Mark Graham for The New York Times
Veeral Rathod, left, and Hil Davis in a mock retail store at their Dallas headquarters.

Case Study

What would you do with this business?

A case study we’ve just published profiles the bind faced by J. Hilburn, a Dallas-based direct-sales company that sells custom clothing.

The company was founded in 2007 by Hil Davis and Veeral Rathod, two financial industry workers, after Mr. Davis read in Robert G. Hagstrom’s “The Warren Buffett Way” that Mr. Buffett considered his investment in the direct-sales cooking products company Pampered Chef one of his best. J. Hilburn aimed to bring custom clothing to the masses via in-home measuring visits from its “style advisers.” After some initial stumbles by the founders, who had never worked in the clothing industry, the company’s sales rose from $1 million in 2008 to $3.25 million in 2009 and $8 million in 2010.

But while J. Hilburn was growing at a healthy pace, Mr. Davis and Mr. Rathod wanted to take the next step in their business plan — adding an Internet channel for reorders from customers who had already been measured. To expand further and add the Internet channel, however, they would require capital, and that proved problematic. Several potential investors were turned off by the risky reputation of direct sales and multilevel marketing. Others thought J. Hilburn could use its new Internet sales platform to cut the commissions the company was paying its style advisers — a move likely to alienate those advisers.

We asked several retail industry executives and consultants what they thought the partners should do, and you can read their comments below. Please tell us what you think. Next week, we’ll follow up with another blog post that tells what Mr. Davis and Mr. Rathod decided — and how it worked out.

Paul Hurley, founder and chief executive of Ideeli, a New York company that offers limited-time “flash” sales of designer clothing: “Never position the company to get investors; only focus on what customers want, and investors will come. Map the value created by the advisers — customer benefits, new leads, market intelligence — and determine whether it’s really worth the margin dollars. This is critical. If they aren’t generating significant value over a Web alternative, competitors will eat your lunch.”

Marla Gottschalk, chief executive of The Pampered Chef, which is based in Addison, Ill.: “Selling directly to consumers would be a mistake for a growing direct-sales company. J. Hilburn should provide style advisers with the opportunity to sell online and empower them with the e-tools needed to market their businesses and maintain relationships with their customers. Sales representatives will likely support the company’s plan to incorporate online sales if they see that their personal businesses will continue to grow along with the company.”

Doug Fleener, president and managing partner of  the Dynamic Experiences Group, a retail consulting firm based in Lexington, Mass.: “What differentiates J. Hilburn from the competition is the value the style advisers add to the customer’s purchase. At the same time J. Hilburn is missing the customer that wants to buy online without scheduling a fitting. The new sales site should highly recommend the customer see a local style adviser since that ensures the best possible experience, but the customer can still choose to buy online from J. Hilburn. The key is to compensate the style advisers who are in that particular customer’s market for the sale. While the style adviser may not have directly made the sale, there’s a good chance their efforts in building their local market led to it. Obviously the commission won’t be as high as making a direct sale, but hopefully volume will contribute to both channels’ success.”

Will Ander, senior partner at McMillanDoolittle, a Chicago retail consulting firm. “Multiple retail channels exist today because not all consumers like to shop the same way and in many cases the same customer uses different channels depending upon the situation. A well thought-out incentive plan can handle the appropriate compensation to the reps for Internet purchases and will free up their time to focus on what they are great at — new customer acquisition and developing add-on sales with the existing customer base.”

Article source: http://feeds.nytimes.com/click.phdo?i=6fe4400e159b5a85885fcbc6b6e763b3