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1.12.99  
Marketing in Barrios and Boutiques
A hip Hispanic underwear maker wants to go mainstream

Jerome Darby and Derek Peoples are hanging out in the modest New York offices of their Papi Sportswear Inc. -- which makes underwear and urban sportswear for Latino men -- and dreaming about their company's crossover.

Peoples, the business' head designer, is wearing a black cap adorned with "Papi" -- Spanish slang for daddy and a term of endearment. "Five years ago, you would not have seen white guys walking down the street with a baseball hat like this on their heads," he says, meaning one with a Spanish label. "This is very uptown Latino. I mean up UP-town. But now it is commonplace."

Crossover -- that magic moment when an "ethnic" product goes mainstream -- is the Holy Grail for the three-year-old company, which markets caps, T-shirts, and boxer and bikini briefs to young men via steamy, Calvin Klein-esque ads and packaging. It also plans a broader line of sportswear for men and women (the latter called "Mami" -- the feminine of "Papi"). The moment of crossover feels tantalizingly close in some ways. Papi clothes serve as costumes for the Broadway hit Rent, and singer Janet Jackson and actress Rosie Perez have been photographed wearing Papi T-shirts and hats. Still, Papi sells most of its clothes via urban boutiques that target Latino and young, hip clients.

GROWING PAINS. Papi, with annual revenues of $1 million, is in sync with with a few trends: Young, white, even rich kids now don sportswear with an inner-city look. What's more, there's the growing mainstream interest in Latino food and music. Still, the company faces an uphill battle. It wants to be a household name in two brutal mass markets -- men's underwear and sportswear -- which have annual U.S. sales of $2 billion and $34.7 billion, respectively. At the same time, it wants to keep its Latin image, because it needs its Latino clients and because that's what Papi is banking on to set its products apart.

The irony of all this is that the company's president and founder, Los Angeles television commercial producer James Sonzero, is now the only Latino member of its five-person management team. (Two of the three original members were Latino.) And little about Papi's underwear differs from mainstream products, except its name and marketing. Its ads and packaging feature sultry models -- tattooed and pierced, with bulging biceps and washboard stomachs, slouching like street toughs. "We are willing to put sexier guys in to get more attention," Sonzero says.

He's hanging a lot on that image: "In specialty stores, where there is more novelty, we have more appeal than a Calvin Klein or a Tommy Hilfiger," he contends. "Papi is a sexy word. It is a more fun way to go than the standard Calvin Klein."

For all the talk of whites adopting ethnic products, the crossover that Papi needs most is in the growing Hispanic community, which is fast becoming middle-class and can no longer be viewed as an economic underclass. "It annoys me that sometimes when people think of an ethnic market, they automatically think, 'poor people,' " says Darby, vice-president of Papi. "The urban sportswear market has shown that there is money in [ethnic products]. We try to show that something ethnic can be A+."

Market researcher Gary Berman, chief executive of MSR Group in Miami, says the 31 million Hispanics in the U.S. have $369 billion of disposable income. They're urban and young -- age 26 on average, vs. 36 for the general population. "The Latin-American market is the fastest growing middle class in the country," says Sonzero. "I saw this as a great opportunity for growth and for profit."

Papi wants to tap the ethnic trend from both directions. It has products in some stores of J.C. Penney, which is targeting large Hispanic communities, and in 130 boutiques in the U.S. and abroad, including high-profile Patricia Field -- among the first in the U.S. to carry bad-boy French designer Jean-Paul Gaultier's daring fashions. Tapping mainstream stores as well as boutiques is a common strategy for young designers, says John John Dearmas, Patricia Field's assistant men's wear buyer: "The larger stores come here to check out what is going on."

MILLION-DOLLAR ROLE MODEL. There are enticing precedents for what Papi wants to do. For instance, Damon John, CEO and founder of Fubu ("For Us By Us"), started in 1992 on a street corner in Queens, N.Y., selling sport shirts and hats to the African-American community. Today, John heads a $350 million company.

Sonzero started Papi in 1995 with about $100,000. After creating ads for mainstream products for 13 years and watching clothing trends in clubs, says Sonzero: "I felt I was poised to launch my own product. And I felt there was a need for a Latin-identified product." Papi's start was inauspicious: A 1995 boutique trade show in New York, where the company first showed its wares, opened during a blizzard. Nonetheless, Papi racked up $20,000 in new orders.

After that, things began to look up. The following year, it negotiated a licensing agreement with Toccoa (Ga.)'s Tugaloo River Boxer Co., which assembles and distributes most of Papi's underwear, giving it a 6% to 8% cut of sales. Papi maintains design control and subcontracts production of its sportswear line in Asia.

Tugaloo hooked Papi up with J.C. Penney, which now accounts for 25% of sales. Only 25 of the giant retailer's 1,300 stores carry Papi's brand. But it's the only brand the chain sells that's geared to the Hispanic market. As a measure of J.C. Penney's interest in that market, Papi has its own special shelves in some stores, a retailing coup.

Yet Papi struggles to make headway at J.C. Penney. "I can't say I get testimonials from our field people on how great the product is selling. It is much less than 1% of my total business," says Charley Heaney, J.C. Penney's head buyer of men's underwear, who adds that the percentage of Papi inventory that moves weekly is at or below average for the department. Heaney won't discuss numbers, but he says J.C. Penney doesn't intend to expand its orders for now.

All of this raises the issue of Papi's long-term prospects. Sonzero acknowledges the difficulty of cracking the mass retail market. Bigger rivals "have the kind of power to push any kind of competition out," he says. That leaves the urban boutiques -- Papi's home turf. This is a stark reminder that it will take more than a catchy name and a strong niche to make Papi the next Tommy Hilfiger.

By Jeremy Quittner in New York
jeremy_quittner@businessweek.com

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