Back to His Future

William Mow knows it could be years before China’s farmers, shop owners and bureaucrats can afford to fill their closets with Bugle Boy’s denim jackets, knit shirts and jeans.

But last year, Mow, Bugle Boy’s founder and chief executive, took a bold step in that direction. He shifted his Asia headquarters across the border from Hong Kong into this special economic zone, one of Communist China’s most successful capitalist experiments.

Mow’s decision to establish a regional headquarters inside China is the latest element of an ambitious strategy to turn his Simi Valley firm, the largest privately held apparel company in the United States, into the brand name of choice for the world.

In sharp contrast to the days when Bugle Boy was a high-flying brand among America’s fashion-conscious teenagers, Mow has kept his apparel company alive by moving it downmarket, aiming his sights at the value-conscious shoppers behind the dramatic growth of stores such as Mervyn’s, Wal-Mart and the Wisconsin-based Kohl’s chain.

“We interpret upscale clothes for middle America,” Mow said proudly.

Although the U.S. promises to be Mow’s chief preoccupation in the coming years, he views the conquering of China’s giant retail market--and the establishment of as many as 1,000 Bugle Boy stores here--as his preeminent goal for the next decade.

“If one can get China, you can forget everybody else,” he said.

As part of its China strategy, Bugle Boy earlier this year began selling its casual apparel in Hong Kong, the former British colony now under Chinese control.

This is high-risk entrepreneurship, particularly for a company that enjoys annual sales of more than $500 million but has come perilously close to going under several times in its 20-year history.

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While China’s biggest cities boast of glitzy shopping malls filled with Benetton, Chanel and Gucci, the country remains a difficult place to make a profit due to government red tape, high costs and cutthroat competition, according to Tamara Robinson, a retail analyst for Salomon Bros. in Hong Kong.

“There really haven’t been any examples of American-based companies with an American brand that have been successful” in China, she said, noting the uphill battle faced by even the most prestigious names. “China is a tough market to crack, even for a Taiwanese or Hong Kong or Singaporean retailer.”

But those familiar with Mow’s personal and professional history agree that it would be a mistake to bet against him.

“He’s been up and down on more occasions than he would admit to, and he’s generally always come out on top,” said Ronald Jones, a Los Angeles accountant who worked with Mow for a decade. “He’s willing to take the chances and put the effort in to control the outcome.”

Mow, a slender, gregarious 61-year-old whose office decor includes glossy photos of himself with former Presidents Ronald Reagan and George Bush, doesn’t need to be reminded about the risks of doing business on either side of the Pacific.

His family was on the last Pan Am flight out of Shanghai in 1949 before the bustling port was taken over by Communist troops. They flew to Washington, where his father, a high-ranking general under Nationalist leader Chiang Kai-shek, was posted.

Gen. Pan-tsu Mow, a popular diplomat who socialized with top U.S. politicians and military officials, continued working in the United States for the Nationalists, who had fled to Taiwan and established a competing government.

But the Mow family suffered another blow in 1951 when the general ran afoul of some top government officials in Taipei and was forced to flee the United States for Mexico to avoid facing legal charges back home, according to his son, who would go nearly two decades without seeing his father.

Left behind with no means of support, his wife borrowed money from friends and started a small restaurant, the Yangtze River Cafe, in Great Neck, N.Y.

“We went from high society, with my dad’s position, to my mom working in a kitchen,” recalls Mow, whose Chinese name is Mow Chao Wei. “We survived. But it was quite a chore.”

Mow, one of five children, could no longer afford the tuition at his exclusive New York boarding school but was allowed to stay on scholarship. He went home to work at the restaurant every weekend and earned spending money by selling eggrolls to his classmates during the week.

“I’ve often thought that maybe it was the best thing that ever happened to my family,” Mow said. “We could have been spoiled rotten, but we all worked very hard and held our heads high.”

After earning his doctorate in electrical engineering from Purdue University in Indiana in 1967, Mow founded Macrodata, a pioneering computer chip company. But although the technology was widely heralded, the young founder ended up in court fighting fraud charges leveled by the company’s purchaser. He eventually won his legal battle, but the costs were high.

At the suggestion of some golfing buddies, Mow said, he used his contacts in the manufacturing industry in Taiwan to start over. In 1977, he founded the Southern California company that was the precursor to Bugle Boy, which quickly built a reputation as a stylish alternative to Levi’s and Wrangler.

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But as the business expanded in the 1980s, Bugle Boy’s manufacturing costs began to escalate, largely because of to the cost of acquiring quota rights to ship apparel and textile products from Taiwan to the United States.

“We were utilizing such a large portion of the quota [allotted by the U.S.] that we were the single party driving up the value of the quota,” he said. “We found ourselves in the position of not being able to compete.”

Within a few years, Bugle Boy had shifted its Asia headquarters to Hong Kong and was doing most of its production in mainland China, where low wages allowed it to develop more labor-intensive fashionable apparel. That included the baggy parachute and cargo pants that became the uniform of choice for American teenagers in the 1980s.

“Under the [Chinese] system, we could go over there, put 20 pockets on one pair of pants, and still sell them at a profit,” Mow said.

As other developing countries such as Pakistan and Bangladesh entered the apparel business, Mow established manufacturing sources there, placing the simplest articles in the least developed countries and moving the complicated work to the more sophisticated producers. If there were problems in one part of the world--from volcanic eruptions to political coups--the company shifted its orders elsewhere.

Along the way, Bugle Boy became a family affair. Mow works closely with his wife, Rosa, who oversees the company’s daily operations. One daughter, Genevieve, is a senior vice president of marketing, and another, Katherine, is director of creative arts. Two nephews hold senior positions as well.

But Mow, who feels the term “family company” carries negative connotations, said his relatives all “earn their pay” or find other work.

“That’s the culture in my company,” he said.

Jones, head of the apparel practice in the Los Angeles accounting firm Moss Adams, said the Mows have always been one step ahead of their competitors, particularly in juggling overseas subcontractors and fabric suppliers.

Even in the worst moments in Bugle Boy’s history, most memorably the unexpected death of the cargo pant phenomenon, Mow found a way to keep unhappy creditors and retailers at bay until a new strategy was hatched.

“Because of the strength of their sourcing, they were able to react much more quickly than other companies,” Jones said.

In 1990, Bugle Boy, like many U.S. apparel companies, was hit hard by nationwide recession, consolidation of the retail industry and fierce competition in the fashion industry.

While other clothing companies closed their doors, Mow kept his open by shifting Bugle Boy from young men’s casual clothing to moderately priced apparel lines for men, women and children.

Gone were the advertisements featuring sexy models. Today Bugle Boy features wholesome couples and kids wearing the company’s “Classic” line of red, white and blue casual wear. The company also moved its clothes into mid-priced apparel chains.

And Mow began opening up his own retail outlets in discount malls; these stores now provide 50% of the company’s revenue.

“We have the right to reach the customers, and we’ll either do it through the retailers or do it directly,” he said.

An engineer at heart, Mow has installed state-of-the-art computer inventory and retailing systems to track hot products and slow sellers. This year the company is spending $17 million on new computer technology and a giant warehouse in Atlanta.

A powerful computer system that links designers in Simi Valley with fabric purchasers in Hong Kong, manufacturers in Pakistan and customers in the United States allows Bugle Boy to shave weeks off its production time.

Back in Hong Kong, Bugle Boy’s Asian “nerve center,” it was becoming increasingly difficult to manage a huge China operation, including a network of hundreds of subcontractors.

Crossing the border was a challenge. And as the return of Hong Kong to Chinese control drew near, Bugle Boy’s employees became increasingly nervous about their future with the company.

“They’d say, ‘You don’t want me anymore, you’re going to China, I don’t know what’s going to happen with my life,’ ” Mow recalled. “It was endless debates.”

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In the end, the worst fears of Bugle Boy’s Hong Kong employees were realized. Frustrated by the political uncertainty there, Mow decided to turn his small office in Shenzhen, China, a special economic zone, into his Asian headquarters.

He put several million dollars into a 40,000-square-foot leased facility in Shenzhen that houses a sample-production factory, fabric warehouse and regional offices. The company currently employs 170 people there, and the figure could climb to more than 300, it says.

Zheng Deng Fang, 32, a pattern maker who works in Shenzhen for Bugle Boy, grew up in Hubei province, a poor region in China’s interior, and came here with his wife several years ago in search of a better-paying job. He said he makes $250 a month at Bugle Boy, more than three times what he earned back home.

But although the pay is better, the Zhengs paid a high price, leaving their 7-year-old son in Hubei with his grandparents because they cannot afford child care.

“When I get more money, I will start thinking about how I can get home to Hubei,” Zheng said.

Although Bugle Boy’s Shenzhen employees make good wages by Chinese standards, they are paid far less than their colleagues in Hong Kong. In coming months, the company plans to pare the Hong Kong work force, which numbered 350 at its peak, to about 30.

Mow is convinced that the shift from Hong Kong to China kept Bugle Boy alive. First, it saved the company $7 million a year in wages and operating costs. Second, it laid the groundwork for what could be the company’s riskiest and most ambitious move: outfitting greater China with the Bugle Boy label.

Bugle Boy has opted to take the back door into the mainland. Last year, it began selling apparel in Hong Kong’s Wing On department store, one of the former colony’s oldest. Thanks to sky-high real estate prices that force retailers to move merchandise to cover their leases, Hong Kong boasts of one of the most competitive markets in the world.

Denis Ma, general manager of Wing On’s merchandise division, said he brought in the Bugle Boy brand to attract a more youthful, international crowd to the store, which occupies a lower price niche than its major competitors.

“We wanted to carry a true foreign brand, an international brand, rather than a home-grown label,” he said.

There were some snafus along the way, including failing to re-size the Bugle Boy clothing to fit the smaller Asian body. Ma said the Bugle Boy line, which is being advertised on billboards in Hong Kong, is “getting recognition,” although sales have been slow.

But Ma, who worked in Shanghai for several years for another department store chain, believes Bugle Boy can capture a following among China’s youth, who are quickly developing Peking duck tastes on a chow mein budget. He said the trick is convincing them that Bugle Boy USA represents the all-American lifestyle they see on TV and in Hollywood movies.

“American casual wear, this is where the action is coming from,” he said.

It won’t be easy. Foreign apparel companies have had a tough time breaking into the Chinese market because of stiff competition, government barriers and advertising and real estate costs that are among the highest in the world.

Robinson, the Solomon Bros. analyst, said the high-end foreign brands are fighting among themselves for a small group of wealthy Chinese consumers and that the low-end apparel market is glutted with domestic and Hong Kong companies.

She said it will be particularly difficult for Bugle Boy to convince the Chinese that a “Made in China” label equals the red, white and blue.

“Anyone can open a factory in China and call their stuff ‘Something USA,’ ” Robinson said. “I think consumers in China are becoming much more aware of brands and corresponding value for the dollar in clothing.”

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Mow, a man who has spent his life walking a professional and personal tightrope, agrees that the time is not yet right for a multimillion-dollar gamble.

Until China is ready to become a full member of the global trading community, including upholding its own laws and playing by the rules of the World Trade Organization, the risks are too great.

“The biggest danger is the rule of man versus the rule of law,” he said. “What if you had 500 [stores] in there and the next day you have a new boss and you don’t know what’s going to happen?”

Mow is willing to wait.