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Taxes are a 'bloodsucking parasite' on this business

International

Washington - From the outside, Don Chernoff looks like he has the life.

The 57-year-old former Intel engineer lives comfortably in Reston, Virginia, where he runs his one-man luggage company, answers only to himself and pockets a low six-figure income.

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SkyRoll founder Don Chernoff sits at a baggage claim at Dulles International Airport with one of his creations. Washington Post photo by Salwan Georges

It doesn't look so glamorous from where he sits.

Chernoff and his 16-year-old luggage firm, called SkyRoll, have weathered two recessions, a retail downturn, occasional problems in his supply chain and an 18 percent import-duty tax (it came to $100 000 last year) that the curmudgeonly businessman really, really dislikes.

"It is analogous to having a bloodsucking parasite attached to your body, except it's the federal government and they attach themselves to my wallet," he said.

The story of how a materials engineer and inventor ended up selling luggage comes down to a simple motivation: "I wanted to work for myself."

His road to self-sufficiency includes educating himself on patent law, joining an inventor group, endless cold-calling of retailers and - the fun part - creating new products.

Chernoff asked me to write about the unglamorous side of business ownership after reading my recent column about another entrepreneur who had to unload a big chunk of his stock portfolio at a big loss to keep his family fed during the lean start-up years.

"I really hope you can write in more detail about the other issues that make it hard to survive as an entrepreneur," he said. Between recessions and taxes, "sometimes I feel like, no matter what I do, I'm at the mercy of forces beyond my control. No one writes about the unglamorous side."

This lone-eagle entrepreneur spends his day at home trying to get the word out about SkyRoll by working social media and talking to journalists like me. He also checks in with his manufacturers and his shipping company to keep tabs on the supply chain.

Hard part

So what is the hard part?

"All of it," he said. "But for me personally, it's sales and marketing. I am not [emphasis his] a sales and marketing type person. [No kidding, I thought.] Then accounting, which I hate."

SkyRoll's product line is made up of three polyester-and-nylon luggage pieces, including - in order of sales volume - a cylindrical garment bag that slings over your shoulder ($149), a SkyRoll on two wheels ($249) and something called the Spinner ($299). SkyRoll's "differentiator" is that they are "roll up" bags that allow you to carry suits and dresses without folding them and risking creases. The military tends to be good customers because they need to keep their uniforms sharp.

The products are made in Thailand and China and sold through SkyRoll's website, as well as at Men's Wearhouse and Jos. A. Bank bricks-and-mortar retail stores. They are also in a Canadian men's store called Moores and some independent Washington-area luggage shops. The retailers account for 75 percent of total sales; the rest is direct to customers through SkyRoll's online site.

The luggage is shipped in containers to the Port of Los Angeles, where they are then moved by truck and train to distribution centers or, sometimes, directly to the stores. The cost to ship a 40-foot container from Asia to the United States is around $5 000, not including import duty.

SkyRoll's annual revenue drifts between $1 million and $2 million, depending on how many units are sold. A good year will bring 25 000 in sales. A poor year will see that number drop to 10 000. Chernoff prefers online sales because he gets to keep more of the sale price.

So Chernoff's bottom-line profit, which he lives on, can run from more than $100 000 to well over $200 000 after subtracting costs for manufacturing, shipping, Web design, accounting and that dreaded import duty. The company has zero debt.

Chernoff began his business career at Intel, where he helped make computer chips for $25 000 a year in California. He had just graduated from the University of Florida in 1982 with a materials engineering degree.

Speciality

He developed a specialty in something called electron microscopes - expensive technology used in industry.

Around the mid-1990s, when he was a 30-something, he was on a flight when he saw a fellow passenger trying to jam his garment bag into the overhead compartment by folding it in half.

"That just gave me the idea that the shape is wrong," he said. "The solution may be to make something that rolls up."

He experimented in his spare time, building prototypes, buying fabric and messing around with different shapes at his Silicon Valley apartment. He took a night class on intellectual property at the University of California at Berkeley, learning enough to file a patent for the SkyRoll.

"It was a great introduction to the nuts and bolts about patents, trademarks and copyrights," he said. "It should be a required class for any inventor."

He had no idea he wanted to start a luggage company. But he did know he wanted to invent something to turn into a business.

SkyRoll founder Don Chernoff stands at Dulles International Airport with one of his creations. Chernoff sells luggage through Jos. A. Bank and Men's Wearhouse stores, as well as online. Washington Post photo by Salwan Georges


Patent in hand, he moved to the Washington area to be near his brother. He also wanted to buy a home, which he could not afford in California.

He asked a journalist (not this one) for advice on how to meet inventors who have bridged the gap between making a product and selling it. That led to finding a manufacturer who built some SkyRoll prototypes.

Resourceful

Ever resourceful, he funded the luggage project with the $100 000 or so he made from a sideline selling products for people who work with electron microscopes. "It was basically a salary that let me go and play with ideas," he said.

His hope was to license the product with a big luggage company or sell the business altogether and become a full-time inventor. "The world doesn't operate like that," he said.

He had to prove that his luggage would actually sell. So he began to hunt for a big retail clothing chain that could sell his products alongside the suits it was meant to carry.

Read also: Tax laws are not always 'fair'

He made a list of candidates, and Men's Wearhouse was number 1. He called them. He emailed them. He talked to vice presidents.

The courtship lasted a year. Finally, the company asked him to send a few dozen. "A few weeks later, they said, 'How soon can you send us a few thousand?' "

He knew he had a business in 2004, when he sold 8 000 SkyRolls in stores and on the Web. Sales of SkyRolls mounted, and he was eventually selling more than 20 000 a year. SkyRoll's sales dropped by half last year after bricks-and-mortar retailers had their own mini-recession. Stores closed. One big SkyRoll retail order from Jos. A. Bank was pushed into 2017, also crimping revenue for 2016.

Now with the Trump administration's proposal for a border-adjustment tax, Chernoff worries about a new bloodsucker feeding off his business.

"Although he will pay more in tax due to the border adjustment, his total import costs will not go up," according to Kyle Pomerleau, director of federal projects at the Tax Foundation, a non-partisan think tank headquartered in Washington. “The value of the U.S. dollar would increase to offset the additional taxes he would have to pay."

Chernoff doesn't believe it.

"If the BAT is on top of this import duty, as you say, then I might as well just file bankruptcy now and get it over with," Chernoff said.

Chernoff said that he has had a few nibbles from would-be acquirers. The key, he said, is to find a partner that can scale his luggage to global distribution, which would shave costs and boost profits. That would make SkyRoll more valuable.

"This takes a bit of vision from a CEO at a bigger luggage or consumer products company, something I think is in short supply," he said. "When I find them, the first thing I'll tell them to do is fire me. I shouldn't be running this business."

He already has his next project: artificial ivory. That will allow him to do his part to save elephants and get back to his engineering background.

That's sure to put a smile on the curmudgeon's face.

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