NEW COMPANIES EMERGE IN TOUGH TIMES
Byline: Kristin Larson
NEW YORK — Starting a company has always been a risky proposition.
But in today’s economically challenging climate of layoffs and cutbacks, creating a new apparel line or opening a first store comes with greater perils and a more daunting task of getting consumers to believe in a new product during a time of insecurity and uncertainty.
Plus, as the industry has evolved, more retail real estate has become controlled by major brands, mostly owned by fashion conglomerates who carry clout with store decision makers. There’s no doubt that adequate financial backing and a well-orchestrated business plan have become equally as important as having the most fabulous product on the block.
“To launch on your own is so difficult,” said Arnold Cohen, an accountant and financial adviser at Mahoney Cohen & Co., who also teaches about financing start-up companies at New York’s Fashion Institute of Technology and Parsons School of Design.
“This business is driven by numbers today,” Cohen said. “You can’t do it like the old days when a bunch of young people would go open a store in SoHo and create an image for themselves. It takes much more time.”
Nonetheless, in the face of a weakened economy, tumultuous world politics and poor retail performance, the entrepreneurial spirit lives.
“In times that are troubled, people might enjoy looking at something that’s different and that includes fashion,” said Andrew Jassin, a consultant and partner at Jassin-O’Rourke Group. “Customers are willing to try new things, yet not enough [retailers] are willing to try new things. It’s difficult and if they have to rely upon certain department stores, they are not risk-takers. And if they are, they expect lots of protection on the downside.”
However, some newcomers said they view their main selling point as just that — their newness, even during a time when retailers might be leaning toward the tried and true rather than taking a chance on the adventurous and unheard-of.
“No matter what, retailers are still looking at new, upcoming designers as a positive because it brings freshness to their stores,” said Debbie Burdi, owner and designer of Me Collection, a better sportswear line that started this fall and is sold in 78 boutiques and specialty store doors, including Fred Segal in Santa Monica, Calif., and Michigan-based Jacobson Stores Inc. The company declined to release any sales figures.
Burdi and partner Michael Tenzer, who handles production in Hong Kong, started planning the launch for Me Collection in January 2000. Together, they brought 43 years of industry experience to the table — a criteria Burdi thinks will help them prevail through tough times.
“Our advantage has always been that we were new and trying to focus on that 30-plus customer who wanted a young look, but she didn’t want to look like she was wearing her daughter’s clothing,” she said.
However, the road hasn’t been all smooth. Burdi noted the change in the political climate resulting from the Sept. 11 terrorist attacks has made retailers react more conservatively, and she’s received five order cancellations. For spring, the company has lowered its projections about 15 percent.
“Of course I’m worried about spring, but I also feel eventually the market will change and people will spend,” she said. “I’m leaving tonight for London to design fall 2002 and I’m not stopping.”
That go-for-it, risk-taker attitude was essentially what captured recent FIT graduate Tahnny Kader, and Rira Kang, a current student at the fashion design school.
The duo this fall launched their career-driven sportswear collection called Kader Kang with $5,000 from Kader’s graduation money and a credit card. Realizing the chances were slim for a major retailer to take a chance on such a fledgling firm, they sold about 100 pieces to the SoHo boutique GiGi — on consignment. The shop’s owner even let the two use the basement of the store as their working studio, where they still sketch and make patterns today.
When nearly all the pieces, consisting of wool and wool-cashmere separates, sold out, they received a check for their goods and made more. For spring, the line includes about 300 pieces and will be featured at Habit in Brooklyn, Ego in Albany, as well as at GiGi. The company projects sales to reach $100,000 next year.
They noted that practically everyone, including their college professors, discouraged them from launching the business.
“The only ones who supported us were our moms,” said the 24-year-old Kader. “We were just really gutsy and have been planning for this all through college. Plus, without risk, there’s no such thing as a business.”
Still, new firms should be aware of the perils of doing business, said Arnold Aronson, managing director of retail strategies at Kurt Salmon Associates.
“The ease of entry into the stores is not going to be terrific right now. While some stores are being adventurous, others are putting their dollars in the tried and true,” Aronson said. “The timing is not great and when times get tough, and the pie starts to shrink, it’s very hard to define a market place for new designers.”
New to New York, Regan Wood said she’s learned the hard way how to be a tough businesswoman after not receiving payment on orders received.
“Now, I’m only doing cash-on-delivery,” said Wood, who this season relaunched her wool separates-driven sportswear line here after finding Chicago too removed from the industry. Her line is sold at Shop Girl in Chicago, Yellow in Los Angeles and Auers in Denver.
“That’s the one bad thing about being a new designer, stores take advantage of you and there’s nothing you can do about it,” Wood said. “It’s so hard to be a designer, but is there ever a good time? The odds are so stacked up against you.” Her sales projections are $25,000.
Still, Mark Hassin, owner of Tamra, a line of moderate- to better-priced sportswear that debuted this fall as an expansion to his seven-year-old Bonnie Sportswear collection, said even a good product might not be enough to withstand this economy.
“It’s going to be very tough for a true start-up to start now and be successful a year from now,” Hassin said. “It’s difficult times for everyone.”
The company declined to give sales figures.
Technology has proven a major asset for new line Elle Sportswear, which had a launch party scheduled for Sept. 11 in New York that was canceled. Due to the tragedy, Elle sales executive Lisa Lowe has found that many buyers are relying on e-mail to view collections and place orders because they would rather not travel.
“So we’ve definitely gotten more Web-savvy,” said Lowe, of the company whose name is a license of the magazine of the same title.
Sales projections are $8.4 million for spring and summer.
“It’s a national thing — no one wants to get on a flight. So the biggest challenge is just getting product in front of the buyers,” she said.
Difficult times might create opportunities for new talent, but anyone entering the business should have sufficient financial backing — and this might be the toughest part, said Allan Ellinger, managing director at Marketing Management Group.
“It’s very rare to find outside investors for apparel companies. The only type of investors that exist are emotional investors or people who invest for reasons other than their return,” Ellinger said. “That has only gotten worse over the last four or five years. There are so many businesses that are either for sale or willing to be acquired that if a company wants to grow it can do so easier by acquiring an already existing business.”
Dick Romer, retired executive vice president of CIT Commercial Services, one of the largest lending firms to apparel companies, said the greatest opportunities for aspiring designers is working for large foreign suppliers where they can add an American touch to these garments made in faraway places like the Philippines and Vietnam.
“The young people we see coming through the Fashion Institute are learning how to design and they all have visions of succeeding on their own, but the reality is less than 10 percent will succeed on their own,” Romer said, who also sits on the FIT board. “The rest will become designers for major apparel companies like the Liz Claibornes and Donna Karans today. It’s very tough because you run the risk of discouraging people and you always want to make sure the entrepreneurial spirit exists.”