March/April 2016 Openers
Skin in the Gane: Royce's Millennial leaders have merged tradition and technology.
Like many next-generation family business members, Andrew Royce Bauer and William Bauer started working in their family business as children. But they didn't just spend school breaks helping out with menial tasks at their family's leather goods business, Royce Leather.
"I was in the business since I was born," says Andrew, now Royce's CEO. "I started selling at [trade] shows at age 11."
When founder Harold Bauer stepped aside to let his two Millennial-age sons take over Royce Leather, nobody worried about their youth—or their decision to aggressively pursue a path that was new not only for the company but also for the entire accessories category: wearable technology.
Andrew Bauer, now 22, was named CEO in September 2013, before he was old enough to legally have a glass of champagne to celebrate his appointment. Brother William, 24, is the managing director and handles day-to-day operations. Since the brothers assumed leadership—while both were still university students—and ventured into wearable technology, the company's annual revenues jumped by $2 million and now stand at about $6 million.
Both brothers are huge fans of disruption as a positive force for business, and it's been nice to see their ideas validated and rewarded, says Andrew. Still, he says, the leadership transition from father to sons wasn't entirely seamless—or quiet. But their father has been proud to see the sales numbers shoot up with the introduction of a GPS-trackable wallet.
Harold and Kathy Bauer remain majority owners even though their sons have taken over leadership. Kathy, 56, still works for Royce in purchasing, finance and HR. Harold, 68, doesn't have an official role, according to Andrew, but continues to play an important role in Royce's success.
"I have a great deal of respect for his experience and legacy," Andrew says of his father. "Harold talks to end consumers about their product experiences, he watches over product inventory levels and donates products and [a portion of] our profits to social plights such as poverty. He also serves as a mentor to me, answering my questions and giving me feedback on my product designs."
The Bauer family has worked in leather for four generations, beginning with Andrew and William's great-grandfather, Josef Bauer, who was a shoemaker in Austria. Their grandfather, Eugene, survived the Holocaust by hiding with a Catholic family and then escaped to the United States, where he began making men's wallets and leather accessories, incorporating Austrian aesthetics with American functionality. It was Harold who founded Royce Leather in 1974 as a luggage company and private-label leather goods manufacturer for upscale department stores.
Originally based in the Flatiron district of Manhattan in New York City, today the company is headquartered across the Hudson River in Secaucus, N.J. When Andrew became CEO he shortened the name to Royce to allow for greater flexibility of product. The company's offerings now encompass more than 45 categories, including luggage and briefcases, wallets, wine and cigar cases, and luxury leather dog collars and leashes.
Losing his own wallet as a college freshman at the University of North Carolina-Chapel Hill inspired Andrew to create one with a GPS tracking device, a yearlong process with the encouragement of the UNC Innovation Scholars Program. The Royce Freedom Wallet with Tracker Technology was released on Nov. 29, 2013. Since then, the company has developed a line of products incorporating not only GPS trackers that can find a lost wallet or suitcase or even a pet, but also radio-frequency identification (RFID) that can prevent electronic scanning that leads to identity theft. The company now sells the GPS device separately as well as incorporated into a wallet.
Royce's high-tech accessories are sold by prestigious retailers worldwide, but Andrew Bauer's motivation goes beyond money. As a Millennial, he shares his generation's concerns about sustainability, global warming, work/life balance and local manufacturing, and he has written several humanist essays for the Huffington Post, addressing timely topics such as last fall's terrorist attacks in Paris. His bachelor's degree—which he plans to complete this spring—will be in African, African-American and Diaspora studies, not business, though his minor is entrepreneurship. William Bauer, meanwhile, recently finished his master's degree in marketing from HEC Paris (École des Hautes Etudes Commerciales de Paris), a highly regarded graduate school in France.
Family Business talked with Andrew Royce Bauer about how he and his brother transformed a respected but staid operation into an organization that is making news in both technology and business circles. In 2013, Inc. magazine ranked Royce Leather at No. 3,284 on its seventh annual "Inc. 500|5000" list, which ranks the nation's fastest-growing private companies. Meanwhile, Royce's products are featured often in various fashion and lifestyle publications.
Family Business: Did you and your brother always plan to go into the family business?
Andrew Royce Bauer: Yes, we did. We learned from a very early age what it means to design, produce and retail a product. Some of the earliest memories of my childhood can be traced to sourcing suppliers in London, going to trade shows in New York City and selling products myself on eBay and Amazon throughout middle school. William officially started in the business in a more formal role at 16, but we have been contributing to the business in various ways throughout our lives.
FB: How did you and your brother determine who would have what roles?
ARB: I have a love and passion for doing what no one else does, and my brother has a passion for success and delivering a product. We have clearly defined roles and responsibilities at Royce, but our reporting structure tends to be informal because we have a great deal of trust in one another. At Royce, there is less of a hierarchy than you might find at more structured businesses. I am very thankful to my father and mother for allowing my brother and me the leeway to make our own decisions without having to report to them in every single instance.
FB: How does that all work, especially while you're away at university?
ARB: We're blessed as a family that with mobile technology, we can work from anywhere in the world. In the bigger picture, getting widely educated will help achieve our vision.
FB: Other than your own lost wallet, what inspired you to aggressively pursue wearable technology—an unproven field—rather than just innovate new styles and colors of leather goods?
ARB: In lots of family businesses, the next generation steps into the model and adheres to the tradition. My brother and I wanted to carve our own path. We came into a very traditional retailer of fine leather and gifts, but we asked, "What will allow us to grow and serve the modern luxury customer?" In business school you learn to catch a product on the up-cycle and gain market share. Our customers are more sophisticated, they travel, and we asked ourselves, "How will they use this?"
FB: What did your father think when you first suggested wearable technology?
ARB: He yelled a bit. He thought my ideas didn't fit [the company] and that I needed to learn our history. Our biggest disagreement was that I wanted to differentiate the product assortment. Dad was conservative and designed within trends that fit the norm. I wanted to be a standout and have a unique selling proposition. My mother was my biggest supporter and encouraged me to try.
FB: How did that affect your relationship with your father?
ARB: I think there's supposed to be friction when you transfer from one generation to the other. That's the catalyst for disruption. But we still sell some of his designs. The GPS device still is in beautifully crafted leather. We proved that you can work old and new together—and that family always comes first.
Our business model is to create a product you'll enjoy for the rest of your life. We don't want to sit in the fast-fashion space; that's not what our family or business values are. Our tracker is built to last. We wouldn't have built it if it weren't. (Editor's note: A common question in upscale wearable technology is how to keep the technology part current without having to replace costly luxury housing. Users download a companion app for the Royce device from Apple or Android, and the app is updated every few months.)
FB: What are some of your other product innovations?
ARB: We find innovative features customers can relate to. We introduced unique products like touch-screen gloves in luxury lambskin and an airport-friendly belt with a detachable buckle—and we sold out of stock on both.
FB: You're passionate about American manufacturing. How many of your products are made here?
ARB: More than 50 styles will be made here in 2016. My hope is that in five to ten years, at least 50% of our revenues will come from U.S. manufacturing.
For the last 20 to 25 years, my father focused on importing from China and India. We didn't have the infrastructure in the USA. Now we have some manufacturing in Tampa, Fla., in the Amish country in Lancaster, Pa., and in New York. But even as a kid I wanted to manufacture in the USA. It is really important to me: to reduce carbon emissions, to know who makes it, and to support local culture.
Much as I love our workers overseas—we talk and text all the time—when you look at issues like global warming, it makes sense. Maybe it's important to me as a Millennial, but American manufacturing is something customers hold dear to their hearts, and it reflects positively on the values of Royce. But with 3-D printing, new technologies and faster shipping, it makes sense financially to do it here, too. It's not just values. The fashion industry will always be able to find the lowest-cost customer, but in the end we want to do what's best.
FB: Tell us about your employees.
ARB: We have 23 full-time, year-round employees, and in the busy season it grows to about 47 total. Our seasonal employees are on the payroll but only work during the holiday season. In the factories we contract with overseas, there are between 300 and 3,000 per factory, and we insist on working with factories that treat their workers well, make sure they're healthy and have high wages.
FB: You mentioned how proud your father is when he sees how the employees greet you. Can you elaborate?
ARB: I want to acknowledge and empower the incredible work of our employees. Our family survived the Holocaust in Germany and Austria, so we learned self-survival, but I changed that [culture] to shared success. I take employees to meetings with clients so they see something bigger than their own job description and see unlimited growth potential for their own success and their own lives.
We reward them for innovation and hard work. For example, we have some employees who started in packing and shipping and who now are responsible for buying millions of dollars of materials.
It's a cliché, but we see our employees as part of the family. Even our seasonal workers return every year—most are family members of full-time workers. I value the importance of being part of something—of having a place to go, to call home.
FB: Let's talk about the family part of the family business.
ARB: Nepotism is inherent in a family business, but nepotism still has to be earned. If I didn't build sales, I wouldn't be CEO. I want to see our employees do well; to be able to do [important] things so that I don't have to.
FB: Do you have any non-family leaders?
ARB: Yes. We have six: our vice president of operations, Jean-Paul Saltos; vice president of customer experience, Karen Kelley; vice president of fulfillment, Carlo Santiago; vice president of purchasing, Maria Turner; vice president of marketing, Marielle Suazo; and our CFO, Mark Tessler, who reports to my mother.
FB: Since you are so entrepreneurial, do you ever think you or William would leave the company to launch something else?
ARB: No, we're Royce lifers. As we get older, if we have kids we'd want them to come in to the business, and we'd move over for them. As CEO, I look forward to integrating humanitarian work into what we do at Royce. Beyond Royce, I hope to find additional opportunities to positively impact the world, whether it's politics or a social entrepreneurial venture.
FB: What keeps you up at night?
ARB: My biggest fear as a CEO is failure: failing the family and the culture that keeps employees happy. When employees are happy, they're more willing to help, to support us with their time, to bring their friends in and talk us up on social media. Happy employees equal a better product.
FB: What legacy do you hope to create for the company?
ARB: Three key points: love, questioning and sustainability. Love between family and employees to the end consumer can transcend any part of the business. Family businesses blur the line between family and business, and the family stays together even when they make a mistake.
I really love when employees question things. We don't have a traditional reporting structure. We decide things as a group. My brother and I are very educated, but just because we have degrees we're not omniscient. We want employees' input, and to see their vision and hear their views. We have long-time employees, and that provides a level of comfort with the business and much less anxiety than in a corporation where people look to move on.
When the recession hit, we took cuts as a family so we didn't have to lay anyone off. We cut work hours because the work just wasn't there—and the employees understood that—but we avoided layoffs. It's not just one person affected by a layoff. It's their family, their kids, their livelihood. Imagine having to say to a cousin that you can't come to Thanksgiving dinner because we can't afford to feed you!
Hedda T. Schupak is an editor and analyst specializing in fine jewelry and luxury retailing.
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