The Rise and Fall of the J. Peterman Company


You create a company out of nothing. Five hundred dollar investment. It grows. It sparks. It hums. It’s powerful, heady. You want to reflect that power, but you also want your employees to understand that you haven’t changed. You are authentic and without pretense. You wear boots and jeans and a denim shirt to the office, and you wear boots and jeans and a denim shirt to bank meetings, meetings with investors, and on television. You are who you want to be. J.P. Jeans, $38. J.P. Boots, $300.

There comes a time in the life of a growing business when you, as its founder and top manager, realize that the company has taken on a momentum of its own. You influence it, certainly, but more and more you are swept along by it. I hit that point in 1996. I created the J. Peterman Company on a $500 investment and $20,000 borrowed, unsecured. I made the company grow. I gave it momentum. And then I began to recognize that it had gained a momentum of its own. I watched it hit its stride—and then I watched it stumble and fall. J. Peterman went into Chapter 11 on January 25, 1999, and has been purchased by Paul Harris Stores, to reemerge as what, I’m not sure. I am no longer associated with it.

Now I’m in a transition period. I’m saddened by the loss of J. Peterman. (I mean that quite literally. Ironically, John Peterman is J. Peterman, and J. Peterman is John Peterman, but I no longer own the J. Peterman name.) And I’ve been operating—living—under significant pressure. Going through a bankruptcy is unmercifully stressful. It’s very difficult—even in the aftermath—to focus on the future. I am jumping back on the horse; it’s in my genes. To tell the truth, though, deciding which horse to jump on hasn’t been easy. Figuring out a strategy—deciding which direction I want to go in as a person and as an entrepreneur—has been hard. Particularly since I have to think about it this time. There wasn’t a huge amount of strategizing involved in creating the J. Peterman catalog business. It was intuitive, it fit, it felt right. Any new project I take on must also feel right, but it must have a considered strategy as well. Sadly, that may mean I’ll never allow myself quite the freedom and spontaneity I enjoyed for a time with the J. Peterman Company. But I feel that’s the right way to move forward.

I’m getting ahead of myself. I’ll go back to the beginning. I didn’t sit down and say, “I’m going to build an organization with this kind of culture aimed at attracting that kind of customer.” I knew what kind of culture I enjoyed working in; I strongly suspected that there were people who would respond to a company marketing romance and individuality. But the company was born, as it were, with my own purchase of a cowboy duster.

I bought the coat during a trip to Jackson Hole, Wyoming, because I liked it—it said something about me that I wanted said. It said that I don’t need to wear something with a logo to show people who I am. It was romantic, different. I found when I wore it, strangers seemed to give me approving glances. In airports, people would try to meet my eye as I walked by them. And I thought, “I like the way this feels; I wonder if there are others who would appreciate the feeling as well.”

Armed with that very unscientific research, my friend Don Staley and I decided to run an ad in the local Lexington, Kentucky, paper and see what we could sell. We thought that we would try writing about the way I felt wearing the duster—that we would try to create the context and see if that appealed to anyone. Well, we sold one. To my accountant’s secretary, so it didn’t really count. But, we thought, we’ll just try one more time. So we ran some more ads, searching for the people we thought might be out there. We hit pay dirt with the ad we ran in the New Yorker. We sold 60 or 70 coats, and the J. Peterman Company was up and running.

It was a stressful time. I would buy dusters on 30-day terms, secure the ad space, and then use the money from the sales to pay for the ad. But then I had to run another ad to get the money to pay for the dusters. It worked in a cycle, and a few cycles into it, I realized that I couldn’t afford to get out of the business; I owed so much money. Survival is a great motivator, and we knew that we were hitting a significant chord with the public, so we created the catalog and continued to push. Our first Owner’s Manual catalog, with black-and-white drawings and that same romantic copy—which was to become our trademark—went out in the fall of 1988. It had seven items in it, including the duster. We mailed our first color book the following spring.

By the end of the first year, we had about three full-time people and three or four part-time people working with us—none of them making much money. My wife, Audrey, who was in charge of the whole back end, was getting paid (not much). I wasn’t. But even with a staff, I didn’t spend time thinking about the organization I was creating. I was too busy. In the beginning, I was maintaining myself by running a specialty-foods consultancy, along with a regional business that made and distributed Hall’s BeerCheese, which had limited growth potential. All three businesses were located in one very old building; we made the cheese downstairs and ran J. Peterman upstairs in two rooms. One room was full of dusters and such, and the other had three desks and, believe it or not, a potbellied stove we used for heat. We were staying just ahead of the curve financially—selling stuff, paying the printer, sending out the catalog, selling stuff.

We made the cheese downstairs and ran J. Peterman upstairs in two rooms.

I was also looking for capital. I contacted 100 venture capitalists initially and was turned down by every single one. They would look at my very crude and rudimentary business plan and say, “Tell us about your experience in the catalog business.”

And I would say, “I don’t have any.”

And they would say, “Well, tell us about your experience in the apparel business.”

And I would say, “I don’t have any.”

And they would say, “Well, you’ll have to go look for your money someplace else.”

I had some near misses with several venture capitalists—one we came very close to finalizing a deal with before it fell through. (I had to sweet-talk the printer into running our catalog that cycle.) And then in 1989 we were approached by Hambro America. A man named Edwin Goodman called me and said something like, “We’ve seen your ad in the New Yorker, and we’re kind of intrigued—thought maybe you would be looking for capital.” And I said with barely contained excitement, “Possibly.” The deal was done in three weeks.

We had come up with a very engaging concept for a business. We were getting a tremendously high response rate from prospects. Virtually every book we mailed had a very high response rate. In 1989, we did $4.8 million in sales, and in 1990, we did $19.8 million. Our staff grew even faster. We went from 15 people in 1989 to probably 75 or 80 in 1990, and we were all working well together toward a common, if unstated, goal. The road ahead looked exciting.• • •

We had also, without realizing it, planted the seeds for serious problems later on. All the thinking about the brand, the niche, the target market—it was intuitive for a very long time. I wish now that we’d written down our ideas, our concept—in detail—at the start. It was a long time before we put anything into words in that way, and by then I think it was too late. The theory of our business was in my head and in Don’s head (as creative director, he concentrated on writing and producing the catalogs), and until 1996, we took the time to make sure that it was also in the heads of everyone on staff. But in 1997, when we laid our plans for retail expansion and we had to recruit many more people quickly, it got lost. In the face of success and rapid growth, it’s easy to assume that people joining the team know what the game is. Failing to make sure that everyone knows what you stand for and why—that can come right back and ambush you much sooner than you realize.

In the face of success, it’s easy to assume that people joining the team know what the game is.

We did always have one thing in writing, a general philosophy, in our catalog. It was, “People want to live life the way they wish they were.” The problem was that such a philosophy, so broadly stated, didn’t give our employees nearly enough guidance. We should have developed a precise mission statement, or something along those lines.

It’s easy for me to do that now. In fact, I can sum up the concept of the business in six words: “unique,” “authentic,” “romantic,” “journey,” “wondrous,” and “excellent.” The items we sold—the ones that were most successful—were all of those things. The duster, for example. It would definitely have been unusual on the Upper East Side. At the same time, though, it wasn’t contrived; it certainly wouldn’t have been unusual on a ranch. It evoked a sense of romance; cowboys are romantic figures. Worn outside the context of a ranch, it implied that the wearer was on a journey, intellectually and emotionally. With that implication came a certain sense of wonder. And its quality was excellent. At one point early on, in fact, we lost the supplier for the duster, so I cut up one of the coats, took out all the stitching, sourced 22 different components, and found a manufacturer to produce it. That duster embodied the six words; it was the company. There was never a question about replacing it even with a similar product, though we were, for a time, up against the wall.

At any rate, when we matched our products with those six words, we were successful. The duster, the J. Peterman shirt (a colonial style—99% Thomas Jefferson, 1% Peterman), even the items we associated with classic movies—all met the criteria. When we strayed from the six words, we faltered. Toward the end of the company, we were developing 2,000 new products a year. There is just no way to generate 2,000 products that are truly romantic, unique, and authentic.

Some people have questioned whether we were true to our concept by pursuing and selling the props from the movie Titanic, very late in the company’s life. We were. The sinking of the actual ship Titanic during the Edwardian era was a terrible tragedy, but it was also a romantic story. (Tragedies often are.) The products were authentic movie props; we never led people to believe that the materials came off the ship, nor did we want them to think so. The connection we aimed to create for customers was with the movie, as well as with the actual event. What we were helping customers capture for themselves was the magic of Hollywood, along with the romance of the time and of the story.

Where we strayed from our concept was in selling reproductions of the “heart of the ocean” necklace worn by the heroine in the movie. The product did well, but selling it was a clear commercial decision. We shouldn’t have. It was not authentic, it was tied too completely to the movie, and it appealed to an audience younger than our target 35 to 55 year olds. It was a costly success in terms of our brand’s integrity. On the other hand, selling the “Kate Winslet dress,” a reproduction of one of the costumes from the movie, was just fine. The dress was of the Edwardian period; it was something we might have carried even without the movie.

We were also true to our concept when we recreated the ambiance of the catalog in our retail stores. The problem with the retail stores was the pace of our expansion, not the decision to expand. But I’ll get to that later.

I put a lot of time into thinking about how the retail stores could reflect the sentiment and tone of the writing in the catalog, and I think that time paid off. The trick was taking the catalog one step further. Inviting customers to my Grandmother’s barn, actually.

When I was ten years old, I would go to my grandmother’s barn, open the door, and be transfixed. I could spend hours, days, summers there, exploring all the wonderful treasures. It was that sense of discovery that we aimed to re-create in the retail environment. And it worked. The full-price retail stores averaged over $500 per square foot in sales. The store in Grand Central Station did over $800 per square foot. A senior analyst from Goldman Sachs toured the store in the fall of 1998 and told us it was the freshest retail concept he’d seen in ten years.

Peterman on-line shopping was another story. I hadn’t spent much time thinking about the potential of the Web, and I didn’t really see the need to. I knew our Web site wasn’t very exciting, but my focus was elsewhere. The Web certainly got my attention when we sold half a million dollars’ worth of “heart of the ocean” necklaces in about six weeks. But before that, and afterwards, the site just puttered along. Since I left the J. Peterman Company, I have spent a great deal more time thinking about how retail can work, and should work, on the Internet. My next business, in fact, will be Web oriented. I don’t know whether we missed an opportunity, large or small, by not devoting more attention to e-commerce at J. Peterman. But speculating about that now won’t do anyone any good.

This seems like as good a place as any to mention Seinfeld. A lot of people have asked me about the J. Peterman character on what was then the number one television show in America. In fact, a good many people have said that I had a blind spot where the Peterman character was concerned. That I missed an enormous opportunity to take advantage of the character and all the publicity. That I should have hired the actor who portrayed me, John O’Hurley, to represent the company. I don’t think so. Certainly, we missed an opportunity to exploit the name recognition; most people who watched Seinfeld didn’t realize that we were a real company or that J. Peterman was a real person. In retrospect, we might have done more with that. But changing our business to dovetail with the fictitious one on television would have been too much of a commercial move, and our business had been built around the idea of staying away from commercialism.

I did review the scripts. After the first time O’Hurley appeared as me on the show, Seinfeld’s lawyers contacted me, and we agreed that I would sign off on the scripts in which my character had a part. And we did put an Elaine Bennes suit into our catalog, mostly as a way of winking at our customers. But I regret doing that. It was one of those little decisions that was slightly off point for our brand. The suit actually sold quite well. But it was a good suit—I think it would have sold well even if we had called it “Barbara’s suit.” The problem was that it was a tick in the wrong direction. It may have been an excellent suit, but it did not embody any of the other elements. It was not romantic or wondrous. It represented no sort of journey. And it was not authentic; it was tied to a TV show that was entirely fictional.

Seinfeld was a bit of a nonstarter for me overall. The first appearance of the J. Peterman character on the show in May 1995 coincided with a substantive increase in the prices of postage and paper. We posted a significant loss that year, and it was hard to take. So my mind wasn’t on television; it was on retrenchment.

The first appearance of Peterman on Seinfeld coincided with increases in the prices of paper and postage; my mind wasn’t on television.

I was beginning to realize that we had reached the ceiling of potential for the Owner’s Manual catalog. Our efforts at developing a home-hard-goods mail-order business were not progressing as I had hoped. I intuitively believed that our niche could be larger than a $65 million a year catalog business, so I started thinking about other ways to grow. Ultimately, we broke even in 1996. But even one flat year makes backers nervous, and I was starting to get some pressure from our investors (we had more by then) and from the bank (we had of course moved beyond the $20,000 by then, too) to “restart” the business. I also knew that we needed more capital, and none of our current investors was interested. That’s when, at the end of 1996, I started considering rapid retail expansion and, along with it, the recruitment of name-brand managers. Investors want to see credentials on staff.• • •

On paper, the expansion plans and their rate of implementation made sense. After all, only one in four people ever buy anything out of catalogs, but just about everyone shops in retail stores. Our existing retail stores—a full-price store in Lexington, Kentucky, and two outlets, one in Chattanooga, Tennessee, and another in Manchester, Vermont—were doing well.

Retail expansion also seemed to be a way to bring our finances in line. Our G&A expenses were getting too high. We broke even in 1996 because we cut back on advertising; we mailed fewer books and to more responsive customers. What we should have done in addition was cut back on the number of products we were offering.

We were adding items because we felt that the more items we offered, the more opportunity people would have to buy. There was ample evidence in general retail research to support that. So we continued the trend with our retail stores. But the more-is-better theory didn’t work for us in practice. The more items we offered, whether through the catalog or through the stores, the less special—the less “Peterman”—each new item became. And we needed more staff to support the proliferation of products. It was the beginning of the end, but I didn’t recognize it at the time.

All of which brings me to 1998, when we rolled out the very aggressive retail expansion. Let me be clear: left to my own devices, I wouldn’t have moved that fast. But we had to expand aggressively to get the infusion of capital we wanted. In hindsight, maybe if I hadn’t received the capital, I would have slashed the product line, as I should have. At the time, I didn’t have the perspective to think along those lines. Expansion looked like survival to me.

Our many new products in turn created the need for many new business systems and an ever-expanding staff. It was too much change at once, and it was a recipe for disaster. I’ve covered the product proliferation problem. Now I’ll tackle the staff and the systems problems. They’re all related.

In the beginning, I didn’t have the money to hire many people with “credentials.” Most of our merchants rose through the ranks internally, working directly with me the whole way, and now I think that was just as well. It gave us the luxury of developing talent. Sure, your “insiders” have to have some talent to start with, but I found that it wasn’t good to make the judgment call on that too early. The best people we had took a year to learn what the business was. To give you an example, when I brought in Paula Collins as a catch-all assistant back in 1990, her claim to fame was that she had been a secretary to a guy based in White Plains, New York, who exported nuts and bolts. Paula didn’t exhibit a great deal of talent initially, but she did exhibit a great work ethic, a willingness to learn, and tremendous resiliency.

Very early on, Paula became the women’s merchant. She would come in with a product, and I would say “that’s not right; that’s not the business we’re in,” and she would ask why, and we would go back and forth. She kept learning, kept trying to figure out what the business was about, and ultimately she developed into one of the best merchants in the industry.

The problem in 1997 and 1998 was that we were missing some very specific areas of expertise that I felt we needed to handle our retail expansion. And so we went outside for high-level employees to fill those gaps. Hiring at high levels from other companies isn’t inherently a bad idea. I can’t deny the need for new blood; outsiders bring fresh energy and perspective to the table, and we did hire very talented people. The idea of recruiting high-powered people with credentials, though, is that they can hit the road running. They never got the chance.

If you’re changing systems—purchasing, computer, merchandising—you need high-level people who have been with the company awhile and know the business so they can keep it steady through the transition. If your systems are set, you can add high-level people from outside because they’ll be able to start working within established guidelines. We were changing the systems and the people at the same time. The ground was moving; the newcomers never gained traction. What was needed was a carefully orchestrated transition period. We never slowed down long enough to allow for a transition period, much less manage it.

Doing what we did, the way we did it, caused problems on several levels. For one, our existing staff felt slighted. The people we brought in were in many cases making higher salaries for no good reason except that to hire them we had to meet what they were already making. And the spotlight was on the new folks. When decisions needed to be made, we paid more attention to the new staff than to the old-timers.

For another, the culture started to fray. We didn’t have a hard time recruiting. It was well known that our culture was one of creativity and respect for people; there was no shortage of people who wanted to join that culture. But when you hire people from a culture that isn’t respectful or from a culture that is very controlling, it’s like bringing an abused dog into a friendly home. It takes time and a lot of patience and positive reinforcement for the dog to trust you—to know that every time you walk by you’re not going to whack it.

When you don’t have the time to offer continual positive reinforcement, the natural tendency is for the new people to slip back into old cultural habits. After all, that’s what they know best. In the absence of constant reminders that they now have the authority to do this, and that the organization is structured so that they should feel free to do that, they’ll re-create their old culture and set up boundaries between people, levels, and departments where none previously existed. We didn’t have the time to keep reinforcing what we assumed was a rock-solid culture. And so the new team didn’t have time to gel. There was friction; there was confusion.

We had had a culture in which every employee understood and recognized that every job was important, that everyone was a valued contributor. Culture can’t be dictated; it must be absorbed over time. Until 1997 or so, we were giving newcomers the time they needed to absorb it.

I’ll cite a brief example. From the beginning through 1996, I had breakfast each Friday with a different group of eight employees, randomly selected from all levels and areas of the company. The only rule at breakfast was, “There are no rules.” People were encouraged to ask me any questions, personal or business related. We used the time simply to get to know one another. It was a small thing—it only took an hour a week—but it was tremendously important because it showed my employees that I cared about them. Well, things got too busy in 1997; I was out of the office a great deal trying to raise capital; I was working 12- or 14-hour days, seven days a week. The breakfasts got lost in the shuffle. That was telling.

Some postmortem critics have said that our open culture allowed too much freedom and that that freedom was a critical factor in the company’s demise. Not true. I’ll defend the culture we had in the early days—and tried to keep throughout the life of the company—to the death. We did not go bankrupt because of the culture.

Ultimately, the death of the J. Peterman Company was caused by a combination of things. We made mistakes, but we could have survived them. We were bombarded by external, out-of-our-control kinds of things, but we could have survived them. What we couldn’t survive was our own mistakes coupled with the external, out-of-our-control kinds of things. We faced too many hurdles at once, and it all tumbled in on us.

For one thing, the business plan for 1998 was back-end loaded. That means we were counting on too many sales coming in during the last three months of the year. More seriously, that back-end loading was based on a direct-marketing fallacy. The theory was that if we offered customers more products—if we mailed a Peterman Owner’s Manual to customers one week and followed up with a hard-goods book the next—we’d sell more stuff. We didn’t. The catalogs competed with each other for our customers’ “Peterman dollars.” We just ended up doubling our marketing costs while leaving our sales where they were. So while we built up our fixed organization in anticipation of rapid growth in the next year, those sales didn’t materialize.

There are two theories of growth. One is that you let organizational development lag behind business growth. The danger with that approach is that you get too much business, and then your company crumbles from within because you don’t have the staff to handle it. The other theory is that you build the large organization to handle the business you anticipate. That’s what we did, at the urging of the venture capitalists, and we ended up in a liquidity crisis. I’ll not disguise my feelings; I’m bitter.

Nothing seemed to work. In the midst of everything else, we replaced our hard-goods book, Peterman’s Eye, with a new hard-goods book, Peterman’s Notebook. The Eye wasn’t a loser, but it also wasn’t hugely profitable, and we thought we could do better. The problem was the change cost too much, in time as well as money. It was another bump in the road when we couldn’t handle any more bumps.

Offering more products meant not only confusing customers and adding more staff to source items but also adding more manufacturers and so forth, right down the channel. To stay on top of things, we replaced our old inventory-management system, but we never got a handle on it. We did not manage inventory very well toward the end, and that’s a gracious comment.

And then our bank made a significant error, which made our financial picture look much worse than it actually was. Even after they recognized the error, the people handling our account didn’t retreat from panic mode. They started to squeeze us, in a legal way, though not to my mind in an ethical way. They withheld an advance we had counted on; they refused to finance the inventory in our retail stores; they squeezed millions of dollars out of our fall line.

So there we were, faced with soft sales, fixed costs that were too high, too much inventory, and a lending squeeze. Add to that a breakdown at the printer, which delayed one of our catalogs by three weeks, which, in turn, aggravated a deal in the making that I had with another bank, and you’ve got a full-blown liquidity crisis.

Ultimately, the venture capitalists pulled out, we were unable to restructure, and you know the rest. There were several 11th-hour rescue attempts, but none panned out. I felt as though we were a plane going down. We were in a spiral at 30,000 feet, we leveled out at 20,000, went into a spiral again at 10,000, and then we had no altitude left. Our vendors got shafted and so did our employees, and I’m sorry.

Paul Harris bought the company—inventory, assets, the J. Peterman trademark—on March 5, 1999. End of story.• • •

You know, the popular press has had a field day with Arnie Cohen, former president and chief operating officer of J. Crew, who joined us as president and COO in July of 1997. To some extent, they were justified. Arnie is a great salesman; he is very intelligent and has many good qualities. He had been involved in the company for almost a year as an adviser and consultant before he came on as president, and he had gained my complete confidence during that time. In retrospect, however, he wasn’t as good an operator as I thought he was. He contributed to many of the transitional problems we had, in large part because he pushed the company to take on too many initiatives at once. He should have known better. For my part, I should have listened more to my own intuition. I should have trusted myself—over anyone else—and I should have known when to say no.

It’s tough to balance your own instincts as a founder and top manager with the desire to let the people you’ve hired do their thing. Managing managers wasn’t something I set out to do; it was a job requirement that was incorporated by default into my position because my original idea for a business was a good one. But I think I drew out of this experience the skills to do it well; I believe that next time around I will know how to step back from the fray, assess things objectively, and make the right call. Next time, I’ll get that right. That’s not to say I’m in the market to lead just any company. I am, first and foremost, an entrepreneur. What drives me is the act of creating—the chase, if you will. But I know more now about what happens when an entrepreneur succeeds—more about the vicissitudes of the way. And I’m ready to try again.

A version of this article appeared in the September–October 1999 issue of Harvard Business Review.


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