HW: You are the Chairman/CEO of Grand Metropolitan a $7 billion, 120 brand global luxury portfolio that includes Department Store Bonwit Teller & Co., Finlay Enterprises (Diamond rings and Fine Jewelry), Heilig-Meyers (Home Furnishings), IMASCO (Cigars/Spirts) Orcofi (Haute Couture, notably fragrance, men and women’s shoes), Handleman (Rackjobbing), the Bohle Company (Public Relations), Caesar Golf, and this list is not fully complete.
Clearly you do not need to do interviews, but yet you have decided to speak to Hollywood Weekly. How can we be of service?
Lee: Grand Metropolitan has been a part of the Los Angeles business landscape for almost 15 years. Some of our brands like Wickes Furniture have been staples in the community for decades. We purchased our first fine jewelry store asset in California off of Rodeo Drive and have maintained offices/private showrooms in the area in and around Century City, Beverly Hills/Bel Air, and Santa Monica. Of course the Beverly Hills Cigar Club and Gallery Rodeo have been heavily active in the charity and celebrity events circles for many years. We thought it was time to formally introduce ourselves to our Los Angeles neighbors. Hollywood Weekly is the preeminent venue for us to reach out to the community.
HW: Your colleagues define you as “Elegance Personified,” “Trend Savvy” and Eva Fairchild describes you as a shining example of what “Luxury” is all about. How would you describe your personality and who influenced your sense of taste and style?
Lee: Those are kind and generous compliments. Ms. Fairchild was very gracious for that endorsement. She has been a prominent influence throughout the West Coast from Malibu to Southern Baja, Mexico. Ms. Fairchild works with the NFL and NBA as a private exclusive real estate agent for retired and active athletes and for various charities.
I am far more comfortable speaking about our brand and product offerings than I am about myself. I will say that as a younger man starting out in this business I was much louder and brasher. But I think, like the maturation of a luxury brand, the older, more experienced, and grayer I get the softer and hopefully more endearing I become. My 20s and 30s were filled with great ambition and anger as well as aggressive shameless self-promotion. I suffered under the weight and pressure of a heightened sense of grandeur. There was just so much I wanted to accomplish.
Growing up in a modestly affluent community, I was very fortunate to have been exposed to much of what life has to offer from an early age. But walking Rodeo Drive in the middle of the night was exhilarating. The possibilities were endless. When I am on the beaches of Florida it does not have the electric blue of Southern California. When Grand Metropolitan made the transition to Beverly Hills/Bel Air, we were already positioned to plug in to the Hollywood scene. The Bohle Company had been instrumental in the entertainment/technology industries for decades including Playboy Enterprises, Sony, Warner Brothers, Kodak Theatre (Dolby Theater) and the Tournament of Roses in Pasadena. Meeting and mingling with A-List celebrities at red carpet or charity events was initially daunting.
In 2005 we were fortunate to be invited to participate in George Clooney’s Tsunami Aid event. It was a significant turning point as everyone came together as people helping people. Afterwards these types of affairs became a lot easier to attend. Vin Lee Jewelers (Finlay Fine Jewelers) through a relationship with Dick Clark Productions, started dressing stars on the red carpets of the Oscars, Emmys, Golden Globes, Grammys and Independent Spirit Awards. It is all very glamorous. I have had the honor of meeting some of the most beautiful and talented people in the world. Robert Downey Jr. is as cool as he portrays on camera. But sometimes being introduced to your screen or music idols can be a disappointment. I was invited to a birthday party in the Hollywood Hills for one of the greatest guitarists of all times. In person, not exactly the Rock God I had imagined growing up. What I discovered was that they played roles in film or television or for the press and were not who they were in person behind closed doors. I really don’t play a role. This is who I am.
As for influences in my life, that is a hard question to answer. I have always been so independent. I will say that I greatly admire Bernard Arnault for what he has assembled with LVMH. Of course I didn’t get to start off with 40 million French francs from my father to launch my career in the 1980s. Or step in to the C-Suite when my father retired like Francois-Henri Pinault, Johann Rupert, and Nicky Oppenheimer. I was a student of the lives of both Howard Hughes and Aristotle Onassis as well as a great admirer of Daniel K. Ludwig. I certainly have a high level of respect for competitors Lev Leviev and Laurence Graff.
In today’s political environment, Donald Trump is making a lot of headlines with his very loud and brash personality. A lot of people do not realize that the 70s and 80s business landscape was aglow with this type of businessman. I started off in a similar fashion with very aggressive posturing. Over 25 years of wonderful failures and mistakes peppered with a couple of successes, I would like to think I am much more patient and understanding now. I was often told that my feelings are just too big.
As for my sense of style, it has also changed significantly over the decades. In Los Angeles there is a “You are what you drive” mentality. In New York, “You are what you wear”. Operating on both coasts for so long is very expensive. As a sports car enthusiast in Beverly Hills I have had my share of exotics in the garage. As a jeweler, I have had the pleasure of many fine time pieces as well as Brioni, Kiton and of course Morty Sills. In fact for many years a personal goal of mine was to trade my Patek Philippe Sky Moon Tourbillon for a Bugatti Veyron.
Today, I have slowed my tempo down a great deal. I do not feel the need to be so bright and shiny for all of the world to see. Family and friends are far more important in my daily life. I am delighted to share a Fatburger on a turnstyle off Ventura Blvd with great conversation or simply a cigar in the hot tub at 2:00 am. The closets are still filled with designer clothes and dusty Ferragamos. You will find my phone in my hand more often than a jewelers loupe. I prefer to drive an understated SUV with cupholders than Ferrari or Lamborghini. I enjoy silent auctions and private museum viewings to parties in the Hollywood Hills. My ownership of the Beverly Hills Cigar Club has brought me a wonderful education into the world of fine wines and spirits as well as introduction to some amazing talented people.
I believe what has really influenced me the most over my career were my own mistakes. Starting out so young and naive, each failure along my path has carved off another rough edge. I have learned so much more falling down. It has helped me stand back up and continue down my path.
HW: Another of your prominent colleague mention the challenges of knowing what to invest in, and determining how much to risk for a perceived ROI or return on investment. In building your portfolio, do you seek organic growth to gain market share, or do you also seek to acquire strategic businesses to fuel future growth within your organization?
Lee: I started Cinemagic Marquee (now Handleman Company) the same time Bernard Arnault (LVMH Moët Hennessy • Louis Vuitton S.E.), Johann Rupert (Compagnie Financière Richemont SA), and François Pinault (Pinault-Printemps-Redoute (PPR) now Kering) began forming their luxury goods conglomerates. Of course I was only 20 years old. I have watched how they put together deals and funded acquisitions. I had the pleasure of meeting Sumner Redstone during the National Amusements acquisition of Viacom. In addition I have studied how Warren Buffett’s Berkshire Hathaway has leveraged insurance company assets into major holdings in companies in dozens of market segments including jewelry and furniture like Grand Metropolitan. Buffett’s mantra about value investing, borrowed from Benjamin Graham, has played a part as well.
With such major shifts in the economy over the last two decades Grand Metropolitan has been able to acquire many strong brands. Most of which dominated the retail space in their respective industry. I am very competitive and prefer only to participate in businesses where we have a strong enough point of differentiation to be number 1 in some capacity. I do not wish to go head to head directly with LVMH, Kering, or Richemont unless we have significant positioning that gives us a chance. It took 3 years for us to negotiate for Finlay Fine Jewelers. While not readily a household brand itself, Finlays subsidiary brands have the prestige and ancestry to compete with Tiffany and Cartier. Our portfolio of over 30 jewelers have historically held a retail footprint 10 times that of those two iconic brands combined.
Heilig-Meyers Furniture has a similar history. Rhodes, Glick, Krause’s, Wickes and dozens of regional furniture retail brands collected under the Heilig-Meyers Furniture group have also a combined historic retail footprint equivalent to many times the current industry leader. What was most appealing to me about Heilig-Meyers was the impact it had on local communities across North America. In addition to being an economic influence with employment and development, over $10 million had been donated to charities including Cystic Fibrosis.
When acquiring a legacy brand that has been in operation for over 100 years and perhaps grown to over 1,000 locations across North America you are capitalizing on the brand equity while also relying on organic regrowth. As we carry no debt and I am the sole shareholder, my focus has been on creating market value rather than ROI.
HW: What, if any, are the relationships between the global luxury brands that you have in your portfolio and the way you have chosen to service your clients? For example, is your business model based upon a “Concierge” service whereby you seek to find the customer and provide for their needs or some other philosophy?
Lee: Our luxury brand relationships with global clients have been built upon decades and in some cases centuries of servicing our customers needs. We are steeped in our history. Bailey Banks & Biddle, once the jewel in Finlay Fine Jewelers crown (before being sold off to investors) created the Great Seal of the United States, the Congressional Medal of Honor, the Purple Heart, as well as the Distinguished Flying Cross, Silver Star and Bronze Star.
Grand Metropolitan is determined to create unique products and services for our clientele. The original slogan for our newest retail initiative Bonwit Teller & Co. is “The Specialty Shop of Originations”. We provide luxury goods you cannot find in other retailers.
HW: Let’s talk a little about trends. Today we live in an age where your customers can communicate their opinion about your company and influence many others. How do you manage the risk of connecting with the public on social media sites, without worrying about spending an inordinate amount of time updating your response to their inquiries?
Lee: Grand Metropolitan social media campaigns over the last 10 years have been managed by my public relations agency. The Bohle Company was the first firm that Bill Gates and Steve Ballmer of Microsoft hired to introduce DOS to the public. We were also significant in the launch and management of media relations for Beny Alagem’s (owner of the Beverly Hilton) Packard Bell Electronics.
Social media is a wonderfully double-edged sword in today’s society. This resonates as much to our private lives as it does in corporate marketing campaigns. In both instances you have to protect yourself. The individual as well as the public at large are very empowered today with social media platforms. They have access to public figures and brands as if they were next door neighbors. While this has leveled the playing field for small mom and pop operators to compete side by side with global conglomerates it means heightened transparency and intense quality control/customer experience are vital. Customers and competitors and just plain unsavory characters may attempt to paint a different picture of you using these platforms. Personally I have over 30,000 Linkedin connections and daily I receive attacks and criticism mostly from strangers lashing out. They scoff at the price of a product or ridicule the design. It takes understanding to not respond aggressively. You cannot allow one unhappy person to bring down the whole machine. The manner in which you respond to negative comments or feedback is as important to your brand image as what caused the problem in the first place. I see a lot of people who love to post nasty comments online. What many do not understand is how poorly this reflects upon themselves and their own businesses as well.
The Beverly Hills Cigar Club represents a thousand cigar brands to its customers. Finlay Fine Jewelers and Heilig-Meyers Furniture equally represents thousands of designers, artisans, and manufacturers. It becomes everyone’s responsibility to jealously protect their position in the supply chain, to do the very best for customers, the company, and the community. Consistent communication is the key. Social media empowers us to have an ongoing conversation with our audience, whether it is our industry peers or current and future clients. How you respond publicly to negativity will resonate with everyone.
We proudly maintain our reputation and heritage in each of our legacy brands. Most of the time it was the integrity of the institution that initially caused our interest in them. Today the investment community is quick to chase after startups and early stage disrupters in just about every industry. It is very hard to create luxury brand identity within the consumers mind with no history to support it. When I first started in the tobacco industry, I met with many top personalities. One in particular had just recovered from a stroke and had to relearn how to speak and think.
And even through his struggle he imparted in me some incredible advice. He offered that the only difference between a $5 cigar and a $25 cigar is the story behind the brand.
Most all of the cigars on the market are made in the same places and often by the same hands. The blends are often indistinguishable to most pedestrian palettes. You will find that is common in many business segments. The reason you choose between one like brand or another, paying a premium, is often the story it tells. Louis Vuitton over Michael Kors. Ferrari over Ford. Uber over Lyft?
Uber has recently come on the scene, effected the taxi cab business, and boasts a valuation of $50 billion, larger than most American businesses. The CEO of Uber, Travis Kalanick has been accused in the media of going on the warpath, attacking competitors, regulators, and even customers who question him. Yet even in the shadow of violence and crime exacted within the Ubersphere directly to the customer, the company continues to flourish. This is the division between consumer products and the luxury sector. I have been in this business for a very long time. I started out negotiating diamond deals in the backs of showrooms and building a reputation. Luxury is very much about image, reputation, and aspiration.
Tesla is becoming a symbol of automotive luxury. Elon Musk, once a neighbor of mine in Bel Air (Holmby Hills), engages in social media to create anticipation for some new feature or announcement about one of his projects. He is very accessible and vocal. Recently Tesla sent out a scolding to Model S customers about abusing the Supercharger Network instead of filling up at home. Can a company that has yet to post a profit and relies on every single transaction to attempt to keep the “lights on” afford to offend it’s hard earned customers? With an aspirational brand it is a delicate line to cross. If I were to enter into the EV business to compete with Elon Musk, I would first acquire a brand that is established and build off of that reputation. It is very costly to recreate the wheel, especially in luxury.
While I am only a few years older than Travis Kalanick, Elon Musk, Larry Page and Sergey Brin, my business was built privately, without venture capitalists or the public markets. Unlike my contemporaries that use other people’s money to build their enterprises, the risk is mine. The money funding expansion is mine. And the responsibility of Grand Metropolitan brands giving back is mine as well. So my reputation and integrity are paramount.
HW: What causes are you passionate about and what do you do for fun?
Lee: Not many segments of the luxury industry can directly help out people in need. I believe this function to be the very best of what social media can accomplish. Heilig-Meyers Furniture and it’s subsidiary brands have been in a unique position to be able to give back. Firstly, Heilig-Meyers Furniture has worked with charities like Cystic Fibrosis and raised tens of millions over the years. That created enormous good will for the brand in thousands of communities across the country. But more directly we have been in a position to help organizations like Habitat for Humanity with furnishings. Many local furniture retailers donate beds, linens, and even kitchen sets to shelters and homeless projects. We use our social media reach to encourage competitors, customers, and others to participate as well. Hopefully leading the industry by example.
In 1913 there was a terrible flood in Columbus, OH. Thousands of people were left homeless. Their houses were flooded, the furniture was ruined. Many of those people were Glick Furniture customers who had purchased on credit. The company ran a newspaper ad announcing to all customers that their bill was paid in full. When they got back on their feet, to come in and pick out new furniture, and Glick Furniture would refinance the new purchase. Over 100 years later, Grand Metropolitan continues that philosophy.
I am very fortunate to have many of my personal interests as business interests as well. For a few years I was very involved in track racing vintage sports cars. But I do work a great deal, often 7 days a week. So I take my pleasure in quieter times. Living where I do allows me to enjoy walking the beach grateful for the life I have and the people I have shared it with. Many nights end with a turkey sandwich, two fingers of scotch and a cigar.
The Beverly Hills Cigar Club participates in charity auctions, celebrity events, and red carpet functions including the Cannes Film Festival, Oscars, Grammys, Emmys, and Independent Spirit Awards. Grand Metropolitan sponsors events at the PGA Tour, NFL Super Bowl, and various music/entertainment venue VIP lounges and brand expansion marketing campaigns. We also participate at the G20 Economic Summit, World Economic Forum at Davos, Milken Institute Global Conference in Beverly Hills. In addition, Grand Metropolitan brands have hosted and sponsored events with NASCAR, Formula 1, Concours d’ Elegance, Sturgis Motorcycle Rally, and Bike Week in Daytona Beach.
Lee: We were very reluctant to admit the economy was in so much trouble during the downturn. The market segment we cater was the last to really feel the effects of it. When the ripples finally hit our clients, competitors, and vendors, it created enormous opportunity for Grand Metropolitan. But the luxury industry as a whole took a huge hit to image. It was very unpopular for many years to flaunt jewels on the red carpet. Many people discarded their Ferrari and Bentley keys for Prius. The art dealers began having fire sales on what were once heralded as blue chip investments.The jewelry business changed significantly. Initially out of 2,600 jewelry retail clients, over 800 of them went out of business. It weeded out many over leveraged operators from the industry. Billions of dollars worth of jewelry enterprises were dismantled as creditors fled for the exits. This enabled us to acquire many clients, competitors, and inventory for pennies on the dollar. Much of our commodity inventory was originally purchased when gold was at $300/ounce and silver was $4/ounce. When clients began defaulting, their remaining inventories were assimilated back into ours. Simultaneously, precious medal prices started to climb. Gold reached near $2,000/ounce and silver close to $40/ounce. Retail jewelers converted into gold and silver pawn shops overnight begging clients to allow them to hedge between old rings and necklaces and refinery rates.Today so much has improved. People are getting back to work and are enjoying putting their money back in to the economy. Last year I was in Dallas, and gas prices were the lowest we had seen in many years. Love is in the air as people can now start to plan for future, family, and buying a home. This sparks sales for engagement rings in our jewelry business and new home furnishings in our furniture business.This new economy has created a spirit of entrepreneurship all over the globe. People are more motivated to start their own businesses, be their own bosses, make a change in the world. Grand Metropolitan recently just partnered with fashion designer David Ford to launch his second line of luxury eyewear. We spoke for about a year while David was creating his first line. He immediately sold out and captured the attention of celebrities from film, television, and the music industries. It is important to me that while our brands have these legacy reputations, the luxury products we provide our clients are exciting, innovative, and high quality.
HW: Hollywood Weekly Magazine host an annual International film festival that attracts submissions from 60 countries. We have noticed Iranian filmmakers seeking waivers of the submission fees due to current sanctions imposed on their country by the US. Your luxury brand appeals to certain demographics within the marketplace. Do you wish to share your opinion on lifting sanctions on Iran as it relates to US businesses that cater to the luxury market?
Lee: I think Hollywood Weekly Magazine has incredible foresight to host this event. I think for many years, Hollywood was not only the capital of the film industry, but practically the only place you could make movies. Bollywood really helped to show the world that there are other voices and talents and abilities to create great entertainment. The emergence of other contributors, like the Iranian filmmakers, participating in this field is significant and long overdue. I have a dear friend, writer, director, indie producer Lisa France, who was able to navigate through bureaucratic waters to film the first American movie in Cuba since the embargo. “Love & Suicide” with Luis Moro, Kamar de los Reyes, and Daisy McCrackin, had the Cuban community and landscape as costar. I believe the more these barriers are broken down we can gain greater understanding of one another.Unfortunately I don’t feel I am qualified and certainly not experienced enough in these matters to offer a valuable point of view.Grand Metropolitan has been primarily focused on its positioning within the North American markets. While we are planning to expand abroad, it takes years to develop and execute organic growth in other cultures. Luxury isn’t much of a front runner in emerging markets.
HW: In general terms, what foreign countries do you see trending well for US exporters that seek affluent consumers?
Lee: That is a very interesting question. We get approached constantly about opening up offices and showrooms in Asia, Dubai, India and all over South America. For the last few years my focus for Grand Metropolitan expansion has been towards South Africa and Russia. In fact we have spent the last year negotiating to acquire Ellerine Holdings Ltd., the furniture retail unit of African Bank Investments Ltd. Ellerine was started by two brothers, Sidney and Eric Ellerine, in 1969 and grew to have about 8,000 employees and 947 stores by July this year. There were more than 50 bidders in the asset-sale process, brands Ellerines, Beares, Furniture City, Dial-A-Bed, Geen & Richards, and Wetherlys.
Grand Metropolitan’s own furniture retail unit Heilig-Meyers opened discussions to participate in the process. The company began to entertain offers to sell its Wickes Furniture assets in effort to fund the expansion into Johannesburg, South Africa for both furniture and diamond divisions. I believe that South Africa is today what China was 10 years ago.
Mark Zuckerberg, Elon Musk, Sergey Brin and Larry Page, and Sir Richard Branson are all competing to bring internet to the 4 billion unconnected people on the planet. Grand Metropolitan wants to be positioned to provide our goods and services through mobile when that happens. Acquisition of Ellerines well established brands would allow Heilig-Meyers Furniture to seamlessly cross into that new market. In addition, a positive relationship readily established within the South African community would allow us to expand our diamond operations. Some estimates show that over 80% of all web traffic is generated from mobile devices. We have spent the last few years redesigning our online presence for mobile responsiveness.
HW: This concludes the formal Q & A. Please let me know if there is a topic that you wish to discuss and feel free to do so.