Jewelry manufacturer Alex and Ani demands much of its channel partners-and gives much in return
Carolyn Rafaelian and Giovanni Feroce aspire to build a lifestyle brand on the scale of Ralph Lauren. Alex and Ani calls itself a “positive energy“ company: it sells jewelry inspired by myth and symbols. The proudly made-in-America business is diversifying into housewares, beauty products, and many other lines.
Rafaelian launched Alex and Ani in 2004, out of her father's struggling jewelry factory in Cranston, Rhode Island. Feroce, a former Army officer and state senator, joined as CEO in 2010 and quickly ratcheted up the company's ambitions. Today Alex and Ani employs more than 700 people and projects revenues north of $165 million in 2013. Feroce talks about an IPO next year.
The company's distribution strategy has as many moving parts as one of its signature charm bracelets. It includes a rapidly expanding chain of Alex and Ani stores (some coupled with branded coffee bars) and wholesale clientele that range from high-end department stores such as Nordstrom's and Bloomingdales to regional chains; tiny boutiques; and gift shops in airports, casinos, hospitals and hotels. The company also operates an e-commerce Web site and has a burgeoning international division. NCMM talked to Feroce recently about how Alex and Ani works with its many channels.
Q. Let's talk about how your distribution strategy evolved. When Carolyn started out she was just selling through high-end department stores, correct?
A. Carolyn was a designer, and she formed her own relationships with the high-end stores. Then she put in place agreements with various sales reps-multi-line reps who would go out and find places to put her product. That was not good. The product could end up anywhere. We actually found it in a consignment shop. Fortunately, we had customers who followed the brand and made us aware of this.
When I came in I immediately undid that and created our own team of one-on-one reps in-house. We'd rather spend the money to see for ourselves who wants to be in business with us. We wanted to know the merchandise was in a nice place. Sometimes you can do that long distance by having them send pictures. But as we've become a larger organization, it's good to have a sales force that can go out and meet potential partners.
I also didn't want to be in relationships with high-end stores where they dictated the rules. In those cases you often sacrifice profit for placement and recognition. Five or six years in we no longer needed relationships that weren't making money.
Q. Alex and Ani had just one company store when you came onboard in 2010. As far as I know there aren't a lot of single-designer jewelry-store chains out there. What made you see retail as a potentially lucrative channel?
A. Carolyn had opened her first store the year before, in Newport, Rhode Island. She just happened to see this space for lease on a very prominent corner. She came in for a lot of criticism at the time for not just focusing on the B-to-B. But she went with her gut.
She could tell the store was doing OK, but she didn't have a retail background. When I came in, I realized what was happening wasn't normal. To make $500,000 in one year in a small space on the second floor of a building with an untrained retail staff and no marketing is unheard of. Now that one store is doing $4 million a year, and it's trending up.
The sales-per-square-foot convinced me that we should concentrate on the Alex and Ani stores first. So within the first 90 days, I did two things. I implemented an operating system that manages the retail process from point-of-sale through inventory management. And from a talent standpoint, I brought in people with more managerial experience, which led to expanded hours, a more focused workforce, and greater attention to details such as store cleanliness. The sales numbers started increasing, from $2,500 a day to $7,000 a day to $11,000, $15,000, $20,000. In the height of the season, we had some $60,000 days.
Q. Once you decided to prioritize your own retail channel, where did you go first?
A. I signed a deal for a store on Worth Avenue, in Palm Beach. I did that for two reasons. One, I believe many of the key decision makers in the United States either reside in or travel to and from Palm Beach. It's a nucleus of business activity. So in terms of future partnerships it was important.
I also thought having a location a thousand miles away would force us to become operationally capable to support it. Up to that point, with just the Rhode Island presence, someone would simply throw something in a car in Cranston and drive it down to Newport. You could swing by in the afternoon and clean the place. Those are what I call family-business crutches. They hurt the organization. Because if you can always have your brother swing by and take care of whatever it is, then you're never going to develop strong operating systems.
Family members or friends create single points of failure: they may be the only ones who know how something works. You may think you're saving money by relying on them. But it disguises the true cost of running the business. If a system runs the business, then you wind up with a unit that is valuable to somebody. And if you can replicate that unit--as you do within a chain of stores--then you are creating real value and wealth.
I describe our strategy for locating stores as Main-Street-in-a-Feel-Good-Place. The Newport, Rhode Islands and the Saratoga Springs of the world are feel-good places. And we wanted to help bring Main Street back to life. The performance of those retail locations really enhanced the brand recognition. People would see photos of the long lines going out the door. Sometimes they had to be police-controlled. We had people outside giving out Dunkin Donuts. In some places we incorporated valet services. We did everything we could to get people in and out. But I won't lie to you. I didn't mind the lines.
Q. So when you came in you focused first on retail. How long until you turned your attention to wholesale?
A. Our vice president of retail operations joined me in September 2010. I hired a head of B-to-B sales in the beginning of 2011, although I had started courting her at the end of 2010. That's when we started focusing on wholesale accounts. We wanted to professionalize the engagements. We wanted to tell people this is who we are and this is what you have to look like if you want to be a partner.
Q. You said you got rid of accounts that weren't living up to the company's image. How did you do that?
A. We increased the buy-in substantially. A minimum order from a new account used to be $5,000, and we raised it to around $15,000. That's a good way to filter the quality of the wholesale customer. By increasing buy-in we can make sure that even our smaller accounts are these awesome, tight-run businesses. They also had to be willing to do the set-up and display the merchandise the way we want or we are unlikely to pursue that conversation.
Q. You've diminished the distinction between your own stores and your wholesale partners' with a shop-in-shop concept: mini-versions of Alex and Ani stores within your accounts. Has that proved popular?
A. It has, but retail partners that want a whole Alex and Ani shop-in-shop require a different level of partnership. They have to really make the investment. The build-outs probably cost $10,000 to $20,000 per store depending on the number of cases and the size of the art and of the “Wall of Love,“which is our menu where people can choose what symbols they want on their jewelry.
For the last two years our key accounts have been engaged by our vice president of domestic B-to-B sales. For the really large ones I meet with them as well, to set the tone for their expectations. In many cases we require them to fly to Rhode Island, visit the headquarters, and then accompany us to a couple of our stores and some of our key partners to see how the brand should be presented.
Q. How do you decide how many company stores and wholesale accounts a given region can support?
A. I started by looking at Rhode Island as a model. In Rhode Island we have five retail stores and 29 other accounts. So we take that 60-mile radius and as we move around the country we say how can we replicate this? And I expand from there. But we've been so successful in southern New England. So now I'm putting a pin in Boston and looking at a 150-mile radius. That's a pretty good model going forward. Because it gives us a lot of metrics: for a large city, for great Main Streets, for resort areas, for universities. Maybe in that footprint we have 12 stores and 200 accounts. And if that's the right number, I will model that.
It culminates in what I like to call the Area Domination Matrix. Inside that footprint you would have a few Alex and Ani retail stores and ten times that number of B-to-B accounts. We would also sponsor and have marketing partnerships with everything from sports teams to music festivals. And our Charity by Design division would support everybody, even if it just means providing a product for an auction. That's how we go out on the street.
Q. How do existing B-to-B accounts react when you open new stores near them?
A. That used to be a little more of a problem a few years ago. Lately I don't hear that at all. Again, if you look at Rhode Island, at the five stores and the 29 other accounts, you see no arguments. The sales figures show that the ecosystem is healthy for everyone. That Alex and Ani store or the other B-to-B account up the road that's advertising-it's all raising brand awareness. It's because of the uniformity: everyone is pushing the same message. In terms of where someone actually chooses to shop, it's the retailer's job to build that relationship.
Q. You spend a lot on marketing. Do you support the brand, individual Alex and Ani stores, and your wholesale partners?
A. We always just promote the brand. Our advertising says what we sell, which is love, peace and positive energy. It says we are made in America. There is a visual of Carolyn, unless it's a radio spot. We will be coming out with a lot of brand extensions, and so we want people to be connected to the brand. We like it to be like stadium signage. Very clean. Just Alex and Ani. It doesn't even mention our Web site.
Q. But you do help your wholesale accounts with their own marketing, right?
A. Last year we purchased our own media company, and many of our wholesale customers have become its clients. They say we need seven billboards; we are going to do radio; we are going to do some print. Then our folks provide them the materials. All they have to do is put in their address. They are promoting Alex and Ani, of course. But they are promoting Alex and Ani to get people into their stores, where they can buy other things.
We may have 100 different accounts at a time that are doing things with us. It shows a kind of mutual respect. Our wholesale customers understand that if they follow our marketing model they will be successful. And it allows us to develop the model, rather than having retailers out there just doing whatever it is they do. We want them to concentrate their dollars into what we know works. They see the effect our marketing has had for us, and they don't doubt it.
Q. How else do you support wholesale accounts?
A. We do a great deal of training. Our folks go out to their companies and make sure their employees know how to present the merchandise, what it's about, how to converse with consumers. We also have Alex and Ani University. That's an in-house professional-development program for employees. But clients can also pay to go through it. The core course is called Rethinking Retail. That is taught in a classroom setting in Rhode Island, over the course of a couple of days or a week, depending on how many individuals attend. Taking classes at Alex and Ani University is a whole other level of engagement. At that point our wholesale customers understand the brand top to bottom. More importantly, they learn how to engage the consumer so they are not pushing something on her but getting to know her as an individual so they can guide her to the product that makes sense. The program enhances every aspect of their retail business, not just Alex and Ani sales.
Q. Are you concerned that Web sales will cannibalize your wholesale partners' business?
A. I think there's a comfort level for people who shop online. They're used to doing it that way, and that's just the way they do it. They have certain expectations. It doesn't take away business from someone else.
Q. Do you ever change pricing to nudge people from one channel to another?
A. I don't believe in discounts or sales. It diminishes the product. Multi-tiered pricing systems for the same product just cause consumer confusion. They relay the message that the product is worth X instead of Y. You can't explain to the consumer, well, I have rent to pay and staff to pay and marketing and sales tax and that's why this product costs X. The perception is that it's worth X. And if it costs more when I buy it from brick-and-mortar, then I am overpaying. It's a foolish way to do business.
Q. How do your sales break down by channel?
A. About 52% comes from B-to-B; 30% from our own stores; 15% from the Web site; and 3% from international. We are now in 20 countries, and we ship to 100. But we are slowing international growth because of the uncertain world economy.
Q. On which channel are you focused at the moment?
A. We are emphasizing wholesale because there are so many applications and requests for our product-- all these opportunities to partner. From the perspective of a dollar contribution to the company, wholesale now supersedes our retail stores. They are 131% ahead of budget this year.
Our store performance has also exceeded all expectations. But that means we're making the same amount of dollars with fewer stores. So I am going to ramp that back a little bit. We were going to have 54 open by the end of the year, but I think I'll settle for the mid-40s. Although if the right opportunity comes along, I'm not going to walk away from it.
Q. What advice would you give other middle-market companies about how to approach their relationships with wholesale customers?
A. You have to decide: are you a brand or are you a product? If you're just trying to push a product, then you can behave more traditionally in terms of price and support. But if you are pushing the brand, then it's about the consumer experience overall. You have to set standards. And whoever wants to do business with you has to uphold them.
To learn more about Alex and Ani check out their website here!