Special Report--ENTERPRISE: Marketing: Comebacks
USING CHI-AND THE NET-TO REBUILD
Digging out from disaster--it's a common experience for risk-taking small-business people. But few have had to do it so literally as Laurence Ostrow. In 1989, the Santa Cruz (Calif.) entrepreneur was running ChiPants Concepts Inc. By combining catchy design with New Age management, Ostrow had built a thriving $4 million pants business with seven Bay Area stores and an intensely loyal following.
But in a mere 15 seconds, all that was destroyed. The mammoth earthquake that tore through San Francisco leveled Ostrow's business. Although his trousers take their name from chi, a Chinese concept of "life-animating" energy, the 7.1-magnitude temblor packed more energy than ChiPants could cope with: Within a year, the financial aftershocks turned his business into rubble.
HEMP FIBER. Now, the 46-year-old Ostrow is launching a comeback. But this time around, he's rebuilding through mail order and--with a jump-start from the Internet--he's off to a rapid start. "My chi has returned," he says.
So what's Ostrow's product? ChiPants are slacks tailored with a looser-fitting crotch. A onetime teacher of yoga and New Age "movement," Ostrow first designed a pair for himself: He wanted slacks with the comfort of sweatpants that could be worn to work. They quickly caught on with graying hippies, New Age devotees, and so many Bay Area computer professionals that they became known as "hacker slacks." "I spend a lot of time sitting," says Palo Alto-based computer consultant Hugh Daniel. "They're the only pants I buy."
Many also liked Ostrow's politically correct way of working: His stores were bathed in earth tones, hierarchy was taboo among his enthusiastic young staff, and his pants were sewn locally using 100% natural cotton and hemp. Ostrow also adroitly marketed his Eastern-inspired philosophy, promising that the pants would help wearers free their own life energy. By late 1989, with monthly sales at 10,000 pairs, Ostrow had hired an outside CEO to manage growth.
But the quake had other plans. The Santa Cruz mall where Ostrow's flagship store was located was leveled, and his nearby corporate offices were condemned. His manufacturer was destroyed. With production stopped, Ostrow racked up $500,000 in losses in less than two months. Short on cash, he shut his stores one by one. In July, 1991, he declared bankruptcy.
But in early 1994, Ostrow began traveling. From Japan to South Africa, he saw people in ChiPants and he learned they still had a following. When he returned to California in late 1994, he dug out a customer list and started up again.
Ostrow began by calling his old customers and soon had orders for 120 pairs. He borrowed $15,000 from friends and cut sample patterns. Then, Ostrow's renewed chi really kicked in: In search of a manufacturer that would make a small, 400-pair run for him, he called an old supplier: Seymour Jaron, owner of SJ Manufacturing Inc. in San Francisco. For a plant that normally makes orders of 10,000 or more, that was a money-losing proposition. But Jaron remembered ChiPants--and owned a pair. He and another investor decided to buy a 20% stake in Ostrow's new company.
FLOODED. More good fortune followed. A fan posted a message on the WELL, a popular online service, announcing ChiPants was back in business. Ostrow was flooded with E-mail asking where to buy them. Although he had planned to sell only through mail order, Ostrow realized his niche customers were more computer-literate than most. He drew up an Internet marketing plan and got a friend to create a site on the World Wide Web.
Hundreds of browsers now look at the site daily. Ostrow can't yet take orders online, but customers can download order forms or request swatches of ChiPants' fabrics. More important, Ostrow is rapidly building a customer list at a fraction of the cost--and time--that more traditional methods would have taken. "It's electronic word of mouth," he says.
Still, Ostrow has a long way to go. Margins remain slim, and cash flow tight. With a new mail-order catalog due out in October, monthly production will hit 3,000 pairs. By spring, Ostrow aims to be back to 10,000 pairs a month. And with no patent, anyone could copy his pants if he does succeed. But for now, Ostrow has little time to worry about rivals. "I'm just trying to grow this company in doable steps," he says. Presumably, he's wearing the loose-fitting garb that will make those steps comfortable.By Julie Tilsner in New York