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Business Lessons from an Immigrant Boyhood
(Part 2 of a 3-Part Series)
PAGE 3 OF 6
Seeing the zeroes on that check made us feel like bigshots. Start feeling like that and you might as well get on the superhighway to temporary insanity and financial ruin. It still hurts to think back to those times, but I will retrace the steps by which our lucky early success laid the foundation for the biggest disaster of our lives.
As soon as word got out about our big score, the kids at school treated me like a pop star whose debut album had gone platinum. In return they expected me to foot the bill for parties, meals and gifts. My girlfriend was one of those people, and I was only too eager to oblige. In their eyes I was a tycoon. I didn't even know what that meant but I did my best to live up to the image. In less than a month I blew through a big chunk of the money, and started thinking about how to make more.
The most dangerous part of the insanity of bigshotitis is that you come to believe it will be easy to make another big score. Instead of thinking how lucky I had been to stumble on an untapped local demand, I thought I had discovered the secret to business success. I thought I was a brilliant natural-born tycoon.
Of course with a mindset like that, opening just another shop was no longer good enough. I wanted to do something big and impressive, something befitting a true tycoon. If we could make money selling to kids from a tiny neighborhood store, I figured we could make ten times as much selling to rich grownups from a fancy boutique in a big, busy mall.
Delong had contracted the same disease and was thinking along the same lines. We leased space in a ritzy mall and hired a designer and a decorator to create a classy-looking space. We stocked it with pricey designer-labels, the kind of stuff we ourselves had begun sporting. We paid top dollar to hire classy-looking sales people. We worked up spreadsheets showing how our sales would rise to a million, two million, three million and more a year. What did we base those projections on? Nothing but blue sky. After four months of preparation that drained most of our savings, we held a grand opening, complete with wine, cheese and music.
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We drew an impressive crowd that day. My girlfriend, parents and friends were deeply impressed. We even racked up a few thousand dollars in sales. We didn't know it yet, but that would be the high point of our career in high-end retailing. The next day, instead of a crowd, only a handful of customers trickled in. Most were content to fondle the clothes, try on a few items and walk out empty-handed. We had never imagined that our beautiful boutique could draw fewer customers than our little shop at the minimall. There we had averaged several dozens customers an hour and most had bought something, even if it was only a five-dollar tee-shirt. Here we were lucky to make one or two sales an hour.
The traffic would pick up once we had been around a couple months, we told ourselves. Weren't sales always slow in the summer? When fall came, we saw a slight increase but not enough to put us into the black. We had been losing a few thousand every month since opening. The fall season didn't change that. We laid off salespeople and put our hopes on Christmas. Unfortunately, we were out of money.
I talked my father into signing a personal guarantee for a $50,000 line of credit so we could stock up for the anticipated Christmas rush. "This one time," he told me. "After that you live and die by your own sweat."
The holiday season did produce a jump in sales, enough to put us into the black. Our relief was short-lived. The day after Christmas we discovered another awful reality of high-end fashion retailing: gifts were often returned. The flood of returns kept growing through the first week of the new year. When the waters subsided, we found that we had barely broken even during the peak shopping season.
But hope springs eternal, especially when you're nineteen. We decided to increase traffic by having lots of sales. It worked. The only problem was, our customers stopped buying full-price items. Instead, they waited for everything to go on sale. We were learning how people with money got that way: they pinched pennies on every purchase. Selling upscale clothes at half-price was a high-margin business. Unfortunately, our customers stopped being impressed by 50%-off sales. They liked 60%-off and 75%-off even better. At 75%-off our margins were barely enough to cover our exhorbitant rent. It became clear that Delong and I were working for nothing but the ever-diminishing hope of some miracle to turn things around. PAGE 4
| "The most dangerous part of the insanity of bigshotitis is that you come to believe it will be easy to make another big score." |