STUDIO DIRECT GOES AFTER SMALL GUYS
Byline: Valerie Seckler
NEW YORK — There’s a new player in the Internet’s crowded B2B apparel field that is providing private label fashion for smaller retailers.
So what else is new?
The surprise in the otherwise familiar wrapping is that the player, Studio Direct, is being backed by a $3 billion apparel behemoth, Li & Fung Limited — which has sunk approximately $140 million into the effort to serve stylin’ but smaller-sized companies via the Internet, marking a departure from its usual focus on large-scale chains. The business-to-business site, at studiodirect.com, is aiming at style merchants in the U.S. and Europe, with annual volumes of less than $300 million, rather than those that produce sales north of $1 billion a year, the kind that account for 90 percent of Li & Fung’s customers.
The offer from Studio Direct, set to go live online today, includes online sourcing, product development, factory management, trend tracking, and customs information.
“In the past 90 days, spot prices on cashmere are up 80 percent,” noted John Suh, chief executive officer of Studio Direct, in an interview during a recent visit to the fashion district from the company’s headquarters in San Francisco. “We expect apparel firms to look to us for alternatives, in these kinds of situations.” Sounding nothing like a techno-geek who most recently had formed an Internet consultancy, Suh said: “They might select a better quality merino wool as a substitute, for example, or a more affordable cashmere from a new source.”
It turns out that Suh is not the typical techno-geek: His career includes forays in supply chain management and retail, as well, including stints assisting Warner Bros. Retail develop its international marketing strategy and working with Lucasfilm to develop the Internet strategy for the release of the “Star Wars” prequel. Suh hooked up with Li & Fung in his former role as ceo and a founder of Castling Group, an Internet consultant that counted the Hong Kong-based trading company as a client, along with JCrew.com, hifi.com, and GiftCertificates.com, among others.
For year one, the startup will focus strictly on snagging the 10 percent of Li & Fung’s customers with sales of less than $300 million annually. In the U.S., for instance, Studio Direct is estimating the market for private label fashion and lifestyle goods, of the sort it is offering, at around $50 billion. For openers, that merchandise includes women’s apparel, men’s knit shirts, and sweaters; golfwear and accessories and home decor items. Eventually the mix will be expanded to offer woven tops and bottoms for men and women, and children’s apparel.
“We’re focusing on the small-to-mid-sized companies first because they are so under-served,” Suh said. “We are trying to bring the level of service for smaller accounts up to the level of what bigger accounts are used to, like shipments that are on time and in-spec. If a shipment is late or inaccurate,” he added with a chuckle, “The Limited won’t wait. Smaller companies aren’t used to that kind of service.”
In another departure from the typical B2B model, Studio Direct is eschewing transaction fees for its clients. “We are taking a principal stake in the product, unlike other models that require clients to play that role, but we’re not physically holding the goods,” Suh explained. “Then we take a gross margin markup and are responsible for funding the product until we sell it. Our markups are in the high teens,” he continued, “compared with wholesalers, who will give retailers 45 to 50 percent markups, and importers, who will markup anywhere from 30 to 300 percent.”
Studio Direct’s business model is based on giving retailers 65 percent of gross margin, an effort he expects to be aided by Li & Fung’s presence in factories where it controls anywhere from 30 percent to 70 percent of a plant’s production, as well as the technological edge afforded by sourcing online.
And with a war chest of $200 million, Suh isn’t cowed by the deluge of dot-bombs or the drip drops of financing coming from venture capital faucets that once spewed forth for virtually any dot-com, let alone a formerly-favored B2B format.
Customers will be acquired off line, in large part, because, as Suh noted, “Our research showed very few people were willing to buy items online they hadn’t seen or touched, but they were willing to reorder familiar items — much like the B2C customer.” The off-line effort began last month, with a presence at the PGA golf tournament, and is continuing this week at WWDMAGIC, which began Tuesday and concludes Friday. As part of the effort, Studio Direct will be leveraging the contacts of its advisory board, which includes Richard Marcus, chairman of GiftCertificates.com and former chief executive of Neiman Marcus; Howard Socol, chairman and ceo of Barneys New York, and former ceo of J. Crew and Burdines, and Phil Schlein, a partner with U.S. Venture Partners, and former chairman and ceo of Macy’s California.
In the alphabet soup that’s become the naming pool for various Net ventures, Suh sees Studio Direct’s P2P — or path-to-profit in current e-speak — as a 24-to-36 month journey, beginning today. When an observer remarked that the timetable is an ambitious one, even for a less costly B2B concept, Suh responds that he’s always been big on keeping costs under control.
“For our first six months, we called our office space the dungeon,” Suh said with a smile in recalling Studio Direct’s first frame, back in October 1999. “It was in a damp, cold basement, but we were only paying $20 a square foot. We had people sitting next to space heaters, doing computer coding with gloves on.”