From the July 1998 issue of Entrepreneur

Next time you're at an amusement park, sporting event, parade or other outdoor event, take a look around and notice how many people are wearing baseball hats. If it looks to you like every man, woman and child as far as the eye can see is sporting such a cap, you're not far from the truth. According to the National Sporting Goods Association, in 1997, Americans spent $208 million on caps and hats emblazoned with sport logos, a16 percent increase over 1995 figures. And this number doesn't even include the untold millions spent on fashion and designer caps from nonsports-related clothing brands, such as Stussy, No Fear and Guess?; novelty caps such as those promoting a hobby like fishing; or machine-embroidered caps custom-made for company outings or birthdays.

While baseball-style caps have been around as long as the game itself, it's only been within the last decade or so that sports teams have really begun to market their brands via headwear. According to David Stewart, chairman of the marketing department at the University of Southern California's Marshall School of Business in Los Angeles, the quality and variety of sports-branded caps not only provides people with an opportunity to express their loyalty to a team but appeals to their sense of taste as well. "Teams have gotten much more savvy with respect to design and fashion," says Stewart. "The days of having just white caps with a logo are gone. Now you have caps that are much more colorful and that make more of a statement."

Unlike many fashion trends, the popularity of caps seems to span all age groups and income brackets. "You have the older consumers who are identifying with the team, and you have the younger consumers who are just wearing it as a fashion statement; that it's associated with a certain team may be secondary or irrelevant," says Stewart.

Put A Lid On It

The multisegmented and dynamic market for baseball-style caps has spawned a handful of stores that sell nothing but. In the early '90s, Ben Fischman was in college when he noticed that an overwhelming number of his classmates (both male and female) wore baseball caps on a daily basis. Although the students considered their headgear a vital fashion accessory, no one Fischman asked could remember where they had bought their caps. Malls and sporting goods stores carried them, but after checking there, Fischman found their selection and quality seriously lacking.

In 1993, Fischman started selling licensed sports caps from a kiosk at a Chestnut Hill, Massachusetts, mall. Sales of the caps were brisk, and soon Fischman, now 27, was able to move Lids into a full-fledged retail location. Lids Corp. now has 200 locations in 40 states and sells more than 8 million hats every year.

Jack Chadsey, 50, CEO of Lids Corp., attributes the chain's success to a strong focus on quality and assortment (the company typically stocks nearly 5,000 caps in each store), as well as surges in sales that result from event-oriented marketing. "We take advantage of different events that take place throughout the year," says Chadsey. "When football season begins and the Jets win their first three games, we will make sure we have Jets hats on hand. When the Denver Broncos won the Super Bowl, within 24 hours, we had Super Bowl Championship hats in all our stores; these sold out in two or three days. Events are huge opportunities for us."

In its fifth year of operation, Lids is growing at an astounding rate, with plans to open 100 to 125 new stores in the United States each year. Also in the works: opening stores in Canada and Puerto Rico.

Another type of cap store serves customers who want to design their own caps. Cap Factory, which offers caps that are custom-embroidered on the spot by a computerized sewing machine, has grown into a 10-store nationwide chain since its launch in 1994.

"While the marketplace for licensed goods is enormous, it seemed to me there was an older demographic group that would be better served by having a customized product," says Cap Factory founder Larry Sax, 36. "There is a point in people's lives where they're a little less inclined to wear what everyone else is wearing. Cap Factory gives them an opportunity to get a hat with the name of their boat, grandkid, business or anything else they'd like."

Cap Factory employees use a PC to show customers lettering styles and graphics, and when a customer is satisfied with the design, the information is downloaded into the sewing machine. Caps embroidered using this process, which takes five to 10 minutes, retail for $17 to $30--roughly the same amount a customer would spend on a licensed sports cap.

Mail order accounts for a growing portion of Cap Factory's profits, which Sax attributes to the company's Internet advertising. Putting the company's Web address and phone number on products' tags has gotten consumer attention. "There's a tremendous opportunity with the Internet," Sax says. "With very little effort, we get a huge response."

Capping It Off

Compared to other types of retail locations, opening a cap store is relatively simple and inexpensive. Because the store only carries caps and cap-related items such as cleaning kits, the size of the inventory (and the capital outlay it requires) can be held down. And because the caps and their displays don't take up a lot of floor space, there's a significant savings on rent. For example, the first store opened by The Hat Zone Inc., a Lee's Summit, Missouri-based cap retailer with 18 stores, cost less than $60,000 for a 300-square-foot mall space.

If you go the custom-embroidered route, a good portion of your start-up capital will be devoted to the automatic embroidering machine. Bridgewater, New Jersey-based Brother International Corp. offers a line of multihead, multineedle machines that each cost between $18,000 and $60,000, not including the computer and software necessary for creating graphic designs.

As with any business, there is a certain element of risk involved in opening a cap store. According to Stewart, while a narrow niche may be a cap store's advantage over full-scale sporting goods stores and other retail outlets, it may also be a store's Achilles' heel. Although it's unlikely people will stop buying baseball-style caps in the near future, there are some ways to protect yourself should the cap market suddenly go sour. "[You could] broaden the appeal by carrying different kinds of hats," says Stewart. "It's certainly a way to hedge the risk, but it requires a larger investment."

Another way to reduce your risk is to start small. As Lids' experience has shown, a kiosk in a mall is a good place to start a cap empire. "You don't have the rent you would have with a [standard retail] store, and you're not going to carry a big inventory," says Stewart. "For someone who doesn't have a lot of business experience, it would be a good way to get a sense of what the business is about while not incurring too much risk."

A Head For Business

Making your cap store a success involves a lot of research and planning. Lids' Jack Chadsey found that while many young women were both sports fans and cap wearers, 80 percent of his chain's customers were male. To make female customers feel more welcome in the stores, Chadsey brought in a retail design consultant who created a softer, more neutral environment that included life-sized wall graphics of women wearing the store's caps.

Stewart suggests that one key to prosperity for a business based on sports-licensed caps is to go where the sports fans are. "You shouldn't put [your business] in an upscale mall--the rent is very expensive there, and you have to think about the clientele you're going to attract," Stewart says. "Ideally, cap stores should be in a kiosk in a suburban mall location or a small storefront in a central city, areas that may have strong allegiances to sports teams."

Baseball-style caps are hot and getting hotter. The continual addition of expansion teams to the schedules of major-league baseball, football, basketball and hockey means that in the near future, there will be more sports fans than ever looking for a fashionable way to rally around their favorite teams. Even those who couldn't care less about sports comprise a potential market for caps. People's desire to express their personalities will never go out of style, and these "T-shirts for your head" are an ideal way to make a lasting impression or, at the very least, camouflage a bad hair day.

Next Step

  • Brother International Corp. offers a line of computerized embroidering machines in a wide assortment of sizes and capabilities. Contact the company at 100 Somerset Corporate Blvd., Bridgewater, NJ 08807 or (800) 432-3532.
  • The National Sporting Goods Association (NSGA) provides information, news and trends on the sporting goods industry and offers annual shows and expositions. Contact the NSGA at 1699 Wall St., Mt. Prospect, IL 60056-5780; (847) 439-4000 or log on to http://www.nsga.org
  • The Hat Zone Inc. offers franchise opportunities for entrepreneurs. Contact the company at 1036A N.E. Jib Ct., Lee's Summit, MO 64064; (816) 795-8702; fax (816) 795-9159

Contact Sources

Cap Factory, (800) 222-HATS, mail@capfactory.com

Lids Corp., 60 Glacier Dr., Westwood, MA 02090, marketing@lidcorp.com