A Nose For Profit

This pup transformed a pub

The Black Dog's logo may be the small business version of the Nike (NKE ) swoosh. Since its founding in 1970, the Martha's Vineyard pub has been popular with locals. But since 1982, when its owners splashed their logo -- a silhouette of a black Labrador retriever/boxer mix -- onto T-shirts, the Black Dog has been a hot destination for summer tourists. The Black Dog even got a whiff of notoriety in 1998, when President Bill Clinton admitted he gave a Black Dog shirt to Monica Lewinsky.

The Black Dog's success as a New England icon brings its owners face to face with a difficult question: Is a well-known logo and brand name enough to transform a company? From a restaurant into a retailer, say?

In 1992 the tavern's owners decided to see if their dog had legs. They added a retail store to the bakery and cafe operating near the pub. Tourists picked up muffins or downed a bowl of chowder, then pawed through $19.50 T-shirts, $8.50 coffee mugs, and $42 tote bags sporting the pooch. By 2001 the Black Dog had four retail stores on the island and was also selling via a catalog and Web site.

But when Robert Douglas Jr., the founder's son, took over the business that year, the expansion was spinning out of control. While catalog and Web sales had grown to 20% of the $14 million company's revenues, the catalog was too expensive to produce. Douglas shrank it to 24 pages from 56, then mailed it half as often to half as many people. In the winter, he closed some of the retail stores and even shuttered the tavern, bringing year-round headcount to 50. "I have to look at things from a cash-flow perspective," he says. "We do more business in a day in July than in the month of January."

Next, Douglas had to figure out how to reduce his company's dependence on vacationers. He flirted with adding stores in the Caribbean, Boston, or New York, which he thought would boost year-round sales. But such shops might be hard to manage from afar, and those locations might dim the brand's New England aura. Instead, Douglas opted for towns with more year-round traffic than those on the Vineyard but with the same laid-back image. The first off-island store opened in Provincetown, Mass., in 2003, followed by outposts in the coastal towns of Newport, R.I., and Falmouth and Chatham, Mass.

Merchandise now accounts for about two-thirds of company revenues, with profit margins more than twice those of the restaurants. But the Black Dog's heritage stops it from shutting down the less lucrative eateries. "The restaurants ground the brand," says Douglas, a former cargo pilot. "They're a way for people to experience the brand other than through a T-shirt." But for many mainlanders, Black Dog is finding that a T-shirt -- or a hat or dog bowl -- works just fine.

By David Rocks

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