Laid-Off Exec Uses Contacts To Launch a New Venture

By Hilary Stout Staff Reporter of The Wall Street Journal
From The Wall Street Journal

LIKE SO MANY people these days, Neil Machlovitz lost his job when his company collapsed. But few have managed to take advantage of the rubble left by their failed employers as Mr. Machlovitz has.

Everything looked great on the morning of March 1. Mr. Machlovitz, the national clothing director of the Custom Shop, a store-chain and online operation selling custom-made men's clothing, got a call from Spencer Hays, a big name in the custom-clothing business. Mr. Hays was planning to buy the financially troubled Custom Shop and take over management of it in the next few days. Mr. Machlovitz was excited by his plans.

But that afternoon, the deal collapsed. At 8:30 p.m., Mr. Machlovitz got another call. This one was from company headquarters in Houston, informing him that the board had decided it had no choice but to close the business. Employees would be paid through the next day.

Mr. Machlovitz was stunned. He had known the company was in trouble but had no idea the situation was dire. Just 37 years old, he had been with the Custom Shop for 15 years, his second job out of college. The next morning, he went to his office in the chain's flagship store on Manhattan's Lexington Avenue. Bantering with other shocked colleagues he quipped, "I know all the fabric vendors. I know all the suit manufacturers. I could start selling tomorrow. I should just start a company." He laughed.

The next morning he woke up at his home in Marlboro, N.J., and thought, "Why not?"

HE MADE A LIST of whom he considered the 25 best people in Custom Shop stores around the country. Since his job had required him to train employees at all the stores, he was in a position to know.

He called each person and presented his idea: "You have a client base. What if I were to put together a company that got you custom-made shirts and suits, and would even do full wardrobe? You do what you do best -- contract with customers. Tell them the Custom Shop has closed but we have started a business called J. Lucas Clothiers. (J for his nine-year-old daughter, Jessica, and Lucas for his four-year-old son.) You sell the orders to me. I'll process them. I'll pay the vendors. I'll pay you commission. I'm taking all the risk. But I will give you a small percentage of the company."

Twelve ended up joining the new company, all working out of their homes. Mr. Machlovitz committed his savings to fund the venture, and sought no outside financing. Next came finding a tailor.

On Friday, March 9, Mr. Machlovitz went to see Jay Greenfield, vice president of Martin Greenfield Clothiers in Brooklyn, which made most of the Custom Shop's suits. Martin Greenfield makes many big name labels -- including Brooks Brothers and Neiman Marcus -- but it had been hurt by the Custom Shop's troubles. "The Custom Shop was, maybe, 10% of our business," says Mr. Greenfield. At the time of the closing, Greenfield was sitting on about 100 Custom Shop orders.

Mr. Greenfield, who had known Mr. Machlovitz for more than a decade, agreed to do business with the new firm. "We said, 'We'll do whatever it takes to support you,' " Mr. Greenfield recalled. He even called fabric vendors and asked them to support the fledgling business.

Now they needed customers. The obvious place to start was with old Custom Shop patrons. The problem was many were furious. They had paid deposits of $500 or more for a suit, then learned the company had gone under. Mr. Machlovitz got their names and addresses from Mr. Greenfield.

THE NEW COMPANY called or wrote the customers to say that the "Custom Shop's best" have formed a new business and could get them the suits they ordered from the same tailor. Martin Greenfield, in the meantime, had agreed to put a rush on completing old Custom Shop orders.

One customer, Steve Thompson, had been measured for a suit in late January at the shop in Tyson's Corners, Va. He paid a $520 deposit with an American Express card. In March, he got a call from Gabriel Jackson, one of Mr. Machlovitz's partners. "He offered me a solution to a problem I didn't know I had," says Mr. Thompson, who hadn't been wondering where his suit was.

Mr. Jackson told Mr. Thompson he could recover his deposit by calling American Express, and could deliver the exact suit he had ordered for the same price. After Mr. Thompson got assurances from AmEx that it would refund the money, he paid Mr. Jackson a $520 deposit and promised the remaining $520 on delivery. Within a week Mr. Jackson showed up at his home with the suit. Mr. Thompson was delighted and says he'll continue to do business with Mr. Jackson.

In its first two months, Lucas sold more than 350 shirts and 40 suits and sports coats -- figures that please Mr. Machlovitz, though he acknowledges he has a long way to go to build a successful company. Some of those orders were sold at a loss.

To customers who were convinced they had lost their deposit, Mr. Machlovitz offered to sell the suits at cost. His motivation is simple: "The reason I'm doing it is I get a customer out of it. I'm banking on the fact that the guy is so pleased with the service -- that I'm giving him something he thinks he lost -- that I get more orders on the spot."