Bad Boy Records - Aug 2005
By TRACIE ROZHON, New York Times
SEAN JOHN COMBS, the rap and clothing impresario still best known as Puff Daddy, a sobriquet he has now abandoned, stood before a conference table in his company's Midtown Manhattan headquarters recently, addressing his designers.
Dressed in a black baseball cap, a black T-shirt and black cut-off denim shorts - his only flash a large square diamond stud in each earlobe - he projected a decidedly serious mien. The designers listened intently. When he paused, as he did several times, there were no questions. They knew to wait until he solicited their advice.
"There will be only three 'Sean John' T-shirts in the coming collection," he said. A few designers let out wispy sighs at such a seemingly self-destructive edict; after all, clothes with the Sean John name, initials or crest make up a big slice of his company's sales. "I'm putting you on rations," he said, laughing. "From now on, I want people to read the name without seeing the name. You get me?"
Messing with the name is no small gamble, nor is it the only one he is taking. Sean John is already a well-known brand - at least in households with teenagers, who spend about $42 billion a year to look good.
Mr. Combs's company, Sean John, has about $400 million of that business, most of it from urban styles like baggy, crotch-at-the knee trousers, conspicuously branded T-shirts and hooded sweatshirts, or "hoodies." But Mr. Combs, who sometimes goes by the rapper name P. Diddy but is known to associates as Puffy, is looking to expand well beyond the urban niche.
A stack of other rap and rhythm-and-blues celebrities from Snoop Dogg to Beyoncé have decided they have the style to create clothes, but Mr. Combs is the one who analysts say has the best chance of making the transition to the mainstream.
That could be particularly lucrative for Mr. Combs, who, unlike most of his competitors, has maintained control of his company. (By contrast, Russell Simmons, another rap impresario, sold his Phat Fashions to Kellwood, a giant clothing producer, for $140 million last year.)
"Sean John felt he has the heft to go it alone," said Eric M. Beder, an analyst at Brean Murray & Company, a New York investment bank.
Going it alone, though, will mean having to tackle some serious problems, starting with two years of more or less flat sales and a net loss last year. That is compounded by signs that the urbanwear trend is past its peak, and by basic business problems like disorganized distribution. Then there are the distractions inherent in being part of an informal miniconglomerate that has at times included businesses as diverse as music publishing and advertising and restaurants.
Mr. Combs has started to address each of these issues. He began by parting ways with a longtime friend and the executive vice president of Sean John, Jeffrey Tweedy, and replacing him with Robert J. Wichser, the former chief executive of the Joseph Abboud Apparel Corporation. Mr. Combs is also moving to expand beyond urbanwear - first into a line of women's clothes, and next into a host of licensed products, including leather sneakers, belts and wheel rims.
The success of this strategy is far from assured, but Mr. Beder, along with other analysts, bankers and even competitors, says Mr. Combs stands a good chance, in part because he is so personally involved. He directs his own designers, and Sean John makes 70 percent of its own clothes; most celebrity-branded gear is made under license by other companies. "If he can get the women's working, he can become a true lifestyle brand," Mr. Beder said. "Sean John can become more than just Puff Daddy's company."
Before he hired Mr. Wichser in May, Mr. Combs held the title of chief executive. Mr. Wichser had said he wouldn't sign on to run Sean John without that title - and the authority to match. Mr. Combs has also hired Jon Cropper, a former executive of Quincy Jones Productions, as chief marketing officer of Bad Boy Worldwide Entertainment, his recording company. The goal, both men say, is to bring "synergy" to an empire that Mr. Combs says spans "clothing, music and lifestyle."
Mr. Combs has also vowed to pay more attention to the Sean John clothing and accessory lines, a pledge he honored at the recent meeting with his designers. "When we are doing the Jack Johnson Collection, I want people to think 'champion.' " he told them, announcing the coming season's theme, named for a great and tragic black boxer of the early 1900's. "I don't want you to bring me clothes with the name 'Jack Johnson' on them. We got to get away from that. And I don't want some kind of retro stuff, like clothes from 1906. I want contemporary. If somebody's wearing one of my track suits, I want it to say 'champion' from two blocks away."
He is also branching into footwear: three styles of leather-and-suede Sean John shoes, in brown and black, will hit stores soon. (In the Sean John store, on Fifth Avenue at 40th Street in Midtown, a salesman recently described the shoes, which resemble sneakers or lightweight hiking boots, as "something Louis Vuitton would do.")
Sean John's sales have started to grow again, Mr. Wichser said, after a two-year plateau. But the key to the company's long-term success, many agree, will be the women's clothing line, called "Sean by Sean Combs," coming this fall. It is aimed at the contemporary department-store category (read: young and midpriced), but it has some particularly expensive items - like coyote-trimmed leather jackets for $6,000. The line has already received some good reviews, and orders, from Bergdorf Goodman, Saks Fifth Avenue and other stores.
Robert Burke, the fashion director at Bergdorf Goodman, says Sean John's women's line is more impressive than its men's wear. "We at Bergdorf have not been - and are not - interested in the men's collection," he said. "The women's has more fashion, more sophistication, and a sexier edge to it."
Mr. Combs says he knows the women's line must be more than just "better" if he is to make the leap from the category called urban - a name he resents, by the way, contending that is just another way of saying "black" - to something fresh and great.
MR. COMBS, a Grammy-winning rapper, created his first major business, Bad Boy Worldwide Entertainment, in 1993. His clothing company came along six years later. It produced clothes that mimicked what many young African-American teenagers had already started wearing: an anti-establishment style influenced by prison inmates, who wore their pants baggy and held up with a piece of rope.
Mr. Simmons, a founder of Def Jam records, started marketing the style through his Phat Farm clothing label in the early 1990's. A basket of new urban brands quickly followed, including Ecko, Rocawear and Sean John.But some of these clothing companies ran into problems in the last year or so. Last summer, Mr. Simmons said in a deposition during a civil court battle over one of his record deals that he had exaggerated the amount of money his company was making at the time he sold it to Kellwood. (Kellwood executives said in a news release that Mr. Simmons was just frustrated at the time, and had always been honest with them.)
Whatever the facts of Mr. Simmons's business, several surveys have found that the urban market is starting to decline. The days of full "hook ups" - a total head-to-toe outfit of one urban brand - are past, said Richard E. Jaffe, a retail analyst at Legg Mason. Those who still like the look are seeking brand names that are perhaps hipper and definitely younger than either Phat Farm or Sean John, he said.
When Steven Brown, who runs a new Web-based urban clothing store called CityBoyz, lists his top designers, they are names like Ami Sanzuri and Krush, Caffeine Clothing and Dragonfly. "I think I have a couple of Sean John belts on the site," he said, when asked if he carried the brand.
That is not surprising to some analysts, who say Sean John may be old hat for the newest fashionistas. Being urban, after all, means being ahead of the fashion wave. But the masses, including some older, more affluent customers, may just be discovering him.
"It's a really odd thing," said John D. Morris, a retail analyst who specializes in youth-oriented fashion at Harris Nesbitt, an investment bank in New York. He canvasses the malls and holds focus groups with teenagers and customers in their 20's. "The teenagers who used to wear Sean John are wearing Ralph Lauren," he said, "and the 20-ish stockbrokers are starting to wear Sean John."
Mr. Beder, the retail analyst, said that "the whole urban style has been co-opted by preppies."
Although Sean John is not a public company, Mr. Morris says he tracks it and most of the other urban brands because they are sold in the national specialty chains, which are publicly traded. "The brand has been slipping," he said of Sean John. "Managers in places like T.J. Maxx list Rocawear, Polo, Ecko and Baby Phat as their most popular. Macy's has far more Ecko and Baby Phat than Sean John. Plus, there's been an overall shift away from branded clothes. We know the kids don't like logos anymore."
Elina Kazan, a Macy's spokeswoman, said Sean John "is, and will continue to be, a very important vendor for us."
Last year, retailers sold about $400 million of Sean John clothes, according to Mr. Wichser - a figure that translates into $125 million to $150 million of wholesale revenue in 2004. The profitability of Mr. Combs's clothing business - which last year got a $100 million infusion from the billionaire Ron Burkle - is the subject of much speculation in the fashion industry.
Mr. Wichser said Sean John "incurred a slight loss" last year, but he attributed that to expansion. First, he said, Sean John bought a 50 percent partnership with Zac Posen, one of the hottest and most social of the young designers. (The price was not disclosed, but bankers said it was about $2 million.) Second, he said, Sean John opened its Fifth Avenue store last year.
That store is not large - only 3,500 square feet - and the rent may be cheaper than in it would be in other locations, like West Broadway in SoHo, where other urban clothing retailers have set up shop. To many retailing experts, Mr. Combs's leap last fall to include dressier, more formal styles - notably suits and silk ties and French-cuffed shirts - seems prescient now.
Last week, Mr. Wichser predicted that the store would "break even or be slightly profitable in 2005," adding that he was "assessing" the store's future.
Earlier this month, the salesman who compared Mr. Combs's sneaker designs to Louis Vuitton's said that some of the suits had been in Sean John's store since last fall and had been subtly marked down to $495. ("Where's the sign?" he was asked. "I am the sign," he replied, with true Puffy bravado.)
Mr. Combs, for his part, shrugs off speculation about his empire's health. "It's all right if people have questions," he said, "but sometimes it's not important to give people answers." He does, however, answer one question: Is the urban business in trouble? "No," he replied. "The economy is in trouble."
The story of Mr. Combs's beginnings, as he tells it, sounds like a rap song, especially with the emphasis he places on certain words.
"I come from Harlem, New York," he said, "and one of the things Harlem is known for is style, making something out of nothing. Nobody has money but everybody knows how to dress. My mother was a model and a shopaholic. I was definitely a mama's boy; I was dragged into bargain shopping for the right pieces. My aunt was a seamstress. My uncle George was gay. My grandmother did the robes for the church, and she did the hems for the choir - she did them cheaper than the local cleaners. My father was an alcoholic, and he died when I was three."
It sounds like a Horatio Alger story, he was told.
"I don't know who this Horatio Alger guy is, but I certainly went through a lot of adversity," he said. "As a young black man - I don't want to pull the race card - but it certainly seems like the odds were against me. Eighty percent of my friends are dead or in jail. It's just something I have to live with."
When he was 12, the family moved to Mount Vernon, N.Y., just north of New York City, and he went to the Mount St. Michael Academy, a private school a few miles away, in the Bronx. "When I arrived, I was too young to have a paper route; I was one year away," he said. "But I made a deal with the kid who had the local route, who was going off to college. I'd split the money with him 50-50. It was a great deal for him, and I was making $600 a week by the age of 13. That's when I got the bug, when one plus one equaled two for me."
When he went to Howard University, the entrepreneurial reflex went with him. Between classes, he ran a shuttle service for other students, for example, and he later pursued an internship at Uptown Records, which published the R&B and rap music he liked most. When he met the rapper Heavy D, whose real name was Dwight E. Myers, Mr. Combs said he begged him to call the label's president, Andre Harrell, on his behalf.
One day, he was asked to meet Mr. Harrell. "I told him I'd wash cars, quit school - anything - a priceless chance to be in your presence," Mr. Combs recalled. The student sycophant was given a chance, dealing with artists "nobody could control or handle," he said. The first record he produced - "Come & Talk to Me" by Jodeci - sold two million copies, and he was named a vice president. But almost as quickly, he was fired. He was 21.
"I guess Andre didn't want two kings in the castle," Mr. Combs said. "I had obtained some success, some notoriety, and I didn't realize it wasn't my house."
A concert promotion failed spectacularly when nine people were crushed to death at a rap concert that Mr. Combs and Mr. Myers staged at the City College of New York in 1991. Family members of the people who died sued Mr. Combs and Mr. Myers, as well as the college and the city, accusing them of negligence. The suit was settled for $3.8 million, of which Mr. Combs paid $750,000. In a separate suit filed by some people who were injured at the event, Judge Louis C. Benza of the Court of Claims in Albany chastised Mr. Combs, saying he oversold the event and hired bouncers who barricaded the doors to keep out angry ticketholders, trapping others inside.
Mr. Combs landed in trouble again when he faced charges of illegal possession of a gun and attempted bribery of a witness after a 1999 shootout in a Midtown nightclub. Three people were wounded in the incident. Mr. Combs was acquitted, though one member of his party was convicted and sentenced to 10 years in prison.
After that, Mr. Combs spent more time on his fashion company, which he had started by using money from his CD sales to buy 50,000 black hats and T-shirts with his signature on them. The idea, he said, was inspired by the Agnès B boutique, which then sold clothes mostly in black. He started hiring independent designers to expand his offerings, then started designing himself. "I didn't think I'd end up being the designer," he said. "It was never my intent. My intent was to own a company, not be a face in its ads."
These days, Mr. Combs says he is partying less; he is slowing down a bit. He is consolidating his clothing maker and recording outfit from several offices around Manhattan into a single building on Broadway at 54th Street, "to make sure we take advantage of all the synergies," he said.
"And that takes time," he added. "I'm taking the time to slow down, to strategize, to figure out where I want to be in five years."
The company, he said, had been "like a train speeding down the track; if you don't manage the velocity, the train will eventually crash."
It came close to a collision last year, when deliveries became so erratic that Macy's threatened to stop carrying the line. "Did we have some problems during the last year? Yes," Mr. Wichser said. "We didn't have the infrastructure." (To address that problem, Sean John opened a distribution center in Cranbury, N.J., last fall.)
Mr. Combs's top priority is the Sean John collection of casual men's wear, which makes up about 70 percent of his business, according to Mr. Wichser. "What most needed work was the management," Mr. Combs said, adding that he addressed that problem by hiring Mr. Wichser. Now the company will work on finding better factories to make the goods.
Mr. Combs also has to figure out how to incorporate Zac Posen into his empire. Last week, he said the plan was to have Mr. Posen do "a secondary line," probably aimed at department stores, and to license his name for accessories.
"A woman would buy a Zac Posen handbag, a pair of shoes," Mr. Combs said. "He's different from Marc Jacobs, of course, but he's definitely following in his footsteps." Mr. Posen, who is only 25, has also been "a quiet consultant" to the new women's line, Mr. Combs said.
WHILE strengthening men's wear and introducing the women's line, Sean John will rely on licensed goods - suits, dress shirts and ties made by other companies but sold under the Sean John label - to drive its growth, Mr. Wichser said. Sean John collects a percentage of the sales of licensed goods, usually 7 to 10 percent. Mr. Wichser predicted that sales of the licensed clothes would grow "in the mid-teens" between this year and next.
At the same time, Mr. Combs has begun to de-emphasize his recording career. In a lengthy interview, he said he was making his last record and would only produce records in the future. "I think I've gone as far as I can as a solo artist," he said.
Recently, he sold half of his Bad Boy music catalog to the Warner Music Group for $35 million. He dismissed speculation that he owed about $12 million of that to his old distributor, Universal. He said that he paid much less than that to settle an old loan and let him get out of his contract with Universal eight months early. A spokesman for Universal had no comment.
"Puffy has told us he's going to focus on music and building his career," said Edgar Bronfman Jr., the chairman of Warner Music, "and when he focuses, there's no one more talented and better at spotting talent and overseeing its growth."
In the end, the empire is only as strong as its emperor - Sean Combs or Puff Daddy or P. Diddy.
Ronald Frasch, the fashion director at Saks Fifth Avenue and the former chief executive of Bergdorf's, said that a big part of the appeal of Mr. Combs's new women's line was Mr. Combs himself. After a 20-minute presentation by Mr. Combs, Mr. Frasch said he told him: "I don't know whether the clothes are any good - but I'll definitely vote for you!" He ordered clothes for six stores to start, and said he plans to include more.
John Dempsey, the chief executive of Estée Lauder, said his company was also delighted to be part of Mr. Combs's newest venture - a perfume, but please don't ask about the name before it is revealed next month. It doesn't matter, he said, that every other celebrity seems to be introducing a fragrance.
Mr. Combs, he said, rises above them all. "Russell Simmons comes close to Sean as a business entrepreneur," Mr. Dempsey said, "but nobody else could have created 'The Band' on MTV or gone on Broadway to star in 'Raisin in the Sun.' When I travel the world, when you go to Germany, to Europe, his clothing line may not be known, his music may not be known, but everybody knows who he is. He's got a lot of personality muscle."
Mr. Combs also has enough experience to know that personality muscle alone is not enough to build an empire. "You have to invest in executive talent in order to one day own or be part of a Fortune 500 company," he said, then paused. "I'm more mature now. I understand. It's all right to need people."
Sean "P Diddy" Combs will be hosting MTV's VMA's (Video Music Awards) hosted live from Miami, Aug 28, 2005 on MTV. Combs, was recently named in FORTUNE Magazine's, Aug 15 Edition of One of the Most Influential Monitories. P Diddy was joined on the FORTUNE list by Russell Simmons, Jay Z, Will Smith, Oprah among others. For more information on Sean "P Diddy" Combs visit Diddy Bad Boy Online
