Resetting the Clock

Source from:  Cigar Aficionado 03/20/2015

More than a thousand cigar retailers streamed through the entrance of the International Premium Cigar & Pipe Retailers trade show on opening day at the Sands Expo Center in Las Vegas. With the freshly lit aroma of handmade cigars rising into the air, the shop owners began to patrol the aisles in search of the next great smoke to add to their humidors. It was 2011, and as with every show, tobacconist Nat Sherman International, a fixture of Midtown Manhattan for 85 years, had a booth near the entrance.

In past shows, a majority of the retailers would have stopped by only to say hello or grab a cup of coffee presented in the iconic Greek cups found all over New York City. Few wanted cigars. Some came looking for Nat Sherman's all-natural tobacco cigarettes-available in every state and more than 30 countries-which have sold well since the company began manufacturing them in the 1940s. But Nat Sherman premium cigars were something of an afterthought for many retailers. The brand was a mainstay of catalogs, and the blends had not been changed in years, making the product seem dated and forgotten, quite different from the bold, flavorful, complex blends many boutique brands were offering. Something, though, was different about this year.

Most noticeable were the people at the booth greeting the visiting retailers. For the first time in years, Joel Sherman, the company' patriarch and son of the founder, Nat, was there at the show, at the age of 71. Joel had been involved in the tobacco business for more than 60 years, getting his start cleaning the original Nat Sherman store on Saturday afternoons at the tender age of 10. After he was diagnosed with Parkinso's disease more than 20 years ago, his attendance at the trade show had diminished. But there he was, rekindling relationships with old friends, his thick New York accent resonating over the crowd.

Alongside were his two sons and daughter, the third generation of Shermans working in the business. Clean-cut brothers Bill and Larry, blessed with their father's playful grin and broad shoulders, were greeting customers, as was Michele, an elegant woman with high cheekbones, a soothing voice and infectious personality. Joining them at the show for the first time was Michael Herklots, who had been hired only a few months before to fill a position created specifically for him. His hiring had been so recent that he was still listed in the trade show's guidebook as a representative of Davidoff of Geneva, the company he had worked at for six years prior.

The booth itself appeared different, too, a juxtaposition of old elegance and modern sleekness. Next to the classy, inviting wood-paneled shelves, reminiscent of a library, was a small smoking area comprising a svelte black leather couch and matching red chairs. Hanging above the makeshift lounge was a large, duotone poster, a close-up photograph of a pair of hands holding a cigar with a prominent band designed to resemble the face of a wristwatch, the words Nat Sherman circling the face. Near the bottom was an ellipsis followed by only one word: Timeless. A new cigar concept from Nat Sherman, the first in years.

Flash forward to today. The cigar teased at that 2011 show, Timeless, has sparked a transformation of Nat Sherman. The brand has received a combination of critical and consumer acclaim, appearing on Cigar Aficionado's Top 25 list for three consecutive years. The brand has gone from out of the company's control to something with heat in the cigar market, carried in more than 700 stores, with the company selling some 2 million cigars in 2014.

It's a new day at Nat Sherman. And it can all be traced back to that trade show.

"There was a limited amount of resources that we had," says Bill Sherman, the oldest of Joel's three children, sitting in a boardroom on the second floor of the Nat Sherman Townhouse in New York. "We had loyal customers to the brand, but no new customers. We weren't actively soliciting cigars. We weren't pushing them. They were stagnant."

"We asked ourselves what were the other avenues of opportunity for growth?" says Larry Sherman, who's main responsibility is to oversee the company's 23 cigarette brands, but like the other family members, he does a little bit of everything. "Obviously, you think real estate first. But do we really want to open a chain of retail shops across the country? No. One of our original strengths was cigars, yet we had never taken the opportunity to truly maximize the effort. We had almost become gun shy because of the cigar boom [of the '90s], not being able to deliver and being caught between a rock and a hard place. And we just put our toe in the water. It was right in front of us; it was obvious."

The updated booth and poster, along with the presence of the Sherman family and Herklots, served as ocular proof that Nat Sherman was refocusing its efforts on its cigar portfolio so as to be more in line with the palate of the modern consumer. "It was important to go to that show with something that would visually represent the commitment of this new direction," says Herklots, an impeccable dresser with a small frame and flowing, slicked-back hair. "There needed to be something that would visually represent the new direction."

Nat Sherman wasn't selling a new product at that show, but it had samples, and each retailer visiting the booth was handed two bags of test cigars, each banded with a simple code. The blends were disparate, with varying wrappers and fillers that spanned the gamut of flavor experiences, from mild to full in body.

The intention was to get unbiased feedback from about 300 retailers, some who had known the Sherman family for decades, and some who had maybe done business with the company in the past but had ended their buying relationship. Some who participated even considered Nat Sherman a retail competitor, but were still interested. Each sample bag included seven survey cards that not only asked the retailers to rate, from 1 to 5, each cigar's appearance and draw, but also to answer detailed questions about the cigars' burn rate, strength, flavor and aroma. The cards even asked retailers what their preferred packaging would be, as well as the best suggested retail price.

In addition to receiving the cigars, retailers were told that whatever blend was chosen after the blind-tasting would be a brick-and-mortar exclusive. In other words, retailers who brought this new cigar into their humidor wouldn't have to compete against Internet and catalog companies, which are often able to undercut suggested retail prices since they lack the overhead costs associated with a physical storefront.

The Sherman family and Herklots offered retailers at the show other assurances. First, that the company had discontinued the more than 20 Nat Sherman cigar brands created by Santa Clara Inc., a distribution company specializing in catalog sales (namely the JR Cigars catalog)　to which the Shermans had handed over manufacturing and distribution control in 2005. And second, that the Sherman's distribution agreement with that company was extinguished. Only the brands created by Joel, Bill and Larry in the late '90s-Metropolitan, Metropolitan Maduro and Host-would remain, in addition to the Nat Sherman store-exclusive lines Gotham Eastside, Gotham Westside and VIP. Skeptical retailers were also told that the remaining brands were now price-corrected so that they could only discount the brands at a maximum of 10 percent. "We didn't sell a single cigar as a company for six months leading up to that show to allow the old stock to sell through," says Herklots.

Retailers responded positively, and for the first time in years, Nat Sherman was creating a buzz around cigars. "Timeless was our olive branch," says Herklots. "There were some people who saw the pricing of Host, Metropolitan and Metropolitan Maduro were now corrected, but they still needed something to show our commitment."

After the show's conclusion, the feedback was analyzed. The winning cigar had been rolled by the Quesada Cigar factory in the Dominican Republic, but the team felt there was still work to be done.

"So, we got the final blend, but then we tweaked," says Herklots, who today carries the title of executive director of retail & brand development. "There was no 'wow' factor, so we tweaked to create more wow, to create more first-inch excitement, to create more complexity. You really had to get into a third [of the chosen blend] before it got good. And who's got that kind of time?” Herklots finessed the blend with Quesada patriarch Manuel "Manolo” Quesada and his daughters, Patricia and Raquel.

Herklots has a great relationship with the Quesada family, who he has known since 2002. (He even helped the sisters create their Quesada 35th cigar.) The result was the Timeless Collection, a blend made with a Dominican binder and a Dominican-heavy filler with a splash of Nicaraguan, covered by a gorgeous, ruddy wrapper grown in Honduras.

The first release of the Timeless Collection, which officially shipped to retailers in February 2012, comprised four sizes "in a range that was crazy,"says Herklots. The release was definitely unconventional by modern marketplace standards, as it included a Churchill and a petit corona, but no 6 by 60. They were "the four most popular sizes the people who gave us feedback wanted," Herklots explains.

The four-size line would go on to garner critical success, averaging a 91.5 rating in a vertical tasting published in Cigar Insider, the semimonthly newsletter from the editors of Cigar Aficionado. The vertical tasting of Timeless appeared only weeks prior to the 2012 IPCPR trade show, where Nat Sherman not only added two more sizes to the line, but also introduced Timeless Nicaragua, a brand extension made by the Plasencia family that was actually the favorite Nicaraguan blend chosen by retailers in that same 2011 feedback experiment.

Later in 2012, the Dominican Timeless No. 2 would manage to crack Cigar Aficionado's Top 25 Best Cigars of the Year list with a score of 93 points, good enough to land the No. 10 spot. "Prior to that," says Herklots, "we knew people loved the cigar. But to see it in Cigar Aficionado was obviously a huge validation that we did something right."

Since then, Herklots and the Sherman family have rounded out the Nat Sherman portfolio with an impressive panoply of brands that don't necessarily follow industry trends, but instead fill voids, either in their own range of cigars or in the marketplace. In 2013, the five vitola 1930 line, also rolled by Quesada Cigars, was released as an option that was meant to be a bit more full-bodied than Timeless. That same year Sterling, an all-Dominican stick wrapped with Ecuador Connecticut leaf, would hit shelves as Nat Sherman's most expensive offering. "Sterling is everything that's not popular," says Herklots. "They are full in body, mellow in strength. ... No cellophane. No bar codes. No size exceeding 46 ring gauge. And they are packaged in a wheel."

And last year, the company resurrected Epoca, the first cigar brand Nat Sherman ever sold and owned, as it came along with the Schwab Bros. & Baer company that Nat Sherman acquired in 1929. The original Epoca was a clear Havana cigar produced in Tampa, Florida, before the embargo, which used imported Cuban leaf in its blend. (The Epoca trademark was actually lost by Nat Sherman in the '90s and needed to be reclaimed from a couple of other cigar companies.) The changes have worked, as evidenced by the following in the hundreds of retailers and the strong unit sales of the cigar brands.

"We were having fun, because we hadn't done a lot of that stuff in such a long time," says Larry Sherman. "We couldn't believe what we were doing. Michael invigorated that in us, which was a part that I think we had lost-some of that fire. And that was one of the best things that he could have brought to us. Excitement and energy. Every once in a while you need a little of that spark."

When Nat Sherman opened his eponymous store in the lobby of a skyscraper at 1400 Broadway in New York City in 1930, it was he himself who generated much of that spark. Nat, who had emigrated to New York City from his native Hungary in 1906 with his 11 siblings, was a larger-than-life personality, equally known for the innovations he brought to the tobacco business as his expansive personality. "My grandfather was like P.T. Barnum," Bill remembers. "He loved being that showman and thought of himself that way."

Joel remembers that at the original store, Nat built an elevated stage, much like the kind one would see a lector sit atop of in a cigar factory. Nat would take his place on it-"something like a king" Joel remembers-handing out orders, pointing at people to step up and join him. In 1977, Nat moved the store to 711 Fifth Avenue, the toniest fashion thoroughfare in the United States. It was a bold move, and one that elevated the status of the brand. To celebrate, the epithet "Tobacconist to the World" was placed above the entrance.　Nat's office was on the second level where it overlooked the entire retail floor. Rather than glass, he installed a two-way mirror so that he could survey his company without anyone being able to peer in. A loudspeaker allowed him to communicate to the outside world, and if a visitor came in looking for him, one would hear "Send 'em up！" reverberate throughout the store. He even wanted to put a loudspeaker on Fifth Avenue, but he could never get the city's permission.

Nat was an innovator in the tobacco world, credited with placing the first plastic tips on a cigar. At the request of a customer who was no longer permitted to smoke cigars on a plane, he created the Havana 149, a cigarette rolled with Cuban tobacco in the 1940s. In addition, he finessed relationships with the Cubans and became one of only three authorized distributors of Cuban cigars east of the Mississippi, as well as the exclusive supplier of the Bolivar brand for the United States in the days before the Cuban embargo.

While Nat had a way with customers and others in the tobacco industry, his relationship with his son Joel was strained; tenuous at best.

"My father was never an easy man to live with. He was always difficult," says Joel. "His inability to discuss or consider suggestions ... there was no such thing. It was his way or that's it. He'd walk around the store and say things like 'Joey,'-which I hated-'that little wall over there, hack it down. I don't like it.' At first I would do these things because I was mechanical enough to, but soon I'd start saying 'No.'So we didn't get along that much. We didn't get along in our philosophy. Finally it got to be too much and I said 'I'm outta here.'"

"Nat had the reputation of being a yeller," says Chuck Levi, owner of Chicago's Iwan Ries & Co., the second-oldest cigar shop in America and one of few retailers around today who knew Nat Sherman personally. "I would say Joel is exactly the opposite of his father. One of the nicest guys I've ever met in my life."

The rift between father and son became so large that Joel actually left the cigar business in 1978, leaving to run Concord Shear. The small company, which Joel acquired, specialized in scissors, and Joel used his marketing and business skills to build it up, eventually adding gentlemen's accessories such as canes and men's grooming products.

Like their father, all three of Joel's children have been in and out of the tobacco industry throughout their lives, as Joel preached to each of them that it was important that they become their own person. His mentality was that if they ever did return to Nat Sherman, they would bring a wealth of knowledge that only experiences outside of the industry could provide. Joel Sherman's thinking stemmed from his own experience working for his father.

It would be more than a decade before Joel returned to the tobacco business, coming back to Nat Sherman only after his father died in 1990 at the age of 86. The transition was far from smooth. Prior to his death, Nat was living in Miami Beach, Florida, running his business via telephone through a group of managers he entrusted with the business he built. While Nat thought the managers were running his store as professionals, according to the Shermans they were taking advantage of him, making side deals without his knowledge and harming the business. "He was a distant owner, and they took advantage of him," says Bill Sherman. "They would play him by making side deals, take money under the table for things, and there were no real checks and balances. ... They had the keys to the store."

The company lost the lease at the store, then located at the corner of Fifth Avenue and 55th Street. But most shocking to Sherman's heirs was their discovery of a new will, notarized and official, that named the group of managers as the inheritors of the business, rather than Joel or any other of Nat's kin. Bill, Larry and Michele were named trustees in the will and relegated to collect dividend checks, without control over the brand their grandfather created.

The family fought for what they believed was their grandfather's real wish-that the Nat Sherman brand stay within the family.

"Everyone banded together to fight that, including expanded family," says Bill. "Honestly, we thought the business was in jeopardy at the time. We didn't think the business would survive under their leadership."

After a drawn-out legal battle, the courts overturned the new will, and Joel was named president and chief operating officer of Nat Sherman, with his children being named to the board. Soon after regaining control of the company, they moved into a new home-500 Fifth Avenue, near the New York Public Library and across the street from Bryant Park. The Nat Sherman store was once again in the hands of the family.

A storefront has been an important part of the Nat Sherman story ever since the first one opened its doors in 1930. But just as it came time for the Shermans to reassess their cigar business, they also took a close look at their flagship retail store.

Located on 42nd Street near the moving hive of Grand Central Terminal, the freestanding, three-story Nat Sherman Townhouse is actually the fourth location for Nat Sherman, which has had a store in Midtown Manhattan for 85 years. Gutted and rebuilt in 2008, the store is wedged between two hulking skyscrapers. A huge bronze clock with statues of surveying Native Americans on either side hangs above the entranceway, drawing the eyes of passersby, while large cathedral windows ensure plenty of natural light flows into the 5,700-square-foot space. Inside, soothing wood surfaces and a 30-foot-high coffered ceiling combine to create an old-world, nearly athenaeum atmosphere for tobacco.

The store was certainly impressive, but just a few years ago business was lacking. The Shermans knew it could be something great, but they needed outside help to make it happen, which was why they sought out Herklots. Larry, Bill and Michele recognized that Herklots's retail experience, industry connections, cigar knowledge and enthusiasm were needed to get the store to its full potential.

"The questions we kept asking ourselves were, 'What is the retail store and what do we want the brand to be?' We realized we needed help," explains Bill Sherman. "I think from a family standpoint, we were all disappointed."

Michele Sherman adds: "We wanted to give him free rein to do it. All three of us felt comfortable doing so."

Herklots carries a natural gregariousness. Whether he's speaking to a seasoned cigar veteran, new smoker or a crowd, his magnetic charm shows through and usually wins people over. One of his first decisions was to hire longtime friend and event collaborator Pat Felitti, the former general manager of Rothmann's Steakhouse in Manhattan, as the director of store sales, hospitality and operations. This freed up Herklots to work on Timeless and the other new cigar blends, and also the opportunity to improve the cigar stock inside the store's walk-in humidor. Whereas customers walking into the store in search of cigars from smaller cigarmakers would have been turned away before, now they suddenly found a fully stocked humidor.

"As a tobacconist, you have a responsibility to the consumer to have the best and to represent it the best you can," says Herklots. "If you're going to be in this business and take it seriously, you have to accept the responsibility of vetting the product, finding your partners, and it's up to you to make the recommendations to sell the product, not just wait until a customer asks for it."

Felitti and Herklots also rearranged how merchandise was placed in the store, trained store staff in new sales techniques and expanded membership for the store's Johnson Club smoking lounge, located on the bottom floor, so it was more inclusive. Finally, they even branded the store to give it more gravitas, and thus, the flagship Nat Sherman store became The Townhouse. Cigar sales increased by 30 percent in the first months.

"He got where we wanted to go, and he brought tools and energy, which we had," says Bill. "But his focus put everything on steroids. The bottom line is significantly stronger."

Walking through the Nat Sherman Townhouse on an unseasonably warm fall evening, the room is filled with cigar enthusiasts from all backgrounds: financiers pecking away on BlackBerries, New York's finest with their police uniforms untucked, kicking back after a long shift; tourists who've ducked into the shop during their walk to Times Square. The sound of classic jazz hangs in the air, scented by the aroma of a dozen burning cigars.

Above them all, perched at his weathered rolltop desk, sits the kinetic Herklots, surveying the retail floor, much like Nat Sherman once did. He's multitasking; typing e-mails to Quesada in the Dominican Republic and to a sommelier hosting an upcoming event, a lit Epoca Corona resting in a nearby ashtray. His eyes are on the store, but where Nat used a two-way mirror, Herklots watches his sales team through a computer screen hooked up to the in-store camera feed.

One can't help but think that the Shermans have once again found their showman-that needed spark. Enditem