The retail industry is changing, but one middle market specialty apparel company continues to grow. NCMM Managing Director Doug Farren gets the story from HOMAGE.
Transcription
The retail industry is currently undergoing significant change. Come hear how a middle market specialty apparel business is growing in this unique and dynamic environment.
Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market, which will educate you about the challenges facing mid-sized companies and help you take advantage of new opportunities.
Welcome to The Market That Moves America, a podcast from the National Center for the Middle Market. My name's Doug Farren. I'm the managing director of the center. With me today are Matt Moore and Steve Werman from Homage. Homage is a specialty middle market retailer based here in Columbus, Ohio. They focus on unique, vintage apparel. And we're really excited to talk to Matt and Steve today to learn about the story of Homage, some of their aspects and challenges along the growth path, and anything else that we can share with our audience.
So Steve, I wanted to start with you first. Can you tell us a little bit about the company, kind of how it got started, and where it's come from, where it originated, to where you're at today?
Yeah, of course. So the company originated-- our founder is a guy named Ryan Vesler. And Ryan Vesler started off by-- really he started by shopping vintage clothing in thrift stores, so all of us-- well, I grew up with Ryan-- so while all of us were playing sports, Ryan would spend his days in thrift stores buying vintage apparel. And he would sell that stuff on eBay.
He eventually realized that that wasn't a very scalable market after he'd done it for quite a while and done pretty well for himself. So what he realized was that there was an opportunity for him to make apparel that felt just like that and also told a story, because that's what he liked about the product in the thrift stores is that all their graphics usually had some unique story behind them. So Ryan decided to do some-- he hired a screen printing company, bought some t-shirts that felt a lot like the vintage stuff, and really from there he started with wholesale, got into e-commerce, and then in 2010 did a first brick and mortar store.
So that was in the Short North here in Columbus, Ohio. He really wasn't sure if it was going to be successful or not. He kind of thought it would be a pop-up shop over a weekend during football games here in Columbus. And it turned into a really big success. In 2012, opened up the next store, which was in a big national mall with a big outdoor lifestyle center, and then from there e-commerce has grown. And a lot of the ways that we've grown is through not only in brick and mortar. We have seven stores, and we just opened this past week our first one in Pennsylvania. We opened a store in Pittsburgh. We have one in Detroit, two in Cincinnati, two in Columbus, one in Cleveland.
Some of the ways that we've grown up besides that is through the licensing. We have a lot of different licenses for universities, but also through league licenses. So we have the NBA league license, we have the MLS license, and we're working on getting other licenses as well, so that's really been a good opportunity for us to acquire new customers and grow the business.
Great. Matt, I know you have a background in retail. Tell us a little bit about maybe what attracted you to Homage and maybe some of the differences between some of your prior experiences and what you've experienced here.
Yeah. Sure. So I spent five years at A&F. I started in the merchant training program in June of 2008. Left there in 2013 to come to Homage really because I was a fan of the brand. I think it's rare that you find a brand that has such a living, breathing personality behind it, and Homage is one of those. And there really is a personality to the brand that is almost indescribable. And I think that is what allows us to connect with our customers on such a high level.
We have so many customers that are, for lack of a better term, superfans of the Homage brand. And I think it's because we do such a good job of one, explaining the personality of the brand through our marketing and our product, but then two, also connecting and listening to what the customer wants. And ultimately, you know, that's what drove me here.
I was at A&F. I had an amazing experience there. You know, at one point when I was there we were a $5 billion company. I worked in our graphic tee division ultimately as a senior merchant over the A&F men's graphic tee assortment and the Abercrombie boys graphic tee assortment. And I was really just looking for a new challenge, and I think Homage really presented that in a workplace, in a setting, and a brand that I loved.
It was a challenge going from big to small. It really sort of exemplified its own set of challenges that I had never really faced before. At A&F I was fortunate enough to spend time in a brand that's very structured and organized. And the way A&F goes about its business is very professional, and it's very detailed, and very structured. And the results that we were seeing as a company were definitely driven by that.
So to go from that environment and learn in that environment and come here, especially at that time-- that was four years ago now-- it was very bootstrapped back then. And we didn't have a lot of systems processes in place at that time. So it was fun in a way, because everyone here, and really-- and I think it's really probably going to be sort of a core competency, or a core tenement of our business as we go forward, is to be entrepreneurial. And you know this as a startup brand that was bootstrapped by Ryan, run out of his parents' basement for a long time, we've all had to sort of take on that mantra of by any means necessary.
And it was interesting to go from a place that was so big and really own a very specific portion of that business, to come to a place that was small but also have sort of a broader overview of what was happening and be able to contribute on a bigger level and make a bigger impact. And that's ultimately what I was looking for. You know, I was looking to-- I was 27 years old at that time. And I was just looking for a new challenge and to take what I learned at A&F, and in the retail industry up to that point, and then apply it to something smaller and try to make a bigger impact.
Sure. Excellent. So Steve, that's a good segue into my next question about what have been, you know other than a very passionate founder in Ryan, what are some of the resources that you think have been most critical that have helped fuel that growth or support the growth that you guys have seen over the last four or five years?
Yes. Last June, we raised some capital and took on investment from Express, the international retailer here. They're based in Columbus. That as a resource, not just the capital, but from expertise, from mentoring, from just being able to tap into so much retail experience, that's been critical for us. They've been super. They've been amazing to deal with. Also just in general, being here in Columbus, Ohio, there is so much retail talent.
So from a resource perspective we couldn't have picked a better place to be in. It's been amazing. And also, the Midwest atmosphere, everyone really wants to help you out. So we love-- we definitely tap into all the different resources here in Columbus, whether it's through our banking relationship, whether it's through the university, whether it's through other retailers here, it's been an amazing-- we couldn't have picked a better place to be, so it's been amazing. Those have been-- I'd say Express and just the Columbus business community has been amazing for us.
Let me follow up on that for a second. You mentioned some of the retail talent that's here in town. How big of a role has that played in your success when you think about recruiting and attracting people, and people like Matt that have all kinds of great retail backgrounds? Tell us a little bit about that.
Yeah, I mean, if we were in Cincinnati, Cleveland, Denver, you know there is not as much retail talent so for us to have someone like Matt who came through A&F's training program-- we have people from Lane Bryant. We have people from DSW, and people from all different retailers, Justice, Ascena. There's so much retail talent here that we've been able to tap into. And so much of it has been-- you know, what's nice about that for us is that we don't really have to pay to train people as much, because they come in and they really train us in how retail's done.
Sure.
I did not come from a traditional background. It's been great being able to work with all these people who do have traditional retail backgrounds. We have them-- watching them learn how to take that and adapt it to our motto, which I would say is not as traditional, so it's been a great opportunity for us. We've been very fortunate to be able to work with some of the retail talent here in Columbus and bring people on board.
Have you found it difficult to attract people to the business or do you think as your brand has continued to grow, and you know you've got a lot of fans out there, I mean do you think it makes it easier over time?
I think it does make it easier. To get people like Matt to come over from A&F, who's had success there and been through the program, that would be very difficult if he hadn't heard of Homage and wasn't a big fan of the brand and what we're doing. So I think it's a big credit to Ryan and to our company in general of being able to attract people to the opportunity of coming to work at Homage. It can be somewhat difficult, because you are competing with a lot of big companies that have deeper pockets and bigger resources that you.
Yeah. Right. Right.
So you're competing against them, but you're also taking from their talent people as well, so we're lucky. I would say in general it's been more of the fact that we're very fortunate that we have that opportunity.
Right. And Matt, let me ask you, I mean those are a couple of the positive aspects that have helped Homage. What do you think have been some of the challenges throughout the growth path, or some of the most challenging aspects of this journey that you've seen?
Yeah. I think a lot of the challenges that we've faced are very similar to what start-ups or middle market companies face really across the board. A lot of them are resource driven. A lot of them are human capital driven. All of us work a lot of hours, and all of us wear many hats as I alluded to in the previous question. So sometimes it's just a matter of constraints. And there are just sometimes too many constraints. So we've had to figure out ways to be adaptable and be flexible to take on opportunities without taking on too much risk.
So we've adapted our model in terms of how we release product in ways so that we can gauge demand before we actually print inventory, because inventory is a big spend for us. I mean, it's a big spend for any retail company, but for us as a middle market company who was until last year a bootstrapped business, I mean that's a very big challenge or risk for us. We've been able to adapt how we are as a business, and really we place a lot of importance on being flexible, and being adaptive, and being able to be reactive.
We are starting to draw inspiration from some bigger retailers in town now that we have some organizational pieces in place in terms of how we are testing or reacting. So we're trying to become more structured with how we're buying and setting product, but in so doing we're also placing an importance on continuing to learn. We learn through testing and reacting.
But a lot of what we've done in order to face the challenges that we've faced has been about how can we mitigate risk while being flexible, because part of learning as a middle market company is taking risk, right? I mean you've got to take risks. You've got to take chances in order to learn. And you want to understand what the opportunity is so we've tried to be smart and really think critically about how do we get the read that we want without necessarily spending all the resources to do so.
Right. What's the planning horizon for the business? I mean, generally, are you guys looking out months, weeks, a year out, two year-- you mentioned flexibility, so obviously you're reacting on a day to day basis.
Yeah, for sure. Sometimes it feels like we're living from day to day. And those situations are usually good situations, you know? Those are times like when the Cleveland Cavaliers won the title last year. It coincided with us getting the NBA license roughly, I think, two or three months beforehand. So we were living day to day in that regard. And we were trying to maximize the opportunity as much as we can.
You know, we were coming in every morning saying, all right, what is all the inventory that we have unprinted and how are we going to use it in order to maximize this business that we have with the Cavs? So there are certainly times where it's day to day. Generally, we're working on a few month calendar. We want to continue to stretch that out.
As we put some new sourcing efforts in place and we start working with some new vendor partners to manufacture some goods, it's going to be important that we really start working on more of a seasonal calendar or a quarterly calendar in terms of how we are planning, buying, producing, manufacturing, delivering, and setting our goods. But right now, we're planned roughly 60 to 90 days out. But we're working on putting-- the big initiatives that we have for this year are putting in those processes in place to move that out and plan and source the business in a bit more strategic manner.
Sure. Steve, let me shift gears a little bit. At the National Center for the Middle Market, we keep hearing that cyber security and, just in general, data security and big data-- I mean these are topics that maybe are thought of as big company issues, but they are filtering all the way down into all levels of the middle market. It's a top concern for boards, for executives, and you guys obviously have access to a lot of data, customer data and whatnot. How are you guys managing that challenge or what are some of the strategies I guess you're employing around cyber security in general?
Yeah. So for us, this is an area that we rely a lot on outside parties for in the sense that we do not have an IT staff. That's one of the areas-- You know, we would love to have a full IT staff who could be on site all the time worrying about this stuff. So we have some great third party vendors. We are fully PCI compliant. That's something that we focus a lot on. We spend a lot of our money and resources making sure that we are secure when we are taking customer sensitive information.
Also a lot of the software providers that we work with such as Shopify, which is our back-end e-commerce system, they're fully PCI compliant. They do not store credit card information. So we make sure that we pick vendors to work with who also care deeply about cyber security and securing the data.
We just recently went on to a new ERP system, which is cloud based. We went on to NetSuite, which was just bought by Oracle, so we know that they're going to be top of the line in terms of PCI compliance and all of the data security. And then also we work with Express. Once again, Express, their IT and internal audit-- their whole team has been amazing in terms of helping us whatever we need.
Hey, we're having a little-- we have some questions about this, you know? They are happy to pick up the phone and talk to us or come on over here or we'll go over there. It's been an amazing partnership. So we have some people in house who have a little bit of expertise, third parties, and then also our Express-- the partners there. They've been amazing for us.
That's great.
Yeah.
Great. So Matt, the center recently released some research on supply chain management in the middle market. And I wanted to ask you about how you work with your vendors, and how you manage these different licensees that you have, and how all that works for a company like Homage.
So we think it's really important that we are working with high quality manufacturing partners. We've done a lot of work in that area over the last year, particularly over the last six months now. We've had a lot of changes, and we've made a lot of changes to the partners that we work with. You know, we think it's really important that we are working and developing relationships within our supply chain that really sort of exemplify the mantra that to be truly partners each of you have to wholly depend on one another. So we really look for some long lasting, valuable relationships with our partners.
We visit all of-- in terms of garment manufacturing, we visit all of our garment manufacturers every two or three months just to make sure that we understand what's going on, to make sure that we're being good partners, to talk to our manufacturing partners about how they can be better partners to us. And then ultimately, you know, we're also there to make sure that they are running their business in a manner that we would be proud of in terms of calling them partners. So we want to make sure that they are treating their staff and their employees fairly equitably, things of that nature. We want to make sure that really we're proud to call ourselves their partner, and hopefully they feel the same.
Do you have a way to monitor that or is it more of a handshake? Hey, we trust you. You trust us.
So we ask for the requisite documents when we start the partnership, but really you get the best feel for it for going and seeing their facilities and talking to their employees to really make sure that what you're seeing from a paperwork standpoint is legit and that you really feel that, not only do they have the licensing and the paperwork to prove that they're qualified manufacturers who treat their employees well, we like to go and see it. So like I said, we get out there-- you know, we have we have manufacturing bases across the US. And we go out to see them once every two, three months to make sure.
OK.
Yeah. It's of utmost importance to us and, you know, you're only as good as your partners is sort of what we believe. And they are making something that's very important to us. Our product is king.
Right. Right.
Well. I guess our customer is king. Always you've got to be--
Sure. Yeah. Always.
You've got to be keeping what they want in mind, but if we don't have product to sell them, that relationship doesn't go very far either. So we've got to make sure that we're understanding what the customer wants, and that's like our very first priority is to listen to the voice of the customer. And then we've got to have strong manufacturing partners to back that up, because if we can't deliver, then we're not going to go very far as a brand. So we've got to have a really, really strong supply chain, really, really good partnerships.
We've tried to take the last six months and really try to put ourselves in a place where we're thinking about scaling for 2020 and beyond. So we're looking for partners that we think are going to be really long-term valuable partners with us, and we're just going to try to grow it together and make sure that we're both listening to the customer and delivering on time and good quality.
So my last question, and I'm going to throw this out to both of you, retail has just been getting hammered recently. You see a lot of bankruptcies, and consolidations, and store closings. So I'm going to ask you both to kind of put your futurist hat on and answer the $10 million question which everybody would want to know, which is where do you see retail going in the next three to five years? There's so much change going on now. What are you guys positioning yourselves for in retail?
Yeah. I mean, that's a super interesting question and one that we talk about here a lot. I mean, obviously, when you think about e-com and when you think about retail in general right now, one name comes to mind, and that's Amazon. And they've sort of changed the game for everyone, and really I think what's happening at the malls right now in terms of mall retail is largely a domino effect from how they've been able to really take the kitchen table and flip it on its top.
What we do here is we try to think about, all right, if Amazon is doing what they're doing and they're trying to revolutionize the experience for e-com, one, how are we taking what they're doing and looking at the precedent that they're setting in terms of customer expectations and customer service, and how are we matching that? Because not only do we want to match it, but we want to best it. So in terms of what they're doing from a customer service angle, we believe that we need to be every bit as good and better.
So part of a core pillar of our brand is legendary customer service. So we believe that if our if our customers ever have anything to say to us, if they have ever any issue, they need to-- like they can reach out to us on any of our channels 24/7. We have a phone line, email, through any of our social media channels, you can chat on our website, and really we're just looking to make the customer happy. By every stretch of the imagination, we always want to make things right.
So that's really the first piece. The second piece is sort of the expectation that's set around shipping and timeframe from when you place an order to when you're going to receive it. So we are constantly looking at things and striving to be better from a processing angle. So from when a customer logs on to homage.com, places an order, we want to in almost the 95th percentile that order out the same day so that we're meeting and exceeding those same sort of service metrics that Amazon is doing.
The second piece of that, I think, is a bit softer. And it's really trying to understand what's happening I guess on a macro level to mall retail, and why is it down trending the way it's down trending even ignoring the e-com piece of it. I think there is a trend of consumers looking for smaller brands that they can connect with on a greater level that feel more personal to them and are doing something disruptive. And we really feel like we are positioned to succeed in that space as a brand that is young, that has a personality, that has a brand value that customers can see and it's definitely perceivable in everything that we do.
But yeah, I mean, I think just in terms of the bigger shift, people-- with the accessibility of e-com, the barrier to entry in terms of apparel retail is a lot lower today than what it was 20 years ago. Because of that you have a lot of people that are doing new, innovative, and fun things that the consumers are responding well to. So as you look 10 years into the future, you see this landscape where you have these e-com empires like Amazon and then we think that the rest of it might be split up between smaller, more adaptive, disruptive brands that have one brand personality and then really do that well and really stay true to it.
Sure. Steve?
Just you know, we can't have this conversation without mentioning Amazon, but one thing about Amazon is that they're investing in brick and mortar now. You just saw them buy Whole Foods and then you also see them opening up bookstores. We firmly believe that brick and mortar is not dead. We don't think the demise of brick and mortar is e-commerce, but we want to make sure that we're growing both of those pieces of our business in a smart way.
We actually feel very fortunate. A lot of the retailers that you see are closing, they're the ones that are overextended. They have too many stores. And you know, you hear of-- one of the stats that's often quoted is the retail square footage per capita in the US, which is almost twice as big as the next biggest country, so it's really-- we believe that there may have been a retail bubble that is now kind of deflating. And for us, we don't think we were caught inside of that.
We only have seven stores luckily so we have a lot of space to grow out, whereas a lot of these other companies have a lot of room to contract. So we feel that brick and mortar are still a very important and that there is a lot of opportunity for us to continue growing. When we opened our store up in Pittsburgh, we opened up next to a Bonobos. There's a Warby Parker right there. There are a lot of companies that are growing their brick and mortar footprint and we're excited to be beside them.
And there were people waiting outside our door for when we had our grand opening, so there's still excitement around brick and mortar. It's not going away. And we feel very fortunate that we're in the place that we need to grow bigger into the open space versus contracting, so we're excited about brick and mortar and there's a lot of opportunity for us. And especially with a lot of these store closures, there's a lot of opportunity for-- that landlords want to bring new, exciting, different brands into their malls or into their centers and we hope to be one of those brands that landlords are chasing after, so we're excited about the opportunity with brick and mortar.
Well, I'd like to thank Matt Moore and Steve Werman for joining me today for our discussion. To learn more about Homage, other middle market companies, and other middle market topics, you can visit the center's website at www.middlemarketcenter.org. And please sign up for our podcast at all places where podcasts are found. Look forward to joining you next time. Thank you.