With More Exposure, Capital, Success Might Be in the Bag
Julia Roberts and Jill Hennessy carry her handbags on screen. Magazines like Elle and InStyle feature them, and “Friends” stars Jennifer Aniston, Courteney Cox Arquette and Lisa Kudrow got them as Christmas presents.
The exposure has been good for Sarah Shaw Handbags, whose playful totes come in sherbet-colored stripes and zigzag edges. Sales are expected to top $700,000 this year, Shaw’s fourth full year in business.
That’s not a bad start for a five-person operation with its roots in a crafts club Shaw formed with a few girlfriends in the entertainment industry, where she once worked as a costume supervisor. But the fast start has brought with it some growing pains.
Poor financing and expensive production have slowed sales growth below company projections and hampered new product introductions, Shaw said. A former business partner left abruptly in September. And money raised early in 2001 was used up more quickly than expected.
A hot product and an eager market, it turns out, aren’t the only factors necessary for success, said Shaw, 37, chief executive and majority shareholder of the company.
“Wishful thinking,” is how she now describes parts of the business plan she presented to raise $200,000 from friends and family last year.
Despite the setbacks and the faltering economy, Shaw said she is optimistic about her Los Angeles company’s prospects in the new year after making several changes to address key weaknesses.
Those changes include a deal with accessories manufacturer Pacific Connections of Ontario to finance the manufacture of her goods and to handle distribution and accounting. In return, Pacific Connections will get a share of profit and probably an equity stake in the company.
Shaw also has revamped her Web site (www.shopsarahshaw.com), polished her product placement efforts and just shipped her first test order to an overseas manufacturer.
Although the full effect of these changes won’t be known for months, Shaw said she is encouraged by the early results.
Sales at the Web site tripled in a three-month period, hitting $10,000 in November while the number of visitors doubled to almost 50,000, Shaw said.
The site was redesigned by Earthstores.com, which also improved Shaw’s presence in several key search engines, such as Yahoo (Pacific Connections has a minority stake in Earthstores.com).
“We used to be pages and pages back. So far back I could never find it,” Shaw said.
Shaw also has been able to break into major department stores. The company has had several orders from Bergdorf Goodman and received a test order from Bloomingdale’s that allows the store to return anything it doesn’t sell.
“I never would have been able to afford to do that on my own,” Shaw said.
The company also has enjoyed expanded exposure of its merchandise through the product placement and publicity efforts of Shaw’s older sister, Lizzie, a Hollywood veteran who now handles marketing and publicity for the company.
The connections help: One of the latest additions to the Sarah Shaw Handbags line is a gold glitter-leather evening clutch based on the one she designed for Roberts to carry in “Ocean’s Eleven.”
“I’ve been buying Sarah Shaw since she started making bags,” said Debra McGuire, costume designer for TV’s “Friends” and “Crossing Jordan,” starring Hennessy.
But Shaw, who started her business selling her handbags on studio back lots, said she knows she will need more than her connections to have global reach--hence the deal with Pacific Connections.
Shaw’s line of totes, purses, makeup bags and accessories caught the company’s eye when a consultant introduced her to com pany officials last spring.
“In a sea of black [handbags], Sarah Shaw stood out as an individual line you could recognize,” said Bob Gutwillig, senior vice president of corporate development for Pacific Connections, which makes and distributes handbags and accessories for clients ranging from Wal-Mart Stores Inc. to Neiman Marcus Group Inc.
“She’s very talented, and talent is what it’s all about,” he said.
Pacific Connections hopes to grow Shaw’s brand to a point where it can license her name on other products. The company currently licenses five brand names, including Elle and B.U.M. Equipment.
Although their one-year deal is only a few months old, negotiations are already underway for Pacific Connections to acquire a 20% stake in Shaw’s company. Shaw welcomes the equity deal, she said, because it will help give her company financial stability.
Shaw was introduced to Pacific Connections through apparel industry consultant Bruce Berton, a principal at Stonefield Josephson Inc. in Santa Monica. He knew Pacific Connections was looking to capitalize on its warehouse, shipping and accounting resources through outsourcing deals with smaller companies in which it might potentially invest.
Shaw’s company seemed a perfect fit. She had the design expertise but was saddled with high domestic production costs and skimpy cash flow. Cash flow can be a particular problem for apparel companies because they have to pay for materials and manufacturing long before the products are sold. Shaw, for example, is about to begin buying fabric for her fall 2002 line. The money to do so is coming from Pacific Connections.
Pacific Connections also warehouses and distributes handbags to Shaw’s retail clients, which include Fred Segal in Santa Monica.
Pacific Connections’ money is expected to stretch much further once Shaw moves her production overseas. Cheaper manufacturing costs will allow Shaw to raise her profit margins while lowering prices slightly, she said. It also will give her the option to expand into small leather goods such as wallets and date books, which she said are too expensive for her line if made domestically.
“It’s all been a little overwhelming,” said Shaw, who designs four lines a year. “But I figure once I have the production [costs] down a little bit better it will be easier for me to expand more quickly.”
Any expansion will face an uncertain retail environment, and not just because of the economic slowdown.
Marc Karimzadeh, accessories market editor at Women’s Wear Daily, notes that booming sales in recent years has attracted everyone from Monica Lewinsky to Cartier into the handbag business.
“It’s a category that is increasingly competitive as well as possibly saturated,” he said.
Gutwillig concedes its a “morose retail economy” but says Pacific Connections is willing to be patient while the line establishes itself.
“We are not expecting miracles. We just want to stabilize the business and then move forward,” he said.
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At a Glance
* Company name: Sarah Shaw Handbags
* Business: Design and sell upscale handbags at wholesale
* Headquarters: Los Angeles
* Chief executive: Sarah Shaw
* Employees: Three full-time, one part-time
* Sales: $700,000, estimated for fiscal year ending Feb. 28
* Founded: 1998
