Made to Measure: J.Hilburn Gives Direct Selling Some Style
The second insight came from his time covering Amazon, which he had seen cut out steps in the supply chain and squeeze margins in order to sell to consumers with fewer, lower markups along the way. By selling directly to consumers, Davis knew, he could afford to bring his prices way, way down. You don't have to be a business geek to understand that one: Customers would pay less, and a big market awaited.
All right, but a big market for what? Davis had devised a clever business model, and he was eager to get started with it, but he had no idea what industry to apply it in. He started inventorying the rooms in his house--the kitchen, the garage, the bathroom--looking for a product category in need of disruption, until one day his wife, Holly, pointed out that he owned a handful of custom shirts, and they were the only shirts he ever wore. "Why don't you just buy a few more?" she asked him.
"Because they're $250 a pop, and that's ridiculous," he said.
"But they're your favorite shirts!" she said. "Why don't you try that business?"
Five years later, J.Hilburn is the single largest seller of men's custom dress shirts in the world. Shirts start at $89, and they're made from the same fabric as shirts from the Zegnas and Armanis of the world. Last year, Esquire named J.Hilburn the best custom shirtmaker. Since the company officially launched in 2007, it has expanded from dress shirts to custom men's suiting; ready-to-wear casual clothes; belts, ties, cufflinks, and other accessories; outerwear; and now formalwear.
The company brought in about $35 million in revenue in 2012, up from $16.7 million a year earlier. The number of sales reps doubled last year, to about 2,250. And those reps' average sales are almost $20,000 a year, far higher than the direct-sales industry average of $2,000. The reps' annual retention rate is 87 percent. Things have been good at J.Hilburn over the past year, but it wasn't easy getting here.
One of Davis's first moves was to recruit a co-founder to run the company's operations. Veeral Rathod is a Dallas-native clotheshorse who was also working in investment banking at the time and feeling itchy. Neither man had ever worked in apparel, a notoriously cliquey and idiosyncratic industry, but the two of them figured, How hard could it be?
"We were arrogant at first, and ignorant," Davis says. "In equity research, everything is just numbers. You're asking these questions like, Why aren't you running 15 percent G&A [general and administrative costs]? Now I'm like, Really, jackass? Let me show you. Because when you actually have to do it and go beyond the numbers, it's so much harder, and it breaks so many different ways, you can't imagine."
Lining up a sales force to launch with was easy enough: They started with one of Holly Davis's friends in Dallas, who went to her friends, and so on. The style consultants would take men's measurements and act as personal shoppers, following up every few months with ideas for a wardrobe refresh. (Holly also gets credit for coming up with the vaguely familiar-sounding, American-heritage-style name, which is short for her husband's full name, John Hilburn Davis IV.)
So far, so good, but problems started piling up quickly. Apparel manufacturers are set up to make products in bulk, and nobody wanted to make one-off custom shirts on a large scale. Through a referral, Davis eventually found a factory in China that said it could do the work. J.Hilburn would be paying more than companies making shirts in just a few sizes, but by cutting out a succession of middlemen, Davis would still be able to sell his shirts at considerably less than the competition would. (See "You Paid How Much for That Shirt?," page 67.) It seemed like a solid win, but by then a second problem had arisen: The best fabrics come from a handful of mills in Italy, and without any industry credibility, Davis couldn't get any of them to return his calls. Again, Asia came to the rescue, and the company launched with a selection of 20 fabrics from a mill in China.
On the day the first shipment of shirts arrived in Dallas, Davis and Rathod swaggered into a restaurant where a few of the company's initial salespeople were eating. "We were so proud," Davis remembers. "And then we washed the shirts a couple of times," says Rathod. The fabric immediately lost its hand, its feel. It turned out the Chinese mill used lower-quality fabric and perhaps treated it with a chemical spray that gave only the impression of higher quality, and only at first.
The stress of this difficult start began to take a toll on Davis. One night in October or November 2007, he had drunk some wine, it was 2 a.m., and he decided to call a premier Italian mill, Tessitura Monti. "I said, 'I'm about to drop a million dollars on fabric, and since I know you're not going to return my call again, I'm going to take my business to this other Italian mill.' " It was a pure bluff--he didn't have a million dollars to spend--but he got a call back within minutes and managed to talk his way into a much smaller, more realistic deal.
