Make The Clothes, Outsource The Retailing

Source: Forbes

When brothers Shep and Ian Murray decided to expand distribution of their preppy, nautical-themed apparel, they didn't know the first thing about running a retail store. That's why they let their competitors do it for them--and have been making decent waves ever since.

Armed with a slug of credit card debt, the brothers traded their entry-level New York City jobs back in 1998 for the chance to sell cheekily patterned ties out of their car's trunk. By 2004, Stamford-Conn.-based Vineyard Vines had stretched beyond ties and tote bags into a full assortment of men's, women's and kids' weekend wear and accessories, sold in bits and pieces through high-end department stores and specialty shops catering to the country-club set.

Still, there was no one place where customers could buy the whole range of Vineyard Vines apparel--and opening up their own slew of stores was an accident waiting to happen.

"It's very complex to open a retail store," says analyst Marshal Cohen of The NPD Group, a retail consultancy. "These guys are smart enough to realize they don't have the expertise."

Outsourcing has become a core strategy for firms big and small. Apple and Cisco outsource most of their manufacturing; Nokia and Royal Bank of Scotland lean on India's Wipro and Infosys Technologies to handle IT work; even big banks like Bank of America and Lehman Brothers are now farming out some of their research and financial analysis. Now the Murray brothers are applying that model to retail, with decent success.

Their march began on the tony Massachusetts resort island of Martha's Vineyard, where years of vacationing had made the Vineyard Vines brand a hometown favorite. The plan was to ask a local retailer already carrying their line to open and manage a standalone store selling only Vineyard Vines; that would leave the brothers and their staff to dream up new designs and market the brand by sponsoring regattas and the like.

The store owner balked at the request, so the brothers took the plunge and opened their own shop on the island. When the store didn't flop, the retailer agreed to open a second one on nearby Nantucket Island. More stores followed in Hyannis on Cape Cod and posh Greenwich, Conn., all in partnership with experienced, family-owned retailers.

Here's how these agreements work: Both partners split the initial start-up costs, which include tricking out each store with nautical art, old guitars and boating memorabilia in keeping with the brand. Vineyard Vines sells its products at wholesale to the retailer, who handles the day-to-day operations, though the Murrays retain creative control over how their goods are presented. The store owners provide feedback on popular items, as well as comments from customers on what they would like to see in the future. Promotions are announced simultaneously in the stores and on the Vineyard Vines Web site.

The partnership model has helped Vineyard Vines nearly triple its revenue since 2004, to $37 million. The brothers claim their operation has been profitable since inception, but they won't discuss hard figures.