Kathy Ireland: Uber EntrepreneurPosted: March 4, 2012
Until now my only knowledge of Kathy Ireland was that she used to appear in the Sports Illustrated swimsuit issues. But that pales in comparison to what she has accomplished as an entrepreneur. The numbers area staggering. The yearly revenues, at retail, of Kathy Ireland products is $2 billion. That works out to about $850 million at wholesale of which she pockets 6% or $50 million per year. With a staff of only 42 people and next to no costs except salaries, most of this $50 million is pure profit going into her coffers. A recent article in Inc. magazine describes her operation:
It’s staff meeting time for the biggest retail brand you’ve never heard of, which at Kathy Ireland Worldwide means marching up the hills outside Santa Barbara to the eponymous founder’s mission-style home for a corporate version of “I’m OK, You’re OK.” As the coastal air tempers the bright California sun, 15 staffers dressed in casual black sprawl on the plush sofas or sit cross-legged on the floor. An Academy Award rests nonchalantly on an end table, lending a surreal touch. “Don’t ask about the Oscar,” one of Ireland’s confidants says to me furtively. (It was from another fashion diva with a flair for retail, Elizabeth Taylor.)
The group’s breathing golden idol sits, chin in hand, in the middle of this group. At 48 Kathy Ireland is still as stunning as when she appeared in 13 consecutive Sports Illustrated swimsuit issues, including three covers (albeit now with bigger hair). “Thank you,” she says in her small voice as the group kicks off a brainstorming session about social media. “Thank you,” she repeats as ideas fly about ways to gain her company a bigger presence on Twitter and Facebook. “Thank you,” the group responds, the only two words invoked more over the next hour than “excuse me” and “please.”
If this isn’t how America’s best-known licensor, the famously demanding Martha Stewart, might do business, so be it. Kathy Ireland sells more product–some $2 billion at retail–and she’s worth more, too. If Martha Stewart represents WASP perfection (and those who aspire to it), then Kathy Ireland rules flyover country (and those content to stay there), bequeathing her taste–and/or slapping her name–onto more than 15,000 products, few of which jibe with the image most people have of her.
This swimsuit model doesn’t sell swimsuits, and while many women may still associate her name with a clothing line at Kmart, she barely sells clothes anymore, either. The bulk of her success comes instead from the kind of stuff that has likely never seen a celebrity’s name adorning it: ceiling fans, flooring, mattresses. And above all there’s furniture: desks, end tables, media centers, beds, ottomans and bookcases. There are area rugs, carpets and headboards. And lots and lots of windows. One of the biggest pieces of the Kathy Ireland empire is her namesake vinyl and plastic replacement windows, which purportedly insulate heat inexpensively; a retail outfit called Window World moves $400 million of them a year.
If there’s any consistency to this grab bag that is Kathy Ireland Worldwide, it’s the target audience: Middle America’s moms. There’s a certain magic in placing a glamorous supermodel’s name on mundane products aimed at an everyday audience. “I can see your compassion for moms,” tweeted one fan. “Can’t wait to read your book!” (Ireland has published six.) With three children and four dogs, Ireland fronts the brand credibly. When I request a coaster before putting down a glass on a rustic wooden table at her house, Ireland waves her hand dismissively. Stewart might create a Thanksgiving dinner spread worthy of a magazine; at Ireland’s place dogs lounge on the furniture.
The ex-model’s elastic brand– based on what I saw, she would consider Kathy Ireland toilet plungers or Kathy Ireland roach motels if she could argue they help busy moms–proves a valuable trait in licensing, a strict volume business. That $2 billion at retail (for comparison, Martha Stewart sells about $900 million at retail, based on industry estimates) translated into about $850 million in wholesale sales last year.
Kathy Ireland was an entrepreneur long before she was a model. As a child in Santa Barbara, she painted stones, and rather than place them on her shelf to admire, she peddled them door-to-door (her grandmother carried one in her purse for protection) and eventually sold other art projects at weekly crafts fairs. At 11 Ireland noticed an ad beckoning newspaper deliverers: “Are you the boy for the job?” Ireland wrote a note to the editor saying she was the girl for the job, and she got it.
Ireland was earning $60 a month when she decided it was time to get her own bedroom. She rang up a contractor for an estimate on what it would cost to add a room to the modest house she shared with her parents and two sisters. “My mom found me in the driveway showing him where I wanted my room to be,” recalls Ireland. “I knew exactly what it was going to look like, what the furnishing would be. Then he gave me his bid, and it was something like $20,000.”
The room would have to wait–but not long. In 1980, at the age of 16, Ireland was discovered at a finishing school (where her parents were trying to clean up their tomboy daughter) by the Elite Modeling Agency. Within four years she was featured in the Sports Illustrated swimsuit issue, and in 1989, when she graced the cover for the first time, it became SI’s best seller ever. Internationally famous, she was one of the group, which included Christie Brinkley and Cindy Crawford, that spawned the term “supermodel.”
“We joke that there’s still the Kathy Ireland standard,” says MJ Day, senior editor of SI’s swimsuit issue. “She’s kind of the complete package.”
During her modeling period her entrepreneurial side ventures were whiffs, such as the time she became entranced with making beer with a bunch of graduate students. In 1993 John Moretz, a marketer who later bought Gold Toe socks, approached Ireland with the kind of gig that signals a model’s best years are behind her: Did she want to model pedestrian socks?
“She’s the girl next door who happens to be beautiful,” says Moretz. “That forms an emotional bond with the consumer.”
Pregnant with her first child, rather than shoot him down in a fit of celebrity pique, she made a counter proposal. What if they went into business together making and selling Kathy Ireland socks? “I wanted to make it clear to them that I didn’t want to just put my name on it,” says Ireland. “An endorsement wasn’t interesting to me.”
Moretz agreed. He bought the rights to use her name on a line of socks, and he agreed to pay for manufacturing and distributing the socks that Ireland would design and promote. In return Ireland would get a royalty on every pair sold. She took out a $50,000 personal loan to launch Kathy Ireland Worldwide.
Moretz was able to get Kathy Ireland athletic socks into sporting good stores like Big 5. Intrigued, he quickly bought the rights to license exercise clothes, bodysuits and eventually swimwear. Moretz became the master licensor for Kathy Ireland, sublicensing her name to companies that made things besides socks and collecting 30% of that revenue stream to Ireland’s 70%. His biggest coup: helping her get an exclusive deal in 1994 with Kmart, which envisioned turning her into the apparel version of their star, Martha Stewart.
While Moretz did the heavy lifting on her clothing line, Ireland dabbled in fitness videos (like 12 Minute Abs, Buns and Thighs), nonprofit work (March of Dimes and AIDS LA) and acting. She was making good money but was far from a mogul.
That changed in 1998, when she decided to expand into furniture. Warren Buffett, who appreciated their shared experience as newspaper deliverers, once told her that fashion changes but the home remains far more secure. In apparel every celebrity with a Q rating above zero either had a line or was pitching one. But precious few celebrity licensors dabbled in home furnishings, even though the dynamics of buying a dresser are no different from buying a dress. “A known brand name gives people a comfort level when buying,” says furniture industry analyst Wallace Epperson.
In 1999 Ireland went to the biannual furniture convention in High Point, N.C. with a line of sofas, chairs and end tables. “She had a passion and she was very smart,” says Irv Blumkin, head of Berkshire Hathaway’s Nebraska Furniture Mart, a 450,000-square-foot megastore that helps drive the direction of the industry. “As she told me the stories of her different products I felt we should give her a chance.”
With furniture Ireland mandated that her brand would mean something: “Finding solutions for families, especially busy moms,” which is now the company’s motto. So rugs were treated with a spill protection chemical that also holds the colors and allows the rugs to have longer lives. Tables were designed with rounded corners so running children don’t get hurt falling on the edges.
The furniture business showed potential, and within a year Ireland signed with Berkshire’s Shaw Industries to expand into carpets, flooring and floor tiles. She remains a staple for the company.
As the furniture side of her business grew, so did Ireland’s confidence: She took a more active day-to-day role, and Moretz became more of an advisor, garnering an increasingly smaller cut of her action. In 2003 she even found the gumption to finally dump Kmart, which had come out of bankruptcy. “It’s heroic for a busy mom to go to a store,” says Ireland, always quick to lionize her core customer. “If she goes to a retailer and she has a bad experience she’s mad and rightly so.”
The most audacious aspect of the Kmart decision: She had no immediate plans to get back into apparel. Kathy Ireland was officially a brand, transcending the products one would expect a supermodel to offer. Accordingly, Ireland has spent the last decade or so moving her company into logical “busy mom” offshoots, sharing her aura with field experts, as necessary. Her ACafe brand, with chef Andre Carthen, boasts kitchen candles, jewelry and kitchen knives. She’s teamed with landscape artist Nicholas Walker on Jardin–who also designed Elizabeth Taylor’s gardens–which offers budget-minded outdoor products. And in buying the Sterling/Winters production and management company she now owned the company that had produced her made-for-TV Christmas movies (Once Upon a Christmas and Twice Upon a Christmas) and workout videos. The supermodel had come full circle.
While Ireland’s success is staggering, it’s also unconventional. She admits that she barely graduated from high school, and while her entrepreneurial instincts have proven excellent, she happily delegates the nuts and bolts of the business to others. Ask for financial details and she’s quick to insist that for her business is more about investing in people than profits, whatever that means. And while she’s happy to meet with retailers, she assiduously avoids grand openings, despite her drawing power. “We’ve tried it, and it doesn’t work,” says Ireland. “What happens is the store gets cluttered with guys who are there with 500-year-old copies of Sports Illustrated. How does that help a busy mom? These people are just in her way.”
Instead, Ireland embraces her role as chief designer. Every one of those 15,000 rugs, candles and windows originates from something that struck her. So Ireland spends part of the year traveling the globe, looking for inspiration like some poet of commercialism. A beautifully rusted gate she saw in Liverpool once helped inspire the design of a bed headboard. She designed one rug based on shells she collected with her children in Hawaii. Tough work if you can get it.
Her design ideas are then boiled into the company’s eight style guides, which are created by the professional designers within the company. So the “Ivory Coast” guide features animal prints, desert colors and “sun-kissed skies.” A Russian guide evokes snowflakes, ballerinas and the peasant-chic styling of Dr. Zhivago. Manufacturers like Vaughan and Bonavista then take her ideas and guides and design the final product (with lots of input and approval rights from Ireland and crew). Her customers can access the style guides as well, positioning Ireland as their tastemaker–and, it is hoped, encouraging them to buy more of her products, across multiple lines.
There will be more to buy. She’s launching a new retail arm with her original partner and on-and-off Svengali, Gold Toe’s Moretz, with the goal of penetrating the few “busy mom” categories she doesn’t already have: things like shoes, hair care and perfume, all of which will be offered direct to consumers through her website in addition to selling at retail. She’s planning a line of Kathy Ireland shops in Europe and Asia. And she’s even returning to her first business, apparel. Although she already has a line of furs at Macy’s and a new bridal line at Mon Cheri, soon she’ll be selling everything from bras to jeans to business suits.
All of this adds up to a very valuable company. Given the likely cash flow–figure $35 million on that $50 million or so in royalties–Kathy Ireland Worldwide is worth, based on public licensor comparables, somewhere around $300 million. (Martha Stewart’s holdings in her company currently sit at around $250 million.) And remember that, other than around-the-world forays, there’s precious little need for Ireland to reinvest her cash stream into the business. So she’s amassed a formidable collection of jewelry, which she chose with the help of her jewelry mentor, Elizabeth Taylor. She considers the $25 million collection too expensive to keep in her home, so it stays in a bank vault in Los Angeles. She also has properties in California, Nevada and Israel (Ireland has been a devout Christian since 18, whose “first and last meeting of every day is with God”).
With a business spouting cash and a staff ready to convene in her living room, Ireland has no desire to go public or sell. The prom queen of busy moms, in fact, maintains that her brand remains an infant. “We have a long way to go,” she says, flashing a runway smile.