After Stephen Hersh’s father Ron sold Rosetti, their family-run handbag business in 2006, father and son got the idea to start Biaggi, a company that would sell a line of foldable luggage. They made a series of very expensive mistakes, resulting in a $3 million loss for Ron and a partner. Stephen, 36, was left with the ruins of the business. He was in the midst of selling off Biaggi’s inventory when he learned that Shark Tank was interested in his making a pitch. In December 2014, he convinced shark Lori Greiner to invest $500,000 for a 33% stake. Biaggi’s revenue shot from $40,000 in 2014 to $3 million in 2015. In this condensed and edited interview, Hersh describes Biaggi’s initial blunders and how the Hewlett, NY-based business has transformed since.
Susan Adams: How did you get into the luggage business?
Stephen Hersh: My father owned a handbag company called Rosetti. It was very high-volume. I worked there in sales. It sold to
Adams: Did you get any cash from the deal?
Hersh: No. It was my father’s company.
Adams: How did you decide to start Biaggi?
Hersh: We were looking for something to do together. We saw a folding suitcase in an airport. It was a foldable bag that saved space but it left a lot to be desired. Like it didn’t have four wheels. We thought we could make a better bag. We went to China and we engineered a foldable bag.
Adams: How did the new company do?
Hersh: We made some really big mistakes. When we started Biaggi, we picked up like we left off with Rosetti. We had in-house marketing and PR, we had the best salespeople in the industry. We had an office on Fifth Avenue and 33rd Street. It wasn’t smart. We were paying salaries of more than $400,000 before we even shipped one item. We also ordered 50,000 units of inventory off the bat.
Adams: Why did you set up a business with such high overhead?
Hersh: We miscalculated the luggage industry. Luggage isn’t a handbag, which is an impulse item. Luggage is more of a commodity. It’s a whole different ballgame. They’re both bags but you have to run a luggage company differently.
Adams: Where did you get your startup funding?
Hersh: My dad and a partner.
Adams: What was your plan for getting the company off the ground?
Hersh: Our plan was to launch the product in a really big way. We designed the bag beautifully and we had amazing marketing and branding. I went to the travel show in Las Vegas. Right when you walked in you saw our display. We thought we’d get orders from the Macy’s of the world. It just didn’t happen that way.
Adams: Why do you think your luggage didn’t sell?
Hersh: We weren’t luggage people There were a couple of things we didn’t take into account. The weight was the number one issue. The bags were heavy and expensive, between $230 and $400 retail.
Adams: Was the venture a complete failure?
Hersh: We got into Dillard’s and a couple of moderate-sized retailers like the Container Store. My father and his partner were like, experiment over.
Adams: How much money did they lose?
Hersh: Three million dollars.
Adams: What did you do next?
Hersh: I’m in my mid 30s and I have two kids. So I downsized. I let six people go and kept one person on staff and I sold down as much of the inventory as I could for very cheap. The one person handled orders so I could focus on selling the inventory. It was a real letdown.
Adams: Did any of the bags in your line sell better than the others?
Hersh: There was one item we brought in toward the very end to have an opening price point. It’s called the ZipSak. I didn’t love it. I wouldn’t use it for my everyday travel. It’s completely soft and it doesn’t have a trolley handle. Our whole idea was to sell a suitcase like any other that also folded.
Adams: It sounds like your business had failed. What made you think you could get anywhere on Shark Tank?
Hersh: I got a call from someone at Bigcommerce, the online shopping cart company that my website is built on. He said someone from Shark Tank saw my website and wanted to know if I would go on the show. They thought the ZipSak would be good for TV. I set up a call with one of the producers.
Adams: How did you convince the sharks to invest in your failed company?
Hersh: My strategy was to tell them everything I did wrong. I told them I was aware of the mistakes we had made, that I had only one employee and very low overhead, but that we still believed in the product. I knew we could improve on it and make it lighter and less expensive.
Adams: You went on the show in late 2014. What was your revenue that year?
Hersh: We did $40,000 that year.
Adams: What deal did you get from the sharks?
Hersh: I had plans for a whole new line of foldable luggage that would be cheaper and lighter. I brought along the $69 ZipSak bags. They were a complete afterthought. But Lori Greiner thinks in terms of what will sell on
Adams: How did Shark Tank change your business?
Hersh: Lori Greiner called me and told me she wasn’t interested in my bigger bags at all. She was only interested in the ZipSak. She wanted to test it out on QVC. I agreed to do it her way.
Adams: How did your bags do on QVC?
Hersh: Our first QVC sale was a major success. Lori did the sale in early February 2015. The bags sold for $59 and $69, plus $10 for shipping and handling. We sold 6,000 bags in about eight minutes. We’ve since sold between $15,000 and $20,000 worth of bags a minute on QVC and we’re on at least once a month.
Adams: Where else do you sell the bags?
Hersh: We sell on Amazon and on our own website. Container Store is buying our lower-priced stuff and doing much better. We just got onto Bed, Bath and Beyond’s website. We’ll be on the Macy’s website in May. We’re doing a five-store test with them. I sell in the UK, where I have a website and a fulfillment center. I also sell to seven different countries in the Middle East, including all the emirates, Bahrain and Egypt. We’re on the Shopping Channel in Canada and on Shop Global in Thailand.
Adams: Do you have any other retail deals in the offing?
Hersh: We put together a program for Costco, for one bag in one color. We’re doing a 14-store roll-out. You have to sell $1,000 per store in 14 stores per week. If you make it through a five-week test period, then they keep you.
Adams: What about advertising?
Hersh: If I spent money on
Adams: How profitable is the company now?
Hersh: I have a 35%-40% gross margin on the bags. When I sell on my own site, it’s 65%. My payroll is tiny. I have a part-time customer service person I pay $20 an hour and a 40-hour-a-week person I pay the same. My expenses are super low. My biggest expense is third-party fulfillment. I spent $120,000 on that last year. The only debt I have is when I borrow to buy inventory and I pay that back in 90 days. I had $3 million in revenue in 2015. My total 2015 profit was $350,000.
Adams: How much do you pay yourself?
Hersh: For now, $100,000, but I also take some of the profit that I don’t put back into the business.
