Michael Choe and Issac Elnekave got into the clothing business as a part-time college gig, helping campus groups silk-screen T-shirts to earn a few extra bucks.
Today, the two young entrepreneurs operate a multimillion-dollar apparel business with sales orders coming from as far away as Japan and Europe.
Elnechoe Corp. still nets only modest profit. But in an industry notorious for its failures, Choe and Elnekave’s ability to endure the tough times, evolve their products to meet ever-changing consumer demands and secure financing for their growing business is considered a rare success.
“We got into the business with a lot of dumb courage,” said Choe, 28. “We had no idea how difficult it was going to be, but we kept telling ourselves things would work out one way or another.”
Last year, the Culver City company, which manufactures and distributes two urban clothing lines, posted $4.5 million in sales, an impressive gain from the $250,000 it grossed in 1991, its first year in business.
Inc. magazine also named it last year’s 125th-fastest-growing private company in America. Adding to the accolades, the Small Business Administration recently named Choe and Elnekave the 1996 Young Entrepreneurs of the Year for the region.
“They’ve done an outstanding job of growing,” said Akihiro Tokura, a senior vice president at Dai-Ichi Kangyo Bank of Los Angeles, which nominated them for the SBA award and is now their sole lender. “They have a lot of integrity and a very strong commitment to their customers. I think that’s kind of rare.”
Choe and Elnekave still consider themselves struggling businessmen whose futures are hardly secure. But their story illustrates what it takes to keep a small business alive today, especially in an industry as competitive and volatile as apparel.
“We eat, sleep and live this business,” Choe said. “We put everything we have into it--our money, time, energy and love. It’s become a very emotional thing for us.”
Like thousands of others with a yearning to be their own bosses, Choe and Elnekave selected the T-shirt industry because it’s fairly easy to enter. But they soon learned that it’s also one of the toughest businesses to stay in.
“Most don’t make it unless they have a concept that can evolve,” said Ilse Metchek, executive director of the California Fashion Assn. in Los Angeles. “You can’t stay in the T-shirt business forever.”
Only 30% of the state’s apparel businesses post annual sales of more than $5 million, Metchek said. Part of this results from intense competition from the 7,400 California firms involved in fashion.
It’s difficult to survive because consumers tire of products and always want something new, said Alan Millstein, editor and publisher of Fashion Network Report, a New York-based publication.
Everybody wants brand names, he added. But building a well-known clothing line requires a lot of capital, which many small companies cannot secure.
Elnechoe, which started under the name L.A. Shirts, faced the same roadblocks that confront most small clothing companies. It survived mainly because of its owners’ gumption.
Elnekave and Choe met as youngsters at Horace Mann Junior High School in Los Angeles. They moved on to Beverly Hills High and then UC Irvine, where they majored in business.
Choe and Elnekave got into the T-shirt business during their sophomore year when they agreed to help fraternities and sororities silk-screen shirts as a way to support themselves through school.
“I had $7 in my bank account at one point,” said Elnekave, 29. “I couldn’t pay my electric bill.”
Through word of mouth, their business grew. Soon their client list included other campus groups, the university and the city of Newport Beach.
After they graduated in 1990, they considered taking the corporate route like many of their classmates, but they didn’t like the restrictions of working for someone else.
“Having built a company in college by word of mouth, it was difficult to digest walking into a company at the ground level and not be able to exercise any freedom,” Elnekave said.
So they leased a small office in Santa Ana and continued their T-shirt business. They moved to Van Nuys a year later and began distributing blank T-shirts to silk-screeners.
The next year, they opened a West Los Angeles office and started helping retailers, distributors and international trading companies locate and purchase the clothing they wanted.
Using the retail contacts they had built over the years, they launched their next venture in 1993, opening a small retail clothing store in West Los Angeles that carried brand-name sportswear and surf wear.
Their products were popular among tourists from Europe and Japan, which led to their mail-order business through catalogs.
Finding customers had never been a problem--the orders never stopped coming in. But Elnekave and Choe had trouble filling them because they couldn’t afford to pay for more inventory.
“We approached banks as early as 1993, but we didn’t have much experience and we didn’t have a history of showing profits,” Choe said.
They resorted to borrowing money from family members and exhausted their own savings. For three years, they lived on $700 a month each. Neither took a salary until 1994, because they didn’t want to remove money from the business, Elnekave said.
And like a lot of other fledgling business owners, they financed their company in its early days using credit cards to purchase thousands of dollars’ worth of merchandise.
“It was frustrating because we were growing, but without financing we weren’t able to achieve what we wanted to achieve,” Choe said. “Every day we thought maybe we should go out and get a job.”
Finally, after building a relationship with Dai-Ichi Kangyo Bank over three years, they received a $600,000 SBA-guaranteed revolving credit line to help them meet large orders.
Now Elnekave and Choe are manufacturing and distributing two urban clothing lines, Oakbay and Spin. Though Elnechoe owns the trademark to Spin, it manufactures and distributes the Oakbay line through a licensing agreement with the designer.
“We had been independently manufacturing our clothing, but our demand was greater than what we were set up to handle,” said Deryk Hudson, the designer for Oakbay. “It was a good opportunity for us to get financed, and it’s freed me up to focus totally on design. At this point, the chemistry between us is beautiful.”
Spin, which is sold at the Urban Outfitters retail chain, targets junior girls, while Oakbay caters to young men. Oakbay is being carried at various local boutiques and through mail order.
“The demand for both lines has been sensational,” Elnekave said. “The junior urban line has been largely untapped.”
Elnekave and Choe feel confident that for now, urban wear, which consists mostly of T-shirts, sweatshirts, outerwear, denim products and other sportswear, is the way to go. But they know that could change at any moment.
“We’re like chameleons,” said Choe, whose company now has six employees. “If this year urban is hot, we’ll produce it. If next year casual is hot, that’s where we’re going to go. Our company is going to be different because we’re not going to focus on one type of clothing and have just one brand.”
Elnekave and Choe hope to hook up with other clothing designers and use their retail contacts to manufacture and sell clothes through licensing agreements.
They still worry about their ability to stay afloat in the market, but their years of experience now allow them to approach their business with the confidence of survivors.
“We’re still a very small company and we still have a very long way to go,”’ Choe said. “But our outlook is very positive. We’ve been extremely lucky.”
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California’s apparel industry has attracted a large number of entrants, but only 30% gross more than $5 million in annual sales. Number of apparel companies in the state, in thousands:
Source: California Employment Development Department