A look at a management appraoch that isn't science, but more a feel for trade and how it happens on the fly.
At its heart, management isn't science; it's instinct, conviction, a feel for the shrewd trade -- and it happens on the fly. Just watch Eyal Balle
T he shoe. It all started when Kellee McCormack glimpsed a pair of shoes worn by a fellow shopper in a store in West L.A. "I flipped over those shoes," she recalls. She stopped the woman wearing them and asked where they came from. Canvas with a rubber-capped toe, the shoes were made in France. They were called Palladiums, and they retailed for $100. McCormack was in the fashion business -- in jewelry. She had never seen anything like those shoes, and she knew she could sell them. She told her boyfriend, Eyal Balle, about them. They were no big deal, he said. A lot of people back in his native Israel wore shoes like that. And they didn't cost anywhere near $100.
That was a little over three years ago.* * *
The company. "This started as a whim," Eyal Balle concedes, sitting in his fourth cramped and windowless warehouse in three years. He shares an office with McCormack, whose desk, no bigger than a nightstand, holds a Rolodex and a calendar. The national sales manager sits out in the warehouse, and his desk amounts to a shelf built into an alcove of shoe boxes.
Balle is again looking for more space.
His Los Angeles-based shoe company , Rebels, has fashioned that first glimpse of Palladiums into projected sales of $7 million this year. The line started with one style of a canvas women's shoe and mushroomed from there to include footwear for children. Rebels sells yellow-patent-leather shoes with clear-plastic soles. It sells ankle-height boots made of bright-red fake crocodile skin. Balle says some small-town retailers look at his shoes and ask, "What are these? Shoes from space?" But in industry lingo such edgy creations are deemed "fashion forward." Rebels counts such well -known department stores as Nordstrom's, Macy's, Burdine's, and Jacobson's among customers yearning to enter the right orbit.* * *
The knack. Eyal Balle's success is built upon staying close to his customers and sticking to his knitting. Or maybe it isn't. It really doesn't matter. Rebels could be the purest expression of every hot management theory around, and Balle would still wonder why anyone would waste time describing business in those terms.
The big-money management gurus are great with fancy phrases, but business, as practiced by Balle, isn't about words. It's about instinct, feel, conviction. "You buy my shoes, you own them," he warns retailers when they sign on to carry Rebels. No returns allowed.
That raw bravado is a more potent business tool than any idea the excellence peddlers could hope to convey. Let the theoreticians grasp at paradigms as they shift this way or that; Balle's got too many shoes to sell and too little time. You've seen entrepreneurs like Balle, maybe even caught a glimpse of his brashness in yourself, back before you realized you had too much to lose . Call it doing business on instinct, guided by the thrill of a random pursuit that somehow leads to a specific goal.
Call it the knack.
Better yet, watch it in action: things happen because someone with a talent for making the right moves maneuvers from one deal to the next without a blueprint. Business schools don't teach the knack because it can't be codified, and besides, half the students would demand a tuition rebate. It's heresy. The risk-reward calculus happens in the head, not on a spreadsheet. Some people just come hardwired that way. "People ask me, 'What's next?' I don't know. All I know is you have to be creative," Balle says. "You have no choice but to keep maneuvering."
For him, maneuvering is a way of life. He first landed in Los Angeles in 1986, a 21-year-old two days out of the Israeli army, a veteran of the Lebanon war. Unable to afford USC, he enrolled at Santa Monica Community College, paying for tuition with five credit cards cosigned by a friend. He later landed a night job as a security guard, which gave him time to study -- until the owner of a nearby Indian restaurant asked him if he was interested in doing a little valet parking on the side. He could simply change jackets, depending on the job immediately at hand. The restaurant owner liked Balle and fed him free of charge after hours with the staff. "I had already seen a lot," Balle says, describing those early years. "I was in a hurry to get on with my life."
He still is.* * *
The first order. If McCormack was so sure that she could sell those shoes, then Balle was game. In August 1993 they flew to an apparel show in New York City to see if anyone else shared their hunch. No one did.
Balle, who then worked as office manager for a private-investigation firm, called his office and announced he was taking a leave of absence. "It was an instant decision," he says, as if for him there could be any other kind. The next day he headed to Israel to track down a factory that could make the shoes he had in mind.
His sole contact in Israel was his father, a certified public accountant. Balle asked him if he had any clients who made shoes. No, his father replied, but I do know an insole maker. That generated a couple of leads but no deals. Balle then picked up a locally made shoe not unlike the Palladium, which bore the name and address of its maker, the Mahlis Industrial and Commercial Co. He went and knocked on its door.
Balle, now getting desperate, turned up the bravado a notch in the presence of owner Josef Mahlis. "Of course I played the big-shot type," he recalls. "I said that I represented a big corporate buyer in the United States and that I wanted an exclusive deal."
Balle regaled Mahlis with tales of how big the U.S. market was and how he was missing out on something special. "You see," says Balle in his fractured English, "I shifted the whole ball into their court."
Though Mahlis correctly saw Balle as unseasoned, Balle also struck him as a "serious man" who "does what he promises." Besides, says Mahlis, "we had been trying to open up the export market for the past few years."
Balle left Israel with an agreement for $45,000 worth of shoes, even though he didn't know what a size run was or how many shoes a container held. He put no money down on that first shipment. Mahlis Industrial has been in business for 30 years, and Rebels is already its largest customer.* * *
The look. The strategy: produce a midpriced, high-quality shoe, not a cheap knockoff from the Far East. In the world of knock-off-or-get-knocked-off, Rebels is oriented toward Europe, not Asia. It contracts with one factory in Israel and three in Italy, where labor costs are higher, as is quality. Equally important, Europe is on fashion's leading edge.
"They have a very European look: heavy bottoms, lug soles. They're colorful. They translate well -- funky utility sneakers with chunky soles." That's how Andrea Hersh, head buyer for Chernin's Shoes, a Chicago-area chain of 13 shoe stores, describes Rebels shoes. Rebels, bright and whimsical, offer Hersh something else: vital "sell-through." The shoes move off the shelf.
Mothers buy their young daughters a pair and then start wondering if the line has something for them. Teen daughters come clomping home in a pair, and mothers ask, "Where did you get those?" One style of women's shoe three years ago has multiplied into more than 20 children's styles alone for Rebels, in multiple colors. (Rebels now sells about 40 styles of women's and children's shoes.) There are boots and sandals. Boys' shoes are coming this fall.
Balle and McCormack now travel to shoe shows in Europe twice a year to see what's hot -- right now it's flowers and animal prints, as in leopards and zebras -- on the theory that styles emerging there today will be au courant in Los Angeles and New York next year. That way, they get a jump on the U.S. market. They have a designer in Italy who regularly cruises the shows. If he sees something, he faxes a sketch over. If Balle and McCormack like it, they fax it to their manufacturers in Israel or Italy. Within a few weeks Rebels has samples to show customers. In six weeks the company can have shoes in the stores.* * *
First step. Balle came back from Israel with a sample pair of the shoes, women's size 7. McCormack slipped them on and began making the rounds of local boutiques. "I knew I could sell these off my feet," she says. Adds Balle, "The look was just emerging from Europe. It was a look everyone was starting to chase. And we had the product."
By the time the first shipment arrived, six weeks later, in November 1993, McCormack had the shoes sold. They retailed for $35 a pair, well under the pricey $100 Palladiums. Rebels first went after local boutiques, where McCormack had connections. Boutiques, she says, see shoes as a fashion accessory, so one style will do. Shoe stores and department stores expect a line of shoes, which Rebels lacked. Balle and McCormack had one style of shoe, and it came in three colors: black, white, and natural. Recalls McCormack, "I suffered a lot of rejection trying to sell jewelry to these stores, but with the shoes that never happened."* * *
Earthquake. The business started in Balle's bedroom. It soon marched into the living room and from there invaded the garage. "The car went out on the street, and the shoes went into the garage," says Balle. UPS started making regular deliveries, which "stressed" Balle's landlady. This is a quiet neighborhood, she told him. It was time to move.
But Balle was cautious. He sensed that getting overextended could kill a promising start-up. And besides, he had no idea if Rebels was a promising start-up.
"I was still hesitating; this didn't feel right," he recalls. "I didn't want to commit to a warehouse. This was a fashion item we were selling, and fashions change all the time." Warehouse owners wanted five-year leases.
He settled on Public Storage as his landlord. Conveniently, lockers there rented monthly, but there was no phone. In a good month Balle could rent two lockers. When things slowed down, he could cut back to one.
Soon there were more and bigger trucks, 18-wheelers pulling up to the Public Storage lockers. Balle and McCormack usually figured someone was moving a household from across the country. Then the door would open, revealing a wall of shoe boxes needing to be unloaded.
The locker grew so full that only the svelte McCormack could wriggle her way to the back with a flashlight to fish out a couple of size 6's for that little boutique out in Pasadena. When the big earthquake hit in January 1994, the locker was packed so tightly, nothing moved.* * *
The odd couple. In his wire-rimmed glasses, Balle looks vaguely owlish. A shock of dark hair and Groucho-like eyebrows frame his face. He is wryer than he realizes, with his off-center syntax. "If you don't like to swim with sharks, then don't go to the water," he will say. Nothing seems to faze him, perhaps owing to his service in the Lebanon war, an experience he describes as "guerrillas popping out of bushes."
McCormack is blond, with chiseled cheekbones and almond eyes. Some people passing her on the street doubtless do a memory scan for a recent Hollywood film. It's an odd duo, an inscrutable relationship. Boyfriend, girlfriend. But separate apartments. Opposites attracting. Design and accounting. The look and the hustle. His is a hardscrabble immigrant's story. She's from the Valley.
Maybe what binds them together is the knack -- the rush from selling all those shoes. They often work until 8 or 9 at night. Meals seem an afterthought, interludes between faxes to Italy or Israel. Each afternoon in those early days they jammed shoes into the rear of McCormack's two-door Volvo. (If packed just right, it would take 17 cases.) They made deliveries, arriving breathless at the local boutiques after fighting freeway traffic. The final stop was always at UPS to drop off out-of-town shipments minutes before the doors closed at 6 p.m. "We would beg them to let us in," McCormack recalls. The woman behind the counter had gotten used to Balle and McCormack's straggling in late, looking beat. Finally, one day she suggested, "Why don't you open an account? You know we do pick up."
Balle and McCormack looked at each other, startled by this smack-on-the-forehead revelation. "That's how little we knew," says McCormack. "We didn't know UPS picked up. We just thought they delivered."* * *
Bagging Nordstrom's. Balle and McCormack can act cooler now. On a breezy spring day, with the sky a milky Mediterranean blue, Balle eases his shiny late-model foreign car into a parking space amid a sea of other equally shiny expensive-looking cars. The Nordstrom's West Side Pavilion store in Los Angeles rises like the facade of a cathedral.
Balle and McCormack head for the front door, which opens into the women's shoe department. No Rebels here. "This store had a change in buyers, and we had a problem," says McCormack. Translation: Nordstrom's makes buying decisions on a store-by-store basis. If a buyer leaves, you have to sell to the replacement.
"Look, Kellee, flowers." Balle is pointing out a coming trend -- flowers on shoes. That worries him. He thought he had a jump on that via Europe and the faxes from Rebels' Italian designer, Luciano Tiramani.
McCormack picks up a shoe and examines its sole. "I think Luciano has some explaining to do," she says. "We wanted that bottom, and they said they couldn't do it. But there it is. That makes me mad."
Balle and McCormack ride the escalator up to the children's shoe department to visit the buyer, who happens to be out. The clerk eyes them suspiciously as Balle pulls a Rebels shoe off the rear of a display table and places it front and center. He complains about the clutter, implying that other brands shouldn't be crowding his out.
"You're not doing it right," says McCormack. She nudges him aside. "Let me do it." He defers to her. Turning his attention to a competitor's shoe, Balle notes an obvious flaw -- something he learned early on. You don't put grommets on a kid's shoe. They can easily rip upholstery when worn by an energetic child scrambling over a sofa.
In a sense, Balle and McCormack are returning to the scene of the original caper. When Balle first set out to sell Nordstrom's, he simply showed up unannounced at this store and asked for the head buyer. "I had the shoes in a bag," he says. He figured if he called and made an appointment, he'd get the brush-off. "We had what they wanted," Balle recalls. "The buyer had just gotten back from Europe and had seen those shoes."
Nordstrom's is now Rebels' largest customer, accounting for 15% of sales. Rebels has a sales representative devoted exclusively to servicing Nordstrom's stores in Southern California. Nordstrom's returns the special treatment. It recently invited Balle and McCormack to Chicago to host an in-store promotion at one of its stores there. On that weekend trip, between Nordstrom's and the Chernin's chain, they wrote orders for more than $100,000 worth of shoes.
Reflecting on that big score, McCormack marvels at Balle's bravado. "He has a certain charm with these buyers," she says. "He talks to them like they're his friends. He says to them, 'You should have these shoes.' Eyal goes beyond proper etiquette." He doesn't disagree, but then etiquette is no match for the knack. "If I had been there a few more days, I could have sold twice as much," he says.* * *
L.A. Story, Part I. After a few months of doubling as a security guard and valet-parking attendant, Balle had decided it was time to buy a car. He bought a used Ford Maverick for $500. One of his fellow security guards, another immigrant, admired it and said he was looking for a car himself. Is that right? Balle asked, telling him he had paid $1,000 but would let the car go for $750. "Hey, this is pretty good," Balle recalls thinking. "I make a week's salary in 10 minutes."
Balle was now in the used-car business. He favored older, high-mileage cars, which he would immediately get painted at Earl Scheib's for $99. His customers, many newly arrived in the United States, mainly wanted cars that looked good. Whenever he placed ads for the cars, Balle added two words: "Call Claudia." (Claudia was Balle's roommate at the time.)
That brought interested buyers of the male persuasion swarming. They'd call and arrange a rendezvous to see the car, only to be greeted at the door by Balle. "So sorry, you just missed Claudia," he'd say consolingly. "She had to run out to an appointment, but she left me all the information on the car. I can help you."* * *
Shoe shows. The best way to get the word out was to go to shoe shows. Rebels' first was in Las Vegas in February 1994. Many companies there easily spent $10,000 prettifying their booths. Balle and McCormack spent $50. Knowing that many buyers were Jewish, Balle erected a simple banner that read: "Rebels are here. Shoes made in Israel."
He and McCormack then dumped a few large bags of sand on the floor, aiming to create a pseudodesert scene with the shoes half buried in the sand. They intended to invoke the spirit of the Israeli army, whose soldiers wore a similar style of shoe, and which, notes Balle, "has a strong reputation."
For their next show they bought a fish tank and a dozen goldfish and suspended a new line of shoes called Jellyfish in the tank. That cost $100. Some people placed orders. Others wanted to get in touch with Rebels' designer.* * *
Something for nothing. Balle never signed a long-term lease for warehouse space, preferring to pay an extra $100 a month for the right to break his lease. It proved a wise move, since Rebels is about to move into its fifth warehouse in three years.
But the company's makeshift look -- six people crammed into two offices -- is deceptive. Rebels now has a national sales manager and 13 sales representatives. Balle and McCormack began building the sales force with people she knew through the jewelry trade but then kept upgrading it as they made new contacts in the shoe business.
Their strategy is to get good people who have had to jump out of flaming companies, thereby learning from bitter experience. Balle likes people who have been tested. Four of Rebels' sales reps came over from Keds, a once-proud but now-faltering division of Stride Rite.
Rebels' national sales manager, Ralph Hulit, and another four sales reps came from L.A. Gear, which tumbled into trouble in the early 1990s after getting hooked on the thin-margin deep-discount market and burning its mainstay department-store sources. Margins collapsed, as did sales, falling from a peak of $900 million to $300 million in three years. One Rebels sales rep, Rich Tremalio, dubs Rebels a "baby L.A. Gear," which, all things considered, may not be the highest compliment.
Balle is sharp at digging up talent at a below-market price. Rebels' designer, Luciano Tiramani, worked for two other companies in Europe. Balle found him when he went to a shoe show in Germany while actually looking for someone who could do quality control. Tiramani now serves both functions for Rebels.
Balle engaged a young designer, Mary Perez, to create a corporate identity for Rebels -- and paid her in shoes. About their barter, Perez concedes, "I hope it moves beyond that," but then adds, "I'd really like to see my logo on every billboard in town. So for now, the shoes will do."
One day Balle opened the back door of the warehouse to find a photographer and his crew shooting an elaborate beach scene. When they broke for lunch, Balle asked if the photographer wouldn't mind snapping a few pictures of Rebels shoes for promotional purposes. The crew looked at Balle in disbelief -- and acceded to his request.
He now trades shoes for photos with the photographer, Dana Abrams, who has done shoots for a number of national accounts. "One of these days I'm going to give him a bill, and he'll fall over," says Abrams wearily.* * *
L.A. Story, Part II. Stuck in traffic somewhere in Beverly Hills, Balle is getting impatient. He wonders out loud if he should take the first or second left up ahead, depending on how many cars are waiting to turn at each light. As he turns at the first light McCormack scans the street, which looks vaguely familiar, and says, "Is my new apartment somewhere around here?"
The life -- beyond shoes -- of these just-thirty-somethings is Rebels and restaurants. They eat out a lot, and from the conversation it's unclear if they even own pots and pans. (McCormack does have a cat.) Balle lives in the guest house of a woman in Beverly Hills, where the rent is low. He had a lease on a condominium in Santa Monica and to break it spun a sob story to the landlord about how a relative had died back in Israel and he had to go home.* * *
Scenes from a mall. It's midday in the mall at Beverly Hills, and sunlight filtering through the roof throws a gauzy air over the scene of shoppers drifting across hard, polished floors. Balle and McCormack dip into a branch of Brooks' Shoes for Kids, a local chain of children's shoe stores, to see what the competition is peddling. Clear-plastic sandals (called "jellies"), they note, are all but spent after three years of ascending popularity and declining margins. So, too, are red-patent-leather boots. Balle and McCormack have already blown those items out of their warehouse.
The store is quiet, but another shoe store directly across the hall with big "Sale" signs in the window is bustling. "Look how busy they are," Balle remarks. "They just knock other people off."
As they pass a women's clothing store Balle instructs, "Kellee, see the colors. Very soft." This is a preview of the coming colors in shoes: airy yellows, greens, and oranges. They now stroll past another shoe store.
"This company knocked us off completely," says Balle. "One for one." He shrugs.
McCormack is more exercised. "They took our high top and low top. Sick, huh?" Balle adds: "This company went to our factory. They said the production was going to a local store. They bought the shoes and diverted them to the United States." He immediately cut that factory off.
This little stroll through the mall encapsulates the challenge for an upstart like Rebels. On one hand, Balle and McCormack need to nurture and protect the small accounts like Brooks'. It was the little guys who gave them their early breaks, after all. But they must also heed the siren song of bigger accounts that can assure them of volume and growth. Making matters even stickier, they must avoid getting squashed when the department stores and discounters collide.
Department stores hate discounters because they knock off hot-selling products and undercut them on price. That message is conveyed in code to vendors like Rebels. Says Balle: "They don't say, 'Don't sell to them.' They say, 'We don't like your distribution.' " Translation: If you sell to discounters, we'll cut you off at the knees.
Rebels fears discounters, too, because if the company doesn't do business with them, then they'll just knock off Rebels' shoes. "Discounters only want you because you're in the good stores," says Balle. "But you need to commit to a certain amount of production, and discounters help you meet the minimum."
For now he has sworn off dealing with discounters. When they call, Balle's end of the conversation usually goes something like this: "So when do you want the shoes? One month? Oh, too bad. My factory's backed up. Maybe I can get them for you in four months."* * *
"We can't go wild." Rebels is now hot, and more partner wanna-bes are circling. Steve Vianest, who owns a shoe store in Boca Raton, says, "We'll try to do a Rebels 'concept' store. We'll sell accessories and the shoes. I'll be involved with that."
Balle's not so sure. "We have to focus right now on the shoes," he says. "We can't go wild." The Gap invited Balle and McCormack up to San Francisco to talk. Balle was wary. "Big companies find a way to bypass their suppliers," he explains.
But then, after the big $100,000 weekend with Nordstrom's in Chicago, Balle allows himself to dream a little. This year's volume is three times greater than last year's. With a sales rep in Chicago, he could quickly turn that into a $1-million territory. "I see us going to $20 million, $50 million even," Balle offers.
Balle, the entrepreneur who barters for black-and-white photos, is now talking about putting in a $50,000 state-of-the-art inventory-management system. He rationalizes that by saying the software could support $100 million in sales. As the numbers get bigger the shoes seem to matter less.
Balle acknowledges that. "This is first and foremost a business," he says. "Profit and loss. The bottom line. I'm not just a kid who loves shoes."* * *
The shoe. After a late dinner at a Chinese restaurant, Balle and McCormack stroll around Rodeo Drive, scanning the gleaming storefront windows for signs of fashion spring. More oranges, yellows, and limes. Flowers and animal prints, trends Rebels has already picked up, look like hot motifs. The street is oddly dead, more like a midwestern town where people have to get up early and go to work in the morning.
Steve Vianest says, "There are a lot of monsters in the shoe business." Balle, whom he counts as a fresh face, is not one. Roger Brooks, owner of Brooks' Shoes for Kids, once invited Balle and McCormack to his house for dinner. Recalls McCormack: "He told us, 'I like you people. I trust you.' "
Balle had noted earlier: "Many people have told us, 'You have an item that sells well. You're so young. Get out when you can.' " Right now that doesn't register with him. He might as well stop breathing.
Balle and McCormack now turn a corner off Rodeo Drive and stare into one more shop window. This one is dark and lifeless, but one can readily see a large banner announcing a sale, blaring distress. On sale are shoes unceremoniously displayed on floor-to-ceiling metal racks.
They're Palladiums.* * *
Senior writer Ed Welles can be reached at firstname.lastname@example.org