By Cheryl Hall
The Dallas Morning News
IDEAS AT WORK
Don Mechanic knows you better be kind to people on your way down. You may need them on your way back up.
"I went from being a finalist for 'Entrepreneur of the Year' to being 'Schnook of the Year' six months later," says the founder of the Zaks craft store chain. A meteoric rise abruptly ended in a most-public flame-out that landed him in bankruptcy court in 1991.
Now Don Mechanic would like to be known as the Comeback Kid, having used frequent-flier miles, borrowed lodging and the last of his depleted cash to start anew - this time importing the trinkets he used to hawk.
Sitting in his Addison showroom, the once-flamboyant retailer is surrounded by thousands of inexpensive porcelain and polyresin figures that represent his business reincarnation.
He jokes that instead of naming his company Don Mechanic Enterprises Inc., he could have gone with Chatchkas from China, using English phonics for the Yiddish word for knickknacks.
"You want tchachkehs, I've got tchachkehs."
Short, fat Santas and tall, skinny ones. Nativities, bunny rabbits, witches and a slew of refrigerator magnets. He can get 'em for you wholesale.
And angels. Lots and lots of ethereal, winged spirits.
"God, give me one more year with angels," the 47-year-old entrepreneur extraordinaire entreats heaven as he toys with a Raphael cherub coffee cup that retails for 99 cents. "We've sold about 300,000 of this mug." (At 60 cents a wholesale pop.)
In true coals-to-Newcastle fashion, he's even selling the cups donning the ubiquitous Sistine Chapel artwork to the Vatican bookstores in Italy.
His first wholesale deal was made to an equally unlikely soul: his former retailing arch-nemesis, Michael Dupey, founder of Michaels-MJDesigns.
The Mechanic-Dupey relationship has taken more turns than the Indianapolis 500, having met as managers of a jeans store and a five-and-dime in Northtown Mall in 1972. They became associates at the first Michael's Store, only to wind up combatant competitors on opposite ends of nasty lawsuits.
"Not always friendly, but certainly spirited," is how Mr. Mechanic sizes up his 24 years of Mike Dupey encounters.
Today, the crafty pair enjoy a symbiotic coexistence, with Mr. Dupey being Mr. Mechanic's largest customer.
"There he is again, out picking great merchandise. You gotta be crazy not to buy from him," says Mr. Dupey, never one to hold grudges when there are bucks to be made.
Mr. Mechanic thinks he'll churn about $3 million this year in gewgaws he's selected by personally schlepping to the outer reaches of mainland China.
Talk to just about anybody, and they'll tell you about Mr. Mechanic's prowess at tracking down the hot item.
His downfall, they'll quickly add, is his zealous enthusiasm that can overrun better judgment.
Arthur Andersen's Larry Katzen, managing partner in St. Louis, helped find venture capital for Zaks. If Mr. Mechanic had coupled his creative, theatrical flare with someone who had financial acumen, Mr. Katzen believes Zaks would be a crafts giant today.
No-holds barred expansion took Zaks from a single store on Greenville Avenue in 1983 to an overleveraged, underperforming national chain by 1991.
"Nobody in the world can run one store better than him - including me," says Mr. Dupey, who doesn't give such concession lightly. "He can make more sales and more profit per square foot than anybody I know. If he'd stayed on Greenville, he'd have been just fine."
"I ran eight pretty good," retorts Mr. Mechanic. "Things didn't get out of hand until it was 17, and we were doing $50 million."
Then his situation went completely haywire.
Reversal of fortune
"The reversal of fortune was a shock to me," Mr. Mechanic says. "I never saw it coming."
Sure Zaks owed a bunch of people money. The expansion had cost more than anticipated, and sales weren't great. But he'd always maneuvered through tough times.
But when Zaks failed to meet the terms of its bank loan, its credit was yanked. Cash flow became a cash crunch.
Mr. Mechanic called a meeting of creditors to say he was going to be tardy paying bills. He'd expected maybe 50 to 75 to show. More than 300 crammed into the Holiday Inn ballroom in Irving.
One of those was Bob Ricciardi, executive vice president of Chicago-based Enesco Imports, the world's largest importer of gifts and collectibles. He describes the meeting as weirdly cordial, with suppliers trying to figure out how to help the crafts merchant, even giving him a standing ovation.
But there were hidden holdouts.
A few of Zaks' lesser creditors pulled the trigger, sending the Dallas-based chain into involuntary bankruptcy - something its founder learned when a newspaper reporter called for his reaction.
Mr. Mechanic, who was driving at the time, had to pull off the road to throw up. "I remember it vividly."
He spent the next 24 hours with his head buried in the sand. "I couldn't believe it was happening," he says. "Then I came out and said, 'Hey, I want to save this.'"
So he became a man possessed. Nothing was more important to him than saving Zaks, which he "had grown from a sprout" and named for his son.
"Don constantly kept us in the loop about the condition of his business," Mr. Ricciardi says. "He didn't in any way try to take advantage when he went Chapter 11."
Even though Zaks moved quickly in and out of bankruptcy, Mr. Mechanic lost his war.
Over the years, he had reinvested everything into building the company, thinking he'd make his millions when the chain went public. Instead, he lost his entire stake.
"I saved the company, but killed myself," he says. "Going into bankruptcy I was the major owner. Coming out, I was the minority. I was a toothless tiger. And I was broke."
On Labor Day, Zaks' chairman-without-standing was jettisoned.
That's when Canton called.
Down but not out
Don Mechanic never intended to become the Marco Polo of refrigerator magnets.
When he set out to explore China, he was looking for something to tide him over while he figured out how to get back into retailing - maybe even get his stores back.
October was Canton Trade Fair days, and he decided to go to the Orient on a discovery mission. He used flier miles to get to Hong Kong and then on to Canton, bumming a friend's spare hotel bed at each stop.
Spending his last $10,000, Mr. Mechanic returned to Dallas with an array of stuff: A hand-held sewing machine, cheap toys, some Christmas items and, yes, refrigerator magnets - "the lowest-tech item in the age of the Pentium chip."
He carted his goods in a cardboard box and chased people around Dallas Convention Center hallways at a trade show because he couldn't afford a booth.
"Hey, pride goes out the window," he says with a shrug. "You gotta pay your bills."
Enough people bit to re-energize Mr. Mechanic into thinking he could make this import thing work.
That was January 1993. By the next year, he could afford his own booth.
He figured if he really wanted to cut good deals, he needed to tap the source. So he ventured into the mountains of China's Fujian province, where the dirt is just right for porcelain, and the prices are half of Hong Kong's.
Somebody forgot to tell him about the nine-hour ride on an unpaved, single-lane road to get there. When he finally reached his destination, accommodations at the Porcelain House included rusty water, a filthy bed and a hook-and-eye lock.
"I kept asking myself, 'What am I doing here?' " he says. "But I did fabulous with the stuff. The prices were great and the quality turned out to be wonderful."
Mr. Mechanic returns to China three times a year, having learned enough Mandarin to get by, and toting his own granola bars for nourishment. He places orders as he gets them, avoiding inventory costs and mistakes.
"The Chinese say, 'You catch more fish in muddy waters,' " Mr. Mechanic says, going Confucius. "If it was easy, everyone would be going there."
Things have been lost in the translation.
It was difficult to explain refrigerator magnets to people without refrigerators. Then there were the Easter rabbits decked out in Halloween colors.
But then Mr. Mechanic shrugs off such mistakes as kinks in business. Colors happen. After all, he's made a few of his own.
"Something I don't like a lot of people to know is I'm colorblind," he says as if disclosing a trade secret.
Once he thought he'd gotten Zaks a particularly good deal on Christmas trees. That is until his longtime assistant (who's still with him, by the way) said, " 'But, Don, they're brown.' "
Undaunted, he spray-painted them gold and sold 'em real cheap.
A man with nine lives
"What gives Don nine lives?" Bob Ricciardi repeats the question as he considers an answer based on three telling perspectives: first as a supplier, then creditor and now competitor.
"He was able to land on his feet as a successful importer because he has a strong understanding of product and what consumers want. He understands value," the Enesco executive says.
Customers like Gayle Gregory, owner of The Gift Horse shops in Waco and Austin, put its succinctly: "He offers quality, reasonable prices and margins for the independent retailer."
Mr. Mechanic also seems to have a knack for finding a use for the useless, like the dime-size porcelain box with an itty-bitty angel lid. "Until I called them tooth-fairy boxes, they weren't selling," he says. "You've got to put a little spin on things."
Spin, heck. Whirlwind is more like it.
"He's very persistent and energetic," says Mr. Katzen, who used to head Arthur Andersen's worldwide retail practice in Dallas. "He's a true merchant. Don's one of a kind."
No one seems surprised that Mr. Mechanic is laying tracks again. Nor do they dismiss his predictions of building a $10 million business in quick order. They just hope he's learned hard-taught lessons.
Longtime friend Sheldon Stein, managing director of Bear Stearns in Dallas, believes Mr. Mechanic now realizes the perils of exaggerated expectations. "I'm sure he won't make the same mistakes again."
Mr. Mechanic's words seem to bear that out: "When we had one store, we made a million dollars. Then when we had two stores, we made half as much and worked twice as hard."
There's nothing wrong, he adds, with being small and profitable.
"I've learned to underproject and overperform," Mr. Mechanic says. "When dealing with banks and venture capitalists it's wise not to disappoint."
If you do, he warns, they have a method of dealing with you.
"With venture capitalists the golden rule applies: 'Them with the gold make the rules.' "
Cheryl Hall is the Financial Editor and columnist of The Dallas Morning News. Ideas at Work is intended as a forum for ideas and opinions of interest. CHART(S): WHAT'S THE IDEA?; PHOTO(S): (The Dallas Morning News: Evans Caglage) Don Mechanic, founder of the defunct Zaks crafts chain, is now an importer of knickknacks from china.
Reprinted with permission of The Dallas Morning News.