Don’t Believe the Hype. A Hip-Hop Mogul Says It’s Propaganda.
By JEFF LEEDS
Source: NY Times
Russell Simmons has long reigned as one of the entertainment industry’s most capable promoters. At 47, as the co-founder of the Def Jam Recordings label, Mr. Simmons still tirelessly hawks a portfolio of ventures, from financial services to an energy soda.
His best-known recent success has been Phat Farm, the hip-hop-flavored clothing line he founded in 1992. Early last year, the Kellwood Company, an apparel maker based in Chesterfield, Mo., purchased the firm for $140 million, retaining Mr. Simmons as chief executive of the division.
But in a civil deposition last July, he provided some unusual insights into fashion marketing. Under questioning from a plaintiff’s lawyer as part of a lawsuit involving a longtime business partner, Mr. Simmons told of what he described as “the amount of hype that goes on when I discuss the value of Phat Farm,” according to the transcript.
“It is how you develop an image for companies. So in other words, you give out false statements to mislead the public so they will then increase in their mind the value of your company,” Mr. Simmons said.
The strategy seemed to work. In February 2003, for instance, Mr. Simmons appeared on CNBC saying that Phat Fashions was “doing $350 million” in sales. In fact, Phat Fashions’ revenue for 2002 totaled $14.3 million, according to court papers and the company.
His testimony might be regarded as remarkably candid or remarkably troubling for any executive. The fashion business has never been known for its sincerity, though there is no suggestion that Mr. Simmons or Phat Fashions, which was a private company and is the parent of the Phat Farm brand, ever misled investors or business partners.
But Mr. Simmons’s testimony is particularly striking in light of the public position he occupies. While he earns his paycheck as a media and entertainment kingpin, he has carved out a role for himself as a potent political activist and credible social commentator.
In a statement, Rush Communications, the corporate parent for his various enterprises, said his testimony “reflects his exasperation and frustration at being dragged into a lawsuit he was not a party to.” It said the deposition veered away from the topics it was supposed to cover, and that he was preoccupied with a family matter that day which “caused Russell to make some offhand and self-deprecating comments about his promotional activities.”
“The offhand comments that Russell made, yes, if he had to do it over again, he wouldn’t have chosen those words,” the statement said.
Rush added that Mr. Simmons’s role as an entrepreneur marketing his brands “is not the same activity as social activism.”
Mr. Simmons was deposed in proceedings arising from a civil case in which Def Jam and Lyor Cohen, then its chairman, were held liable for reneging on a deal to let another label release a CD featuring a Def Jam artist. Def Jam, which is owned by Vivendi Universal, and Mr. Cohen, a longtime friend and business partner of Mr. Simmons, are appealing the verdict, which was delivered two years ago.
In the meantime, however, the rival label, TVT Records, has been inquiring into whether Mr. Cohen understated the value of his 16 percent stake in Phat Fashions in a statement of his net worth that was submitted to the court several months before the sale to Kellwood. Lawyers for Mr. Cohen have said he was not aware of the contemplated sale price at the time, and Mr. Simmons affirmed that view in the deposition, which had been sealed until recently. Mr. Cohen is now chief of the domestic music unit of Warner Music Group. Mr. Simmons, who sold Def Jam to Universal Music Group in 1999, recently started a new label in partnership with that company.
In his testimony, Mr. Simmons makes clear that he views himself as the chief marketer of his fashion line. He said the figures in a 2003 Newsweek article reporting Phat Farm’s sales at $340 million “accurately reflected my optimism or my brand position statement, a good brand positioning statement.”
“In other words, did I say it? I was hoping it would sound good.” He adds, “maybe by that year the gross numbers were there. I don’t know.”
(Rush said the figures apparently referred to 2002 sales of the brand at the retail level, not revenue received by the company. Mr. Simmons’s comments to CNBC appear to reference the same thing.)
Throughout his testimony, Mr. Simmons appears unreserved, offering occasionally lengthy answers and cursing. Yet at another point, shortly before he was to be asked about comments he made to The New York Times in 2003, he asked, suddenly: “It is not going to come out, right, about me lying to everybody? Right?”
Mr. Simmons’s words and various written statements also provide a glimpse into the economics of apparel. More than a decade after Mr. Simmons introduced Phat Farm, so-called urban lines rank among the hottest sectors of the fashion industry. A variety of music-inspired fashion lines have sprouted, including Sean John from Sean Combs, Rocawear from Jay-Z and Damon Dash and the Fetish line from Eve.
For the most part, these firms, like many in the fashion business, don’t make their own clothes. Instead, they make money by charging fees or royalties amounting to a percentage of the revenue generated by manufacturers who license their names. These manufacturers make and sell the goods at wholesale prices to department stores and merchants.
Many of the brand-name fashion houses in Paris and Milan run the same way. But when chatting about their financial performance, many fashion executives - and news reports - prefer to cite wholesale revenue; that is, the revenue received by the manufacturers. In other cases, they quote the revenue received by retailers who sell the goods to consumers, a far bigger number.
“Hip-hop is about aspirations, it’s about keeping up with the Joneses. There is a competitiveness about who can own the most and be the richest,” said Emil Wilbekin, a former editor of Vibe magazine who is now vice president of brand development at Marc Ecko, another urban fashion house. “Now that urban is becoming mainstream, people are going to pay more attention to the details of the finances, the real worth. Before this time, no one took the businesses seriously enough to care.”
Indeed, Mr. Simmons has long spoken of the difficulty he faced in marketing the brand to retailers, who initially viewed his fashions as a fad.
“There was lack of vision in fashion just like in music,” he said in a statement provided by Rush. “I launched Phat Farm in 1992, and it took a lot of work for me to persuade buyers that there was a market for my brands, which we’ve made a success.”
The multiple ways of accounting for sales sometimes seems to confuse even Mr. Simmons. In his 2001 autobiography, “Life and Def,” for instance, he explains that “last year the company did $150 million. This year we are projecting, conservatively, $225 million in wholesale revenue.” He goes on to say that “when reporting revenue to the press, most companies use the retail number” which he estimates would amount to roughly double the figures he cited.
Asked in his deposition whether he believed the numbers in his book, Mr. Simmons said no. Then, last week, Rush said Mr. Simmons’s figures in fact appeared to refer to total retail sales for 1999 and 2000, and that they had been described in the book as wholesale by mistake.
In general, Rush said, Mr. Simmons has described the company’s fortunes depending on the context. In speaking with the news media, the company said, he often used retail sales “in order to keep the brand on equal footing with competitors, who typically released what appeared to be retail sales figures to the media.”
“To use numbers that would not have enabled consumers to compare like with like would have misled the buying public and, at the same time, would have been a foolish and unnecessary self-inflicted wound to the Phat Fashions brand,” the statement said.