Borrowing and Branding: Loyalty and Expansion Through Debt

What do borrowing money and creating an established brand have to do with one another?  It turns out, quite a bit.

Here is a simple case study of retail electronics and appliance stores in the United States.

The very first P.C. Richard store opened on September 26, 1909 in Bensonhurst, Brooklyn.  This particular store sold hardware and was run by Peter Christiään Richard, an immigrant from the Netherlands. 

The first appliance the store sold was an electric iron.  Peter's son, Alfred, would spend all of his time helping his father, as he quit school at the age of fourteen for the sake of the store. 

Within time, A.J. would become the head of the store, and would prove to be highly successful in persuading people to buy appliances. 

As the years progressed, his sons would aid him with the business, as they expanded to a few other locations. To this day, the chain is still run by the Richard family, as A.J. himself would serve as chairman well into his 90's. On December 28, 2004, A.J. Richard died at the age of 95.

Today, P.C. Richard & Son have 57 showrooms in the New York Tri-state area and make more than $1.5B in annual revenue.  It is the largest privately-owned appliance and electronic retailer in the nation.

During the 100+ years that P.C. Richard & Son have been in business, many, many of its competitors have come and gone.  Just a few memorable ones include:

• The Wiz (founded in 1977, defunct by 2004)

• Circuit City (founded in 1949, defunct by 2009)

• Computer City (founded in 1981, defunct by 1998)

• Crazy Eddie (founded in 1971, defunct by 1989)

• Lechmere (founded in 1913, defunct by 1997)

• Polk Brothers (founded in 1935, defunct by 1992)

• CompUSA (founded in 1984, defunct by 2012)

and now...Radio Shack (founded in 1921).

What did each of these defunct (and soon to be defunct) electronics companies do differently than P.C. Richard & Son?  

At least two things stand out:  they apparently never formed a customer base that was truly loyal to their brand, and they took on too much debt to finance unfettered expansion.

Over the decades, P.C. Richard & Son became the "go to" place in New York City for appliances.  The company expanded slowly, buying and building stores over the course of generations, rather than leasing them from commercial landlords.

Such a philosophy of glacial growth over 100 years seems anachronistic today.  In an age where the federal discount rate remains under one percent, banks and investors appear eager and willing to finance companies' expansion plans.

As a result of refusing to accept this type of financing, P.C. Richard & Son does not sell refrigerators in Iowa or toasters in California.  It deliberately chose to stay local and close to its roots.

In contrast, the 94-year old Radio Shack will now shutter 1,100 stores littered across the nation after losing profits quarter after quarter for a decade.

Radio Shack is certainly a more well-known national brand than P.C. Richard & Son, but apparently it does not have a loyal enough customer base to keep it afloat.

And so, the perpetual question that faces every brand is whether their core customer will always return, and whether that perception of brand loyalty ever justifies borrowing tens of millions of dollars to find out.

Supermodel Brand Builders -- It's In Their DNA

Celebrity supermodels possess a few lucky genetic advantages over most other brand-building entrepreneurs.

In addition to being born tall and gifted with extraordinarily good looks, supermodels are also household names that can easily be leveraged to become recognized consumer brands.

Gisele Bündchen, Cindy Crawford, Tyra Banks and Elle MacPherson all achieved their initial stardom by enduring years of traditional runway and print modeling. But these savvy businesswomen have also capitalized on their inherited genetic advantages to become successful entrepreneurs in their own right.

The legal vehicle that allows celebrity supermodels to extend their reach beyond their grasp can be as straightforward as the standard licensing agreement. 


The legal structure is relatively easy to construct:  The model or celebrity enters into a detailed contract with an agency having existing marketing and distribution channels that permits her name and persona to be associated with a product or line of products. 


The supermodel may additionally want to create her own individual company to own the brand itself. She may then choose to delegate many (or all) of the day-to-day responsibilities involving the management of the brand and collect agreed-upon royalties based on some measure of sales.


Alternatively, she may choose to take a "hands-on" approach, and be far more intimately involved in product design and marketing, and appear at promotional events and in television commercials. When successful, these arrangements can create opportunities to instantly exploit existing name (and face) recognition among consumers. 


For example, supermodel Cindy Crawford's line of furniture at Raymour & Flanigan branded as "Cindy Crawford HOME," has been a huge boon to that upstate New York-based furniture chain. Gisele Bündchen banked over $8 million a year from a sandal line called IPANEMA by Gisele. 

But supermodels aren't only interested in sofas and shoes. Supermodel and business titan Heidi Klum launched fruit candies called "Heidi's Fruit Flirtations" and "Heidi's Yogurt Dessert Cremes." The candies and cremes didn't fare as well as some of Klum's other business ventures, but the venture showed that the supermodel dares to explore brand expansions outside the norm. 


So what is the secret to their success? The key to the long-term success or failure of supermodel-related product lines may lie in the sincerity behind the endorsement itself. 


According to some experts, the trick to this game is aligning a model's individual personality with the right product. "If you've built enough of a persona around yourself, you can do well," says Ryan Schinman, chief executive of Platinum Rye, which represents corporations that partner with celebrities.  But "if you say, 'I'm a model, but I'm also a mom,' then you target moms. The DNA of your brand has to match up with the product," says Schinman. 


And some supermodels have entrepreneurial DNA that just cannot fail. According to Forbes, Kathy Ireland — who appeared on three Sports Illustrated covers and in 13 consecutive swimsuit issues during the 1980s and ’90s — is worth an estimated $300 to $350 million via her product marketing company, Kathy Ireland Worldwide. By way of comparison, mogul Martha Stewart’s holdings in Martha Stewart Living Omnimedia are valued somewhere in the vicinity of $250 million, whereas Ireland has sold an estimated $2 billion worth of retail products, with Stewart selling less than half of that ($900 million at retail). 


How did Ireland do it?  Forbes notes that the model has long since moved beyond her initial clothing line at Kmart, choosing to now license and sell everything from stylish jewelry, office furniture, windows, and mattresses to hair care, perfume, and shoes — and that doesn’t include her successful line of bridal dresses and fur coats.