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Two guys, two clothing companies, two Inc. 500 winners -- and two completely different lifestyles and business strategies. Can they both be right?* * *
I felt lucky to meet Ben Narasin, the bright, articulate president of Boston Prepatory Co., while hobnobbing in the gift shop of Pittsburgh's Carnegie Museum during a break at this year's Inc. 500 conference. Luckier still, I thought, when Narasin's friend and equally successful competitor, Laurence Levy, vice-president of Jelyn & Co., joined us. I was struck by the similarity of their business stories (young bucks running clothing companies) and the utter contrast in their personal styles. With his tasteful gray suits and loafers, his soft accent, and his low-key, polite manner, 27-year-old Narasin radiates a muted southern charm. couldn't be more contrapuntal: fast talking, combative, excitable, and oh-so-slightly mussed up (is his shirt untucked?), he spins out ideas, rebuttals, and jokes as effortlessly as Pig Pen exudes dirt.
On the surface their business stories have much in common. Both manufacture their clothing domestically and count that as key to their strategies. Both run lean companies. (In fact, they shared a room at the conference to cut costs.) Both are young. (Levy is all of 30.) Yet as they began to argue the merits of their respective companies it became clear that though they are cut from the same cloth, their companies couldn't be more different.
"We represent opposite views that are both correct," said Levy, explaining, "Ben builds by exclusivity and brand. We build through volume. We will sell through Penney's and Target -- "
"Which to me is an absolute sin," cut in Narasin, who summed up their differences with a simple metaphor: "I'm the Jack Russell terrier -- and Laurence is the pit bull." It struck me then that the best way to share their contrasting strategies was to get them together in a room with a tape recorder and let them fight it out. Earlier this fall I did; the results follow.
-- Tom Ehrenfeld* * *
Outsourcing versus doing your own manufacturing
Narasin: When you start out making something, you think, I'm going to buy the factory one day. Then I realized I didn't need to own the factory. Outsourcing gives us a lot more manufacturing flexibility.
As a virtual corporation, I could take this company, pick it up and put it anywhere in the world, and still accomplish the same things. I start with a shirt concept, shop for the best piece of fabric, and ship it to a factory that will manufacture it to my specifications in a just-in-time setup. The factory ships it directly to the customer. We will handle design and quality control in the factory. The most important thing we end up doing is becoming a marketing organization with the contacts and expertise to get what's needed done.
So we're not locked in to 500 guys waiting for their paychecks on Friday, who have to get paid regardless of whether the economy is soft. I've never had to pass up an order because we couldn't get it delivered on time or couldn't hit a price we agreed we could hit.
Levy: I'm not saying it's not possible for you do that, Ben. But this is a known fact: if you're going to rely on contractors for your manufacturing, you don't have any kind of real control. If you say you've never lost an order because of production, I'd say you're very lucky. But I'd say that's not very standard for the industry.
The big divergence between us is this: a retailer like Eddie Bauer couldn't come to Ben four, six, or eight weeks before the goods are about to hit the shelf and get delivery on time for the full quantity.
Narasin: We got an order from Eddie Bauer over Christmas for 12,000 units of a shirt, and they needed it in less than eight weeks. And we delivered it.
Levy: I'd say, if you don't have control over the mills you're working with, you're not going to be able to consistently capitalize on quick orders.
Narasin: If I were dependent on one mill, then that would be true. But I'm not.
Levy: Maybe you should understand how we structured our company and why it's a win-win situation for us. We have invested in the mills in what we feel is a very smart way, so there's no downside. Jelyn does not technically own any mills; our mills are all separately owned entities. We have taken the manufacturers, the people who had owned the mills, and have made strategic investments in their companies. We've invested in the machinery.
Narasin: But, then, you're not really owning your own production.
Levy: Ben, how are we not owning our production? Jeff Soowal [Jelyn's CEO] and I each own 50% of the voting stock of all the mills. They have to do whatever we say. They are totally dependent.
Narasin: You said it's lucky for me not to have missed any orders. I think it's lucky for you that you've kept all your mills busy. Let's say there is a time, for whatever reason, that one of them has just taken a dip. Do you guys have to absorb that loss?
Levy: You have to understand what the loss is. Let me explain what would happen in that worst-case scenario. We pull the machinery out. We put it in one of our other mills. We might have to lay some people off.
Narasin: I don't see yours as the traditional method of owning a mill, which is owning brick and mortar and having employees you're responsible to. I personally don't want to have the responsibility where in a downturn my reaction would be to stick the machinery in storage and lay off a lot of people. That's a personal thing. But it's not something I want to deal with.
Levy: To be very honest with you, there's absolutely no concern whatsoever for us right now that we could not keep our mills running. Right now we're turning down orders. We have hit our capacity, and we're projecting $25 million in sales this year.
Narasin: Reaching your capacity is one of the limitations of your way of doing things. I've set everything up so I never have to turn away profitable business. I've never had to in the past, and I don't see it in the future, because we have such a wide array of people we can outsource to. I think that's a very big negative.
Levy: I hate to say this, but I have to: growth, Ben. We have turned into a much bigger company than you have. So I'm passing up business at $25 million. I don't know your figures, but I know that you're probably not over $10 million. So you have to understand something: we have grown into a considerably larger company. And the reason we're turning down business we could very easily outsource is that we're undercapitalized. We've grown so large that we don't have the money right now to make the goods.* * *
A brand versus a private label
Levy: The biggest argument Jeff and I would have with Ben's way of doing business would be the brand-versus-private-label distinction. Jelyn is a private-label company with a sideline in brands. And Boston Prep is a brand company with a sideline in private labels.
We started out in 1989 as a private-label manufacturer. But we always had the idea that we were going to build a brand -- that was the way to build a business. We were going to get a brand, Old Glory, and build market recognition with it. And we did. We sold Old Glory sweaters at a better retail price point than that of our private labels for Nordstrom's, Bloomingdale's, and specialty stores.
For one year we grew the Old Glory label. I'd say within about one and a half to two years, we hit a miniplateau. Around 1990 or 1991 the retail environment changed drastically. Immediately, we found we were going to have to adapt our systems to meet what our customers were asking us for. That was to be able to step away from having a branded line. They loved our stuff but didn't like our prices, didn't want to build our name. They were paring down their resources and wanted to do a lot of manufacturing under their own labels. We had to trim our margins significantly in order to hit lower price points. There was no doubt we had some loss of control, but low-price merchandise was the only area the big retailers in the United States were willing to put their volume into.
Narasin: The reason I feel so strongly that you have to stick by your brand as your primary focus is that's where you have longevity. If you're just making private-label goods for somebody, then you're just a hustler. Anybody that comes around can beat you out and leave you sitting on the sidelines. Laurence is driven by his ability to hit a price. You're not living in the illusionary world that retailers are going to stay loyal to you because they like you, are you?
Levy: I agree with Ben 100%. Traditionally, when you're a contractor, you can be in and out. One year they want to use you, and the next they don't. You don't have the stores' customers saying, I want those sweaters that were made in that factory. The customers don't know.
What Jeff and I grasped was that as much as the market was shifting, so was the way to deal with the market. There were no people who were growing through private labels who were taking the approach of partnering with the stores. Customers who want to do private labels can treat us just as if they were buying from a brand, meaning they can show up at our offices without any conception of what they want to do. We have full design services. We will give them styles. We will be a total one-stop shop for them. We deal with them in a way they've never been dealt with before. They're used to seeing a contractor, a guy who talks about stitches and mills.
Narasin: When you have a brand, you own equity in something that is tangible. When my products go into stores, and they're selling Boston Prep, they're selling an image. The king of all this is Ralph Lauren. He's obviously created a whole industry around himself so he can sit back and collect royalties all day. Because he's established a very clean, precise name -- Polo -- for what he does.
You see, a business has a hard time doing private labels until it establishes a brand to give it an image. People who ask me to make them even just a dumb-dumb white shirt aren't doing it just because I'll do everything they need to get it done. When they come to me, they come to Boston Prep and the image it entails.
Levy: If the reality is that volume, and not exclusivity, is what's selling these days, then you have to go with that. Wal-Mart is what's happening. Penney's is what's happening. They are volume driven and value driven. If you want to grow your business, you're going to have to find a way to be volume driven as well. You have to.
Narasin: What Laurence says is true: the market is shifting. But there's still an enormous opportunity for brands out there. People are moving away from upper-price-point brands and looking for more realistically priced ones.
Levy: This is the simple argument Jeff and I would give against developing the brand. It is just as expensive to develop a brand as it would be, we would think, to make strategic investments in mills and machinery. Take Ralph Lauren and Tommy Hilfiger. In terms of men's traditional wear, they are the two big success stories of the past 15 years. And the amount of money they spend in advertising is 20 times the amount we spend to buy Rimoldi sewing machines.
Narasin: Actually, before Hilfiger started advertising, he was doing $125 million in branded products, with at least 50% margins.
Levy: I agree with what Ben's saying here. Hilfiger did nominal advertising and still grew. But that's a one-in-a-million shot. It would be smarter to make good strategic investments with production people and go after the volume.
Narasin: That's probably the thing Laurence would nail me on the most. He'd say we're wasting a lot of money on advertising and public relations instead of putting the cash back into the business. We're much more geared to promotion and marketing than we are toward advertising. We probably spend around 2% on promotion.
Levy: We probably spend .01%. We spent $5,000 on a little brochure.
Narasin: Maybe this year we're spending $100,000 on advertising and PR, which is a very small amount toward buying that brand recognition. The advertising we do is purely awareness. Retailers like to have awareness built. They like to see some reinforcement. We gear our campaigns around two ideas. One, we make fun clothes, and two, we make American clothes. That's the look I want to own.
Levy: I think fewer and fewer people are buying because of the image. I think price is the Almighty.
Narasin: I don't think we differ on the fact that price points are coming down, and you've got to sell it at a better price. I just want to sell my product at a better price with my name instead of somebody else's on it.
Levy: I would really now say to Ben that if he's looking for the long-term play, he's wrong. The retailers are shrinking. They are taking fewer and fewer brands.
Narasin: Does that mean there's no place in the market for viable brands that have a good market niche? No. There will always be a place. Consumers like something they recognize.
Levy: I know both sides of the coin. My father, a wonderful man, was a branded women's coat manufacturer. Paul Levy. He's just been put into Chapter 7. About three years ago he would say to me: "Paul Levy. I've been in Lord & Taylor. I've been there every year. I've done what they've wanted me to do. I'll always have my brand." He would say to me, "I know you guys are building in a different way." I got from him pretty much the same argument that Ben gives.
And I saw my father go bust because May Co., his biggest corporate client, simply said, We're trimming our list. We don't want that many brands on our shelf. Our customers are confused. They'd rather have us give them a better price on a brand they know.
I just don't think there is a long-term play for being a brand, unless you're very lucky and unless you have a lot of money behind you and really can go in and spend a lot to build the name. I think the long-term play is to follow the trends in the marketplace.
Narasin: There's a lot of research on both sides of the table about whether brands are going up or going down. There are a lot of stores that are trimming. Look at Macy's. It went hog-wild on its private label. What happened to Macy's? It went into Chapter 11. When Macy's came out of it, one of the company's big focuses was, let's get brands on the floor that the consumers can understand, that they trust.
Levy: Another reality in the marketplace and why I think it's tough for brands: small mom-and-pops are going out of business at a rapid rate. If you get the credit reports, you always see two or three customers who you've previously sold to going Chapter 11. You said this to me, Ben: "Every year I have a new set of stores I'm selling to." They used to be your stable base. There's one resort town in Georgia where all the small menswear stores have no credit. Can't ship them anything. The volume discounters and outlet stores have eaten into them.
Narasin: You also have to remember, though, the things that are most valuable to the price discounters are brands. You can make millions of shirts for x, y, and z because they need a basic commodity, price-pointed thing, but they are always looking for a brand to put in. But Laurence is right. If you want fast growth, he is 100% right. The way to go is private label. If all I wanted to do is make money and do it fast, I would not do a thing in brands, and I would turn out the private labels for everybody I could lay my hands on. But I don't want in 10 years to end up being the guy that's still hustling. That is not a personal interest of mine.
Levy: That is completely, completely wrong. You say it's a personal thing. It's not a personal thing. From a practical business standpoint, you are 100% wrong. There is no long-term growth in having a peripheral brand right now.
Narasin: It is a personal goal of mine to develop a company that is functional on its own. A brand that is functional on its own.
Levy: I agree that you want to develop that, but I'm telling you I don't think it can be done. Growth means only one thing to us. Bottom-line business: net profits. That's the way we want to look at business. That's the way Wall Street wants to look at a company. That's the way businesspeople want to look at a company. And that is continued, successful-over-a-long-period-of-time growth, hitting the next levels, hitting new plateaus, taking things from the logical next steps, and going from being a small manufacturer to being a midsize manufacturer to becoming a public corporation to adding different divisions.
Narasin: But you have nothing tangible. What you're basically growing on is you and Jeff. If you don't own your factories and you own a bunch of machines and you're out there hustling and selling, that is what your business is. That's all you have to sell: your own hustling. That's it. End of story.
Levy: But you have only an image to sell.
Narasin: Until I get to the point where the brand becomes its own thing --
Levy: But that's not the reality of the market. You don't get to that point.
Narasin: I would agree that it is more difficult. There's no debating that. But I think in the long term it's more profitable and more valuable. The longevity of your company, though, is firmly dependent on two people.
Levy: You're as tied to the mast as we are. You're the designer. You're the president. You're the salesman. You are everything, Ben.
Narasin: As each year goes by, I will be less and less tied to it, while you will be more and more wrapped around it.
Levy: I disagree. Because our private-label manufacturing will become stronger and our relationships with retailers stronger --
Narasin: We differ on this.* * *
Life and work
Narasin: With the private-label business, every customer is a new customer with its own needs. When I sell my brand, I might have 50 items in my line, and I sell them to everybody. Laurence might show customers something to start with or his concept. But you can bet that if a retailer wants 100,000 purple sweaters with pink polka dots, then all of a sudden Laurence is going to gear up and make that. Every time you gear up to work with another private-label customer, it's almost like re-creating your entire business.
Levy: He's right about that. The workload is enormous. I don't deny that at all. There's nobody who works harder than we do in the entire apparel industry.
Narasin: Laurence happens to be a psychotic workaholic. But I want a life.
Levy: I agree with what you're saying. What Jeff and I do is crazy man's work. It is sick. I don't think our way is better in terms of living or a lifestyle. There's nobody who would want to do what we do. We are two people who are more on the edge than most, and we revel in this stuff. To be very honest with you, yes, we would have the ability to burn out quicker in the long run than Ben. No question.
Narasin: I see Laurence's company growing to a certain point, but it's going to plateau with a lot of those customers, and he and Jeff are going to reach a level where they can't physically hustle up any more business without dropping dead. Then I will come along and pass them at better margins and be happy at home with kids, while they'll have ulcers and divorce.
Levy: Jeff and I approach it much more from a business standpoint. Ben approaches it more from a lifestyle standpoint. No question about it. I think Ben's business means a lot more to him for what it does for him personally, from the exposure he gets. Whereas we want to grow this company big. We want to grow it fast. And we like to feel that we're big businessmen. I think that's much more important to us than it is to Ben.
Narasin: It's only because I think lifestyle is an integral part of business. If you can't grow a business -- both profitably and in a way that you can look at yourself in the mirror and say, Yes, I like the person I am, and you can look at your whole company and say, This is a whole company where the people who work here, who are our internal customers, enjoy being those customers -- then I don't think it's worth doing. But I enjoy the business as much; there's nothing I like better than making a deal. But we certainly haven't had to sacrifice anything in the way of growth. And we certainly haven't had to sacrifice anything in the way of profits.
Levy: But you haven't been able to shoot to the levels that we have.
Narasin: Because your margins stink.
Levy: That's not true.
Narasin: By working on a brand, we've managed to have an overall higher net margin than what you have. So if I can maintain this growth -- which I don't see as a problem -- then when I'm your size company, I'll still have that size margin. And that enables me to give more things to my employees. But forget about the fact that I want to take care of my people. Just looking at it from a dollar standpoint, it really boils down to this: Our margins are 20%. Yours are 14%.
Levy: I'd gladly give up those six points of margin for the extra volume.
Narasin: I think we're going to catch up, and we're going to pass you.
Levy: Absolutely impossible.
Narasin: But your margins are getting squeezed and squeezed.
Levy: No. The lowest we would ever go in margins is 11% or 12%.
Narasin: OK. So they would've shrunk by two points while mine stayed at 20%.
Levy: That's a hypothetical -- they haven't shrunk. And my volume has increased by $5 million to $10 million. In 1994 we're projecting to do probably $33 million to $35 million, as long as we get the capital we need -- which we should.
|BEN NARASIN||LAURENCE LEVY|
|Company||Boston Prepatory Co.||Jelyn & Co.|
|Location||New York, N.Y.||Fort Washington, Pa.|
|Married||Yes||Not even close|
|Year Company Founded||1986||1987|
|Current Number of Employees||5||40|
|1992 Revenues||$3.8 million||$13.1 million|
|Main Product Line||Sport shirts||Sweaters|
|Major Customers||Small specialty stores||Nordstrom's, Macy's, Dayton Hudson, Lands' End, Federated|
|Inc. 500 Rank|
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