When Your Neck Is On The Line

Should a leading tiemaker cope with a market slump by putting his own neck on the line?

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To all appearances, clothing designer Henry Jacobson has plenty of reasons to be confident. Over the past decade, the cofounder and CEO of Mulberry Neckwear, in Marin County, Calif., has managed to build a thriving necktie business--with lucrative licenses for the Kenneth Cole, Claiborne, Nature Conservancy, and Jerry Garcia brands. Mulberry also has done well with its own house brands, Ziggurat and Facets. Revenue at the 300-employee company has risen about 30% annually, reaching some $40 million in 2002.

But such success masks an unpleasant industry fact: The tie market is contracting, squeezing Mulberry's growth opportunities like a noose. Men simply don't wear ties that much anymore. The question for Jacobson is, what does a company intent on growth do when its primary market is shrinking?

Jacobson, a handsome 46-year-old former tennis All American, got the idea for Mulberry (named for a shrub whose leaves silkworms like to eat) while vacationing in, appropriately enough, Thailand. It was 1988, and at the time, he was a bored management consultant. He happened into a tailor's shop and was impressed by the store's handwoven ties, which were not like anything he'd seen back home. Mulberry Neckwear was born.

Jacobson began designing neckties in the second bedroom of his Corte Madera home. Manufactured in Thailand (cofounder Katie Smith sourced the product), the ties began selling briskly in high-end Bay Area specialty stores like Wilkes-Bashford. The timing was perfect. Neckwear sales boomed in the early 1990s, peaking at $1.3 billion in 1996. Mulberry expanded into department store chains such as Bloomingdale's and Macy's. Big fashion brands were attracted to Jacobson's styles, and Mulberry began picking up licensing deals. The company now has a team of 32 designers in its San Rafael headquarters. Working with contractors in China, Italy, and Korea, Mulberry currently sells its neckties in approximately 1,500 stores nationwide.

Mulberry's success so far has stemmed from its unusual approach to selling. The company eschews conventional department store marketing such as advertising and in-store promotions. Instead, it sends its own sales force to work department store floors, providing a high level of knowledge and customer service. While specialty men's stores employ salespeople who know a printed silk tie from a handwoven one, for example, few department stores do. Mulberry sales pros fill that gap. Jacobson calls it a "retail-centric" business model and admits it's an unusual approach for a garment manufacturer to take. "Even though you might look at us and say we're a manufacturer, ask anyone who works for us and they'll tell you we're in retail," he says.

The company is obsessive about sales tracking, monitoring data on a daily basis and giving salespeople extra incentives to sell brands that slip. The approach has made Mulberry the No. 1 tie seller in many U.S. department stores. "Mulberry is by far the biggest volume mover I have," says Tony Brown, divisional merchandise manager for men's clothing at Macy's West, where Mulberry accounts for 30% of tie sales in the chain's 90 stores.

Still, those dark clouds have been gathering in the necktie business. Since 1996, the market for ties has plummeted 30%, to $800 million in 2002, and Jacobson sees no end to the shrinkage. What's more, the market for menswear has fallen about 12% in the past two years, victim of the trend toward "business casual" at work. Mulberry has been struggling with how to cope with a slowdown in growth. The company believes it has a number of advantages, including its talented in-house designers, its sales-tracking system, and its intensive sales and service training. All of those things constitute the real value of the company, Jacobson believes. The question is, will they be enough to carry the business forward if the stormy skies in the industry begin to rain on Mulberry's success?

The Decision

Mulberry wanted to do something to diversify its business, since most of its sales were dependent on licensors. "We're just renting our licensors' names," Jacobson says. "We decided that the thing to do is use our business model to support development of our own brand."

In late 2000, the company set out to transform its athletic, good-looking founder and head designer from Henry Jacobson to "Henry"--an icon that American consumers would be on a first-name basis with, as they are with fellow designers Ralph, Tommy, and Calvin. "The most powerful way to launch a brand is when you have a living designer willing to do it," Jacobson maintains. "I've always had a passion for clothing and how wardrobes should integrate with the modern guy's lifestyle. If my taste matches a broad enough range, why can't we be successful?"

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