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Store Operations

Baby Steps

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It’s not easy being an entrepreneur — even a successful one — when the economy tanks, banks become paranoid about lending and established lines of credit virtually disappear overnight.

This was the situation that a lot of small business owners like Joe and Sude Peta faced following the economic meltdown in 2008. But it was also a time when the Petas, co-founders of Feather Baby, a Decatur, Ga., retailer and distributor of organic baby clothing, saw an opportunity to focus on the sale of high-quality products.

The Petas were not newcomers to retail, having run three very successful neighborhood boutiques in New York City specializing in women’s jeans and sportswear. The stores were still doing well when the economy went south. Around that time they learned that triplets were on the way; after attending an apparel trade show, Sude decided that selling their own line of eco-friendly baby clothing was the way to go and Feather Baby was born.

The business took off quickly: Several hundred stores picked up the Feather Baby line in short order. At this point, the Petas moved to Lima, Peru, where Sude researched organic farming practices, fair trade laws and family-operated factories. They returned to the United States after two years and in 2010 opened a 1,000-sq.-ft. Feather Baby boutique in the Atlanta suburb of Decatur. The wholesale distribution arm, Mother Feather, is located in Joe’s hometown of Syracuse, N.Y.

The eco-friendly retail line was an instant hit with parents in the Decatur area and the company is now sourcing exclusively from Peru. “We were in China and talked to people in India but decided that Peru was a better culture in which to do business,” Joe Peta says. “There are cheaper places to make apparel but we couldn’t get the quality we wanted.”

Quick response
Peta says that before 2008, the company was supplying about 300 regular retail customers across the country, but there were probably about 1,000 customers in total, a level the company is just getting back to now.

“In the beginning, banks would send a letter in the mail telling us we were pre-approved for a line of credit,” he says. “We didn’t dip into it — we just put it in a file for a rainy day. But when the recession hit those idle lines of credit just disappeared. I’d just get a letter in the mail that the account was closed.”

Feather Baby “weathered the first years of the recession pretty well. A lot of our orders for fall were out of the warehouse before the October 2008 crash. I counted my blessings that I only got stuck with about $30,000-$40,000 worth of merchandise. It could have been a lot worse.”

The company needed capital to fund production of merchandise for its store and retail partners. But with lines of credit drying up — even an established one with Chase bank — the wholesale business shifted to dealing on a cash basis. Even when they decided to open the store in Decatur, Peta found the cash and did it without trying to take out a loan.

It wasn’t until last year that he decided it was time to set up alternative financing. Armed with a stack of pre-orders from customers and an outstanding credit rating, Joe went to a small bank in Decatur to discuss it. The company was turned down and faced the same situation as many other small businesses during a painfully slow economic recovery — difficulty in finding capital and frustrated by the lengthy paperwork process.

It was his banker who suggested talking to online lender IOU Central. The company’s rates weren’t as low as they would have been from a line of credit or a bank offering “prime plus two,” but the initial loan was only for $15,000 and the rate was far better than those offered by merchant services.

“It wasn’t a lot of money in the scheme of things,” Peta says. Mother Feather was a $500,000 company at that time and the retail store had sales of about $150,000 annually, “but we were thinking about launching a new line. So we decided that trying to expand our repertoire meant borrowing some money. It only took about two weeks from the time we completed the online application to getting the loan.”

Paperless process
IOU Central specializes in helping small businesses that have healthy cash flow, such as medical practices, retail store franchise owners and e-commerce operations. Qualified applicants typically can get up to $100,000 in just a few business days. This is largely due to the company’s technology architecture, which makes the entire loan process virtually paperless.

“Throughout the entire process we could see that IOU Central really understood the needs of our business,” Peta says. “Their application and approval process was well thought out and designed for small business owners. And their website was very easy to use.”

Feather Baby has since gotten a second loan from IOU Central. Between those loans and some assistance from American Express merchant financing, the company’s capital needs have been met.

The Petas are so confident of the demand for the company’s products and the availability of financing that Feather Baby is in the process of launching a new line of toddler play clothing called Frisk. “It’s doing very well in the store and online,” he says. “We haven’t offered it at the wholesale level yet. We’re holding off until we get the pricing right. But we’ll probably roll it out nationally in 2014.”

The company is also looking at franchising. “We’ve got a good business model,” Peta says. “The stores are doing well and because we manufacture so much merchandise for other retail customers, we can feed clothes to stores at cost and make a great margin at retail.”

And it sounds like the target markets for customers and potential franchisees are quite similar. “There are a lot of new moms and young women who want to work, but not necessarily in a corporate job that doesn’t give them the flexibility they need,” Peta says. Operating a Feather Baby store would provide “a chance to be part of a community and support it like we do in Decatur. I think that franchise concept will appeal to those who have a desire to be entrepreneurs and are looking for a turnkey moneymaker.”