Five lessons from the Ed Hardy collapse

What a difference a year makes. In 2009, street wear brand Ed Hardy, run in Australia by entrepreneur and former leisure industry executive Gary Berman, appeared to be riding high.

It seemed each week the social pages would show the brand’s colourful and gaudy t-shirts on all sorts of celebrities, from Melbourne underworld figure Mick Gatto and stars Britney Spears and Madonna to sports stars throughout Australia.

According to BRW magazine, Ed Hardy’s revenue in 2008-09 was $18.59 million and annual growth had doubled on average for the past three financial years. Berman was talking things up – he expected to go from 14 to 35 stores by the end of 2010, with international expansion set to drive the brand into new markets.

But that dream is now presumably all but dead.

Administrators were only appointed to the company yesterday, so it’s too early to say how big the mess is and exactly what went wrong.

But here are five quick lessons I have extracted:

You can take a brand too far

When I noticed last year that a four-wheel-drive parked down the street had an Ed Hardy spare-wheel cover, I realised just how far the Ed Hardy brand had been “extended” outside its traditional high-end casual fashion base. Getting your brand onto other products can help diversify revenue, but there is a danger here that you take the brand downmarket. When you are trying to sell more “exclusive” goods at premium prices (such as $100-plus t-shirts), having your brand on the back of beaten-up SUV isn’t exactly helpful.

Fashion goes out of fashion

As anyone in the rag trade will tell you, today’s hot item is tomorrow’s sale rack bait. That’s okay if you are prepared to ride the ups and downs, but when you base an extensive growth strategy on something that has a limited shelf life, you can find yourself in trouble when the shoppers move onto the next fad. And it wasn’t like it was a surprise the Ed Hardy phenomenon was ending. Last year, anti-Ed Hardy Facebook groups (including Thanks to Ed Hardy, I recognise idiots with no sense of style immediately) started popping up everywhere.

Fast growth is not easy

It is clear Berman had grown Ed Hardy at a phenomenal rate since launching the business in late 2006, but as all entrepreneurs know fast growth brings challenges, including cashflow, resourcing and the development of proper processes and procedures. Whether Ed Hardy had any of these issues isn’t clear at this stage, but managing these challenges is hard enough to do when you are running a business with 14 stores – expanding to 35 stores in the space of 12 months adds even bigger pressures.

The retail sector does not provide room for mistakes

Every retailer in Australia is doing it tough right now, and particularly those trying to capture the higher end of the consumer dollar. Selling a premium product can be expensive – Ed Hardy appears to have been in many of Australia’s best shopping spots, where rents were presumably quite high. When thing are going well, that’s manageable, but when the retail sector is struggling and your product is going out of fashion, you are in real trouble.

Going international is a big ask

Last year, Berman indicated he wanted to take Ed Hardy to Indonesia, Vietnam and the Philippines as part of an international push. It’s not clear whether that strategy was successful, but it is worth saying that for a three-year-old business trying to manage a rapidly growing Australian operation, it would have been a major challenge.