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Lulu Eschelman, owner of Lumillamingus, recognized that she needed to make some big changes to her business. Her couture handbag company saw growth in the first few years of operation but has since noticed a steady decline in sales. Concerned that they are losing market share and repeat customers, LuLu would like to partner with Marus Lemonis to make some dramatic strategic shifts in her business.

Lulu and Marcus met at Lumillamingus’ contract production company so that Marcus could see the product, meet the designers and understand their manufacturing process. Although he is impressed with the quality and designs of the product, Marcus is concerned that there are no color variations and all of the handbags that Lulu designs and creates are black. In order to create repeat customers, they need new and different designs that keep consumers coming back. Marcus challenges Lulu to add additional colors, textures, and patterns to her designs as well as high-quality zippers and fasteners to increase the perceived value of the product. Because her handbags can cost up to $400 per bag, Lumillamingus is competing with name brand purses and need to make a name for themselves in the market. Although Lulu trained in Paris, she needs to improve her product designs and their packaging to properly compete with name brands in this market.

Marcus is very impressed with the brand presentation that Lulu provides when they go over their financial data. Upon reviewing her the company’s information, Marcus suggests that they move from cash-based accounting to accrual-based accounting as cash-based can cause issues with the IRS. He also would like to see them expand their market to generate new revenue by selling both direct and through distribution and expanding beyond their core line.

Aside from the recent drop in sales, Marcus is also concerned that her valuation is not realistic. While Lulu believes her business to be worth $500,000, Marcus believes the valuation is closer to $25,000 in assets and inventory. He is willing to invest $115,000 in Lumillamingus to use for inventory, R&D, marketing, and creative. In exchange for his financial investment, he would like 50% ownership in the company and he would need Lulu to agree to a fully developed new line of products, mandated quality checks, documented processes, and a new name. Lulu agrees to Marcus’ stipulations and officially enters into a partnership with Marcus.

When looking to increase the product margins and lower manufacturing costs, Marcus would like to meet with Florence Valensi, Lumillamingus’ designer, pattern maker and head of contracted production to see how they can work together to reduce labor costs. Currently, the labor costs are $25-$40 per hour to make each handmade Lumillamingus handbag. Marcus is very concerned with this high cost and the inability to explain why the cost is so high and why they are not able to take advantage of manufacturing efficiencies to drive the labor costs down.

Because the labor costs were so high and Florence was unwilling to work with them on pricing, Marcus set up a meeting with another production facility so that Lulu could understand how larger operations function in relation to their quality, efficiency, and pricing. Lulu was impressed by this facility but still tried to hold on to the partnership with Florence until it became apparent that she would not adjust her prices and she would be more restrictive around what samples she would produce without a guarantee that she will be used to manufacture the product. Lulu and Marcus made the difficult decision to partner with a different production facility that will be a better fit for the future of the company.

After meeting with several branding and creative agencies, it becomes clear that everyone is in favor of a company name change from Lumillamingus to just Lumilla. With the new name in place, Lulu worked to get new high-end packaging for the product to increase their value proposition. She also worked with various designers and creatives to find the inspiration for her new line of products that Marcus would like her to showcase at Brand Assembly. This show will give her access to distribution companies that may be willing to sell her products in the retail space.

Marcus is very impressed by Lulu. She sees her partnership with Marcus as an opportunity that she isn’t going to waste. She is very open-minded and receptive to all of the feedback she is provided. Lulu is also willing to make every change that Marcus throws her way which is a refreshing change for Marcus. Not only is Marcus impressed by her attitude, but he is also impressed by the hard work that she is displaying at the Brand Assembly showcase. She came with a whole new line of handbags in different designs that incorporate other colors and textures. She also had them beautifully branded in a box, dust bag and tissue paper that sported her new company name and logo. The responses toward Lumilla were very positive and Marcus is excited to see what the future has in store for the company and their partnership.

The Profit airs on CNBC Tuesday’s at 10PM ET.

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