. It was the other way around a few years ago."

One of the reasons for that focus is to avoid chargebacks.

"The Canadian retailer-supplier relationship is different," explained Nygård. "It has not had the kind of guarantees attached to it. It has been more strategy based. Here, you have your gross margin guarantees. Canada didn’t really have that…in coming to the USA, that was a bit of a shocker for us, to deal in those terms."

To handle that surprise, he continued: "About five years ago, we took the position that we would only give our customers exclusive product. I just couldn’t see the staying power of the way retail was going, particularly the department stores. The whole issue that everybody piles on the same product the same way and then holds the price wars with each other...in the long run, it didn’t make any sense to me and we didn’t buy into it."

The company’s key retail accounts in the U.S. include Dillard’s Inc., Kohl’s Corp., J.C. Penney Co. and Belk Inc., according to Nygård."We’re working way better up front so we don’t need to have that disaster after the fact," Nygård said. "We deal with the problems immediately, in real time. That’s the most important thing. We’re dealing with the issues weekly now. We’re not dealing with it at the end of the year or in January, where you talk about how the report card is, that you owe me a million dollars or something. This is a weekly, day-to-day kind of thing.

"With our communication systems, which are so sophisticated now, we are very active ourselves in preventing the wrong product from even being in the store," he said. "Never mind this piling it in and sort of bluffing that people do, and playing the blame game after."

The company’s been selling to U.S. customers for the past 20 years, out of offices in New York and Los Angeles, but for the past five years, it has focused more attention on this country, where it sees greater growth potential.

As reported, earlier this year the company built a 280,000-square-foot distribution center in Gardenia, Calif., to serve this market.

The firm’s business model in Canada is quite different. It sells a large chunk of its wares north of the border through its chain of 200 retail stores that bear the company’s brand names.

But Nygård said that’s not a strategy he plans to bring to the U.S.

"We take the retail approach in Canada simply to protect our market share. It’s a necessity. When you see the department stores [in Canada], Eaton’s went out of business…we’re concerned about our distribution channels," he said. "We’re really not retail interested [in the U.S.]. We’re more supply interested."

Only by significantly growing sales in the U.S. is the company likely to meet one of Nygård’s ambitious goals: "To really now get to the magic number, double the size and hit a billion-dollar number."

He said he believed the company could achieve that in five years, if it can maintain a growth rate of $100 million a year. The company expects to hit that growth rate this year, which will bring its revenues to $500 million.Last year, sales were flat, which Nygård attributed to a slowdown in business following the Sept. 11 terrorist attacks in New York and Washington, D.C.

Nygård, who owns the company, declined to provide specific figures on the company’s profits, but claimed that margins are in line with those at Liz Claiborne Inc. and Jones Apparel Group, two of the more profitable companies in the industry. That would suggest Nygård has an annual profit margin of around 10 percent.

Asked whether he had any plans to take the company public, Nygård said: "We’ve been thinking about it for a long, long time and been ready to do it and haven’t really had a reason to do it.

"Maybe it’s because we haven’t been in New York, maybe it’s because we’ve been country boys out in Canada somewhere and haven’t been influenced differently," he mused during the interview at the company’s Manhattan showroom. "I wonder what we would have done had we started here."

While Nygård toys with the idea of selling a stake in his company to the public, he doesn’t appear to need to cash out any time soon. Canadian Business magazine last year ranked him the 59th-richest person in Canada and estimated his personal fortune at $490 million, a figure that Nygård did not contest or confirm.

That ranking put him three places ahead of former Tommy Hilfiger Corp. co-chairman Lawrence Stroll. Neither ranking could be independently verified.

Nygård acknowledged he has other "passive" investments in businesses and real estate, which have contributed to his fortune. Among the more obvious symbols of the wealth he embraces is the vintage, open-topped, white Excaliber sportscar he drives, which, according to neighbors in Winnipeg, really stands out when he’s in town, and Nygård Cay — the peninsula in the Bahamas that he’s been building for the past 14 years, which he calls home for six months of the year.

The compound, with follies ranging from a shark pool to a rock-climbing wall, is the site of an annual New Year’s Eve party he throws for a crowd of about 800 that includes celebrities, industry luminaries and political figures. He’s hosted notables including the former President Bush and Robert DeNiro at that home.Nygård also hosts the "Night of 100 Stars" party on Oscar night, which has attracted the likes of Milton Berle and Sid Caesar.

His oft-repeated thinking on money goes like this: "In this world, you have to learn three things. You have to learn how to make money and I’ve learned that. You have to learn to keep it, which I’m doing, and you have to learn how to spend it."

The peninsula palace, he said, "is the spending part."

One fellow Winnipeg resident said Nygård’s affinity for showiness wasn’t always welcome in the quiet central Canadian city. Still, the resident acknowledged that his decision to keep a high profile and seek the media’s eye through entertaining celebrities and supporting charities helped keep the company’s profile high.

The perks and occasional annoyances of wealth aside, Nygård, like many entrepreneurs, contended that for him, business is about more than just the numerical goals.

"Even the billion-dollar number is not that much different to us than when we were $100 million," he said. "It’s just the next level. The number itself is not so magical."