TOB: Nat Sherman has a venerable history in the tobacco business. Can you tell us a little about the company’s origins?
Larry Sherman: My grandfather, Nat, started the company in 1930. We began as a retail store in the heart of New York City’s Garment District and have maintained a retail presence ever since. My father grew up in the business and my siblings—I have a sister, Michele, and a brother, Bill—and I were all pulled into the business at a relatively early age. But each of us also worked outside the industry. My grandfather felt strongly that after college we should expand our horizons and work outside of the company before coming back to the business. He would say, “If I teach you everything I know, then you only know as much as I do.”
I worked for Polo Ralph Lauren for a few years, and then came back into the company in 1994. My first experience was at the retail store. Over time I’ve taken more responsibility, but I think the retail aspect of our business is very important because it keeps us grounded. As retailers ourselves, we can understand some of the things that other retailers are experiencing, and it also gives us a real brick-and-mortar presence. Since we only have one store, that store is more about creating an environment to showcase the brand rather than competing with other retailers.
TOB: Your hallmark Fifth Avenue shop is moving. What will be different about the new location?
Sherman: We were getting close to the end of our lease. We had a five-year option to stay, but there was tension in that location because we allowed people to smoke in our store and there were neighboring stores [that didn’t appreciate that]. Also, the owner of building was trying to consolidate all the stores to make one big superstore. So we decided to see what was available. As it happened, we fell in love with the first building we saw. At a little over 6,000 square feet, it allowed us to create larger presence with its own facade on the street level. It is a standalone location, so we no longer had any issues about allowing people to smoke. And it was less than 120 feet away from our last store, so there would be no disruption in business. It was a perfect opportunity.
There will be a much larger area for people to enjoy cigars and cigarettes. It includes three floors, but the majority of the retail space will be on the first floor. In the old store most of the space was on the second floor, which was an obstacle for shoppers.
TOB: What are your most popular luxury cigarettes suitable for tobacco outlets?
Sherman: One of the slogans we say is, “Smoke less, and smoke better.” I believe there is still value in quality. We make our cigarettes with only the finest all-natural tobacco. They have more tobacco in them and no burning agents, so they burn slower and are more satisfying. In our society there has been a trend toward consumable luxury products, you can see that in store inventories today. Years ago if you look at the beer at a convenience store, you would see Bud and Old Milwaukee. Today, you see microbrewery beer.
People are buying gourmet potato chips and fancy mints. Within the cigarette industry the major manufacturers are still considered premium brands. But there is a super premium niche within the tobacco business, which is where we have been in since the 1930s. And as prices go up, you will continue to see polarization in the market. A lot of people will look for the least expensive cigarettes, and then there are those who will say it costs so much now that I might as well get something a little better. That luxury perception exists within cigarette category. What someone smokes says a lot about him or her. We all look for product that helps define ourselves, and cigarettes do that.
TOB: What are your most popular cigar and pipe tobacco products suitable for tobacco outlets?
Sherman: We have a full range of cigar products made in Honduras and Dominican Republic, and a variety of different tastes that accommodate any smoker. There was a proliferation of brands during the cigar boom, and it’s taken some time for the industry to find its level since then. But I think the people in the industry today are those who really have a passion for it. You continue to see new variety of products in terms of taste and flavor and, while there was a leveling off after the cigar boom, we are now seeing resurgence and increase in interest in cigars. We also have pipe tobacco, which we pack in two-ounce tins in North Carolina.
TOB: What super premium brands sell best in outlets?
Sherman: I find that it depends very much on the market. Most stores can find a clientele for some mix of products like ours. But which will do best varies by region. Of course, NY Cut plays better in New York. Our core brands—including MCD’s, Naturals, Hint of Mint—continue to be strong sellers. But it’s important to experiment and try different things. Super premium brands are largely built on word of mouth.
TOB: What new products have you introduced recently and what product lines do you plan to expand in the next six months?
Sherman: Our most recent was an extension of our Naturals line to add Ultra and Menthol. Both were firsts for us.
TOB: What can outlet merchants do to maximize the potential of these categories?
Sherman: Make it prominent in the store and, ideally, educate customers. Retailers play a major role in whether or not a brand is successful in their store. We need retailer support more than some of the major manufactures with the large marketing budgets. Right now, super premiums are a small part of this industry, so there is a tremendous opportunity to grow.
TOB: There has been a great deal of controversy about regulation of cigars and tobacco by the FDA, as well as tax increases. What is your view of FDA regulation and how it will impact the industry and your business?
Sherman: Everyone is scared of the FDA, and rightfully so, because there are so many unknowns and vagaries in the way it’s been proposed. We don’t know how the FDA would handle it, or even if they are equipped to handle it. They are having enough trouble with dog food. I would hope that if the FDA regulation were ever put into place they would understand that not everyone is one of the four major manufacturers—that we operate a little bit differently—and allow for some flexibility in compliance.
TOB: As part of the Sherman family, what do you see as the biggest challenges ahead for your company and the industry as a whole?
Sherman: The biggest challenge is the government environment that we live in. It is changing all the time, whether it be the smoking bans, the increase in taxes, or FDA regulation. It just never seems to end. Especially as a smaller manufacture, all these things take a lot of time away from the areas you would prefer to focus on, such as making best product and sales and marketing.
TOB: What are your goals for the business?
Sherman: One of our goals is always to be honorable in all of our dealings, and to grow the business and continue to promote an environment that allows everyone within the company to grow too. That’s what makes it all fun. •