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STRATEGY

The Get Ahead Guide: Seema Sudan Made Money on Her First Collection
 

But the rag trade is full of knockoff artists. How can she protect her brand?
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In recent years, the sweater business has been driven by simple design, high prices ($300 and up) and expensive yarns like cashmere. LiaMolly, which launched its first 11-piece collection in February, is different. The company's clothes feature cotton and wool blends and retail for $100 to $300. Though they are intricate and look hand-knit, they are not. Instead, LiaMolly's sweaters are produced primarily in Chinese factories. The company's debut line was a hit. It landed rack space in Anthropologie -- where founder Seema Sudan used to work -- as well as Bloomingdale's and 40 specialty boutiques.

The founder: Sudan, 38, honed her technical know-how at Anthropologie, where she helped set up the company's sweater line. "She played a critical role in creating our sweater DNA," says Glen Senk, CEO of Urban Outfitters (NASDAQ:URBN), the chain's parent company. She also charmed the people at the Asian factories at which the clothes were made. "I loved my technicians," she says. "I liked talking shop with them."

Then, in 2005, Hurricane Katrina hit New Orleans. Sudan's husband, Sidney Bertheaud, had grown up near the city, and soon the couple decided to move there from Philadelphia. "Some people wanted to go away, but we had the opposite reaction," she says. "We wanted to be part of the rebirth."

When Sudan announced she was leaving Anthropologie to start her own line, her friends in China offered to help her make prototypes. She took them up on their offer and named the business after her kids, Liam, 4, and Molly, 10.

The numbers: Sudan has invested $75,000 in the company and has one full-time employee who sells the line to boutiques. Her first collection brought in $518,000 in revenue and gross profit of $209,000, which is good for a new fashion company. Sudan projects revenue of $1.8 million in 2008, $2.3 million in 2009, and $3 million in 2010.

The market: Sales of women's sweaters were flat at $5 billion in 2007, according to Marshal Cohen, an analyst with the NPD Group who studies the apparel industry. But Cohen predicts that next year will be good for the category, because sweater sales go up when fuel prices rise.

Of course, the field is crowded. "She'll be competing against the Ann Taylors (NYSE:ANN) and Ralph Laurens (NYSE:RL) of the world and the private labels of every major department store," says Cohen. "But it doesn't mean she can't beat them." Larger lines tend to play it safe during a downturn, which translates into plain styles. That creates an opening for a gifted designer. And amid sluggish retail sales, LiaMolly's average price point ($156) is coveted among store buyers these days.

Challenges and opportunities: Managing cash flow will only get tougher. Designers must pay for next season's prototypes long before they have been paid for the current line. Factories (including LiaMolly's) typically require a letter of credit before starting work. Like many labels, LiaMolly uses a factor to borrow against its accounts receivable at 1 percent interest.

Sudan is focusing her sales efforts on boutiques in the South and along the Gulf Coast, a region she believes the mainstream fashion world sometimes overlooks. She has hired a PR firm to get her name out. And she has set retail prices that afford boutiques a 2.5 percent markup, even though 2.2 percent is standard. Sudan, who owned an ill-fated boutique years ago, says she wanted to give retailers more margin to engender their loyalty.

Sudan also has become interested in lean manufacturing. LiaMolly plans to introduce a capsule collection of six pieces made on seamless knitting machines. The ecofriendly process uses computer imaging to reduce wool and dye waste. As much as 25 percent of the line's future collections will be made this way.

Advice From Liz Lange

Lange is the founder of a line of upscale maternity clothing based in New York City.

"I love that LiaMolly is focusing on sweaters. Knits fit so well, and they're comfortable. People love them. For a long time, Benetton was almost exclusively knitwear, and it was huge. It's a mistake when brands try to do everything right off the bat.

"Though she's set up the business as exclusively wholesale, I think Seema should consider going into retail, too. I actually had a retail presence before I did wholesale, and what I liked about having a store was the ability to tell my story within a cohesive retail environment. That's hard to do in department stores or boutiques that might only buy a sweater or two.

"I'd suggest that she open up a tiny space on some side street in New Orleans. A store needn't be a big capital investment. It can be the kind of place you'd have to be 'in the know' to know about. Women love discovering brands by word of mouth.

"The biggest thing Seema has to watch out for is knockoffs. It wouldn't be hard for someone to copy LiaMolly's designs and make them for a whole lot less money. The Zaras and Forever 21s move very fast. That's why she needs to do what she can to make sure that every item she sells is not just a sweater but a LiaMolly sweater.

"How do you do that? When I was starting out, I did the PR by myself -- a little bit out of necessity, but looking back on it, there was nobody better than me, nobody more passionate than me. Seema has a PR agency, but she should also focus on this herself. She should be sending LiaMolly's pieces to celebrities with a note, the more personal the better. It's easy enough to find the names of their assistants or publicists online. She might get lucky and see her clothes in People or Us Weekly. I'd also try to get in touch with costume designers for hot TV shows, like Gossip Girl. That kind of exposure can do wonders for an apparel company. In the end, that's kind of the way you protect your brand."

Final Thoughts From Seema Sudan

"I agree with Liz that our next step should be to have a little shop. We plan to move the business to a building that Sid owns, and we can run a shop out of that space with little overhead. As for knockoffs, I'm not so worried about them, because this kind of sweater is hard to make -- that's why there's not a lot of competition. Of course, people will still try. I expect that, and I've seen bad knockoffs of my Anthropologie stuff.

"But Liz is right. We must make sure that people recognize a knockoff as a LiaMolly knockoff -- that's what I think she's trying to tell me. I think being in New Orleans will help us establish that. From the sense of community to the city's vintage style to the color of the houses here, it's such a special place for our brand to feed off of."

LiaMolly's Reality Check:

  1. Somebody somewhere is probably creating knockoffs of the clothes.
  2. It's great to make money early on, but as a business grows, managing cash flow becomes much harder.
  3. It's tough to build a consumer brand when your wholesale clients may carry only one or two of your products in their stores.
Last updated: Jul 1, 2008




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