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Tied up in the global game Featured

9:34am EDT July 22, 2002

He may not be as well known as Ralph Lauren or Tommy Hilfiger, but chances are you've seen one of his products around somebody's neck or hanging in your closet.

Keith Schwartz manufactures and distributes silk neckties, leather belts and women's scarves under the Keith Daniels label, which sells in supermarkets and drug and discount store chains across the country.

Schwartz, who started his career in pharmaceutical and suntan lotion sales, launched the Keith Daniels label after buying $2,000 worth of department store closeout ties in 1991. While those same ties were selling for $30 in the department store, Schwartz sold them for $5 at chains like Drug Emporium and Osco Drug Stores with his label affixed.

Today, Schwartz's neckties are sold in more than 2,000 stores, worn in three million homes and reap $2 million in annual sales for his company, OTP sales. And, he took out his first loan a scant four years ago.

Keith Daniels accessories and OTP sales were born from bleak times. Schwartz had resigned from his sales position with Chattem Pharmaceuticals nine years ago after hitting a promotional wall. The number of pharmaceutical buyers was dwindling due to consolidation under the drug store megachains.

"I remember things were slow at the time," he says. "I actually opened up a weekend flea market booth. We would sell cigarettes and salvage groceries -- it kept cash coming in. I remember I was talking to one of my former buyers and asked her, 'I'm looking to grow my company, is there is something you've been looking for you haven't been able to find?' She said, 'We could use a men's gift item for Christmas.' Because if you think about it, how many drug stores have gift items for men? Not many."

Schwartz had seen an ad for a department store closeout sale on neckties and decided they would be the perfect gift item. The ties sold extremely well, but weren't the quality of product that Schwartz demands today out of his accessories.

"They were the ugliest ties you've ever seen," Schwartz says with a laugh. "We retailed them at the store for two for $10. We put 200 to 240 ties per store. They were all gone in two weeks. They got there Dec. 15 and they were gone by Jan. 5. They were fashion ties, but 100 percent polyester and ugly."

After several years of buying closeouts, Schwartz found his company's growth was limited by what department stores had to offer. He also was too often disappointed with the quality of products available

And, despite his low prices, Schwartz says he's never been one to skimp on quality to keep costs down, which he believes is one reason his company has grown so fast in such a competitive industry.

"With close-outs, you're limited," Schwartz says. "I was trying to bring consistency to my company. A company can't grow without consistency -- consistent quality, consistent brand, consistent price. I had to be able to better target what our customers were buying."

So in 1997, Schwartz decided to manufacture his own ties overseas. But production didn't start until mid-1998 due to some major challenges.

Homework pays off

The first lesson Schwartz learned: Do your research before you spend dollar one.

"What a nightmare," Schwartz says about his early days of importing. "I actually found a great trading company over the Internet. The prices were unreal, great prices. By the time I show up -- after investing multiple thousands of dollars -- the prices changed. There was about a 30 to 45 percent increase in costs."

It was a reminder to Schwartz that business is about more than buying and selling products.

"I learned more because I had never done this before," he says. "I learned about quotas, duty, taxes. You can double the cost of a tie by adding a quota. We spent over a week negotiating with a factory, trying to figure out what components to use to make a tie that would still meet the same quality.

"In the end, we never got down again to the original prices, and to this day, I'm probably about 25 percent higher than my original quotes."

Schwartz estimates setting up his own production cost him about $50,000 to reach a level where he produces consistent quality accessories. Per production run, the entire process takes 12 to 16 weeks from the last order. Shipping takes four weeks, with four to five weeks in production and two to four weeks between federal customs clearance and moving product samples between countries.

Work that supply chain

Maintaining and retaining quality suppliers to manufacture the ties and other accessories is a daily battle , requiring careful and thorough negotiations. Schwartz says one of his early shipments of 30,000 neckties from China arrived with an overwhelming odor of dead fish.

Most people would have sent them back. But for Schwartz, that wasn't an option. There were no refunds on the order.

"You're talking really strong, dead-fish-sitting-for-two-weeks odor," Schwartz said. "You'll actually find stuff on the shelf that has that same odor. Silk sweaters sometimes have it. Some people call it a new product smell. I call it really disgusting.

"We found a new supplier in a different part of the country that finishes the product the same way we finish it in other countries."

When in Rome ...

Understanding cultural differences, especially in Asian and Far East countries like China and Korea, is especially important for conducting business overseas, as Schwartz learned during a negotiation session.

He had been speaking English to a translator, thinking that the Chinese factory owner on the other side of the table didn't understand what he was saying because he also used a translator and didn't react to anything Schwartz said in English. After negotiations had concluded, Schwartz overheard the man converse in fluent English with another person. Flabbergasted, he confronted the man.

"I said to him, 'So you speak fluent English?' He said, 'Yes, absolutely.' It just blew me away," Schwartz says. "I asked him, 'Why didn't you say anything?' 'Because it wouldn't be appropriate for me to speak to you directly, you have an agent. He speaks for you.' Cultural differences."

Despite the challenges and bureaucracy of importing, Schwartz says it's still much cheaper than trying to manufacture his budget accessories in the States. With his prices and quality standards, he doubts he could afford local production.

"There's no way to grow a large company without being a good importer, at least in this area," he says. "It would cost me $4 more to manufacture a tie here than it costs to manufacture a tie overseas -- per tie."

But Schwartz is determined to stay focused on growth.

"You have to understand, price isn't everything, you've got to demand quality," he says. "It's a consistent, ongoing challenge, and it doesn't stop the day you think you've got it right. But if you don't do it, you don't have a company." How to reach: OTP Sales, (216) 797-9933

Morgan Lewis Jr. (mlewis@sbnnet.com) is a reporter at SBN.