For Custo Barcelona,

Color Is Key

Explored Private Equity; Sees

Downturn As Opportunity;

Product Successful Via Internet

By Richard Collings

Published: September 4, 2009

   Building a business around a passion for the t-shirt may not seem particularly innovative, but in 1981 when brothers Custo and David Dalmau co-founded what is today known as Custo Barcelona, that was exactly the idea.

   In these difficult times those humble roots in hindsight seem a bit revelatory as some leading designers focus on fresh takes of the staples people need.

   Out of that passion, the brothers built a modest global brand that generated revenues last year in excess of about $110 million, with 70 of its own bricks-and-mortar stores located around the world, and a successful U.S.-based e-commerce Web site.

   Custo Dalmau, the private Barcelona-based company’s creative director, said that his approach to design continues to emanate from a focus on the t-shirt. Denim jeans, in his world, are the equivalent of t-shirts for the legs, and coats are t-shirts that are layered on top of the rest of what one is wearing, he explained.

   He claims that his company created a new category by specializing in the t-shirt at a time when many luxury brands treated it as an accessory. T-shirts, denim jeans and sneakers have always interested Custo because of their functionality and affordability.

   Infused with colorful graphic prints, which translate well in the age of the internet, his clothes have been a hit, with his company growing 10 percent a year on average, with perhaps only a couple of years since its beginnings in which the company either saw a decline or growth below that figure.

   This year, the company expects to grow by another 10 percent, due to the fact it is in a number of markets. It is experiencing an up-tick in places such as Mexico, Brazil, South Africa, China and India, while maintaining its business in the mature, but troubled, markets of Europe, the U.S. and Japan.

   Naturally, this is not the first downturn the company has faced, yet it is more severe, but aiding the company are cost cutting efforts over the last two years, such as through the reprocessing of waste, which have reduced costs and therefore prices, by about 20-to-30 percent, Custo said.

   In addition to lower prices and entering growing markets, the company has expanded its number of product categories to include handbags, children’s clothing and sneakers which are produced in-house, as well as watches, eyewear and perfume, all of which are licensed out.

   Custo Barcelona is also focused on staying true to its colorful heritage, so that its garments are identifiable without having to look at the label, but updating the aesthetic so that the brand continues to offer something new to customers.

   Custo said that the garments, by focusing on color, sell well over the internet. He said you don’t have to feel things such as color to understand it. He likened his clothes to colorful linens, while garments from certain other brands are analagous to a mattress.

   The bedding you will buy online because you are attracted to the hue or aesthetic, he said. For many people, a mattress is a matter of comfort, and so consumers need to directly experience that, which you can’t do over the internet, before they are willing to purchase it.

   Custo said that the use of the finest cottons and harnessing color has always been key to the company’s aesthetic, despite the shift in trends over time, and the brand has always grown as a result.

   Custo described this downturn as the end of a cycle, as all crises are, and it is during these times that industries have to discover new directions to fuel their businesses for the future.

   He said that he believes the consumer is still buying for now, though the “fevered” consumption has come to an end, a trend he expects to continue in mature markets that have satisfied their appetites for unrestrained purchasing.

   In countries not used to having access to so many goods, he said it is likely apparel companies will continue to experience growth. For a long time, certain areas of the world simply never had the opportunity to buy anything, which created pent-up demand.

   The biggest challenge is to find ways to break the mold, be creative, “to rethink everything,” he said, which he describes as particularly exciting.

   And yet, the company is forging ahead with runway shows, perhaps its largest ever, moving up to ‘the tent,’ one of the most visible venues of New York City’s fashion week.

   Custo said that while the runway “doesn’t marry with now,” it is the “best non-solution for the moment.” He added that there are likely better ways of showing product.

   Concerning its retail strategy, Custo Barcelona will open up three or four more stores by the end of this year, and plans to open 15 stores next year, he added.

   In the U.S. the brand’s sole wholesale customer is the luxury retailer listed New York City-based Saks Fifth Avenue, Custo said.

   While the company will continue to launch bricks-and-mortar locations, it is focusing on e-commerce, with a successful online business in the U.S. Custo described e-tailing efforts in Europe as not as successful, but said that it is catching on in countries such as Germany and France.

   On the marketing front, Custo said traditional advertising is not working as well as it could, the problem being that it is not measurable. He said magazines are suffering as a result.

   The advantage of viral marketing on the internet is that the impact of each campaign can be measured, and he expects the shift to continue in that direction.

   Custo said he has also observed a shift in fashion, as consumers are no longer interested in wearing uniforms, with potential customers increasingly gravitating towards self-expression or finding an individual style that is comfortable for them.

   Fast fashion retailers such as Zara, a unit of listed Spain-based Inditex, have also enlightened consumers as to the real price or cost of clothes, Custo said. As a result, consumers are smarter and no longer are willing to pay just for the brand name.

   And certain powerful companies are no longer able to dictate what the trend will be in terms of color, fabric and silhouette as they did 20 years ago, he said, so there is no longer a color for the season, for example, and generally, there is no global trend.

   He said the internet is the cause, as consumers have so much more information than they did before. Besides, fashion has always differed depending on factors such as culture and location.

   Today, Custo Barcelona sources all of its manufacturing to places such as Turkey, Morocco, India and Peru. It attempted to produce in China, but that effort was unsuccessful. In particular, he cited India as the best place in the world for producing hand-made garments, and Peru, due to its quality cotton fabrics.

   The company is solely a family enterprise, with Custo owning one-half, and his brother retaining the other half.

   Though the company has been approached by potential acquirers and private equity investors, and ultimately explored such options, entering negotiations with two different entities at one point, the brothers opted not to sell either a stake or the company as a whole.

   Custo explained that his company would not fit easily inside another entity, and besides, the brothers enjoy running the business and not having to ask permission to make decisions.

   He, however, would not rule out, or “wouldn’t say never,” to a potential deal, though he thought it unlikely, as the brothers would end up losing control.

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