Im marcus lemonis, and i risk my own money to help businesses. I love investing in american businesses. Woman 2 i work here because i care. Lemonis its not always easy, but i do it to create jobs, and i do it to make money. Do we have a deal . Lets rock a roll. Man yeah lemonis this is the profit. Ive always been interested in investing in the multibilliondollar Leather Industry because it allows for great margins and great sellthrough. About a year ago, i received an application from a Company Called lumillamingus, which was started about 6 years ago and continues to struggle. How are you . Lulu hi im great. How are you . Lemonis im marcus. Lulu oh, its so nice to meet you. Lemonis are you lulu . Lulu thanks for coming. I am lulu. Lemonis nice to meet you. Where are you from . Lulu guess. Lemonis wherever heidi klum is from. Lulu no, denmark. Shes from germany. Lemonis okay. Lulu yeah. Lemonis its not that far. Lulu close enough, close enough. So this is actually the production facility, and they have a couple of different clients. Im one of them. We have our leather sourcing next door. This is where we design, so we have everything made here and shipped out of here. Lemonis so this is the equivalent of a copacker. This is your manufacturing partner. Lulu thats exactly right. How we designed it up until now is, we actually have a core collection, and we really dont go with trends. We try not to follow trends. Were definitely more classic. Lemonis is that you or the business . Lulu me. Lemonis okay, because im going to keep asking you that. Lulu uhoh, okay. Lemonis yeah, uhoh is right. Lulu oh. Lemonis i find it odd that lulu tells me right out of the gate that she doesnt follow trends. Now i know that theres this idea about being unique, and thats fine. But can you be unique and follow the trend . Lulu this is florence, our production manager. Florence, this is marcus. Lemonis how are you . Florence hi, marcus. Im florence. Lemonis nice to meet you. Florence nice to meet you, too. Lulu shes produced for us from day one, from 2013. She did my very first sample. Lemonis are you also a patternmaker . Florence yes. Lemonis you and i are going to be really good friends. Florence oh, you think so . Lets see that. Lemonis why did you get in this business . Lulu i was trained in haute couture from a designer in paris, actually, a danish designer. My whole life, ive always, like, sewn my own clothes and sketching and done art. Lemonis are these all yours . Lulu yeah, they are. This is. Weve been working with goop for about 3 years and have done custom collections for them. This is one of theirs. Lemonis my First Impression of the actual product is that it seems to be of good quality, and it doesnt look like lulu is skimping on the quality of the leather or the quality of the hardware. So where is your core collection . Lulu we have a core collection. Lemonis a shopper . Lulu yep. Lemonis the large pouch, clutch. Lulu mmhmm. Lemonis the small clutch, the sack. Lulu and then weve got the jackies. These are the crossbody that also becomes a bum bag. Lemonis is Everything Black . Lulu we have to have the black always. Lemonis you dont like color, huh . Lulu i dont love color. I just dont like it. Like, this has sold super well with us. Lemonis so, lulu, what i would ask you to think about is, the bags that you design, you cant just do black on black on black on black. In order for lulu to ultimately grow her company, shes gonna have to establish a Customer Base and then get them to repeat their purchases. And in order to repeat purchases, shes gonna have to innovate with color, shape and size and materials. What are those price points . Lulu most expensive is around 400 retail. Lemonis i think thats dangerous. The consumer is gonna say, for the same amount of money, im gonna buy a brand. Lulu thats our exact conversation all the time. Lemonis the numberone impediment to growing this business is getting the perceived value of the product right. I know its a goodquality product, but shes not clearly telling me why the price is justified. Can we see the sourcing . Lulu yes. You want to go next door . Yes. Lemonis the kind of elements that im looking for are little items around hardware zippers, the lining on the inside, anything that you can think of thats a detail that somebody would notice and see value in. This is awesome. Shawn as far as some of the higher ends, we have this product called atlantic. This is what we call as one of, you know, highest quality. Lulu we use this. Shawn on average, youre looking at about 7 to 7. 50 per square foot. Lemonis lulus resource, united leather, is over 20,000 square feet with 15,000 different types of leather. Honestly, it proves that she knows how to surround herself with good people. How many square feet does it take you to make a typical bag for you . Lulu well probably use maybe 10 square feet. Lemonis maybe or for sure . Lulu i dont know the exact number. Lemonis lulu. Lulu i know. Lemonis every one of your patterns should have a material quantity. Lulu yes. Its not a really beautiful system, but we do have it. Lemonis its an ugly system, but its accurate. Lulu its accurate. Lemonis who owns the Business Today . Lulu i own the majority. Lemonis okay. How much money have you put into the business from the beginning . Lulu so, scott, my husband, we put roughly 175,000 in. Lemonis wow. Lulu this is really where i think i need a lot of help because weve lost a lot of money trying to promote the company. Lemonis do you have any financials with you . Lulu i do. We can go up here in the showroom. Lemonis okay. Lulu im gonna go grab them. Lemonis okay. Lulu alright. Lemonis so one compliment the preparation that you have ready. Lulu oh, thank you. Lemonis the fact that you have a folder. It has your name. It has my name. You put some thought into it. You put a brand presentation. Lulu i put a lot of thought into it. Lemonis well, you would be one of very few. Lulu well, this is very important to me. Lemonis this is the financials . Lulu yeah. Lemonis look at the revenue. 2016, 69,000 in revenue. Im a little confused on why the cost of goods was higher than revenue, and you showed a negative gross profit. Was that because you were building inventory . Lulu because you have inventory. Yeah, you havent sold everything. Lemonis well, its just the way youre accounting for it. Lulu yeah, and its actually very confusing because also, at the end of the year, we show. Lemonis youre cashbased instead of accrual. Lulu thats right. Lemonis you got to fix that. Cashbased accounting is when you actually record things as cash leaves the system, so if you buy inventory, you record it as an expense instead of recording as inventory and then recognizing it when it sells. Accrualbased accounting is when you set up that cash on your Balance Sheet in the form of inventory, and you only recognize that inventory when the product sells. The irs doesnt like cashbased accounting because you can actually inflate your losses when youre actually making money by just building up inventory and expensing it. So in year 1, you lost 51,000 on 69,000 of revenue. In year 2, 117,000 of revenue, lost 55,000. In 2018, 58,000 of revenue, lost 26,000. Im alarmed because the fact that she had nice growth in year 1 and 2 and then literally fell off the cliff in year 3 tells me that theres a possibility that lulu isnt designing products that will get customers to come back on a repetitive basis. Lulu its hard to go back to the same customer, you know, several times a year and have her buy a handbag. Lemonis so black is core, no problem, but core isnt gonna get you to a million bucks. Where are you sold today . Are you in. Lulu mainly through us. Lemonis direct to consumer. Lulu direct to consumer. Lemonis and how about any Department Stores . Lulu no, we. Lemonis any boutiques . Lulu were in goop, in their boutiques, and then were in small boutiques. Lemonis can you explain the name to me . Lulu yeah. When i moved here, i had an idea of what my children were gonna be named one day when i had children. Lemonis okay. Lulu my girl. Lemonis do you have children now . Lulu i do. Lemonis oh, wonderful. How many . Lulu i have three. Lemonis wow. Lulu yeah. So my girl, my first girl was gonna be named lumilla, which is a danish girls name, and my boy was going to be named mingus. The reason why theyre not named this is because i married an american, and he goes, there is absolutely no way, so this is why i named my company. That is one thing he couldnt decide. Plus, it makes you think about it. Lemonis right, but not as it relates to handbags. Lulu but youre remembering it, though. Lemonis im gonna go ahead and take a hard pass on this, okay . When i hear the word mingus, i think about me as a kid, and when i was in school, they would call me mucus. That wasnt very fun. I cant imagine what mingus would be like. Fungus . Lulu thanks, marcus. Lemonis take care. Thank you. Lulu nice to meet you. Lemonis you, too. Hello. Lulu hi. Lemonis how are you . Lulu good. How are you . Lemonis good to see you. Lulu nice to see you. Lemonis oh, my god. How are you . Scott great to meet you. Lemonis nice to meet you as well. Scott sorry, i cant get up. Im trapped, trapped. Lemonis i like the fact that lulu and her husband are together on this idea for the business. Theyve put together 175,000 in it. Because hes involved, i definitely want to meet. Whats your background . What do you do for a career . Scott pretty diverse professionally. Ive worked at nike. It was manufacturing overseas, and then i started my own business. Its based out of london. Lemonis what kind of business was it . Scott a shipping business. Had it for 10 years, sold it. Im a realestate developer now. Lemonis thats awesome, right . Scott growing my own business, and its busy, which has sort of segued back into lumillamingus. Lemonis you had to, like, almost struggle to say it. Scott lm. Lemonis why are you rolling your eyes . Scott were not going to go there, are we . Lemonis oh, were definitely going there. Lulu oh, well be going there. We might as well just go there. Lets, like, get it over with. Lemonis well, because its hard to say. Do you have an opinion about the name . Scott do i have an opinion about the name . Lemonis yep. Scott is it lunchtime . Its lunchtime. Lemonis you dont want to name your son mingus . Scott didnt happen. Lemonis one of the things that i wanted to do with the three of us is just to really understand how the business integrates into your guys family life. Scott shes a fantastic mom, but she wanted to keep her identity as a professional woman. Lulu we had, kind of, three kids shortly after each other. I love being a mom, but its frustrating. You get. You feel defeated. You feel like youre not good enough. Like, its really hard, and i wanted to keep my fashion background and training, so thats kind of how handbags came about. And i love handbags myself. Scott i was supportive of that as long as we could handle the home front. Lemonis yeah. Scott and thats where. Lemonis finding that balance. Thats hard for any parent. Lulu its a hard balance. Scott i think its really a testament to her not letting go of her passion, so. Lemonis any time i meet somebody that has their own skin in the game, thats a meaningful thing, and you guys did it as a family. Youre definitely committed to it. Lulu im very committed. Id rather not do it if its halfass. Lemonis it was awesome meeting you, by the way. Scott great to meet you as well. Lemonis really nice meeting you. See you in a little bit, okay . Lulu okay. Lemonis hey, guys. Lulu well, hey. Lemonis after really doing a little bit more research on lulus financials and the Leather Goods industry and after meeting her husband, scott, i asked for the two of them to meet me at my office to really sit down and understand if there was a deal to be done here. If were gonna make money, we want to start now. I want to invest is somebody whos good like you are, but i think youre allergic to math. Lulu that might be. I dont like math. Lemonis of all the things that people could say to me, they could call me names. They could tell me how ugly i am, how mean i am, but they cant tell me they dont like math. Lulu but we cant all love math. Lemonis then dont be in business if you dont like math. Now we have to get down to the brass tacks of it all. What do you think your business is worth . Lulu i think its worth around half a Million Dollars based on, you know, my revenue this year, my profit, but i think the major value is in me, my connections. Lemonis its got 25,000 of tangible net worth between cash, inventory minus the liability. So im having a difficult time putting a big value on it. What do you think, scott . Scott shes got a proven client base that continues to come back, so as long as shes designing, i think she can repeat that business model. Lemonis i think my only concern in investing in lulu is, shes been doing this for 6 years, and i have to try to figure out what she has done wrong thats going to change because i dont want to be part of losing 175,000 more over the next 6 years. Lulu what youre investing into is the launch of this new, amazing brand. Lemonis okay. How many bags do you think the Company Needs in stock . 500 . Lulu i mean, that would be amazing. Lemonis so how much would be 500 be . Lulu 75,000. Lemonis so thats number one. Whats the second thing the Company Needs . Lulu well, then you need the research and development. Its between 500 and 1,000 for one sample. Lemonis so lets say 10,000. Lulu okay. Then you need marketing. Lemonis lets put 25,000 in there. Lulu and then you also need photo shoots, right . Lemonis creative, artwork, digital video content. Lulu mmhmm. Lemonis so another 5 grand . Lulu yes. Lemonis so to have plenty of inventory, plenty of research and development, plenty of marketing and plenty of creative stuff, thats 115 grand. The best deal that i could make is 115,000 for half of the business, and thats honestly more than i want to pay. Im not doing anything with mingus in the name. Lulu thats probably where youre making the biggest mistake. vo than just the business theryou came for. More whether thats getting a taste of where you are, or bringing some of that flavor back home. Thats room for possibility. Lets get to living that little vent that its no wont stay open. Except it is. Thats why the vent is one more thing we check before a car can be a certified carmax car. The way it should be. Carmax. In getting key nutrients peopfrom food alone. 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Touchdown get started with internet and voice for an amazing price. Call today. Comcast business. Beyond fast. For half of the business. Lulu okay. Lemonis i would want to have a fully developed line in three styles. Lulu three styles, new silhouettes. Lemonis yes, a whole new offering. We should mandate that the quality and the process be right, which im sure they will be. Lulu okay. Lemonis . A showroom that will rep the products. Lulu okay. Lemonis . A new name. Im not doing anything with mingus in the name. Lulu thats probably where youre making the biggest mistake. Lemonis so how does that sound to you . Lulu it sounds very exciting. Its. Im thrilled. This is fun. This was not fun. This is fun. Lemonis well, hopefully by the end of this, youll say the opposite. Lulu by the end of it, ill love math and colors. Ill love it all. Lemonis math and colors. Lulu yeah. Lemonis who am i making the check out to . Do i have to actually. Let me just see if i can. Lulu watch it. You will one day have a dog, and it will be named mingus. Lemonis i dont think the argument to convince me of the name is telling me that im going to have a dog named that. [ chuckles ] what do you say . Lulu im so excited. Thank you so much. Lemonis do we have a deal . Lulu wow, we have a deal lemonis okay. Lulu yes lemonis i wanted to invest in lulu because i can tell that shes got a keen eye for fashion, but she also has a High Standard for what quality shell put her name on. I like that. And this is what i want to leave you with. I want you to give me a dozen bags. I want to see something different. You cant just do black on black on black on black. Lulu darn it. Lemonis so i assigned her to create 12 bags, which is a ridiculous number. I wanted to created a pressure valve to see how she would use the resources that she had and what she would do to get the task done. Lemonis okay, guys. Lulu good stuff. Lemonis ill see you a little later, okay . Lulu thank you so much. Lemonis bye. Scott alright. Lulu should we go shopping . Scott [ chuckles ] lulu hi lemonis hi, guys. Scott hey, marcus. Lulu this is my dad, klaus. Lemonis how are you . Klaus hi. Lemonis i want to understand who im doing business with, and its clear to me that this is a family business, and in order to be invested in a family business, you have to meet the family. So what do you think of the name lumillamingus . Emmanoelle mingus is cool, but i think its cooler with just lumilla. Xander nothing should ever be named mingus. Lemonis whats the one thing you hope for your moms business . What do you want to see happen . Ava i really want it just to be able to succeed, and i really want to see my mom stays at home. Lemonis xander, how about you, buddy . Xander i hope, like, it grows enough so that she can hire people to do most of the stuff for her. Lemonis you think theres a lot on her shoulders today . Xander yeah. Lemonis its got to be tough to figure out how to balance being a wife, a mom and a business owner, but it shows me that shes committed to following through on whats important to her. Cheers to mommy cheers, cheers klaus skal lulu how do you think it should be . We want it round, but i do think we should make it a little more square, though . Its not gonna be the same silhouette. Lemonis how are you . Im marcus. Frank im frank. Lemonis frank, how are you . Frank very good, how are you . Lulu alright. Were back at the drawing table. Lemonis so what i really want to understand is, number one, whats the capacity that you guys can produce at, and number t