Transcript - Joshua Kapelman
Season 3, Episode 4
Conversation with Josh Kapelman, EVP, Hilldun Corporation
Joshua Williams: Retail Revolution, a unique podcast that features in depth conversations with guest experts in omnichannel retailing, with myriad perspectives: technology, consumer engagement, data analytics, merchandising, and more. We pay special attention to current sociopolitical issues and challenges and their implications on fashion retail, as well as opportunities to innovate and rethink retail's future.
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Retail Revolution is produced by Joshua Williams and hosted by Christopher Lacy, both are Assistant Professors in the Fashion Management graduate program at Parsons School of Design.
Christopher Lacy: Welcome everyone, to another episode of Retail Revolution podcast. I am so excited today to have a born and raised New Yorker on the show. Prior to joining his family's multigenerational business, Hilldun, Josh had extensive experience in entrepreneurship, finance and sales. If you don't know, Hilldun is known as the company behind many of Seventh Avenue's prestigious fashion brands, and it has provided entrepreneurial financing and factoring for many of America's iconic designer labels.
So, without further ado, welcome to the show. Joshua Kapelman.
Josh Kapelman: Thank you very much.
Christopher Lacy: So, Josh, I was super excited to have this conversation with you because there's nothing better than talking about finance and fashion, and I think especially now, during what's going on in the industry, which we'll definitely get to in this conversation. But before we do that, can you tell our listeners about you?
Just you. I feel like you have a great story and I want to hear about it.
Josh Kapelman: Yeah. Sounds good. So, to be perfectly honest I never thought I'd wind up in the fashion industry, especially not in my family's business. I grew up here in New York and then moved to Boston, where I went to school.
I actually had two tech startups. My first one, I was 17 years old, had absolutely no idea how to run a business, lost a significant amount of money. And then my second one did okay; I was one of the first people to develop competition systems in e-sports. Thought I'd never go into business, wanted to go into international law, found my way to Tufts University and, frankly I needed an easy A one semester. So, I took an entrepreneurship class, it was not easy, I did get the A and my path was set. And one day my father called me up and said, "Hey, do you want to come see what we do at Hilldun?" I said, dad, "I don't understand debt, and I don't understand fashion, but I'd be an idiot not to try it for a week." At the time I was working with venture capitalists, in Boston and that was the world that I was loving. But I gave it a try, and 10 years later here I am.
Christopher Lacy: Wow. I think what's so interesting about that as you're like, "yeah, I mean, I'll try this for a week." You're like, "if I don't make a decision in five days, I'm not doing it."
Josh Kapelman: Well, there's truth to it. I loved working with and investing in entrepreneurs who had great ideas and just needed help and capital to execute it. And that was what I was really passionate about. And the idea of being on the debt side of things just wasn't really interesting to me and let's be honest, I've never been the most fashionable, although, I'd like to think I've gotten a little better in the last 10 years. But, I said, you know what, I just need to understand, we're going to be working next to each other, for a while, let me see if we sync up and our minds are alike. And to be honest, it was just an absolute pleasure. And I realized that the fashion designer is really the same thing as a tech entrepreneur. It's a really creative person with fantastic ideas, they just need the business help and executing them. And what I love about, what we do at Hilldun is I get to sit next to and mentor and work with hundreds of young designers and provide advice and watch them on their journey. But then at the same time, I get to sleep at night!
Christopher Lacy: So, I want to talk about Hilldun because you are powerhouse in the fashion industry. And I want to ask you, what do you think that is attributed to?
Josh Kapelman: Sure, I really appreciate that. You know, we've always had a very long-term approach to what we've done. By way of background, Hilldun was started by my great grandfather who had a chain of department stores. And when he sold them, his business partner was, his last name was Dunhill. He took the last name of Dunhill, flipped that around and created Hilldun. And my great grandfather really invested in my grandfather and my grandfather's brother in law, and the two of them were doing real estate. It wasn't until my cousin, Gary, who's our CEO and my business partner, joined the firm and sat down with Betsy Johnson. And Betsy said, I have all these orders. This was, I believe in the late seventies or early eighties. I have all these orders and I have no idea what to do with them.
And Gary said, "I think we can find a way to help." And that was really the time when we got into the fashion industry. My father and Gary together started us factoring, which I'll get into, I'm sure, later. But through that, we worked with everyone from Tommy Hilfiger and Rebecca Taylor and Nanette Lepore and Marc Jacobs and every major American, and really now international fashion designer has worked with us at some point.
And really what I think makes us unique and special is we really care about what we do, we really understand the luxury market. So, you know, I'm on the phone all day, not talking about people's finances, but talking about, "Hey, is this store better for me than that store? this is the selling terms that this one wants, what are your thoughts on that? What should we do here? What should we think about for a longterm strategy? Is our pricing and costing, right?" And I think to your point, what makes us unique and special is how much we care about this industry, how much we care about our clients. I make this joke all the time, but it's true, I'm going to be sitting in my chair for the next 30, some odd years. It doesn't make sense to have a short-term approach to what we do.
Christopher Lacy: I think that's really important to say, because a lot of times in fashion retail, especially is this short-term approach to everything.
Like, if we can just make it through this quarter and then if we make it through this next quarter, everything is a short-term fix and really kind of not seeing the repercussions of decisions for the long haul. And I've worked in mono-brand businesses and multi-vendor businesses. And when you look at the shifts in the retail landscape, what do you think is the future of large format stores? You were talking about, the options that these designers are coming to you and saying, how do you think it's all going to change?
Josh Kapelman: That's a great question. I think, and I have to be careful what I say here, of course, but I think-
Christopher Lacy: I know I'm sorry about that.
Josh Kapelman: When I look at your point about short term versus long term, I think we, as an industry got spoiled. The dot coms came about and instead of saying, okay, well we can sell to this or that, we said we can sell to this and that. And really what happened is we allowed new department stores to come up at the same time the existing department stores were still there. So, it wasn't a question of can I, should I sell Nordstrom, Neiman's, Saks, Bloomingdale's, Barney's, Lord and Taylor, AND Net-a-Porter, Matches, Revolve, Moda and so on. It was, "Oh great, let's just sell all of them." Well…
Christopher Lacy: Right.
Josh Kapelman: There's not enough consumers out there, they're all going after the same consumer. So, if all the stores are selling the same blue top, let's say, how are they going to be different? How are they going to differentiate? Well, the answer is it's going to be the first one to put it on sale. Whoever sells it for the cheapest price will get that sale.
In the short term, to your point, it helps the brand boost their sales because they've got sales. In the long term, their sell throughs are being hurt by that. The traffic that's walking into the physical department stores are being affected by that. Even the amount of money that the onlines have to spend to acquire the customer for the same blue top is significantly high. And now, you take into account that the brands also doing their own selling through their own website or their own retail channels. Well, now they have to buy their own name on Google, just to be above one of the people that they're selling to.
So, it's a mess. It's an expensive mess. I think what we've seen, and I think COVID really kinda stuck a knife in there, is that apartment store's model is changing. It has to change. They used to be, and I'm still saddened about Barney's. Right? It used to be the place where...
Christopher Lacy: That was my home!
Josh Kapelman: Me too!
I used to go there, I'd go to the Co-op and I'd find cool new brands. And stuff that I hadn't seen before, and that was my place of discovery. And that is the role that physical brick and mortar has traditionally served. They are the tastemakers, they're the ones finding new products.
To answer the question, I think department stores and brick and mortar continue to have a role; we just have to be so much more selective in who we sell to and how. I think the positive through all this, and I'm sure we'll talk about it later, but I think the specialty stores are more important than ever.
Christopher Lacy: We're going to talk about that right now. Because when you bring up Barney's, especially for me, I worked there for six years and honestly, one of the best experiences of my life, because from a creative standpoint, what we did, and to your point, you, as a customer, you would go in and say, you'd experience something new.
And one of the things we did well was exclusives. Because If you have a brand that's being sold at Neiman's, BG, everywhere else in the world, you have to have exclusive content. But that also puts a weight on the designer, right? Because now the designer is making exclusive content for a particular department store.
Josh Kapelman: Hmhm.
Christopher Lacy: Then we've got to worry about the sell through of that. As the designer, you're hoping that they sell through this exclusive product, which a lot of times, we did sometimes we didn't. But then with this mindset of things needing to be exclusive, I think the specialty store then definitely has more of an important place now than it did before.
Josh Kapelman: I completely and utterly agree with you. And I think one of the problems that happened is Barneys used to be known for exclusives and finding new brands and they were the only ones that carried it. But with that power, to be honest, Barney’s also helped grow those brands. They didn't do sell through agreements, they agreed, "Hey, we're taking this exclusively, we will, it's on us if we don't sell through all of it." That was a good way of working together with the brand. When you do an exclusive, especially if it's some type of capsule where the retailer gets to customize product and then say, okay, and if we don't sell through it, it comes back back to you. I mean, that's catastrophic for the brand. It's not manageable.
Christopher Lacy: Right, yeah. And I think, as we continue to see this happen it's, the other side of that is, how much stock are we buying of anything. And this is something that, whether you were a mono-brand or it's multi-vendor environment. When we talk about agreements and conversations that happen with brands, you know, one of the things that drove me crazy is this idea of well to get a runway piece as the retailer, then you have to buy this much of our core collection or a classic style. So, now all of a sudden, just to get a few pieces of something that's special, you've now taken on more stock of something else that you didn't necessarily need, but to get what it is you want it, that's what you had to do.
Josh Kapelman: Sure.
Christopher Lacy: So, you have these stores sitting with just tons of stock and to your point, there's not enough customers to go around for that. So, do you think that retailers and brands are going to really consciously start to pull back on how much they produce, or does that completely disrupt the supply chain? And how does all that look to you?
Josh Kapelman: Sure, it's a great question and over the past few months we organized, conversations that were supposed to be private, but it made its way to Women's Wear, with the top retail executives. We've organized several zooms around that, with this being one of the things and all of the stores are saying the same thing. We’ve been buying too deep and actually we've been buying too narrow. We want to hold less product; we want to be able to sell it within 60 days of receiving the goods. And that is going to be a fundamental shift. It is going to completely change the supply chain. A big piece of it is, if you're saying to the brand, Hey, we're going to buy a lot less of it," and we want you to be able to get it to us quickly if we need to reorder well, then you're saying to the brand, Hey, you need to hold more inventory." That's not, financeable, there's no one that will finance that and it's not a smart decision as a designer to do that. What you then need to do is really look at your supply chain and say, how quickly can I turn product?
Do I have a factory in Los Angeles that can do it for me on a 30-day lead time? Or do I need to go all around the world and it's going to take me six months to produce it? And to that end, what are the minimums that I can produce on it, where it still becomes profitable? We can't allow these changes that the retailers want, which I think are necessary, to affect your R and D costs, to affect your margin. You gotta figure all of those things out.
And that goes back to specialty by the way. I look at Elise Walker, who's a great friend, and is one of the top retailers I think, in the world. And you see her at a fashion show, you see her in a market appointment and she's already; she closes her eyes and she's picturing "uhh this one's going to Jen, this one's going to this one and this one's going to that one." And she's buying already having the customer in mind. She knows her customers so incredibly well that her ordering, she knows she can sell it all. There's no way that somebody can do that, if they're working out of a cubicle and trying to order for 30 stores all around the country, not understanding each one of those local markets.
Christopher Lacy: Yeah. and this is something that was really important in my Gucci days was the buyers were really into hearing from the storeline. They'd be at the show, they'd be at the market appointment, they're going through it. And they're like, does this work for your market?" I mean, before they were making a decision, because to your point, they weren't in the stores with us So what they may have thought would have worked for a particular market may not have. And the only way to keep that from happening was to actually engage those who were in the stores to help them out with understanding who that customer was, or is. The whole point is that's when you get great sell through, right? It has to be a conversation amongst a lot of people, or at least the major players, to make sure this works right.
Josh Kapelman: Yeah. You're absolutely right.
Christopher Lacy: So, when we're talking about especially smaller brands, in world of fashion, that, you know, the Celine's and the Fendi's of the world and the power they have is amazing, right? They get the great spot and a large format store because they know, it's going to draw in a customer.
But when we have a student who's just graduated or someone who's just wanting to launch their own brand. They've done a great job; they've gotten notoriety and they have a large format store that wants to sell their brand. But then there's also, as we've talked about, the smaller specialty stores that want to carry their brand, like a Neighborhood Goods. What is your advice to them? I know that there's always that moment where you're like, I'm so excited that the biggest, company wants my stuff. What would you say to them, when thinking this out?
Josh Kapelman: Sure. My first answer would be, don't bite off more than you can chew. You have one opportunity to do it right with some of these retailers and you need to make sure that you dialed everything in, your fit, et cetera before you ship them.
The second thing that I would say is any of these big retailers have great names and yes, they can order a large amounts. But usually when you're young, you have an ability to appeal to them, but they want sell through agreements, they want margin agreements, they want whatever they can get. That could be very dangerous for you.
And I never loved the idea of putting all eggs in one basket. I don't like it as a lender. I don't like it as a business owner and it just doesn't make sense. I'm much more a fan of you starting to build on the specialty store business. I'm not saying to turn down the department store, but you need to make sure the terms make sense for you.
One of the things that, I constantly go over is, well, you can absolutely sell both and there's, no issue, but who is your customer? How old is she or he? Where do they live? Where do they shop? What other brands are they buying? What is the price point? And if that big store checks, all of those boxes, then by all means, provided the terms are right.
Otherwise you should be really focusing on. all of those specialty stores. The thing that most young designers don't focus on early enough is who is my customer. You should have a name for her or him. You should have a vision for them. You should know the price point, everything about them, because then it makes selling so much easier.
Christopher Lacy: I love that you said that and as a professor in the program that talks about fashion management, I'm just going to take that and put it on a loop at the beginning of each of my classes. Thank you so much for doing that work for me.
You're giving advice to new designers often, as you talked about earlier, in your role at Hilldun. What else does Hilldun provide to designers when it comes to them being approached by a multi-vendor business or, just considering their supply chain, what are the other services that you're doing for them?
Josh Kapelman: Great question. And, you know, what's funny is the advice is actually free. We've never charged for consulting. We never will. We love what we do as I mentioned earlier and we're big believers, and I'm a big believer in karma. If we do right by this industry, it will come back to us. So, even if we're never working together, it never hurts to take a 30 minute phone call and help someone.
What we actually do is really important. Stores today are ordering, believe it or not, now they've gone from net 30 to now net 90. Most of the large retailers are now working on net 90 terms.
Meaning you're not going to get paid 90 days until after you've shipped them. We are in a world where, and I can go through the list, but store after store is filing for bankruptcy, brand after brand has filed for bankruptcy. How do you know that you're not going to ship them those goods, and then they're going to file for bankruptcy or just never pay?
That is what Hilldun does, that is our most important service, is guaranteeing the credit of these retailers, knowing that you can then ship them and if they don't pay you, we will pay. In addition to that, so you don't have to wait the 90 days, you don't have to worry about your cashflow, you can take an advance on your invoicing. That way you can plan your cash flow, pay your factories, pay your suppliers. As you continue to grow, we can then step in and help finance your production and help with all of those different things; actually, act as your back office. But the core, and I'm a geek as I think we've established, the hub of what we do I look at it as a hub and spoke model. The hub of what we do is that credit checking, guaranteeing what we call collection factoring.
Christopher Lacy: What does someone need to have in their arsenal when they approach Hilldun? What are kind of the things that you're like, look, when you come to us, these are some things that we need for you to have. I think that's good for our listeners to know when they're considering engaging an organization like yours, or even yours directly, like how do they prepare for this meeting?
Josh Kapelman: Absolutely, the most important thing is having a list of orders. There's not much we can do to help when you don't have any orders yet.
We also are now financing direct to consumer businesses. It's something that we've been getting more into. So, if you have an active D to C business, happy to have that conversation. But having that list of orders and really having an understanding of who your customer is and where you want to go with the company, and the brand, is so incredibly important.
Christopher Lacy: Are you optimistic right now about how retail will shape up?
I feel like you're like Chris, I can only say yes, but please I want you to be as authentic as possible.
Josh Kapelman: That's fair.
Christopher Lacy: I know our country is in a spot where we have more people who are unemployed than ever before, due to a pandemic. There's social unrest that's happening. And there's always talk about the fact that people think that brick and mortar is dying, which it is not, they've said that for years. You know, your outlook, when you're looking at the numbers that come in, what do you think about the retail industry as we move through COVID-19?
Josh Kapelman: Sure. So, one, quick anecdote. When COVID-19 first happened, at least when it first happened in the US, which feels now like 17 million years ago. A lot of the retailers called all of our clients and said, "Hey, we're canceling all of our orders; if you haven't shipped us your spring yet, too bad, we are closing our warehouses, that's on you." That was a disaster for brands. We told everyone, fight back, push back, push your deliveries later, don't let them cancel, negotiate discounts, do everything you can so you're not stuck with inventory. Most of them were successful. One major retailer called us, that we have a very close relationship with, called us up a couple of weeks ago and said, "Hey, we have a problem; we canceled all of our orders in February, we thought the world was going to fall apart. We have people knocking on our doors trying to get in, but we don't have any product in our stores. Can you please email all of your clients and ask them if they have any excess inventory that they'd be willing to sell us?"
And I look at the numbers based on the Women's Wear Daily article of Saks. I have an NDA, so I can't say anything other than what's public. And Saks is just having some great months. Nordstrom's having a good time. The stores are open, people are shopping, and I look at 2009 and the same thing, people were still going back to Gucci. People would still go into Gucci then, but hide their shopping bags in like backpacks or brown paper bags. They didn't want the world to see that they were still buying stuff, but they were.
Christopher Lacy: Oh, yeah, remember those days at Gucci because they actually would prefer for us to give them our, we had these plain brown paper bags, just to transport. So, they didn't want the Gucci shopping bag. They wanted the brown paper bag and we were like, "really?" It was wild.
Josh Kapelman: And so, my point in that is the luxury customer, unfortunately, still has a ton of money. And they're not in the city right now. They're at their Hamptons houses. They're in their yachts. They're in Malibu. They're, you know, wherever in the world they are, but they're still shopping. They're still buying things, and I go back to who is your customer? If your customer right now is unemployed and that's your target market, you're certainly going to have a much harder time right now. We look at all of those big, big box fashion brands, and they're getting creamed right now. But then you look at these luxury brands and they've shifted their sales to the websites. Their personal shopping business has never been stronger. They're having zooms with their number one private client and that private client saying, "Hey, I'm going to invite my 30 girlfriends and we're all going to do a zoom with the designer and just do personal buying."
It is still there so I am optimistic because we want to shop. It is in our DNA as humans that we like to buy things. It is a social activity. That will not go away. Will it shift more to online? Sure. Will it shift more to D to C? Yes, but, to your point, brick and mortar is never going anywhere and wholesale is never going anywhere. It is impossible to spend enough money to acquire customers and still be profitable, when you have just a D to C business, we see it with Casper, we see it across the board with these D to C businesses. It's very difficult. You have to be in these tastemaker stores.
It doesn't have to be a department store. It can be an Elise Walker or Ikram in Chicago, or the Webster, or what used to be Collette. There are these taste-makers out there and you go into them; and I'm so sad that Jeffrey closed the Meatpacking, because I would go into Jeffrey and that's how I found Ami, which is my favorite shirting brand.
And that's how I found this and that. And listen to the first time I went into Jeffrey, I bought the shirt there. The next time I bought it from Mr. Porter, where I spend way too much money. And then after that, I went directly to Ami. And I was buying everything direct from them. The point of that is there are so many different channels of sales and you have to be leveraging all of them.
Christopher Lacy: I mean, you're, perfect example of what I've said for so many years. As a matter of fact, I might just do like a whole separate consumer study with you personally. But you have the behavior that I've always said of the luxury client, which is, to your point. In 2009, when everything went south, those clients, they weren't like saying, "Oh, I'm never going to shop Kiton again. And now I only can buy my suits from Banana Republic." Like that is not the mentality, like they're not going to like shift down in the brands that they buy. Right? They won't shift that way. How, and when they buy does change; and they're more precise about what they're buying. But they don't stop buying.
I think a lot of people think that everyone just stops doing everything. And yeah, we saw that happen for a little bit, but to your point, we buy things because we like how it makes us feel. And luxury does a very good job of making us feel better. And I think, you know, when we look at brands like Chanel, that, they don't really talk about pandemics. They’re not talking about anything that's happening in the world that's a downer. They're pretty much like, look we're Chanel we sell you good stuff and we want you to feel a certain way. So, we don't even look in that direction of lack. And I think that's really where the luxury industry does, what it should do. And why we're seeing great numbers come year over year right now,
Josh Kapelman: The one thing that is changing is what people are buying. They're not shifting down to your point, but they're shifting. I'm talking to a lot of bankers and I don't think they're going to be wearing suits maybe, ever again. It's going to certainly change. The challenge right now in the luxury spaces, yes, people like to look good and they like to buy their expensive shoes and bags, et cetera, to go somewhere. And right now they're not going anywhere. So, they may be instead spending that money on a $3,000 sweater, or a pair of cashmere sweatpants. What they're buying is changing, but as soon as the world reopens, they're going to want to buy a bunch of stuff so they can show off their new things at parties.
Christopher Lacy: Oh, for sure. I'm sure you, may know this as well, like whenever there was anything happening, recession-wise or there was something going on in the banking industry. I remember this clearly, it was as if there was a memo that would go out to every member of J.P. Morgan Chase, at Bank of America, wherever it was. And it was like, everyone needs to be dressing up now, there's no more casual Fridays. And all of a sudden it was like, they were we're buying suits they needed to like have on a tie, there needed to be a look. And it was interesting to see how, what would happen in the economy, because you brought up bankers; how it affected, how they had to be portrayed to their clients.
And now you're right, the shift is where are they wearing a suit to? So, what are they buying? I mean the appetite is definitely still out there and that's fun and encouraging, right?
Josh Kapelman: Yeah. Absolutely, and I'm seeing the shift. I mean, we have clients that are brands that are just doing exponentially well during COVID, because they have dialed in comfort and cozy. What I refer to as Zoom Chic. I may be wearing a button-down shirt, or even just a tee shirt on top, but let's be honest. I'm wearing gym shorts as my shorts because no, one's looking at that on a zoom.
Christopher Lacy: Well, look, you have to check out. So I did this article, Business Insider, what to wear on zoom. So yeah, it's all about Zoom Chic. So, I feel like...
Josh Kapelman: I gotta read it.
Christopher Lacy: Yeah, like now you're in for that. I'm a huge fan of COS for my zoom calls. I think, I like the simplicity of it all. But anyhow, I could probably talk to you for hours, this is crazy.
So, how do people stay in touch with what you're doing at Hilldun? What's going on? I know that our listeners are going to want to reach out to you.
Josh Kapelman: Sure. So, you're welcome to go to Hilldun.com. If you hit the contact us button, it actually goes to me, myself and actually my partner. We routed from there, you're welcome to email me. I'm Josh at Hilldun.com. Send a homing pigeon, whatever. It's my pleasure to help any way I can.
Christopher Lacy: Thank you so much for being on the show today. I mean, I have to say, it's rare that we get a chance to talk to someone who has this perception of fashion and understands financing, and blends them together so nicely, to make it engaging and, wanting people to understand how that's impacting retail. So, thank you so much for making the time to be on the show today.
Josh Kapelman: Oh, it's my pleasure. And any way I can help, I'm happy to do so and thanks so much for doing this.
Christopher Lacy: Thank you, Josh. Take care.
Josh Kapelman: Talk to you later.
Joshua Williams: Thank you for listening to this episode of Retail Revolution. A very special thank you to everyone who has helped to make this podcast possible.
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