The Hidden Stitch: A Conversation with Hilldun President Gary Wassner
January 11, 2011 § 7 Comments
When Gary Wassner tweets, I listen. And so do many other fashion designers and business people. His enthusiastically-written comments about the Garment District, manufacturing, small business and industry values are smart, honest, well-timed and well-intentioned. It’s the kind of dialogue we like and encourage at Truth Plus.
But Gary isn’t any ordinary fashion pundit – he’s an industry leader. Wassner is the longtime President of the eminent factoring and finance corporation, Hilldun. Factors are another behind-the-scenes facet of the fashion industry. They operate much like a traditional bank, but service only fashion designers and apparel companies. Day-in and day-out, Hilldun deals with the sales and cash flow of your favorite American designers. Without people like Gary, fashion businesses would surely fail at a far faster clip.
I sat down with Gary last week to hear more about his history with Hilldun, and his thoughts on the current industry landscape, on bringing manufacturing back to NYC, and on his role as a Business Mentor at the CFDA Fashion Incubator. In light of yesterday’s WWD front-page article, U.S. Apparel Manufacturing Shows Signs of Life, this seemed like a good time to share our conversation.
TP: Can you tell us about your history in the fashion industry? At Hilldun?
GW: I’ve been in the business for 35 years. At Hilldun, we finance designers. We do a lot more, and are different than a bank-owned factor. We look for and value talent, not balance sheets. Once we find that talent, we help designers to build their businesses intelligently and safely. So we’re very different than anyone else in the market. That’s why we focus so much on the designer areas of the industry.
Because so many are young, talented people out of Parsons, out of FIT, out of FIDM, they don’t have business background skills, just talent and the ability to make a product. We look for designers who have heads on their shoulders, who understand the important aspects, the salient aspects of running and owning a business and know that it’s all about product; it’s not about press. We evaluate the people; it’s my way of doing business, kind of our cultural approach to the industry as a company as we’ve evolved over the years. The last thing we look at is the balance sheet.
We do look at the balance sheet and it’s important, but it’s not the only important thing. If we find someone who is very talented, and they know how to make a product and they’ve just not done it right for various reasons, if we can help reorganize, if we can take some burden off of them by helping them with their invoicing, their collecting, their back office, their understanding of credit issues, their production problems, then we can take a talent and turn them into a business. So our modus operandi is a bit different than others in the industry. We don’t really consider ourselves as having serious competitors in this aspect.
My first fashion client was Betsey Johnson 30 years ago. Betsey and I met, along with her partner Chantal. She had just opened up her new company. She had left Paraphernalia and had taken a hiatus for a year I believe. She opened up a tiny little showroom on 7th Avenue and we sat on the floor and she said ‘Here are my orders! What do we do with them?” and I said, “Here’s what we can do.” We worked together for 14 years and it was very successful for her.
Once I started working with Betsey, I realized that I understood this side of the finance industry. I understood the people and the product and the stores they were selling. We started to develop relationships with the stores very early on, with Barneys back in the old days with the Pressmans, with Charivari, with Henri Bendel, with all the great specialty retailers of the time. And we financed a lot of the young, avant-garde designers who they were buying. As NY started to develop into the fashion mecca that it is today, more and more young designers sprang up every season. And the first place they come to is us. And the first place we go to is them.
We try to make people in this industry understand that this aspect of this business is as important as the design and the sales. Without the ability to produce and deliver on time, you don’t have a business.
TP: Can you explain, in layman’s terms, what a factor does?
GW: A traditional factor’s client (designer/apparel company) gets orders from a store. They don’t know if the store is going to be able to pay the bill once they ship the merchandise, so they submit the order to the factor and we tell them if we approve it. If the store does not pay due to financial inability, we pay. We guarantee it. If we decline it, we advise our client to arrange different terms, either credit card, or pre-pay. We always give reasons why we decline, so it educates the customer for the next sale, so they don’t waste time selling to people who can’t pay their bills.
Once the client ships the order, they assign it to us. Our name goes on the invoice as payee. We do all the collection work. The stores know us. We may have 40 or 50 designers selling to one store – so they’re going to pay us on time if they have the ability to. They’re not going to pay that solitary designer on time necessarily if they have limited cash flow, but when they have 40 designers who are our clients, they’ll pay us terms. So factoring really gives the designer that advantage of a much quicker turn of the receivables. Cash flow is everything in this business – and that’s what we provide. There’s less and less credit being offered in the market today to designers for their piece goods, for their production. If you’re producing overseas, the terms change so dramatically. The factories there are not giving you an inch on terms, which means more cash up front.
Hilldun also finances production. Once the orders come in, and we see that the designer is credit-worthy, that the company knows how to produce, that they have a track record of shipping quality product and being paid for it, then we will advance them funds in many cases, but not all, for production. We help them purchase their piece goods, pay the factories before the invoice is created, and then we’ll lend against the invoice, and pay ourselves back.
TP: What are your thoughts on building a successful fashion business?
GW: Today’s designers, particularly those who use social networking and achieve instant fame, get such attention so quickly and they think they’re stars. And in a certain respect, on one level, they are. They’ve done a great thing; they’ve created a great product, a great sample, but they’ve just started. And the hard work comes later.
It takes a long time to build a business. Marc Jacobs was our client many years ago, when LVMH purchased him and for a year thereafter. Tommy Hilfiger was our client in two different incarnations before he was Tommy Hilfiger (as we all know him now). Down the line, you see that every major design house took years and years and years to reach where they’ve reached. Nanette Lepore has taken 25 years to build her business. It takes time to build your infrastructure properly. When you get instant fame, you lose track of the business side.
Most of our clients do have partners and we encourage that. They are people who handle other aspects of their businesses. If you look back historically, Donna Karan had her husband, Calvin Klein had Barry Schwartz, Marc has Robert Duffy, everybody had a business partner. Almost everybody. But today we have a lot of young designers who are just out there, and everything has come upon them so fast and so hard that they haven’t really thought all this through, although they think they have.
When I sit with a designer who has 150k in orders, and they’re spending 5k a month on PR, I say “Oh, no. What is wrong with this picture? ” If your product is really good, the PR is going to come by itself. But if the product doesn’t perform, it doesn’t matter how good your press is.
The aspirational shopper has left the market. The real luxury goods shopper is not 25 and they (designers) have to design for that person. They’re not. Someone like Alex Wang is (tees, accessories for good number of people, super edgy, high-end stuff for editors).
There are very few fashion investors. The kind of growth hedge funds are looking for just isn’t there. One of the short, short routes to disaster is to bring in a Private Equity firm. They don’t understand your business. They’re going to pump in money and expect a return in five years and if they don’t see the return, they’re done. Designers should look to their parents and their friends for investment dollars, otherwise it’s asking for problems down the road. Look to finance your company, to keep ownership.
TP: Do you think there are too many young designers in the market right now?
GW: I think it’s exciting that New York is generating so much interest among young designers and inspiring so many new young designers. Do I think there are too many? I don’t think there are ever too many, but I think they’ll shake out. I think it will be disappointing for them, not for the market. I am worried that some designers are spending more time on Twitter and Facebook than they are in their studios.
TP: Is the industry too PR-driven?
GW: Fashion has always been a PR driven industry and it has to be to an extent, but the question is to what point. My old clients never thought about hiring publicists if they were making less than 5m a year. Designers today think that by dressing the stars, and being in the media, on Facebook, on Twitter on a daily basis it’s going to do something sales-wise. It’s a matter of parceling out your funds. If you have limited funds, and you’re weighing hiring a PR firm against putting the money into production, or hiring an assistant designer, or in-house sample hand, you should always choose to build your technical infrastructure.
TP: Do you think manufacturing can return to the U.S.?
GW: I really do. The fact is we can compete. We now have a 10% unemployment rate in this country. I don’t doubt for a minute that if you opened a factory today, right there across the street and you filled it with 150 sewing machines and cutting tables, that you would have any problem filling those seats with skilled workers.
TP: What about pay?
GW: The cost of doing business in China is going up in all other aspects. And that’s why everybody was late last season (in delivering goods to US) because they were unable to meet production schedules. Now if you don’t have a presence personally in China, you can’t manufacture there. What does that cost you as a small company? A lot. Your lead-time is much greater when you are producing in China. Your upfront costs are much greater. All this has to figure in. If you have to borrow money for 60 days, you have to pay interest on it. That’s got to figure into the difference in the cost of the product. Labor is only one component. You’ve got your fabric, your labor, and you’ve got your samples, which can’t be made in China.
I do think there’s tremendous opportunity now; I think many stores are not frantic about price. The lower end, the discounters, of course, are and they always will be and you won’t compete there by producing here. But Saks, Neiman’s, and Barneys and Bergdorf’s and Nordstrom you can. I think we can produce just about any designer sportswear. There are ways to do it. Every designer I meet with says, “If I could just walk to 8th Avenue, and look at my production, I’d have so many fewer problems!”
TP: How can we entice people into learning technical skills?
GW: I don’t think we’d have any problem, if there were jobs. I think NYC certainly has a substantial labor pool that would jump on the opportunity of a steady job. If FIT could teach basic skills in sewing, we’d need to subsidize it somehow, because people won’t have funds to enroll in FIT or Parsons. If you could employ 10,000 more people in a short period of time, people could pay their rent, support the economy in NY and support their families. We need a pilot program sponsored by the city in combination with the industry to train sewers and cutters and sample makers and pattern makers. And we need a state-of-the-art facility that will employ them. People want to work. It’s a skill and a trade that we’ve let lapse in this city and we let it go overseas.
TP: Did it all happen at once?
GW: I think it happened with the growth of Asia. As the stores came with sharper and sharper pencils to the table, designers were looking for cheaper sources of production. And Asia offered cheaper sources of production. So we naturally migrated there. It then happened so quickly, China developed so quickly. When I moved into this building about 20 years ago, there were only two businesses in the building, every other floor was a workshop. There were floors filled with sewing machines, and cutting tables, and now, there’s not one in the building. The owner at that time told us that he was converting the building, and we didn’t think that was a bad thing then. We didn’t realize, nobody realized what it meant in terms of labor, and giving up our manufacturing days, we didn’t realize. Twenty years ago, we didn’t realize at all.
TP: Lastly, what does your role as a business mentor at the CFDA Incubator entail?
GW: I mentor 4 designers there. I was on the advisory board in the very beginning so I assisted in the choice of the Incubator’s current designers. I meet with the designers I mentor in some cases as often as they like. It’s a huge opportunity for these designers. The purpose is to end up after the 18-month period with a sustainable business. We try to give them as much help as we can during that time. We give them sourcing references and introductions constantly. So there’s lot we do for them. It’s a great program. We’ve all learned a lot.