10

wedding dresses

an unexpected case study

SOMETIMES THE best opportunities in business are the most unexpected. If someone had taken out a crystal ball and told me all the businesses I would pursue in the course of my career, I might have believed banking, real estate, and maybe a vineyard. I might have even believed sports. But it is safe to say that one endeavor of which I never thought I would be a part is the wedding dress business.

I did not know anything about the wedding dress business when I received a phone call in 1999 from my friend Ronnie Rothstein, asking me if I would be interested in putting together a group of investors to buy a company called Kleinfeld Bridal. I had heard of Kleinfeld but could not place it.

Ronnie explained that Kleinfeld was a venerable bridal company that had been run into the ground and was being dressed up by the owners for a quick sale. His wife, Mara Urshel, was working for the company as a consultant. Mara had seen Kleinfeld from the inside and mentioned to Ronnie that this might be a business that could be resuscitated. She had suggested he call me and see if I could put together the financing to buy it.

I was interested for several reasons. The wedding dress business conformed to my pattern of becoming involved in businesses in which I had no previous experience—and therefore would not be bound by the conventions of the industry. Kleinfeld was a distressed business, and I thrive on trying to resuscitate distressed businesses. When someone says, “Every -body has tried it, you can’t do it,” that is sausage to my grinder. That is the challenge. That is what entices me to look at the business differently from anyone else and to try to figure out how to make it work.

I would have excellent partners, and Kleinfeld would also be an owner-operated business. Mara would run the fashion side of the business, and Ronnie would oversee the business side. Mara had spent twenty years at Saks Fifth Avenue, where she had become a senior vice president of the women’s business, and Ronnie had a background in investment banking and entrepreneurial pursuits, including a designer gift business. I had known Ronnie for some twenty-five years and trusted him implicitly. They were a seasoned team that investors could trust.

Our window decor is unique for its creative design. When you are in New York, we invite you to take a look.

This was a retail business, and I knew nothing about retail. But it was this latter reason that intrigued me most. I was about to go on a great learning curve. As I did research, I learned that Kleinfeld occupied a unique place in the wedding dress business. Two or three generations of brides in the same family came to Kleinfeld for their wedding gowns. With the proper customer service, Kleinfeld was a brand that could be revitalized.

Retail businesses are not all created alike. When people say something is a “retail business,” that is a category adequate for conversation. But, while the hardware business, the electronics business, and the dress business could all come under the “retail” umbrella, they are vastly different—and therefore require different approaches. We would need to take an unconventional approach to a conventional business.

we did our homework

Kleinfeld had once been the gold standard in the wedding dress business, but, when we entered the picture, the company had lost its luster. Kleinfeld was started by the Schachter family (Hedda Kleinfeld-Schachter had founded the store with her father and her husband). It was later bought by Maurice Zelnick with financing from Chase Capital Partners, a division of what was then called the Chase Manhattan Bank. Zelnick had blown up the business and left it $20 million in debt, and a Boston-based liquidation firm had been hired to prop it up and sell it. The firm sent down an acting manager to run it and retained Mara to help with the dress side of the business.

Ronnie, Mara, and I studied Kleinfeld and the wedding dress business as a whole. Kleinfeld’s inventory had some value, but it was growing older by the day. In the fashion business, nothing drops in price quicker than last season’s merchandise. Wedding gowns have an additional problem: Because they are white, they turn yellow over time.

Kleinfeld had an arrangement by which it was housed in four or five townhouses in Brooklyn that had basically been glued together. They were actually residential units that had become commercial, not by permit but because Kleinfeld had expanded into them. There were no legally binding leases. Each time the business needed more space, it had rented the house next door and broken through the wall. Its headquarters was by prescription, if you will, not by law.

This was a potential problem. If you bought the business, you ran the risk of being shut down at any moment. From a practical standpoint, the Brooklyn authorities weren’t likely to do that because Kleinfeld was paying taxes and also drawing shoppers to the borough. Nevertheless, the business would eventually need a more permanent home.

We put together a syndicate of ten investors and began crunching the numbers. It took us about nine months to negotiate a deal. Every time I would make them an offer, the Zelnick/Chase side would say, “We are not interested at that price.” Two months would pass, and they would call me and ask if we were still interested. I would say yes and then point out that the inventory was older than the last time we spoke and that therefore we were offering a lower price. They would hang up, and, two months later, the cycle would repeat itself. Finally, they ran out of options and accepted our last offer, and we completed the transaction.

During the due diligence, I made a remarkable discovery. The amount of money that our investor group put down to buy the business was exceeded by the uncollected credit card charges. Therefore, all we had to do was collect on the credit card receivables and we had our money back! This gave new meaning to creative financing. Once we closed the transaction, our chief financial officer went to work calling credit card companies, and, within ninety days we had collected more than our down payment. Highly unusual and lucky! There is no substitute for due diligence.

So let me repeat: Do your homework.

But then the real work began. We had to update the inventory and reinstate the customer service standards. Whatever time you think it is going to take to turn a business around, double that estimate. For every problem you discover and solve, another will appear, and, once again, there can be many “unknown unknowns.” We ran at a deficit for nearly three years, but, over a five-year period, we were able to reverse Kleinfeld’s financial decline and increase sales from $6 million a year when we bought the business to more than $25 million in 2009.

finding the right location

Reengaging the customer was our first challenge, and that meant we needed time to resurrect our commitment to service, giving customers the personal attention that would enable us to build a clientele by recommendation. The store was the next big issue we tackled. Most of the Kleinfeld customers did not live in Brooklyn. They were from Connecticut, New Jersey, Westchester, and, of course, Manhattan, which suggested that we needed a location convenient to people all over the tristate area—and that presented a dilemma.

We wanted to make a substantial investment in the furniture, fixtures, and equipment, but we did not have a valid existing lease. In addition, Brooklyn was not central. Most people shop for high-end purchases in Manhattan. Therefore, we would need a van service to carry them out to Brooklyn to be fitted, not once or twice but three times. However, if we moved to Manhattan, we’d still need to provide transportation—for our employees. Most of our seam-stresses lived in Brooklyn, meaning that we would have to drive them to and from work because we could not risk losing them.

In picking the right location, we had three requirements. First, we needed a locale the customer could easily reach. That meant both being close to public transportation and having sufficiently convenient parking. We wanted a certain amount of street-level identification, but we did not need to be in a high-traffic shopping area because we are a destination store. People do not walk in off the street. They make an appointment and come to see us. In fact, we do not sell unless you have an appointment. That is rare in retail, but we feel it is the only way to provide the proper level of personal attention. Second, we needed security. Most of the time, the bride is working or in school during the day, so she generally comes to the store at night. Third, we needed a space large enough to house our seamstresses and the entire inventory. Kleinfeld has prided itself over the years in having the largest retail selection in the nation.

The search took two years. We looked in New Jersey and throughout Manhattan. Again, we did not have to be on Madison Avenue because we are a by-appointment-only destination. All those jewelry stores and boutiques are on Madison, not to be convenient but because it meets their need for a chic address. If I am Armani, I need to be on Madison next to Dolce & Gabbana. That is my market, and I want the street traffic.

Several buildings we saw satisfied two but not all three of our requirements. Then, in 2003, we found space in a building in Manhattan’s Chelsea district. It was a thirty-five-thousand-square-foot space with a twenty-two-foot ceiling, and it occupied an entire city block from 19th to 20th Street. We then spent two years planning the store before beginning the construction.

Instead of hiring an award-winning retail architect, we decided to focus on someone who could design a dress emporium that combined function with aesthetics. The architect we retained, Paul Taylor, had never designed a retail space. Paul specialized in hotels and hospitality. Since Kleinfeld involved hospitality, we felt this was a smart, if unconventional, choice. No practical detail was too small for our attention—should this door open inward or outward?—and we married those (no pun intended) details to a beautiful design.

Despite the ample size of the space, there was still an issue with storing the merchandise. We simply did not have enough floor space for 1,800 dresses. We considered building another floor, but the age of the building and logistics rendered that idea untenable. We might be forced to rent a warehouse and shuttle the dresses back and forth. This clearly was not ideal. We needed a creative solution to this problem.

An idea hit me one day when I was picking up my dry cleaning. I handed my receipt to the person at the counter, she pushed a button, and my clothes came down a long conveyor belt suspended from the ceiling that held all the clean clothes. I immediately thought, “What if we could build one of those that ran the entire length of the store? We could then store the dresses in the rafters of that twenty-two-foot ceiling.”

We went to our architect and engineer with the idea of building a very long, dry cleaning–style conveyor belt. Paul, who also thinks outside the box, was intrigued. The engineers were skeptical because the building was a block long and because the ceiling could not bear the additional weight. We would have to reinforce it with steel.

So we did some homework on conveyor systems and found a man in Queens named Bill Quirke who specialized in the field. I asked him if it was possible to build one a city block long. He thought about it and said, “I don’t know why not.” He was our man. He reasoned that all he needed to do was increase the power, build stronger supports, and connect multiple systems.

When we penciled out the numbers, the process was costly but cheaper than storing the dresses off site and trucking them back and forth. From a customer service point of view, it was also far more convenient to have all of our dresses under one roof.

A conveyor was built that ran from 19th to 20th Street. It was the longest Railex design Bill had ever done and, as far as we know, the longest one in the world. There are actually four conveyors in an oval circling the block-long ceiling, which is configured to be run by a computer, so that when the salesperson punches in a name and number, the dress comes down the belt. This gave us another advantage: The sewers and beaders could also use the conveyor to store a dress while working on multiple alterations.

In 2009, we devised a way to use the dress-moving system to control these alteration costs. But we first had to identify what they were. We wanted to know how much we were spending on alterations for certain dresses under certain circumstances. On a $4,000 dress, we might charge a flat fee for alterations. But every dress is different, and every bride is different. Some dresses, such as those made by Pnina Tornai or Monique Lhuillier, are very complicated to alter. When you have a lot of beads, you can spend $1,000 or more on alterations. With the pressure of the wedding and all it entails, some brides also change shape between fittings.

We installed a computer and a scanner at every workstation and tagged every dress. The seamstress scans the dress when she removes it from the conveyor and again when she is finished working on it. That way, we know how many hours a worker puts in on a dress.

This has allowed us to see which dresses need overtime on alterations and to ask why. Nitsa Glezelis, who runs the alterations department downstairs, can figure out which dresses require more time to alter. We can then find a way to control that cost or adjust the alteration premium for that particular dress. If we cannot find a way to mitigate that cost in-house, we will go to the designer and tell him or her that we have to charge more for their dress because it costs us more to fit. If that is going to have a negative effect financially on the designer, we want him or her to know.

We have thirty people, mostly fitters, sewers, and beaders, who have been with the company for twenty years or more, and retaining them was a critical part of maintaining the reputation and quality of the Kleinfeld experience. Once we made the move to Manhattan, we provided van service from Brooklyn to the city; after a couple years, we switched to a voucher system to cover the cost of riding the subway and buses.

When a woman gets married, she wants to look her best; it is this setting that helps make us successful.

reinvigorating the brand

Little by little, I realized that the footprint of the Kleinfeld brand was bigger than the business itself. Part of this realization came from the fact that, despite all the wrong things that the previous owners had done, the brand remained strong. It was clear that, once we reinvigorated the brand, we could expand it.

Brides would come into the store and talk about how their mother had bought her dress at Kleinfeld, so we began to compile statistics by assembling profiles of the buyers, a process we continually refine. Now, when a bride comes into the store, our saleswoman will give her a sheet to complete that asks for her age, address, school, price range, and shopping habits.

When a woman is preparing to get married, she registers at stores like Pottery Barn and Bloomingdale’s for everything from tableware to sheets. She begins to plan her honeymoon. She might even go on a special diet. After it is all over, the bride then wants to clean and preserve the dress for her unborn daughter instead of sticking it under her bed. Most brides plan to have children.

As we talk to the bride over the course of her visits, we learn things about her that extend beyond her wedding dress. All of that information goes into a database. That database is our most valuable asset, and it is not on our balance sheet. Though we have yet to realize the full potential of our database, we have begun to capitalize on this information in ways that help our customers and create additional revenue for us. For example, knowing that a couple is going to have children is incredibly valuable to a retailer of children’s clothes.

Currently, we sell honeymoons on our website in partnership with a travel agency under the name Kleinfeld Honeymoons. We also have a business called Kleinfeld Preservation. This is a climate-controlled warehouse in upstate New York that is run by our partner, Jonathan Sheer, who has a history of experience in this part of the business.

To further the brand penetration, we negotiated a joint venture with Medifast, a New York Stock Exchange company that produces a specialty diet for brides who wish to lose weight prior to their wedding day. This is marketed over our website and through promotions to the press and other outlets.

These businesses both expand the brand and provide customer service.

We have also opened out-of-town boutiques in other cities, such as Nashville, Oklahoma City, and St. Paul. These are spaces within established bridal stores that sell the exclusive Kleinfeld designers. Though we do not know yet how successful these outlets will be, this move is an attempt to expand the brand geographically as well as vertically.

Bridal has another big advantage over other apparel: It sells even in slow economic times. The wedding dress business itself is somewhat recession-resistant in the following sense. In difficult times, couples planning a wedding may cut down on the number of guests, the venue cost, the food choices, or the flowers, but the experience of the bride is paramount. She wants to look ravishing, so the wedding dress is the last place she will skimp. We have literally had couples pull out a spreadsheet of their wedding costs in the store and eliminate the salad course so that the bride could buy the dress of her dreams.

I was once in the store watching a bride shop for a dress with her father. They had budgeted $4,000, but the dress she wanted cost $7,000. Her father broke out in flop sweat. He knew who I was. He turned and asked me what I would do. I said, “There are three great events in your daughter’s life: She is born, she gets married, she dies. She only has control over one. Don’t be a schmuck.” By the way, she looked ravishing.

strong customer relations sets kleinfeld apart

Of all the businesses with which I have been involved, Kleinfeld is the most customer relations driven. Service is the cornerstone of the business. It is what sets us apart from the competition. Not only is the customer always right in the wedding dress business; her mother, her sister, and her maid of honor are also always right.

When a woman buys a wedding gown, it is generally the most expensive dress she will ever purchase, and it will be worn on what she views as the most important day of her life. As a consequence, she expects it to be perfect, because that dress will indelibly affect how she feels about herself on that day.

I had a preview of how that process should go, because it is the same way actresses need to be treated. When I was starring in the movie Once in Paris …, the lead actress, Gayle Hunnicutt, asked the director, Frank Gilroy, to view the wardrobe she had picked out. Frank, a Pulitzer Prize–winning playwright, had about as much interest in seeing a rack of dresses as he did in his left shoe. But, in the course of turning down her invitation, he realized he was making a huge mistake because Gayle was vitally interested in all things that had to do with her beauty. So Frank went to the fitting and oohhh’d and ahhh’d over every garment, making Gayle feel good about herself and about being in his movie.

The purchase and the fitting of a wedding dress are similar: They are an experience in and of themselves. The bride begins with all the bridal magazines, such as Brides, Modern Wedding, and World Bride, and starts compiling a file of pictures of all the dresses she likes. Her mother and her best friend add to the file. When the bride comes to the store, she brings her file—along with her mother, her aunt, her grandmother, and her maid of honor. There are sometimes up to a dozen women who want to take part in this activity, and all of these people feel the need for attention. Because the dress is purchased six months before the wedding, the bride returns for two or three additional fittings, more often than not with part of the original entourage.

The Kleinfeld experience starts with the bridal consultant. Ronnie and Mara insist that every consultant be well educated in the business. The consultants must come to work two hours early twice a week so that they can view every single one of the 1,800 dresses for sale. Knowing the inventory is one key to satisfying the bride. We also hire experts in body types to teach our consultants how to fit women of all shapes.

Selection is next. The store has the best dresses from every major designer in the world, and that makes Kleinfeld one-stop shopping. Instead of flying to Milan, Rome, and Barcelona, the bride can see the dresses under our roof.

But what distinguishes Kleinfeld from all other bridal retailers and accounts for our success is our treatment of the customer. Each time a bride leaves the store, Ronnie hands her a card with his home phone number and tells her that if she is not happy with something, she is to call him anytime—and customers often do. We have had customers who lose twenty pounds or gain twenty pounds in the months between buying the dress and the actual wedding, causing us to fly seamstresses to the ceremony to sew another panel into the dress or to nip it at the waist. Regardless of the cost, this all comes back to us because these brides go on the Internet and talk extensively about the Kleinfeld experience.

Much of the business runs on word of mouth. In the information age, this has been amplified and multiplied. Brides write about their experiences on blogs, Twitter, and Facebook. The only way to ensure favorable comments is to provide first-class service to every single customer. Some brides will go to fifteen stores and try on hundreds of dresses before buying from Kleinfeld. When a woman writes us about that, we post her note on our website.

We also design many of our dresses. Since we know our customer well, we are in a position to anticipate the types of dresses that will be attractive to her. Rather than merely applying the Kleinfeld label, we make things more intimate and brand the different lines.

That was one place I could contribute. Mara called me and said we needed a British name for a line she was designing. I thought that every British satire has someone named Graham Wellington in it. Then I needed a musical name to go with it: Alita. Alita Graham is our English designer line.

Next we needed an Italian line. When this came up, we were all having dinner at an Italian restaurant. I looked down at my salad and thought, “Upscale but not too pretentious—Danielle Caprese.” Finally, we needed a French designer: Emil Gaston. My take on him: He is a Frenchman who is very snooty and anti-American, so he will not cross the pond, but he is a bit of a mad genius.

These dress lines are all sold under the Kleinfeld Kollection. We want to be able to give our customers the largest possible selection. However, we design for style and look first and then say, “Okay, if we can change this material or that accent, then we can deliver a great dress at a price point below the market.” One of the things that determines the cost—and this is information I would not have known unless I asked—is the material used. Is it silk or synthetic? Silk, of course, is more expensive.

The key is to find a price point that is competitive in the market. The price points may vary from city to city because of style, inventory, and customer taste. You might say that the bride in St. Paul is the same as the bride in New York. Yes, maybe, but the bride in New York comes to New York for a specific reason: Her mother came there for her own gown; the selection is better; she wants the experience of shopping for the biggest day in her life in the Big City. The bride in St. Paul also wants a unique dress. To avoid seeming elitist and charging more for a dress just because it was bought in New York, we vary the inventory with our in-house designers. Price therefore becomes a part of customer service.

In early 2010, we opened a men’s division, which is essentially a customer service for the woman. What does that mean? Men pay for but do not buy the clothes; women are the instigators. That is what prompted us to make this decision. The bride would say, “Uncle Harry hasn’t bought a tux in twenty years, and I don’t want him coming to my wedding looking like a schlub.” So we’d been recommending other places for Uncle Harry to buy his new tuxedo.

Over the years, we had tried to make a deal with several men’s manufacturers, including Hart Schaffner Marx and Hickey Freeman, but no one would share the inventory risk, and we weren’t about to assume that in a new venture. We then found a Japanese company that makes suits for Brooks Brothers, not offthe-rack suits but made-to-measure ones. This company agreed to take inventory risk, so it is our new partner in the Kleinfeld Manhattan Men’s label.

The bridal consultant now asks the bride, “By the way, does your husband-to-be or father need a suit or a tuxedo for the wedding, because we now have a men’s department.” Invariably, the bride will say, “Yes, here’s his number. Call and make sure you get him in here.” The bride makes the sale.

Kleinfeld Men’s is located in a separate section of the store. We make tuxedos and suits and offer all the accoutrements. Our price point for a custom-made tuxedo or suit is considerably lower than that for the high-end designer labels sold at Saks Fifth Avenue or Bergdorf Goodman, and shopping with us is much more convenient because we control the design, and the cut is done in-house. Again, this new business has turned into both a service to the customer and an expansion of the brand.

To showcase our business in an unconventional way, we also agreed to be part of a reality TV series. For years, we had been approached about doing something on television, but we were reluctant to try TV because one bad show could damage the brand. In 2006, two experienced reality producers, Abby Greens -felder and Sean Gallagher, of Half Yard Productions, approached us. They had talked to TLC, a sister network of Discovery Channel, about doing a show based on the experiences of brides buying their dresses.

Say Yes to the Dress premiered on TLC in October 2007 and, as of 2010, had run for four seasons. Though we have had a few hiccups along the way, the show has been good for Kleinfeld and for TLC. The show has brought us more customers and had a positive impact in terms of demographics. The conversion rate—the percentage of brides who shop at Kleinfeld and then actually buy a dress from us—has also inched up. It was an unconventional way to expose a retail business to a wide audience.

the bridal business is still a mystery to me

It was some ten years ago that Ronnie Rothstein called me about buying Kleinfeld, and I still don’t know anything about the dress business. Yes, I have paid attention and learned a thing or two. I know that if you make a dress for x and sell it for 2x, you will make a profit. I know that you need to have strong customer service to support your product. I know that you need to apply creativity to solving cost problems, and I know that you need to think out of the box to innovate and expand your brand. All of that is different from knowing the wedding dress business. It is knowing any business.

In many ways, my experience with Kleinfeld is a case study in the principles I have learned and applied throughout my business odyssey. Because I had no background in the wedding dress business, I didn’t know there was a traditional approach; therefore, I couldn’t take it. I was just asking questions and doing my homework, taking a creative rather than an administrative view.

These time-honored principles have worked not only for me but for many others, and they may for you, too. They involve taking an active role in what you are doing, and they insist that you engage yourself emotionally. Implementing them, whether you experience success or failure, makes you feel like you are doing something yourself, rather than following what others do. These are not fixed in stone, and they require your own personal stamp. Let me turn to the longshoreman philosopher Eric Hoffer for a final thought. Hoffer once said, “It still holds true that man is most uniquely human when he turns obstacles into opportunities.” Particularly when you find yourself in places you never expected.