Innovation

Post Mortem: Designer defiance

Written by ProfitGuide Staff

Cochenour, Ont., pop. 550, is an unlikely place to hone a passion for fashion. After all, style in the tiny northern Ontario mining town typically means a jean jacket, hard hat and steel-toed workboots. But that didn’t stop Linda Lundström. Indeed, the award-winning designer, who began a love affair with fashion at age three, often returned to her roots, using the aboriginal art and culture she was exposed to as a child in Cochenour to produce visually arresting clothing for women.

But then Lundström has always marched to the beat of her own drum. Moving from small-town Ontario to Toronto, Lundström studied design at Sheridan College and, in 1974 at age 23, set up her firm to make and market her own designs. She spent years not really knowing who her market was before shunning the high-fashion world for “authentic” women—“real women with real bodies, sizes two to 24”—instead of Barbie dolls. And she insisted on manufacturing at home instead of offshore.

Linda Lundström Inc. enjoyed a loyal following of middle- class, middle-aged, women. And powered largely by its signature item, Laparka—an Inuit-style winter coat that became a staple for many North American women—sales hit $15 million by 1997. But Lundström’s characteristic independence may have also marched her inexorably toward the brink of ruin. Lundström’s refusal to play the game put her out of sync with the industry and her customers, while a natural optimism made it difficult for her to see and act when trouble struck. That combination left the firm vulnerable to a pummelling by a shaky U.S. economy and a strong Canadian dollar.

After weathering a decade of difficulties, facing overwhelming debts to TD Bank and its suppliers, Linda Lundström Inc. filed for bankruptcy protection last January. “They made it very difficult to see how we could make a future for ourselves” says Lundström. A liquidation sale at its two Toronto boutiques and a Niagara Falls, Ont. store was too little too late. In February, the maverick entrepreneur filed a notice of intention to file for bankruptcy. “You want me to point to something really nasty I did. I won’t,” bristles Lundström. “I can’t. I made some mistakes, and there were some things beyond my control. When a company fails, it’s never just one thing.”

Still, Lundström’s designs will live on. In April, Eleventh Floor Apparel Ltd., a newly minted manufacturing company owned by a private investment firm, purchased Lundström’s name and corporate assets including its manufacturing facilities. But the near demise of Linda Lundström Inc. reminds entrepreneurs of the danger of losing touch with your market.

At the top of its arc in 1997, Lundström Inc. had 150 employees and its clothing was sold in three corporate stores and 450 independent retail stores across North America. With revenue of $15 million, the company made plans to move into new, larger premises.

“I’d never experienced a decline in sales, and I thought the upward trend would just continue,” says Lundström. “We decided to move and, of course, the ink wasn’t dry on the paperwork to finalize the move when our sales started to decline.”

An eroding global economy and two warm winters took its toll on sales, which dipped to $12 million by 1999. In the U.S., the illness of a key employee who was instrumental in establishing the brand stateside compounded the problem. Still, believing the decline to be temporary, Lundström went ahead with the move. “We had this new infrastructure and new overheads to support a company doing $20 million in sales, and we were actually doing about half that,” she observes.

To shore up sales, the firm added ski and golfwear to its lineup. But sales continued to fall, says Joel Halbert, Lundström’s husband and CEO of the company, and the firm racked up substantial losses in 2000 and 2001.

Lundström Inc. filed for creditor protection in April 2001, but with a major rebuilding plan, secured additional funding. The company renegotiated its lease, cutting back the size of its Toronto head office and production facility from 60,000 to 39,000 square feet, cutting employees from 150 to 50. At the same time, the company adopted lean manufacturing, which reduced its supply-chain management and inventory costs. By 2005, sales had bounced back to $10.6 million and the firm had turned a profit.

But with its nose just above water, the company was hit by another round of more complex challenges.

Sales dipped again on the heels of a stalled U.S. economy, says Halbert, and then the Canadian dollar shot up. The impact of the suddenly buoyant dollar on her company was dramatic, says Lundström. Buying fabric in U.S. dollars in 2006, and selling garments the following year to the U.S. market left her no margin. “We put out our 2007 fall line—that represents the majority of our sales for the year— in January, and we priced our product for shipping in June, July, August and September,” she says. With 35% of sales in the U.S., Lundström Inc. chose to honour its commitments to U.S. distributors. “I talked to another manufacturer,” she says. “They basically decided not to deliver because it would have just wiped out their margins. But we decided we had relationships to honour.” Adds Halbert: “The strength of the Canadian dollar cost us approximately $500,000 in 2006 and 2007.”

The company’s problems began to snowball. “When your sales are trending downward, you say, ‘Well, we’ve got to get those sales back up, we’ve got to work on that top line, so let’s go to that trade show we didn’t go to last year’,” says Lundström. “We went to all the U.S. trade shows, with the cost of the booth, and the fees and the travel, but nobody was buying there.” Unbeknownst to Lundström, the function of industry trade shows was evolving. Increasingly, potential buyers would attend to gather information for future decisions rather than buying on the spot, leaving manufacturers with more work to do to secure sales. “We had to try alternatives—local showrooms and agents—so the cost of selling went up. Now, we were paying for a double effort with declining revenue,” she says. “I don’t dwell on woulda, coulda, shoulda, but I didn’t have good, sound marketing intelligence to tip me off that there was a change happening in buying patterns in the retail business.”

Lundström’s self-imposed isolation from the mainstream of the fashion industry may explain how a 34-year veteran was not sufficiently in the swim. Certainly, industry insiders say her unwillingness to “play the game” probably contributed to her downfall. “Fashion is about spin, and her take was real clothes for real women,” says Toronto Star fashion editor Berndette Mora. “Sadly, I’m not surprised she’s out of business.”

Lundström focused on a maturing clientele, one that is not always ready to buy into the latest trends. That decision may have alienated the all-important fashion magazines, which are always looking to showcase fresh looks. “If you don’t stay ahead of the curve, you don’t stand a chance,” says Lisa Tant, editor-in-chief of Toronto-based Flare [which is owned by PROFIT’s parent company, Rogers Publishing]. “It may sound harsh, but it’s true—especially in the fashion industry, where everything is so five minutes ago.”

Lundström agrees there is some truth to this criticism. She says that her prime motivating instinct is to try to please. In business, that meant producing a complete range of sizes from 2 to 24, where most manufacturers would offer half that range. However unprofitable, she also offered an unusually wide variety of items—multiple styles, fabrics and colours. “I really needed to focus,” Lundström now recognizes.

At the same time, Lundström missed another trend: her core customers were scaling down and simplifying their lives. They were emptying their closets rather than filling them up, she says: “I needed to reach out to a more diverse clientele, but didn’t.”

Lundström sought feedback from her customers, agents and retailers, but the advice she received was inconsistent and contradictory. “When designing product for a market that includes Edmonton and Atlanta, it’s impossible to please everybody,” Lundström says. “Trying to please an agent in this region, we found we were offending a retailer in that region. Every change we tried to make caused yet another problem.” In the end, she was overwhelmed by the dissonant chorus of advisers. “I had a hard time interpreting all the input.”

The people she most needed to please—her creditors—were not impressed. “We made our best guesses based on the info we got,” she says. “We made a 35% reduction in the SKUs we were offering in the 2008 line, which stood to deliver substantial savings, but the changes wouldn’t have effect for a year and the bank called the loan.”

Lundström takes responsibility. “You can’t go bankrupt and say it was somebody else’s fault,” she says. “The buck stops with me.”

After 10 years of fighting to keep her company afloat, Lundström now seems relieved that she has off-loaded that responsibility to Eleventh Floor Apparel.

Karen Spisak, vice-president of brand development at Eleventh Floor, says the firm will leverage its owner’s manufacturing experience in building a successful manufacturing company with annual revenue of $900 million.

Lundström will stay on as chief creative officer, and says she’ll appreciate the expertise Eleventh Floor will bring to the enterprise, especially the marketing intelligence she felt she was fatally lacking: “They’ll filter, qualify, quantify all those opinions I couldn’t juggle. They will reduce the noise.

Changes are planned, says Spisak, but much will remain the same. “When we first looked at the company, we thought what everybody thought: ‘Oh, it’s because she’s not manufacturing over

seas’,” says Spisak. “Then we looked at the costs, and considered the benefits of manufacturing here, especially the quality and control, and the difference wasn’t significant enough to make us consider going offshore.”

Instead, Eleventh Floor and Spisak, who has 18 years’ experience in sales and marketing, will focus on trimming overheads and developing a sales and marketing team that can be more proactive in the marketplace.

The firm has already called back the majority of Lundström Inc.’s employees, but former CEO Halbert is not among them. Lundström says the couple knew going into the deal that Eleventh Floor had a fully staffed financial department and would not have a position for him.

Still, Lundström is optimistic and philosophical about the future. “It’s a good day,” she says, “when I’ve made at least one mistake and learned from it.” She recalls a memory from her Cochenour days to explain her current situation and hopes for the future. “We had these forest fires, and all the trees were levelled. It looked like a catastrophe,” she says. “But then new growth would come up, and those burnt patches were the best places to pick blueberries. Linda Lundström Inc. was destroyed by the bankruptcy. Now, the trees are out of the way, and we have to see what life is still left in the soil.”

Originally appeared on PROFITguide.com
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