Perhaps it takes a person who sells kids' shoes to tell it like a man. Rather than give the knee-jerk corporate assessment that business is just fine and dandy, it is refreshing to hear Bill LaRossa refuse to pull any punches in his assessment of how both his company and the market in general have been impacted by the worst economy in more than 60 years. Far too often we hear leading politicians, corporate executives and economic wonks try to spin what is clearly and painfully obvious to the average American: the economy stinks. And as long as the unemployment rate remains at 9 percent, saying it is any way on the mend is insulting to the intelligence of millions of Americans who are currently out of work and the many millions more who live in constant fear that they may suffer a similar fate.
"The constant stream of negative news that hits consumers on a near-nightly basis has a tremendous impact," LaRossa says. "Whether it's the rising price of gas or another story about massive layoffs, whenever it seems like it might be getting close to back to normal something comes along that scares them all over again." LaRossa says this recurring cycle of bad news has negatively impacted Primigi's business and pretty much everybody else's. How could it not? "The fact is that no economy works when people aren't spending. Of course, you have to be rational and logical and say you can't spend more than you make, but some people have reached a point where their pocketbooks have just closed," he says. "We definitely hear that sentiment from some of our key independent retailers as well as some of our bigger customers."
Like any company faced with a radically different consumer landscape, one must adapt in order to survive. The challenge for Primigi, specifically, has been to maintain its hard-earned luxury position while also addressing the concerns of consumers who are more price-conscious. "One of the ways we have had to adjust to the realities of the new market has been to deliver a more moderately priced part of the collection, but without sacrificing the quality that we are known for," LaRossa offers. "We have also been running some promotional sales to help our core customers with key styles that typically we would never discount." LaRossa adds, however, that he didn't "go crazy" with the sales promotions because, as a rule, Primigi doesn't believe in discounting. "The promotions were very concentrated and targeted, and were done only after listening to our customers in areas where the help was particularly needed," he says.
The way LaRossa sees it: Maintaining sales in such a weak climate, which Primigi has done and then some, is a victory. But achieving that success requires a balance of holding onto the core values that has made the company a leader in the kids' market over the past decade while also being flexible to its loyal customers when necessary. "Everyone is watching the bottom line more carefully than ever and asking for discounts. And some things you can do and some things you can't," LaRossa says candidly. "It can definitely lead to a domino effect, but I still believe we have been able to navigate it well and still look at the future positively." He adds, "While we haven't been getting the increases of a few years ago, we aren't getting decreases either. So it's a big victory if we are up a few percentage points when conditions have been so difficult."
Like any true entrepreneur, LaRossa is an eternal optimist. Business may be tough now, but it was much better a few years back and he expects conditions will eventually improve. Philosophically speaking, he muses: "Day follows night and this could actually end up being a good thing for our country, where people realize that bad things can happen and one needs to be financially prepared for them." In the meantime, LaRossa cites some bright spots of late for Primigi in New York, New Jersey and in areas of New England where key independents are reporting positive results—albeit it's still the exception and not the rule. In addition, LaRossa is encouraged by other European kids' footwear brands getting back into the U.S. market. "Honestly, that's good for all of us because if everyone around you is doing poorly then eventually your number might be up," he says with a laugh.
As 2011 fades to black, LaRossa remains focused as ever on doing what Primigi has always done: delivering the finest collection of European-made kids' footwear to its loyal customer base. Specifically, for Fall '12, it will feature a broad selection that includes more price-sensitive options as well as an expanded selection of its successful Gore-Tex licensed boots program. In addition, the company's push into boys and girls sportswear continues, offering its existing customer base additional sales opportunities and expanding Primigi's retail base. "It's been only two seasons, but we have done really well," LaRossa says of the apparel launch. "We've had a few bumps, which is to be expected. But we are excited about next season: The styling is amazing and the [European-made] construction is great—it's not the duplication of product that you often see in this market."
While LaRossa believes product will always be king, it's also Primigi's exceptional customer service that continues to separate the company from the competition, he says. A state-of-the-art warehouse with Saturday hours and rapid delivery capabilities are standard Primigi offerings when many others have cut back on such overhead expenses. "I think you've got to have the goods in more ways than one today," LaRossa offers. "We've seen high-flying companies fall to the ground quickly because, even though they may have had really good product, they couldn't keep up with the demand or they treated their customers poorly."
Failure to deliver in all areas of this business is ultimately a recipe for trouble. Call it a no-kidding-around approach to running a business because not doing so, LaRossa warns, "means someone can always take your place."
How would you grade 2011 for Primigi USA?
I'd say pretty good with certain ramifications. Our sales were slightly better than last year and the ability to maintain sales in this climate is an achievement. Unfortunately, if [Federal Reserve Chairman] Ben Bernanke's recent statement about expecting at least another two years of 9 percent unemployment comes true, then it will surely remain just as tough trying to grow sales under those conditions.
Flat continues to be the new growth.
The initial goal is to maintain, with an eye to grow when conditions improve. But it's really hard to look at any type of large increase in saleswithout having to take a lot more risk right now. Along those lines, we always try to work with good partners—the most credit-worthy customers. But consumers are simply not shopping as much, and trying to increase sales through broader distribution has its inherent risks when many of those retailers are on shaky ground.
The 9-percent unemployment rate is the ultimate wet blanket.
That's exactly it. People are looking at all these Wall Street-related protests, but it is so much bigger than that. For example, several of my neighbors have been out of work now for a long time. Some are 50-plus years old and have kids in college, but it's been very difficult to find another job—any job. I look at my house and say, "There, but for the grace of God, that could be me." I think a lot of people are feeling the same way even if their finances are still OK. They are looking at all the people around them that were fairly well off and mainstays of the economy—part of the solidly middle and upper-middle class that no longer are. On top of that, many of those people have been our customers. Primigi is a luxury product for children, and while a lot of celebrities and professional athletes buy our brand, it's still reasonably priced enough that people who like quality products for their children buy it as well. A lot of those people are not in the same financial shape as they were a few years ago and don't know when they will be. That's tough.
What are you doing to address this issue?
We've been really creative in figuring out how to find new markets as well as expanding a few product offerings. And we've certainly absorbed some of the punishment that comes with a bad
economy with lower margins. In addition, we continue to advertise aggressively and believe in our brand. We also try to give the absolute best service that we can on a daily basis.
What are some of the new products?
We've brought in a larger selection of slightly lower-priced product. You might say that translates into lower margins—and in some cases it does—but margins don't mean a thing if people aren't buying at all. So we definitely came in with a more reasonably priced line and we brought some prices down in our key product. But we didn't discount our mainstays at all. Our Gore-Tex line of boots, for example, is selling as well as ever. And that is priced at retail from $100, for the smaller sizes, to $170.
Does the success of the Gore-Tex collection surprise you in light of the economy?
Not really. That collection has had a really good track record for the past five years. It's also why we have been able to add stores that weren't part of our traditional customer base—outlets that sell to outdoorsmen and winter-sport enthusiasts. Those types of retailers demand the best products. Their customer is more likely to spend extra on what they know is reliable product and is going to last. I also believe customers often feel taken advantage of when they buy a product that is supposed to be waterproof or hold up well but fails to deliver. There's a lot of shoddy product on the market claiming to have the technical features but don't.
Will you be exhibiting at the Outdoor Retailer show?
We are going to OR for the first time this January. We actually have expanded our Gore-Tex selection for Fall '12, which is still made in Italy and we believe is the best product that you can buy. The quality and the styling are fantastic. In fact, we had a phone call from a dad asking if we made a boot in his size because his son's version was so light and easy to pack. He said his son has worn them for two seasons, and the boots have held up beautifully. That's a great testimonial.
Overall, we are offering some new programs in an effort to be as innovative as we can. We think we have put enough research into them that we believe they will bear fruit. Our fashion boots, for example, continue to be another bright spot for us. We make very high-quality boots at fairly reasonable prices. While our collection is always enormous, now there is more product at price points we didn't carry before. I believe we are well equipped for the coming season.
What is the lower price range?
It's in the $50 to $60 retail range, which is about $10 to $20 less than our traditional prices. While the product definitely requires a little different mindset from a manufacturing standpoint, we have been able to make it without sacrificing quality wherever we can. On some of the fashion items, in fact, it has brought us closer to our competition. This year that collection sold very well.
Amid this current economic climate, is it good to be a luxury brand?
I think it's actually been the best position for us to be in. If we were a middle-of-the-road or a lower-end brand, we might be having more trouble right now. Where Primigi is made (Italy and a few surrounding European Union countries), the quality of our materials and our price point definitely make us a luxury brand but also make us stand out. I was just in Brooklyn, NY, visiting 15 or so of our top independent dealers, and we are always presented as the "finest children's brand" that they carry. While we are a few dollars more than 90 percent of their other brands, that sets us apart from all the rest. That's the message we have always driven through our advertising, and it has been our philosophy in how we do business. In the end, we believe our product is more affordable than buying something that falls apart for 40 percent less cost.
Well put. Personally, I think luxury has become too accessible and hasn't always represented the finest products like it used to. Do you see luxury heading back to its core values?
I think so. But, in our case, we are not talking luxury with respect to a private jet or priceless jewelry. Primigi is luxury, but you don't have to make $1 million a year in order to afford our shoes. By spending a little bit more money you can get, in the long run, a much better product. It's not out of the reach of most people. When I go on the mommy blogs and countless other social media sites, it's encouraging to see tons of people continue to write great things about our products—how they still look new after six months and that they can be passed down to younger siblings. We often hear of people who sell their Primigis to consignment stores once their kids have grown out of them.
What does 'made in Italy' really mean to consumers today?
Well, 99 percent of footwear today is made elsewhere, which we think is a point of clear distinction. We still make a lot of shoes in Italy and the rest we make in surrounding EU countries. In the case of the latter, it is made with Italian management and technicians overseeing the production. I think history and tradition mean a lot. I believe our product stands out— the way few things do today—in terms of the quality, craftsmanship, construction and style. And I actually think that more products will be made in Italy in the coming years as it gets tougher to produce shoes in other countries and the value of the Euro goes down a little bit. That's certainly a goal of our parent company.
You mentioned visiting key stores in Brooklyn recently. What was the mood of those retailers?
Actually, that experience was a light at the end of the tunnel. Some of our key stores are starting to buy more product from us again. In general, our strong stores are leading the way, but it's the next tier that is still having some difficulties. The really established and well-financed names will be the first to come out of this. They are the bell-weathers.
What is it about those stores you visited that really set them apart?
First, they have a long history of being very successful. And when I dropped in, the owners were present and either behind the cash register or on the floor interacting with their customers. That's all part of a successful business mindset, which stands in stark contrast to the approach by a lot of other executives today. Take, for example, the European leaders who recently came in from their various vacation homes to have a meeting about the debt crisis, and all that was achieved was a photo-op. Two weeks later the crisis only got worse. Along those lines, retailers who are not willing to put the time in and really work at it are probably going to find it difficult to succeed. If you think you can run a store by proxy or from a distance while vacationing all of the time, it's a recipe for financial disaster.
If you had a direct line to those European leaders, what might you say to them?
It really hasn't played out entirely, but if I did have a direct line, I'd say that some of the values exhibited in my parents' generation—what Tom Brokaw labeled the greatest generation—has been lost with the baby boomers. And it appears it's the same situation around the world where people have to realize that you can't continue to spend more than you make and you must come to terms with the fact that you are not going to be able to retire at age 45 with a 90-percent pension. Life just isn't that easy and hard work is what really pays off. In the U.S., it was Wall Street greed that took all these short cuts and made everything so difficult, as well as people buying homes that they shouldn't have. I don't buy into the fact that just one end of the spectrum [was responsible]. There were a lot of people smart enough to realize they couldn't afford [those homes], but what really scares me are the ones who believe "I deserve this" without working for it. That mindset doesn't bode well for the future prospects of any country.
In contrast, my father worked around the clock. He did everything he could to always provide for his family and he never gave up—like most of the people in his generation. I don't know if that's so much the case now. It's a cultural problem. There's plenty of blame to go around. People want to work less and earn more and still have their vacations. But none of that is guaranteed to you.
Yet when a CEO gives himself a $50-million raise, that is enormously upsetting.
Absolutely. It's like how Jon Corzine said he wouldn't ask for severance pay even though the investment company [MF Global] he oversaw imploded and can't account for $500 million or so. It makes me want to explode. "Gee, thank you so much for not asking for $20 million on the way out the door of a company that lost hundreds of millions under your leadership and just put another 1,000 people on the unemployment line." That's the sort of statement that make people take to the streets. It's crazy. No question, there is reason for anger.
Specifically, how is the European debt crisis impacting your parent company?
It's kind of TBD. Certainly, we have a lot of empathy for our parent company. If it's hurting them, it hurts us. Thankfully, Primigi is a very strong company that is well organized, with a long history and a solid reputation. It's very similar to our situation in the U.S., where we have been hurt a lot less than many of our competitors. Looking around, I am gratified to realize that the foundation we have worked so hard to build with our customers certainly has helped in this regard.
Is Primigi USA an anomaly today with respect to its approach to doing business?
I don't see a lot of people doing what we are in our space. If it were easy, then everyone else would be doing it. I'm going to be here seven days this week and then I'll be leaving for Italy for a week on business. There's not a ton of free time. So you've got to love what you do and, thankfully, I do.
I admire companies like New Balance and, likewise, we try and do everything the right way. We put our reputation, hearts and souls behind our company. Our warehouse is immaculate and incredibly well organized. All the retailers I visited on the last road trip said our service is the best—we are still open on Saturdays, which no one else is. It's hugely gratifying that people notice and appreciate our efforts. At least, on occasion it is noticed. It's not like I look for that everyday because that's like trying to be appreciated by a teenager; there's no prize at the end of that rainbow. You know that they love you, but you are not going to hear it every day.
Well, your dedication appears to be paying off.
There's no question it has, because we are still doing well and a lot of our competitors have had trouble. We could be doing a lot better, but I'm not complaining. We just need some help from external forces with regard to the overall economic health of the market in order to really grow again.
Is there plenty of growth opportunity left in this market?
We are at a temporary crossroad because of external factors. But we don't think three months in advance. We certainly did not lay the groundwork here and build this facility to be in business for a few years. I plan to be doing this business for a long time, and I expect this market to get better and we will get back to our earlier growth rates. We were just hitting our stride in 2008 when President Bush went on TV and said the economy is about to fall off a cliff. Nothing has really been the same since. In the meantime, we haven't changed the way we do things. We continue to work extremely hard and are fortunate to have a small, incredibly dedicated, hard-working group of people that I enjoy seeing every day. —Greg Dutter