Faherty Brand: Alex and Mike Faherty. How Jersey Shore + Manhattan Chic grew to 80 stores.

25:56So we need – Because cotton wouldn't work. Cotton wouldn't work. A little cotton, I found out, could work fine. And so what I did was it was like, all right, first you got to find what's the best version of the recycled filament yarn. And that's from a company in South Carolina called Unify. They're like, they just make the best version of the recycled polyester from, you know, plastic bottles and stuff. So I was like, all right, no one's really doing this mix of like, I still like the way cotton feels. There's like a feel to it that feels like softer, a little less sticky, let's just say, on your body.

26:27So I kind of just kept working and working and working. It was like trial number six, right? If I only had 17 % cotton with the recycled polyester, it didn't change the quick-dry mentality of it. But when you touched it, you thought it was a regular fabric. You didn't think it was a board short. And Alex, how much money did you have to or did you make available to do this? You had some saved cash, probably living as frugally as possible. But how much money were you able to put in? Yeah, the first inventory, I remember when we did our first inventory buy of the board shorts that Mike developed, the initial deposit was like$150 ,000.

27:10And for the year that Mike was, after he left Ralph Lauren, he rented a little studio and he set up shop there and he set up his concept wall, some of the branding, the fabrics that he was working on. He was there seven days a week all the time. And I would go over there on the weekends to catch up with him, brainstorming about the business. And so that kind of went on and on for months and months and months. And I loved it. I freaking loved it. And I was just feeling like I wasn't really enjoying my job that much anymore. I felt like my dad was in my head still. But I had to make the decision.

27:48It was getting closer. and I just had a couple of sleepless nights and just like woke up in the middle of the night, turned to Carrie and was like, I got to do this. When we come back after a quick break, how a cross-country road trip, an old-fashioned catalog, and a boutique clothing store in Japan all helped the Faraday brand get on its feet. Stay with us. I'm Guy Raz and you're listening to How I Built This.

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32:21Hey, welcome back to How I Built This. I'm Guy Raz. So it's February 2013, and Alex Faraday quits his finance job to go all in on a new fashion brand with his twin brother, Mike. They're looking to raise some seed money, they order their first run of clothing, and they're planning to launch their website in the spring. and I remember we launched the website. Alex and I were like, if we're going to launch this brand, we have to be on a surf trip. So we went to Puerto Rico at a friend of a friend's apartment in San Juan that had good Wi-Fi. We were with our buddy who was helping us with the final back end of the website, like making sure everything was linking, et cetera.

33:02And at one minute, it was like, the website was live and there's nothing we can do and we went surfing. and like you know we got some good press hits out the gate and then you know it's like all right we're selling stuff and just board shorts that's the only thing available men's board shorts and women's bikinis and women okay guys so it's just swimwear was the first product that we made and i had started sort of six months before you know we started reaching out to people that we knew kind of friends and family and people that we had relationships with and so i started during that time period, you know, trying to raise our first kind of angel round.

33:37How much were you looking to raise? $1 million. And you did it? You got it? We got it. I mean, I'm assuming that given your backgrounds and your track record, it probably wasn't easy, but like, yeah, I mean, you guys are smart guys. You had all this experience in finance, your brother had all this experience in fashion and design. I guess you get checks ranging from what? $5 ,000 to, I think our biggest one was$100 ,000. So I think we had 44 investors. in the first round. And pretty much all connections, people you knew or lose ties. Absolutely. People, friends of friends. Yeah. We did a couple smaller add-on rounds to that because I think what we figured out quickly is that inventory eats up capital really fast.

34:19At some point in the first year, we needed to figure out how to make clothes because we were moving from bathing suits into a full clothing line. And so we needed to find somewhere to make the line because we were going to only order 50 units, 75 units, 100, like small quantities. And so this one factory owner, who's one of Mike's close friends, who's an amazing guy, we met with him, talked to him about the business. And he said he invested and then opened up his factory to us for that first production run. All right. I want to talk just talk business for a sec with you, Alex, because you had experience in working in private equity and investment banks, but not necessarily with like inventory management, right?

35:02Like you could build a financial projections, you could build a P &L, but like, this is different retail, especially apparel is a different kind of beast, because one misstep can really put set you back too much stuff hanging around that you have to eventually throw away. You're dealing also with like different sizes, you don't want too much excess, you know, you're going to throw stuff away, like it's a restaurant, right? At the end of the day, restaurants got to throw away food. So how hard was that learning curve for you? Like, was it pretty steep? It was incredibly steep. I'm still 12 years later, still trying to learn it.

35:36And I think that if I look back at what was one thing that I did not anticipate or understand going into this was how complicated and difficult inventory management was going to be. And we learned it right away because we have to sell this amount of clothes in order to survive. What was the amount that you had to sell in order to survive that first year? We had in our mind that we need to sell$1 ,000 a day. That's an ambitious goal, right? Especially when you're an unknown brand. First of all, how did you get people to be aware of the website? Were you doing Facebook ads? Like, what were you doing?

36:12We weren't doing Facebook ads. You know, we had an Instagram account and we got some press right when we launched. So we had like a nice initial launch in April for the first couple of weeks. You know, friends are telling about friends. We're emailing everyone we know. So we're like, got, you know, a couple thousand dollar days,$5 ,000 a day. Like, wow, this is great. And then all of a sudden it's like, there's nothing. Wow. So clearly sales are slowing down. But I read that by the summer of 2013, you guys come up with kind of an unusual idea, which is you basically take the clothes on a tour of the country, like almost like you were a band or something.

36:51Like I read that you built kind of like a mobile pop-up store. Can you tell me about that? Yeah. So Alex told you I had this little studio in Union Square, 2012, right? Food trucks. They're everywhere. And I was like, why don't we just have a food truck store and we can travel? Just get a food truck and just have your stuff on hangers in the store. Absolutely. But, you know, I'm not a plug and play kind of guy. So I had to design a custom trailer with hydraulics that looked like, you know, a 1940s cape. You know, I had my mom, who's an interior decorator, help me with it. Another friend who's an architect in San Francisco just tell me like a couple things.

37:32And we built this basically trailer that was completely clad in reclaimed wood. And you opened it up and it was birch wood on the inside with photography and cool fixtures and racks. and the two sides of the trailer completely opened on hydraulics onto a sort of porch on both sides. And so we could basically pull it on a pickup truck, go anywhere, and sort of create a clothing store. And then what? You would have a plan to drive around the country? Yeah. So it first started with, yeah, we basically took the trailer and we started like just plotting out where we would go. we did a mix of like individual clothing retailers who we like reached out to and we were like hey we could do an event in your parking lot or we reached out to like concerts like festivals and like hey like we did this festival in charleston where we just like plotted it next to like all the food trucks and we're like we're selling bathing suits also like the founders are there like every time i've gone to like a crafts fair or because that's the kind of thing you guys might I've been doing, right?

38:39Like you go there and you're like, oh, this is the, and you meet the guy who's making the leather pouches. Yeah. And you're like, wow, these are really cool. Exactly. And you're like, okay, it's a little expensive, 90 bucks, but you know what? The guy's here and they, I'm going to buy this. It's not made in like, you know, some giant factory and by some faceless person, like this is the guy that's making it. And especially when you're outside of big cities, people like events. They like something different. You know, there's not a lot going, as much going on in Charlotte, North Carolina as there is, it's going on in New York City or LA.

39:06So it was a cross-country trip through the Southeast. Yep. We did a U, a U of the country. Oh my God. How long did that take? 35 days. Yeah. Wow. I mean, how long were you guys driving per day? Like eight, 10 hours? Yeah. So you guys are doing like days in and like fast food and whatever you had to do. Yeah. A couple of, you know, flat tire in Shreveport, lost the keys in the trailer somewhere in LA. The funniest story is like when we're on the PCH in Big Sur and we just park on the water and like a dozen people pull up and buy stuff from us. You open up the store on the side of the road. Yep.

39:43Right when there's a curve and there's a big like, and 12 people showed up and never seen this stuff. They're kind of good. I'll buy it. I'll buy something from you. We sold$1 ,500 on the side of the Pacific one by Big Sur. I'll never forget it. It's a great idea because it's like a great way to at least get your brand in front of people but meantime like you're running the business right so you guys are driving this truck and then like you had to deal with the suppliers and there were probably like calls you had to be on and and you're mike you still were like had to be working on did you work in cad to design clothing yeah you work in cad you know it's just a lot of back and forth with your partners at at the factory you know your partner engineer partners on the garment side of things.

40:26So this was May. All of the trade shows for spring 14 start in July. So I needed all my samples July 1st, let's just say. Then once we got back and we started the trade show circuit where it was like Faraday's launching a collection, the trailer became our trade show booth. And it was like, oh my goodness, this is amazing. You took the trailer to the trade shows? Yeah. To the floor of the trade show? Yeah, so the New York trade show, they let us park out front the front door. So we were actually on Mercer Street in Soho and we're out front. Granted, it was 100 degrees that week. Still, every buyer who walked in saw this cool thing.

41:11And then we went to Vegas. And I think that helped just like as buyers come through, like, oh, this is something different. This is something that feels bigger than maybe it is. how much did you your goal was 400 grand that first year what'd you do that first year so what ended up happening that first year was we ended up doing like 365 350 in direct to consumer sales and you know this sort of experience on the road showed me the power of these small specialty retailers across the country because we didn't have to spend any money on marketing we just had to get the beach house there and so when we when mike designed that first line there's momentum.

41:51There's like, these stores are interested in this brand. Online, no one was interested in us. In person, people were interested in us. And then now I found these buyers from these sort of clothing stores that were interested in what we're doing. And I'm like, this is going to be what gets us going. At what point did you start to offer other items besides board shorts and bikinis? Yeah, so that was the collection. That first collection spring that we showed in 13. In that fashion show. Yeah, in that trade show season. And that included, just give me roughly. Like T-shirts and polos, short sleeve printed button downs, you know, long sleeve flannels, you know, wash sweatshirts, chino shorts, board shorts, a couple jacket.

42:34It was like a full, you know, full collection. What was it that like, how were you able to differentiate it in your mind? I mean, it's sort of a kind of like laid back coastal vibe. Like what made it, in your view, different from any competitors? The type of stores we were going at were more of a luxury fashion retailers. So we were going after Barney's. We were going after Japanese retailers. We were going after Stagg in Austin, this awesome store there. And so these stores kind of had this – let's just talk about the American market, right? that had this whole of like, all right, we either have suiting, dressy haberdashery suiting, or we have Ralph Lauren, or we have like golf brands.

43:25They sort of were like, we're kind of missing a rugged, casual take on American, you know, that's got some coastal vibes. You know, at that point, Tommy Bahama was kind of out of fashion in that world. They just came and they were like, we've just been missing this. The price point was higher end. the quality was higher end but the vibe was just like so chill yeah and then you had in the landscape at the time you know you had a store in la called fred siegel which was sure like famous and they you know a lot of it's like who takes a run at this brand and gives it a chance early and so um the buyer at fred siegel really identified with the brand i think mike coming from Double RL, which is a very well-regarded line in clothing, saw the potential.

44:14And so he gave us some real space at Fred Siegel in LA, in Santa Monica. And one of the other things was all of a sudden we get this random email in Japanese from a store called Journal Standard, which is a very well-known kind of cool specialty boutique in Japan. And we're like, oh my God, Journal Standard, Japan. man, like, this is amazing. And then the woman who was with Journal Standard is sort of like an agent. She helps other Japanese brands. And then all of a sudden it was like Journal Standard. And then there's another store called United Arrows. And then there's another store called Isatan.

44:50They all wanted to come see the line. And that was really when the business went from, you know,$350 ,000 e-com, mobile beach house business to in one year, once we ship this product, you know, we're going to be in some of the best stores in the world. Was the idea, because we've done so many direct-to-consumer brands, Orby Parker and Harry's Razors, all these brands that really kind of blew up in this time period. Was the idea to be a direct-to-consumer brand, like to be a web-based business where the vast majority of your stuff was being sold online? Or were you already thinking, no, we want to be a wholesaler.

45:29We want to be in Nordstrom's and Bloomingdale's and we want to do both. or we want, you know, because the margins on direct to consumer are higher, they're better. So what was the idea that you had? When I was working on the business plan, I was studying 10K's annual reports of Ralph Lauren, Coach, Louis Vuitton, you know, whatever brands I could get my hands on that were public that I felt were like the best, most valuable brands. That's by the way, it's really interesting. You were looking at their annual reports of these companies who you aspire to be one day. And when you read about these brands, you know, they do segment breakouts, wholesale, retail.

46:11At that time, there wasn't really splitting up e-com and retail yet, but it was always like wholesale was half the business. Retail, e-com was half the business. So I was like, this is how you build a brand. So we have our initial business plan. Mike and I were looking at it before. And in year six in the business plan, it said that retail would be 45 % of the business, online would be 35 % of the business, and wholesale would be the rest. And so wholesale was always a part of the plan. But what happened was wholesale got going first. So year two of the business, wholesale 75 % of our business because that's really what took off.

46:53And that was because of the trade shows. You went to the trade shows and you got all these orders. Exactly. And so we had, you know, Nordstrom picked us up the first season. Barney's picked us up the first season. Nationally? Was Nordstrom national or just? No, it was 10 stores. Barney's was, you know, four stores. And then Japan was probably 40 % of that first year's wholesale business. I mean, again, it proved to be the right decision. But like already, I'm just curious how you thought about this because in 2014, like, you could start to see that people were not going to department stores as much.

47:25And again, even today, it's a mixed bag. If you go to San Francisco to Union Square, nobody's in the department stores. But if you go to like the Westfield shopping center in La Jolla, which is a beautiful outdoor mall, it's packed with people. Or you go to like a suburban shopping center in Palo Alto, or I'm sure there's some on the East Coast around where you guys are, they're busy. But there was an argument to be made at the time that like, oh, this is not going to work. Yeah, I think it was also just a function of the capital that we had. And so when you think about the Warby's at the time and some of these - They raised a lot of cash.

47:59They raised a bunch of money because when you do the financial model of spending money on marketing, on e-commerce, first customer acquisition, LTV, it's not dollar one profitable in a meaningful way. Yes. And so when I'm like, I only have this amount of runway, I only have this little amount of money, the wholesale business made sense for me because there's been an industry that's been set up called the factoring business where there's these specialty finance companies that once you get an order from a retailer like a Nordstrom, you can give that order to the specialty finance company. And they will first give you what's called PO financing.

48:35So for some interest rate, they will give you an advance on – It's a high interest rate. It's a high interest rate. 10 or 12 % or more. Yeah, it's a high interest rate, but it's capital. And then once you ship the product, you send your invoice and they'll advance you the money. So when I was thinking about the float of this business and how do you make the business to scale without raising a lot of money, wholesale just naturally makes the most sense. Yeah. I mean, so because you didn't have – you weren't venture-backed. You didn't have hundreds of millions of dollars behind you. You actually were forced to do this.

49:08Yeah. So we didn't make any money our first bunch of years, but we were losing like$500 ,000 a year or$400 ,000 a year. We weren't losing$10 million or$20 million a year. So we had to. There was no alternative. We couldn't just lose a lot of money. But the other challenge going wholesale is your stuff has to sell. And if me or anybody walks into a Bloomingdale's and I just need a pair of trousers and I'm like, I've got 15 minutes. And this has happened to me, by the way. It's a true story. I'll go into a Bloomingdale's like in some city because I've got to do a live show or some appearance. And I'm like, I spilled something on my trousers and there's like an oil stain on it.

49:50And I know that like rag and bone size 32 fits me perfectly. I don't even have time to try it on. I'm going and I'm just grabbing it and leaving the store. So how, and you're in an unknown brand. How are you able to compete in those? It must have been hard at times to get attention in those places. Yeah, the department stores were tough. It took much longer to get the business moving in the department store world. Where we saw the initial success was in these sort of smaller specialty stores where, you know, think of this story. It's an owner who buys the product. He's the number one salesman.

50:25He knows all the customers. So he's got to sell what he buys. And so my job was to try and accumulate as many of these specialty clothing store customers as possible. And they would give us a shot, you know, a couple thousand dollar order, you know, 40 pieces, 30 pieces. But in those type of environments, those buyers are also the sellers. They had it, they got to sell it. So we found that those were the stores that could really move the product versus the big department stores. So we had very little luck, even though we got some of these small orders from Nordstrom's in the first bunch of years.

50:56It wasn't much. It was really small. But I guess it was enough to generate some interest or buzz or knowledge or awareness. Yeah, you just stick around with those department stores. You know, there was like a lot of just being frustrated. Like, I wish the business was bigger. I wish the business was bigger. And then like, you know, X amount of years in when like Faraday's got more notoriety, it works. And you also, I think there's a product. You sort of got to figure out the product that to your point, you come in, you know, your rag and bone pant size. Like what's the product if you walked into Nordstrom that would sell itself?

51:33And what was that? For us, it was plaid shirts. Plaid shirts. So I think Mike designed shirts at Ralph Lauren. And if you go back to this world we were living in in 2014, 15, 16, it was like very contemporary. Clothing was like solid, black and white, or very preppy, like Vineyard Vines was kind of a big brand at the time. And there just wasn't a classic, great sun-faded plaid shirt that you could buy. And so Nordstrom, you know, a lot of West Coast stores, a lot of stores in the Pacific Northwest, they didn't have this sort of like premium high-end plaid flannel shirt. And that was the first shirt at Nordstrom that we really saw Velocity with.

52:15Were you able to do anything to increase visibility at the Nordstroms and Bloomingdale's? There's a famous story, and we had this on our show. Sarah Blakely was actually our first guest 10 years ago when we launched the show. And true story, that she would go into the Neiman Marcuses, and she would make sure to put the Spanx by the register when no one was looking, and she would front-face them and make sure that she positioned them better. because it was just a few Neiman Marcus stores. But now you're like shipping your stuff to these department stores and are you just kind of crossing your fingers and hoping that people notice it?

52:48Well, that first year when we shipped to Nordstrom, I visited every single one. It was 10 different Nordstroms across the country. And I did a version of what Sarah did. Moving someone else to another rack, moving our stuff. Without asking permission. Oh, yeah, you don't ask permission. You just do it. We still do it. But we still do it. Like I went to Bloomingdale's yesterday and I moved our stuff and like moved something out. But, you know, the biggest thing I found successful was like, it was me walking into the store, telling a salesperson, hey, this is my brand. Here's my story. Here's why the product's good.

53:23I just found that those interactions to the salespeople were like paid dividends and dividends and dividends because they're the ones who sell it every day. And that human connection, I can't do that at scale in a department store. I can't talk to everyone like that walks in and looking for a pair of pants because I got to go home. I got to, you know, about to have a family. But what I can do is I can get the salespeople to be on our side. Yeah. How did you guys open your first store? You actually started with a pop-up, right? In Greenwich Village. Yep. On Thompson Street between Prince and Spring.

53:55And then that became a permanent store? It was sort of a pop-up for about three years. Yeah. And that was kind of the first time Mike and my mom designed a little store. It's about a 200 square foot little storefront on Thompson Street. One of the things that I think is really interesting that you did in the first maybe year and a half was you sent out a print catalog, which you think is counterintuitive. Like, wait, a print catalog? Because I get print catalogs. I don't look at them, but I'm not necessarily the target. Like, I do think that probably a lot more people look at them than I would assume because it was it worked like people were literally dialing a 1-800 number to order.

54:30Yeah, I remember there was an article and there was some news in the industry in early 2015 that J.Crew stopped doing their catalog. Just went online. It was like a big thing. You know, J.Crew, everyone got the catalog for J.Crew for so many years. And then one day they just decided to stop doing their catalog. And I was like, that's interesting. I remember as kids, we'd always got catalogs. I'm like, there's just not catalogs coming. And I don't know. I think we were like, we got to do some type of marketing. And I was like, why don't we just try a catalog? And so that was our first paid media that we ever did in holiday 2015.

55:05It's just interesting how you chose to spend your money because, again, it's counterintuitive. It's like some brands take radio ads, you know, like it's counterintuitive. But those things still do work. The American classics like were almost started by catalogs, right? Like old pennies catalogs from the 40s and Sears catalogs. Like, so I think just the idea of we were just selling product that needed to be shown in a way that was interesting. So I think there was like when a customer picks this up, no different than the person who walked into the specialty store and was like, this clothing looks kind of interesting.

55:44Faraday, I don't even know how to say it, but this stuff's interesting. I'm going to just keep – I'm going to take a look. Meantime, you are – you did raise a little bit more money from your existing investors, right? Because you had cash coming in, but this is an expensive proposition. You've got to order stuff. You've got to pay probably pretty quickly. And then you're not getting the money in for 30, 45, sometimes 60 days, maybe longer. Yeah, we were constantly running out of money. And that's because of the inventory cycle of the business. And it's just a constant playing your payables, trying to get as much extent on the payables, trying to make the cash flow of this business work.

56:20But it was really, really stressful for me because, you know, I felt like the whole business, the financial, like it was just kind of on my shoulders to make this business, to make this business work and be successful. So it was like, as I said, I just got obsessed with how do we sell, sell the product as much as possible. Nothing, you know, the wholesale business sort of hit the first year and a half and then it kind of stopped. And the e-commerce business, just until we did that catalog, I didn't really see any customers coming in in droves because we had spent the money on the marketing. And the retail store was doing, you know,$250 ,000 a year or$300 ,000 a year.

56:58It's not, you know, a million, millions of dollar store. And so it was like, what's the next thing we need to do to, like, keep scaling it? When we come back after the break, just as the money starts to run out, an angel who also happens to be an investor appears from Nantucket with an offer. Stay with us. I'm Guy Raz and you're listening to How I Built This.

57:30Hey, welcome back to How I Built This. I'm Guy Raz. So around 2015, Alex and Mike are two years into building their fashion brand. They're selling across multiple channels, the Fairey website, wholesale and one retail store in New York. But managing cash flow is a constant challenge and they're still not making a profit. And so I actually went back to my investment firm for two months as a consultant because I ran out of money. So everything - You were stressed. Everything was stressed. And one of the guys I used to work with was like, you know, I got coffee with him just to catch up. And he's, and I was like, I needed money.

58:10I had no money left. Wow. And the whole time, right, guy, we're telling all of our factories, like, give us another month to pay. We're basically like, you know, 60 days becomes 90 days becomes 120 days. So half of our email traffic was just deflecting payment. And, you know, you always, you know, we had a couple employees at that point. but you got to be like just so positive, right? Like, and just like everything's awesome. Like the brand's so cool and amazing. And like, so, you know, in many ways, like I'm sort of like end up being the energy a lot around the positivity of the brand as Alex sort of burdens a lot of the stress of the brand.

58:47But kind of in that year, we sort of started playing with what would become like probably our first hero product, which is the Legend Sweater shirt, which is sort of like our take on a flannel shirt meets kind of a sweater. And that was in like about 2015 I started working on it, and then we launched it in 2016. And it was the first product where we put it in the store and it like evaporated. Everyone who touched it bought it. And that product really helped us be like, all right, this is how we have to be a direct-to-consumer brand. You guys had a – basically the story I've read is that around 2016, you kind of like get cold contacted from a guy in Nantucket or who saw the shirt of Nantucket and he wanted to invest and he became, I guess to this day is your sole outside non-family member, friends, investor.

59:40And this person is like private. They don't want to be known. They're not a public name. Yeah. It's just an individual. And a significant investment made a significant investment. Made a significant investment. He sent me an email to hello at Faraday brand.com. like to our customer service email. Yeah. And it said, Hey Alex, I bought some shirts in Nantucket. They're great shirts. If you're ever looking for money, let's talk. And, you know, we're a couple million dollar fashion brand, two years in, three years, you know, we're not getting, we're not getting many emails like this. Yeah. We're looking, we're looking for some money.

1:00:15Yeah. I definitely told them, you know, we're not a high flyer, Warby Parker raising money and venture capital. You know, we're selling the wholesale. Who wants to invest in the business that, that is doing wholesale. and we spent some time with him, and I think he really saw us and the vision of what we were doing, and he became our first, you know, meaningful outside investor, and he gave us the capital that we sort of needed to kind of, like, take this next step. You know, we've had brands on that are just like rocket ships, you know, year one, two million, year two, 10 million, year three, 50 million, year four, 100 million, you're just like, what?

1:00:49How does, you know, and sometimes at times it's luck. Sometimes just a lot of cash has come in. There's a bunch of different reasons. Sometimes it's really just, you know, you just hit the zeitgeist, like crumble cookies, right? Just crumble cookies just went crazy. This, it took you guys, you know, a bunch of years before you were going to hit 20, 25 million, which is still super impressive. I think you're five, six years in, you're at$25 million. I'm curious, you're in New York. You're there's a lot of hype. And some of these brands were on how I built this. And I'm happy. They're great brands.

1:01:23The Warby Parkers of the world and the, you know, the Tom's Shoes and the Casper Mattresses. And were you guys ever like looking at some of these brands, including competitors, and just thinking like, what's going on? Like, why aren't we there? Absolutely. But at the same time, there was always this thing where Alex and I love the fact that our brand was always one of those things where if you know, you know. And like, I don't know. We just were like, yeah, I wish it would have gone faster. It would have been easier. But when you kind of know there's no out, if you know what I mean, like the end is maybe never.

1:02:06It changes how you think of the world around you. And I think I had known, you know, I came from private equity. And so I knew that sort of like going the venture capital private equity route was something we wouldn't do because of what we wanted to do with the brand, how we wanted to do this forever. We didn't really want to sell it. You know, this is like, this was Mike and I's thing. And I knew some of the founders. I went on a ski trip in 2016 with a bunch of these founders of some of the brands you mentioned. And they liked our clothes. And I think they had given me feedback that they were like, it's so cool that you don't have to do what we have to do and how fast we have to grow and how big the companies need to be, like that you get to kind of just do this with your brother.

1:02:51And there was perspective that if I didn't meet these guys and have this ski trip with them, that I may have looked from afar. But they were very excited about how we were building it and jealous of us in a way. Meantime, you guys are expanding, right? I think by 2018, you had seven stores. stores in Boston, Nantucket, you had a store in New York, and then you had Malibu. Here's my question about those stores. Were you at all nervous about signing a 10-year lease in Malibu or in Boston, you know, even in New York City? Like, that's a lot of pressure. You've got to perform to make sure that, you know, those don't drain your resources.

1:03:30Yeah, some of it was timing. and in the Malibu store, Mike and I knew as these two kids that grew up on the beach in New Jersey, Malibu, California was like, we got to like - That's the mecca for surfing. If we're going to have this flagship story we've always talked about, it's got to be at this amazing shopping center called the Malibu Country Mart. And that was, I think we signed a five-year lease to start. That was the first time where we now had a real lease. We were going to put some real money into the store. And there's so much anticipation when you open up that first real store. You know, is it going to work?

1:04:05Oh my God, like this is one of our big moves we've ever made. And I'll never forget when we went out there for opening weekend. We had a little party that Saturday and the location was just amazing. It's like right where all the traffic is and the music was great in the store. It just was amazing energy. And people walked in and it was busy and we sold clothes and it was like, this is going to work. and it did. All right. So I want to get, I want to fast forward a little bit to COVID because COVID, I mean, it was a scary time, but for a lot of retail brands and especially e-commerce focused brands, it turned out to be an incredible opportunity because people are stuck in front of their computers.

1:04:51Now, some apparel brands, it was a disaster, right? Especially if you're selling stuff for the office, but for more casual brands and things like that, it was actually a great year. Tell me what happened to you guys during that COVID year. So we had a couple of really great things that were going into that year of 2020. Our Nordstrom business was finally starting to work. So stores were, you know, between wholesale and stores, it was about 70 % of our business and only about 30 % of our business is e-commerce. So when, when it first shut down, 70 % of our business is basically dead. And it was really tough.

1:05:32And, you know, we had to do furloughs for a bunch of the team and we had to figure out how to survive. And then at some point in May, you know, we're like, all right, e-commerce is better than we thought. We had comfortable product. It was great for stay at home. Like it's performing better. Like let's start spending more on marketing. And we started seeing our e-commerce business in May just started multiplying. And then year over year, we started seeing like a hundred percent growth year over year. And what was the best thing that happened to us, which we thought was the worst thing was we had all this inventory that we bought for our wholesale and our retail channels that all of a sudden we could actually hit the demand for our e-commerce business.

1:06:19And, uh, you know, if we were to sold that, that product at wholesale, we know we would have made a significantly less gross margin, but we had the e-commerce business now at a much higher gross margin. So all of a sudden the business starts making money. Uh, you know, we became, you know, meaningfully profitable, uh, starting in the summer of 2020. And the other thing that happened was what's going to happen with our stores. You know, at that time we had 12 stores, six of the 12 were in kind of resort beach destinations. Nantucket, Martha's Vineyard, Sag Harbor, which is in the Hamptons. Exactly.

1:06:55And they're closed. So we're like, what's going to happen? And then when things got lifted, you know, somewhere in some places in June, some places July 4th weekend, business was insane in these places. So - Not in the cities, but in the resort towns. Yeah. No business in New York, but in the resort towns, same thing. business was up like 60%, 100 % year over year. And so when we got to Q3, business is making money. And I had a bunch of people who are smart, who are like, I think, you know, you only got 11 stores. Like, why don't you close all your non-beach stores? You know, close all your New York City stores, all your Boston stores and just like walk away.

1:07:33And I had listened to your podcast. I'd heard the episode on the guy who started Panera Bread. Ron Shake. Ron. Great episode. It's a great episode. And I'll never forget, he has this part where he talks about during the Great Recession where he said, you know, could be an amazing opportunity. Because in recessions, you know, real estate's cheaper, construction's cheaper, landlords want you. And I was like, what do we do? We got this 11-store retail fleet. It's small. It's not at scale. Maybe this is an amazing time for us to really scale our retail business. Listen to Ron Shake's story. He had Panera Bread.

1:08:13And in 2009, during the financial crisis, he was like, well, let's just expand because we can get good terms for leases. We can get good locations. People are shutting down. Let's go in. Let's go big. That's what we should do. I was like, this is going to be the best time ever for an up-and-coming clothing brand to get an amazing retail fleet. So we went. So how did you. Yeah, keep going. Yeah, sorry. So we went, I have this amazing real estate advisor who was working with me before COVID. And we started going out to landlords and saying, you know, here's all the places we want to be. And I made the decision with my real estate advisor, like, the one thing we need to make sure we do is get as much term, you know, make the leases as long as possible.

1:08:53Because this is going to be the cheapest we can ever get rent ever. And that's what we did. And we signed over the course of 2020 and 21, 40 leases over the next, for stores that would open over the next three years. That's crazy. How were you going to finance that? A little bit of it's my mentality of, you know, you'll figure it out. And at the time too with COVID, which helped a lot was, you know, landlords were giving a lot of tenant allowance. So it actually wasn't, you know, the amount of capital we had to put in in a lot of these locations was relatively minimal. Also, you know, clothing brands that have dressing rooms and really nice spaces were just walking out of stores.

1:09:38So you didn't have to come in and do a ton of construction. These stores were sort of ready for moving. We just had to build the fixtures. Wow. And we at the time, you know, we only had 11 stores. But my mom, who had been working with us since the beginning, she at this point was running our store design and construction part of the business. She was an interior decorator. And so we had this warehouse in New Jersey where we actually had two people on staff who were building fixtures for us. And we were able to build kind of our fixtures and all the interiors for good prices. So all of a sudden in this very short period of time, you go from 13 stores to 40 stores.

1:10:12Yes. So by the end of 2022, we had approximately 40 stores. Wow. And I think today you've got 70 retail stores. Is that right? We have 80, 81 retail stores today. 81. Okay. So again, like somebody might've said to you, like very wanting to give you good advice. Hey, Mike, you know, Alex, this is not the way to go. Like you're going to expand too quickly. You're going to get over, you're going to get over your skis and you're going to see that all of a sudden you're saddled with all these costs, overhead employees. you did have to do some layoffs. And this is normal in any business, business cyclical, but you have, was that, do you think that was connected to this expansion?

1:10:52Absolutely. If I go back to, you know, we got through COVID, we saw this huge increase in business and I definitely became more, more focused on revenue growth than profit margin. and, you know, my, my survival mode went from how am I going to sell enough things to survive to, you know, how am I going to grow this business, uh, you know, even faster because we got this great momentum finally. And, you know, I got to build an executive team. I got to build an organization so it can really stand the test of time because we've now gotten the business to this level of sales that is, you know, bigger.

1:11:36And then all of a sudden, you know, in 2022, when the COVID, you know, wind in our backs kind of slowed down. You got a ton of people. We had a ton of people. And so in 2023, we really had to rejig and retweak and really figure out what we want out of this business. So you had to let people go, obviously. Yep. And that's hard, especially hard as a family business. You've built close relationships with people. So yeah, we had to 50 people, I think was the layoff that we had to do. Wow. So that was at least 10%. More than 10%. Yeah. It was really hard. The hardest, definitely the hardest thing we ever had to do.

1:12:18This is a, I think it's fair to say, a tough time for retail and apparel in general. From everyone I'm hearing, big brands have been on the show. It's a tough time. Obviously, tariffs make it even more complex, because a lot of these products are manufactured in Asia. How are you guys navigating this economic moment? I mean, I think probably you're doing much more direct-to-consumer sales now, given that you've got 80 stores and probably a lot less wholesale than you used to. But on the other hand, you know, I have to assume, like, for everyone, it's been things have slowed down. Yeah. I mean, we've just been dealing with different versions of economic issues in some way, shape, or form.

1:13:00So I think to Mike and I, like, we pay attention to it, obviously. But shit's going to happen. Bad things are going to happen. Good things are going to happen. And so as long as we keep doing our thing, we'll be okay. But we've had to create a profitability model that gives us that margin of safety. And the other thing that it's really done, you mentioned the tariffs, is, and I'm thinking from a supply chain perspective, it's been wild, right, to sort of watch. Yeah. Our supply chain now is so global because it has to be. So I have an amazing partner on the supply chain. And so we're like able to, with tariffs, like just be ready to move.

1:13:39We own the fabric recipe, right? We own the yarn materialization of it, the customization of our products. So the makers become less important for us because we own like the true recipe of all the garments. So we can have that flexibility. You mentioned a few times that this was started as a family business and that, you know, don't have the same pressures that, you know, the other e-commerce or DTC brands that started around the same time do because you don't have really have many outside investors. But I have to imagine that at some point there is some exit or something. I mean, is there a world where you would want to be acquired by, you know, a WHP or one of these conglomerates?

1:14:23There's not a world if we had it in our own control that we would sell the business. So Mike and I want to do this until we can't work anymore. I think we've both made that decision. We feel really confident about that decision. We've already sold some of the business, you know, a minority of the business to some different investors. So, you know, we'll have to figure out ways to, you know, be good partners to them. But Mike and I, you know, no different than Ralph Lauren still owns a meaningful stake in his business. Like, I think there's people who've done this before us yeah create you know kept the integrity kept running it until they were older you know and whether the family joins the business or not i don't think we're thinking about you know that far um but there's people who've been able to do it and so why can't we i didn't we didn't get too much into this but i think it's worth just noting like your wife is part of this business and alex and then you alex and mike your mom is a big part of this business and i mean there have to be moments where that dynamic does create so i'm not trying to like create conflict i'm just curious like because i'm i'm more interested in how these conflicts are resolved not not like how the conflicts happen but how but there must be conflict at times that have to be resolved um Um, certainly.

1:15:44Um, but I think I, it goes back to the beginning of our talk, which is like two twin brothers in race car beds, you know, I'm getting emotional about it. Like that type of feeling of like, we have each other. So like, even though there's important people around us who matter, it still is like, we have to always be here because this is like still, you know, a couple 12 year olds dream. Race car beds is real. You guys really did have twin race car beds in your bedroom. Yeah. So how do you, Alex, how do you guys, I mean, when you have conflicts, the four of you, because you're family, it's a family business.

1:16:28That's a good question. I think we, probably like a lot of families, we're not as good as communicating as we should be. But that's a wrinkle that we added to an already hard thing to do, which is start a brand, adding a family dynamic into all of it. But at the same time, when you're just getting started out and you don't have many people and you got four people, that whole livelihood depends on making this thing successful. you know that goes a long way and each one of us brings something else to the business and it adds a lot of value mike um when when you think about the journey that you guys took and how long it took and i mean how much of that journey do you attribute and where you are now to to hard work and the grind and how much you think had to do with luck where you are now it's the grind guy it's it's the grind and we've as you talked about it like we we've done it the hard way and fashion's like a hamster wheel.

1:17:27It's like Groundhog Day. I mean, in a way, it's like you live Groundhog Day every year because it's like, all right, we got fall coming up. All right, then we got winter. Then we got spring. Then we got summer. All right, let's do it again. And you just sort of keep going and going. And every season, something gets a little bit better and people are like, wow, I want more of that. Alex, what do you think? I mean, I attribute it for the most part to the grind. I think it's an attitude that we have that no matter what happens we're going to figure it out the power of positivity and so I think in a business like ours that so many things can go wrong and you're starting up if you're just positive every day and you're like we're going to figure this out we're going to get on the other end of it we're going to motivate our people to like this good vibes positive energy we can figure this out we can do it goes a really really really really long way that's Alex and Mike Faherty founders of Faherty brand clothing.

1:18:22By the way, remember their Beach House on Wheels, the mobile pop-up store that they drove across the country in the early days? Well, they continue to take it to events and concerts over the years, but sadly, this past summer, it was destroyed in a fire. Nobody was hurt, thankfully, and a replacement Beach House on Wheels is now in the works. Hey, thanks so much for listening to the show this week. please make sure to click the follow button on your podcast app so you never miss a new episode of the show. And if you're interested in insights, ideas, and lessons from some of the world's greatest entrepreneurs, please sign up for my newsletter on Substack or at GuyRoz.com.

1:19:02This episode was produced by Casey Herman with music composed by Ramtin Arablui. It was edited by Neva Grant with research help from Noor Gill. Our engineers were Patrick Murray and Jimmy Keighley. Our production staff also includes Alex Chung, Chris Massini, Sam Paulson, Carrie Thompson, Catherine Seifer, Ramel Wood, Andrea Bruce, and Elaine Coates. I'm Guy Raz, and you've been listening to How I Built This.

1:19:38If you like How I Built This, you can listen early and ad-free right now by joining Wondery Plus in the Wondery app or on Apple Podcasts. Prime members can listen ad-free on Amazon Music. Before you go, tell us about yourself by filling out a short survey at wondery.com slash survey.