In the three years since Scott Studenberg and John Targon launched Baja East, they have participated in the LVMH Prize, been finalists in the CFDA/Vogue Fashion Fund and been named one of WWD’s Ten of Tomorrow. They’re beautiful and well-connected, dressing Lady Gaga, Justin Bieber and Zac Efron. Check out @scottlovespalmtrees and @johnlovespinecones for snaps of their lives boating off the coast of Italy, at the gym and behind the scenes of their new Redken campaign. From the outside, they epitomize the loose luxury lifestyle that affords the cashmere bajas and sweatpants they sell for $1,000 at Maxfield, Hirshleifers, Forward by Elyse Walker, Opening Ceremony and Shopbop.
This story first appeared in the September 7, 2016 issue of WWD. Subscribe Today.
Studenberg and Targon work out of their two-bedroom apartment in Chelsea, where they live as roommates, with one full-time employee and a host of “volunteers,” as Targon refers to the positions formerly filled by interns.
“It’s a fine line, having this luxury, editorial, exclusive image,” said Studenberg. “But the final client shouldn’t know that we work from our apartment, in a way. We’re sitting on the same floor as Gucci and Givenchy. If you walked into their showrooms, you’d be sitting on a fur couch thing. Technically, we’re on a cashmere chair, so that’s something, but you know what I’m trying to say.”
If Studenberg and Targon aren’t receiving clients in their studio, they’re not trying to hide anything. This is the reality of starting a self-funded fashion business. Working out of their apartment is a shrewd business decision in a hustle against the bottom line. “How we started? We cut every single cost,” said Targon. “There was literally no overhead.”
Welcome to the unsexy side of fashion. Behind the beautiful clothes, runway shows and pretty merchandising displays, there is an unforgiving grind. Anyone interested in launching their own collection has no choice but to get sucked into the undertow, and most likely tread water until something gives. The process has never seemed simple or easy, but when times are tough for even the luxury conglomerates that are flush with resources, how does an independent designer of limited means do it?
“You have to be crazy,” said Fernando Garcia, who cofounded Monse a year ago with his partner Laura Kim. That was his answer even after Monse experienced a stellar first year, in which it was picked up by a host of major retailers, nominated for the CFDA’s Swarovski Award for Womenswear, and full of “good surprises” like having to order more fabric than they allotted in their budget to meet demand. Monse has a studio in TriBeCa and a staff of five. (Last week, Garcia and Kim were appointed co-creative directors of Oscar de la Renta, where they had worked for six and 12 years, respectively, with de la Renta forming a strategic partnership with Monse.) To be fair, there wasn’t a designer, established or emerging, interviewed for this story who didn’t share Garcia’s sentiment. All participants from different sectors of the industry agreed that of all the back-end variables — production, retail, factors, trademarks, contracts, legal fees, shipping, press, etc. — nothing is possible without money.
But how much? Where and how do you want to spend it? Perhaps more importantly, where don’t you want to spend it?
A good place to start is product, a sample collection. Studenberg and Targon estimate that they saved about $40,000 each to put toward Baja East in the year before launching, while they wrote their business plan and worked in sales at Lanvin and Céline, respectively. Adam Selman, who launched his collection for spring 2014, was a little looser in his approach. “I didn’t have a business plan,” he said. “I really did it on a whim. I think I had like $27,000 in the bank. I felt like, I want to do this and I’m going to figure it out and put on a show. I didn’t really think it through.”
When Nili Lotan launched her collection 12 years ago, she did so with an incredibly tight collection of five pieces, which is almost unheard of, and estimates that it cost about $25,000 at the time. “I had to do so many samples to get the right color, the right shade, the right zipper,” she said. “The development does cost.”
Now, to do her full sample range, she said it runs between $75,000 and $100,000. “Just to buy the fabrics, the sewing, the patterns,” she said.
“The first thing is, product is king,” said Susan Sokol, who has been consulting with emerging designers for three years. “If you don’t have the right product for whatever your market positioning is, it’s very challenging.” She said that emerging designers often struggle with merchandising, applying logistics to their collection in terms of colors and fabrics appropriate for the season, how many dresses, pants and jackets to cut in a fabric. “There’s a designer brand I’ve been working with now for two years, they sell to Bergdorf Goodman and top-tier specialty stores,” said Sokol. “When they started, the creative person didn’t even know where to begin. ‘OK, I have to design a collection.’ Aside from coming up with a point of inspiration, where do you begin?”
Approaches differ based on experience. For example, Garcia and Kim launched Monse with a shirt-based concept a year and a half after leaving Oscar de la Renta. Their first step was to meet with an accountant who was friends with Garcia’s father and devised a plan to bank on their own and their family’s savings for the first year or two. Then they deliberated on price points and where they wanted the collection to sit in the market.
“Those are things we had to think about even before we had the first sketch,” said Garcia. When they did have sketches, they asked Bergdorf Goodman’s Elizabeth von der Goltz, whom they knew from their ODLR days, for her opinion, and solicited Net-a-porter’s Sarah Rutson on LinkedIn. “Sarah replied within the first couple of hours, which was incredible, that she wanted to come see our sketches,” said Garcia. “We showed the big power houses what our idea for this little line was and they gave us their thoughts on the silhouettes and we started with the shirting idea.”
To a great extent, Kim and Garcia already had their production ducks in a row — relationships with mills and factories — from their years at de la Renta, which gave them a leg up.
Studenberg and Targon also had years of industry experience between them, but not in the realm of production and design.
“We weren’t just salespeople, we did distribution, strategy and marketing,” said Studenberg. “Then we also had to deal with f-cking people and knew that relationships were the most important part of life probably, and especially in building a business.”
They hit up a friend who was a designer at Banana Republic to figure out how to make patterns and samples, found a factory in the Garment District, got their first sample collection made and tapped the retailer relationships they had built from their sales careers to book appointments during Paris Fashion Week, where they borrowed a friend’s apartment to do their first market.
The stores came, orders were placed, and that’s when a never-ending game of cash-flow catch-up begins. Selling one’s wares is the goal, but it comes with a catch. The designer is required to pay to produce orders well before he or she sees a penny of it. That’s materials, cost of labor, shipping — totaling well into the tens of thousands, depending on the size of the order. There are ways to shoulder the burden, but they often require favors. On the advice of one retail connection, Studenberg and Targon asked the stores ordering their first collection to pay a 50 percent deposit, a practice customary for American designers selling to European, South American and Russian retailers, but not always fellow Americans. “Of the 17 of our first stores, I think only one or two didn’t pay,” said Studenberg. They also started working with Hilldun almost immediately.
Gary Wassner is co-chief executive officer of Hilldun, the factoring firm, which is the initial lifeline of many emerging designers, advancing cash — for a percentage — on orders and paying receivables to approved retailers so the designers can have a cushion to produce. Wassner works with start-ups up to major operations with $450 million in sales. Getting a meeting isn’t difficult.
“The CFDA recommends people all the time and vice versa,” said Wassner. “I see all the new young brands, I go to small presentations off-site.” He vets the collection, the stores that have ordered or have shown interest and audits financial statements and tax returns “just to make sure they can pay the rent for the next sixth months and they’re not smothering in debt,” said Wassner, who can open doors to stores for new designers and warn them against retailers without a good reputation. At the end of the day, you need to get paid.
Consignment is an immediate red flag for Wassner. “It lures young brands who want to be in that store and don’t realize that it could easily put them out of business,” said Wassner. “Consignment is not a sale. That’s number-one. Number two, never be fooled by how beautiful a store is physically. All that matters is if they can pay their bills.” That is a lesson learned the hard way all too often.
In July, Studenberg and Targon were waiting on a $50,000 check for three seasons’ worth of merchandise from a well-known, multistore boutique that was already nine months late. “The thing is, when we decided to do business with them, they were not insured by Hilldun,” said Studenberg. “But as a growing brand, we needed to expand our distribution.” At press time, the store begun payment but had yet to settle in full.
A sum like that can cripple a business and reverberate through the supply chain, affecting when the designer can pay its factories, the models for its show, shipping costs, etc. And many people on the production end are also small businesses who can’t afford the crunch, either.
Stores aren’t the only ones who can be late. During their first season, Studenberg and Targon were two months’ late to deliver an order of antique bajas to Net-a-porter and other stores because of a fabric mill delay. “She was trapped in a volcano in Bali,” said Targon, laughing but not joking.
Lotan started her company with 20 years of know-how earned on the clock at major companies such as Adrienne Vittadini, Nautica, Ralph Lauren and Liz Claiborne. She went in with her eyes open, seed money from David Chu and a laser-sharp vision of five pieces that did $500,000 in sales the first season and $1.4 million the second season. Still, during her first season, she produced 500 pairs of pants “and I bought a zipper that was not doable in the machines,” she said. “All 500 came out of the machines with broken zippers. The entire production.” She ate the cost, worked it out and shipped the pants on time. “It’s like young women going into labor and people prepare them, but they don’t tell them what they really need to know.”
Something that’s not always top-of-mind for a launch is the value of one’s name. “The first thing you do is register your name in a way that you own it,” said Lotan, who has a licensing agreement with her own company for the use of her name. “Later on when you get into all kinds of interesting business conflicts, you will own it.” That entails establishing a legal entity and filing for a trademark.
Douglas Hand, a partner at Hand Baldachin & Amburgey LLP, which represents fashion clients including the CFDA, 3.1 Phillip Lim and Mansur Gavriel, can’t emphasize enough the importance of these steps. They cost, but can cost more if not done properly. Registering as an LLC in Manhattan costs minimum $3,000. Filing a trademark costs around $2,000 in the U.S. and Hand recommends at the minimum filing in the U.S. as well as China, which is known for its trademark trolls — pirates who essentially monitor public filings for trademarks filed in other markets, register them in China and then sell counterfeit goods legally under the trademark or extort the designer for cash to buy back their name.
It’s a racket that if not handled early on, can cost designers up to a million dollars for established brands trying to get their trademark back and tens of thousands for start-ups. Hand doesn’t know exactly who is behind such scams and what the level of organization is, but he estimates that his firm gets about 100 e-mails a year from Chinese law firms, along the lines of “we noticed somebody filed an application for your brand name here in China, Would you like us to take action to get your name back?” said Hand. “That firm, I have it on advice from Chinese firms we use, is usually in cahoots with the troll who filed for the trademark.”
Selman is a designer experiencing trademark trouble in Asia. Earlier this year, he found out that his trademark had been registered in China around August of last year. “Something must have happened, some press or something around that time,” said Selman. “Of course, I knew about trademarks, but it can cost up to $30,000 to do it worldwide. I was starting slowly in America and then I was going to do Europe. We’re such small potatoes. Little things like that are actually quite big things.” He’s disputing his trademark in China.
By the way, any designer will need a lawyer. Many start out with a family friend or relative; engaging with a big firm requires a retainer, sometimes up to $5,000. In addition to trademarking and establishing a legal entity, Hand recommends that brands are set up with a form NDA, employment agreement, independent contractor agreement, employee handbook, terms and conditions for vendors and for sales. “You deal with factories that you don’t own,” said Hand. “That is a contractual relationship and you should have terms and conditions for that. You have wholesale accounts — that, too, is a bunch of contracts.”
Contracts come at a price, as does most legal advice, although Hand says there’s leeway. “I have no interest in putting a young brand out of business, and I know a great way to do that is to have them contact their lawyer 50 times in the first six months,” said Hand. “Once you get a legal entity formed, a trademark registration and that whole starter kit of initial form contracts from my firm, it is usually best not to use us for a while until you have a significant transaction to do.”
Speaking of big deals, securing an order from a major retailer, a Net-a-porter or a Shobop, is a dream for most designers. It can put someone in business. It can also put one out of business. “This is something I call out to my team,” said Rutson. “Net-a-porter’s scale is far and it’s global. We’re putting in orders for three distribution centers: Asia, Europe and the Americas. To us, an order might seem small in our business portfolio. To any brand, it is a vast first order. I tell my team, we could bankrupt them. Don’t screw them to the wall with terms. Put in an order that’s doable. My concern is looking on the other side, thinking that when they receive this Net-a-porter order, yes the elation, but can they deliver it?”
In Wassner’s experience, a brand has to get to the $2 million mark for proof of concept. An order from a major retailer — Saks Fifth Avenue, Neiman Marcus, Nordstrom, Barneys New York, Net-a-porter — is the way to get there. But one must be careful not to rely on any one store too much. “It’s a double-edged sword,” said Wassner. “You love that store, they’re going to feature you prominently, but the first or second season you don’t sell, you could lose 50 percent of your business.”
To secure the right accounts, one has to have good product, but also a sales strategy. The collection doesn’t always sell itself, no matter how much high-profile press and celebrity exposure one has. Just ask Selman. He is closely affiliated with Rihanna, working on her tours and designing custom pieces of her for years, including the unforgettable “naked” dress she wore to accept her CFDA Fashion Icon Award in 2014. “I feel like I was sort of set up for big press and a big show and I went straight into it,” said Selman, who is participating in the CFDA/Vogue Fashion Fund. “I thought, ‘Oh, I’m just going to make that collection.’ I thought I was just going to sell hundreds of thousands of dollars off the bat. That was a bleak reality to wake up to.”
He admits that sales are his weak point. After having been in the showroom Goods and Services, Selman took his sales in-house and did them out of his studio last season. “I’m always there and I can talk you through [the collection],” he said. “I value most the personal connections I’ve made on a real level.”
Hiring an in-house dynamo salesperson can have a transformative effect on a business, but you have to pay for that person’s experience and address book, which is why most designers go with a showroom, which takes 10 to 12 percent of the goods shipped, not just what’s written in the order. “If a new designer tells me tomorrow he wants to start his own business, I’m going to ask him, ‘Do you have the financial backup?’” said Lotan.“If he says, ‘I have a million dollars to start my business,’ I say, ‘Open your own showroom.’”
Oh, to have a million dollars to put into your business. Ideally much more. Isn’t that the dream? Careful what you wish for. Baja East, Monse and Selman are all open to fund-raising conversations, but taking on a major financial partner is a scenario in which Hand would recommend dialing a lawyer, one who might be more fashion specific than your favorite uncle or best friend’s wife. Lotan has avoided selling a major stake in her company, preferring to act as ceo and designer and having what she values most — freedom. Taking on a partner can ease the grind, but the deals can sour over time, though there is life after financial backing. “Certainly there’s great growth potential with partners,” said Narciso Rodriguez, who operates his business independently now, but has been involved in partnerships twice before, first with Aeffe and more recently a 50-50 deal with Liz Claiborne. “There’s great risk. Everyone goes into these types of arrangements with a positive attitude, and a lot of times, it doesn’t work out so you have to really protect yourself.”
“When you’re in your own business, you have tunnel vision,” said Doo-Ri Chung, who left her brand Doo.Ri in 2012 and is consulting for various labels. “It’s very difficult to break free of the cycle. Consulting has allowed me to see so many different facets of the industry and I enjoy it a lot more.”
Chung came up around the time the industry became fixated on ushering in a new generation of designers, launching her collection in 2001 and winning the CFDA/Vogue Fashion Fund in 2006. A few years into her business, she sold the label to Tharanco Group, a private equity firm, remaining the creative director. Chung is bound to a non-disclosure agreement with Tharanco and was not able to reveal the reasons she left her company.
“No one gives you a manual, you have to go with the flow,” said Chung. “If life gives you this great opportunity, you have to take it.…In retrospect, I would’ve loved to have known what I know now.” She remembers fondly the rush of juggling and striving toward a personal goal, but it also makes her shudder a bit. Asked what it takes to start-up, Chung said, “You have to be young and stupid.”