Transcript: Nightly Business Report – January 21, 2019

ANNOUNCER:  This is NIGHTLY BUSINESS REPORT with Sue Herera and Bill Griffeth.  

SUE HERERA, NIGHTLY BUSINESS REPORT ANCHOR:  Good morning and welcome to the special edition of NIGHTLY BUSINESS REPORT.  I’m Sue Herera.

BILL GRIFFETH, NIGHTLY BUSINESS REPORT ANCHOR:  And I’m Bill Griffeth.  

HERERA:  You know, every night we bring you in-depth market coverage and stories about business and the economy.  But today, the markets were closed for the Martin Luther King Jr. holiday.  So, tonight, we’re exploring something a little different.  

GRIFFETH:  All right.  We’re going to look at the American entrepreneur and that spirit that turns a bright idea into a successful business.  

HERERA:  We’ll also show you how some women are breaking barriers in the business world.  

GRIFFETH:  And then later, an investigative piece that you just have to see to believe.  

But we begin tonight with a small business story and a retail entrepreneur who is working to make fashion more sustainable and environmentally friendly.  

Listen to this.  According to one estimate, in the last 20 years, Americans have doubled the amount of clothing that they toss out each year to 14 million tons.  But startups interested in attacking that problem found it difficult to find affordable materials and manufacturing until one Boston entrepreneur showed them how to go green and make green at the same time.  

(BEGIN VIDEOTAPE)

CARA BARTLETT, VETTA CEO AND CO-FOUNDER:  This is our new blazer.  

GRIFFETH:  Cara Bartlett’s clothing line Vetta is moving into a third office in three years.  

BARTLETT:  Now, this space is almost tripled.

GRIFFETH:  A sure sign of growth.  Her multiuse pieces, zip-out sleeves turn this blazer into a vest, for example, are ethically made and sustainably sourced.  That is her domestic manufacturers pay their employees a living wage and that surplus fabric that she bought from another company.  

BARTLETT:  If we launched this type of company ten years, I think it would have bombed.  

GRIFFETH:  She credits Shannon Lohr’s Factory45 for making it work.  That’s a six-month online crash course on sourcing materials, manufacturing and raising capital ethically and sustainably.  

LOHR:  I was a fashion bargain bin junky in college.  I wanted the deal.  I was known for wearing a dress once, throwing it my closet, never looking at it again.  

GRIFFETH:  But her attitude changed while traveling after college when she learned how waste impacts the world, prompting Lohr and a business partner to create The Versalette.  One piece that could be worn 15 or more different ways.  

But sourcing materials and finding a manufacturer took them a year and a half.  Raising money on Kickstarter was the easy part.  

LOHR:  We set a goal of $20,000 and we ended up tripling our goal and becoming the highest funded fashion project in Kickstarter history at that time.  

GRIFFETH:  The Versalette was profitable from the get-go.  But Lohr wasn’t into it for the long haul.  Instead, she began to share what she had learned.  

LOHR:  There were so many people out there who wanted to start clothing companies.  They were even interested in sustainability and, you know, ethical manufacturing.  But they didn’t know where to start.  

GRIFFETH:  Lohr offered classes in 2014, then moved online.  A hundred twenty designers are paying $500 a month for Factory45, giving them access to Lohr’s invaluable and growing database of suppliers and manufacturers.  

This manufacturer in Fall River, Massachusetts, works with Lohr’s husband.  His company called Project Repat turns old tee shirts into quilts.  Ross Lohr says they’re on track to sell $10 million worth of quilts in 2018.  

New Yorker Mary Bemis dreams of numbers like that.  She is an advertising data analyst by day but Factory45 helped her launch Reprise Activewear this fall.  

MARY BEMIS, REPRISE ACTIVEWEAR FOUNDER:  I knew sort of the broad steps of I need to find a fabric, someone will need to sow it for me.  I’ll need to distribute it.  I need to raise money, but how to do any of that, I had no idea.  

GRIFFETH:  Her workout gear is made of tinsel.  It grows on eucalyptus trees.  There’s no polyesters.  

BEMIS:  It’s naturally cooling.  It’s sweat wicking.  It’s antibacterial.  

GRIFFETH:  Priced to compete with Nike and Lululemon, the leggings are $109.  She sold about 300 pieces in just two months.  

The printer she found in Brooklyn offers water-based ink.  It costs more but owner Jose Andrade says there is growing demand for it.  

JOSE ANDRADE, BKNY PRINTING GM AND FOUNDER:  It’s more prevalent, more like in our face in the past two years.  And I think that’s kind of the future for us right now.  

BARTLETT:  You can wear it open or closed.  

GRIFFETH:  And that’s the type of future that Shannon Lohr is betting on.  

LOHR:  This growth is just amazing, so exciting.  

(END VIDEOTAPE)

GRIFFETH:  Well, organic food is now a $50 billion a year industry. S o, who knows?  By the way, Shannon Lohr just opened a new section on her site called Market45 where her clients can showcase their greener brands, as they try to bring a different type of thinking to the fashion industry.

HERERA:  Do you ever wonder where all of that stuff you buy online is kept or how it gets shipped?  A lot of companies get helped by outsourcing.  Third party logistics is an industry worth almost $200 billion in the U.S. alone, thanks to the booming e-commerce business.  And that’s why one entrepreneur is helping other companies get their products from here to there.

(BEGIN VIDEOTAPE)

HERERA:  Rafael Zakinov began selling high-end surplus watches and jewelry as he worked his way through college in 2009.  He discounted prices and sold online through Amazon, eBay and others out of an apartment in Queens.  

RAFAEL ZAKINOV, RUBY HAS FULFILLMENT CEO AND FOUNDER:  The living room was a warehouse and the bedroom was a warehouse.  

HERERA:  As he filled up the apartment with 10,000 items, Zakinov began to notice price differences between the Amazons and eBays, telling friends and family running similar business that they often paid too much.  

ZAKINOV:  I saw that they are really missing an opportunity of selling elsewhere where the margins were better.  None of them wanted to handle the logistics or space was too expensive.  

HERERA:  A burgeoning ecommerce boom meant thousands of small businesses needed help with storage, packaging, labeling and shipping.  

ZAKINOV:  I started calling up friends and I was like, hey, instead of you sending everything to Amazon, send me it, I’ll send half to Amazon, we’ll keep half of it by us and we’ll take back and ship it as the orders come in.  

HERERA:  Starting in 2011, his company Ruby Has Fulfillment outgrew the apartment and then an office space and a warehouse.  By 2014, it was handling a couple thousand orders a day.  And Ruby took its conveyor systems and shelving to a warehouse on Long Island.  

On average, the company says customers save 45 percent on freight and if you think Ruby’s warehouse looks like an Amazon fulfillment center — well, that’s no accident.  

ZAKINOV:  We had to do everything right.  And we had to do it the way Amazon would do it, just a much smaller scale.  We have clients today that have distribution centers 10 times our size where that distribution center cannot handle the direct to consumer needs.  

HERERA:  In fact, Ruby handles some orders from Amazon.  But one thing Ruby offers that Amazon doesn’t is the ability to use a customers-branded packaging.  

ZAKINOV:  There is a lot of companies that can say they can do the branding but not in scale, right?  As soon as, you know, you start doing a thousand orders a day, what we see is they break down on scale.  

CHRIS WICHERT, KOIO CO-CEO AND CO-FOUNDER:  I don’t want it to be like a third party brand.  

HERERA:  Chris Wichert started his high-end sneaker brand Koio in a Brooklyn apartment three years ago.  Now, Koio has stores in New York, Chicago and Los Angeles.  But 60 percent of its business happens online.

When Wichert signed on with Ruby this year, they realized some of his inventory lacked the bar codes needed for automated processing.  

WICHERT:  They discovered the problem and without just like sending them back or ignoring the problem, they would print bar codes themselves and label them and get them into the system so that nothing is lost.  

HERERA:  Now with almost 200 clients and revenue of more than $17 million a year, Ruby Has has added warehouses in Las Vegas and New Jersey, with plans to expand further in 2009, aiming to keep delivery times down to the two to three days consumers expect and businesses depend on.  

ZAKINOV:  You can literally deploy those dollars into products, marketing, staffing, right?  Things that actually help them grow the business.  Getting a new forklift isn’t going to add their top line or to the bottom line.  

(END VIDEOTAPE)

HERERA:  Ruby now has more than 200 employees and is looking to expand not only here at home but into Canada and Europe in the near future.  

GRIFFETH:  Still ahead, how women are redefining business from home building to Silicon Valley to the oil patch.

(MUSIC)

GRIFFETH:  Home building is an overwhelmingly male dominated business, from framers on the job site right up to the C-suite.  But one CEO is trying to break that mold, not just for herself but for one of the nation’s largest publicly traded home builders.  

Diana Olick has more.  

(BEGIN VIDEOTAPE)

DIANA OLICK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Arizona based Taylor Morrison Homes is the seventh largest publicly traded home builder by revenue.  And its CEO Sheryl Palmer is the first and only one of her kind in those ranks, a female CEO.  

SHERYL PALMER, TAYLOR MORRISON CHAIRMAN  AND CEO:  I’m not certain that this was an intentional path for me.  But it’s one that felt right for obviously — I’ve been in this industry for 20 years.  I’m color blind, I’m gender blind.  

So, they might notice that I’m the single female at the table, but for me, this is just what I do.  All the old jokes about there is no line to the ladies — those are all true.  But I — it doesn’t change me.  I always said in business, the day I have to change who I am is probably the day I’ll stop.  

OLICK:  Palmer started in home building first at Pulte Homes then Taylor Morrison.  She took the company public in 2012.  

You’re at the table.  

PALMER:  Um-hmm.  

OLICK:  With the other publicly traded CEOs.  Have you ever felt minimized?  And if so, how?  

PALMER:  For sure.  Early days, I think if I were to share a view, I almost think it kind of glossed over.  I just had to continue and I knew that — I knew that my positions, my views on the business were right.  I would say to the group of CEOs had to get to know me.  But now, I think, you know, it’s an equal playing field, but it took time.

Thanks.  

OLICK:  And overtime, nearly a dozen years as CEO, Palmer built both her reputation as well as an uncharacteristically female staff given the business.  

Do you promote women more as a leader of this company?  Or do they just come to you because of what the company is?  

PALMER:  So I think we promote certain skills that are required.  And we have a culture that I think attracts certain types of people around personal development.  And, you know, the passion and the higher purpose of what we as a company stand for.  

We actually don’t have any affinity programs for females.  Now, what I would hear from my people services department is that having me in this seat does attract other women.  I think it gives hope.  

Nearly 50 percent of our managers that first level management is female.  I think it’s about 49.2 percent.  

OLICK:  That’s incredibly rare.  

PALMER:  That’s incredibly rare.  

OLICK:  But given the product, houses, Palmer sees it as just plain common sense.  

PALMER:  I will tell you, I think it makes us a better company, because to get the diversity of thinking at our table on a corporate level, at the division table, it’s really critical.  Think about who the buyers are today out buying houses.  And to miss the opportunity to have the female spot and kind of lens and voice would be shameful.  

OLICK:  Taylor Morrison’s board is also female heavy, but even with that achievement, she admits to a glaring problem, one she calls a tragedy.  

PALMER:  Women just don’t tend to be there for other women.  And I don’t know if that’s a result of there are so few slots at the top that people feel like they have to compete.  

I’m very hopeful that as the industry develops, and as we see more women in the space, that women take the opportunity to embrace the need and help other women as compared to push them down.  

OLICK:  For NIGHTLY BUSINESS REPORT, I’m Diana Olick in Scottsdale, Arizona.  

(END VIDEOTAPE)

HERERA:  Companies are in need of workers in this tight labor market.  That problem has become particularly evident in the oil patch.  And a wave of women are breaking barriers in this traditionally male business.  Jane Wells is in Deer Park, Texas.  

(BEGIN VIDEOTAPE)

CHRISTINA SMITH, SHELL PRODUCTION TEAM LEADER:  Afternoon, everybody.  

JANE WELLS, NIGHTLY BUSINESS REPORT CORRESPONDENT:  Christina Smith a mother of three.  She used to manage a Subway sandwich shop, worked at a commercial dive store.  Then she went to school, got a technical degree and now, she’s a shift supervisor as a Shell plant in Deer Park, Texas, making good money.  

SMITH:  My dad says, kid, you hit the jackpot.  

WELLS:  The petroleum industry estimates only 15 percent of its workforce is female.  And only about half that number reach the executive level, like Lori Fremin, a general manager in the Gulf of Mexico.  

LORI FREMIN, SHELL GM SURFACE ENGINEERING:  I personally set the bar high for myself, so a lot of the challenges that I think I went through were actually challenges that I set for myself.  

WELLS:  Now, big oil is going big on hiring more women.  Helping them as industry veteran Katie Mehnert who vividly recalls a remark made by a man sitting next to her on a flight to Houston.  

KATIE MEHNERT, PINK PETRO FOUNDER & CEO:  And he said to me, what’s a pretty young lady like you doing in a dark dangerous business like oil and gas?  

WELLS:  She decided to create Pink Petro, a for-profit company funded by Shell and others to reach out to women who may have never considered a career in energy.  

The outreach to women is happening as oil prices are falling, which is providing an extra challenge to an industry with an aging workforce that really needs a new generation of workers, male or female.  

MEHNERT:  We need to think about the marathon.  It’s not a sprint.

SMITH:  I’m 40 now, but I don’t remember growing up somebody saying, I think you’ll work in a plant, or you could be an engineer or, you know?  

WELLS:  Some of the women mentor each other about opportunities and the challenges like not always being recognized as a senior engineer.  

FREMIN:  When I walked in the room, a person asked if I could put their coat up.  

WELLS:  But that’s happening less and less.  

SMITH:  I work hard, I want to learn.  I like to help people.  And because of that, I feel respected.  

WELLS:  In the end, why recruit women?  In an industry needing a pipeline for a next generation workforce, the answer may be, why not?  

For NIGHTLY BUSINESS REPORT, Jane Wells, Deer Park, Texas.  

(END VIDEOTAPE)

GRIFFETH:  There is also a pretty big gender gap when it comes to venture capital or V.C. funding, but an effort is being made to make things more equal there, and that was a big topic of discussion at a recent conference attended by Julia Boorstin.  

(BEGIN VIDEOTAPE)

JULIA BOORSTIN, NIGHTLY BUSINESS REPORT CORRESPONDENT:  At Fortune’s Most Powerful Women Next Gen Conference, the spotlight is on the value of diversity.  For every dollar invested, startups co-founded by women generated more than double revenue that male founded startups did, according to a VCG study.  Despite the financial argument for diversity, 17 percent of startups in the U.S. last year had a woman founder, and 2 percent of V.C. funding went to female founders.  

BETH FERREIRA, FIRST MARK CAPITAL:  We have a long way to go to get to parity.  But we are seeing a shift in the conversation and more people talking about, one, not only funding female founders, but also thinking about who are the funders around the table.  And so, we’re having more of the conversation, more emphasis on that.  

BOORSTIN:  Half the investments in Ferreira’s last fund, including Glossier and Daily Harvest were female-led companies.  

It wasn’t the mandate to invest in women, but she says she may have seen opportunities that her male counterparts didn’t.  One reason such a small percent of V.C. funding goes to women is that 9 percent of U.S. V.C.s  are women and about three quarters of U.S. firms don’t have any female partners.  

New organizations are tackling this issue, all race focuses on women in V.C. as both funders and founders, while #angels hopes to educate V.C.s and startups on the value of bringing in women’s perspectives early and investing in diverse teams.  

MAHA IBRAHIM, CANAAN PARTNERS:  We’re a little cottage industry made up of small, small firms, are highlighting the importance of diversity.  They’re finally getting it.  And for that, I am ecstatic.  We’ve got to make sure as an industry that those women and those, quote/unquote, diverse hires are not looked at as diverse hires, that they are looked at as incredibly productive and high performing and equal members of the team.  

Ibrahim sees a direct correlation between a more diverse set of funders and higher returns.  Canaan Partners are 40 percent female and two of their last three funds are top performing, driving optimism that the V.C. gender gap will close as people understand that diversity is good for business.  

For NIGHTLY BUSINESS REPORT, I’m Julia Boorstin in Dana Point, California.  

(END VIDEOTAPE)

HERERA:  Coming up, an investigation into the rise and decline of a private jet company dubbed the Uber of private jets.  

(MUSIC)

GRIFFETH:  It was dubbed the Uber of air travel.  Jet Smarter became a billion dollar company by making private jet travel easier and more affordable.  But now, a CNBC investigation finds that the company known for glamour in the sky is caught in a downward draft, faced with angry members and questions about security.  

Here’s Robert Frank with tailspin.  

(BEGIN VIDEOTAPE)

UNIDENTIFIED FEMALE:  We’re about to take off for L.A.  

UNIDENTIFIED FEMALE:  JetSmarter.  

UNIDENTIFIED FEMALE:  It’s amazing that we could fly together.  

UNIDENTIFIED MALE:  Have a great day.  And JetSmarter.  

ROBERT FRANK, NIGHTLY BUSINESS REPORT CORRESPONDENT:  It took the private jet set by storm.  With the simple app and a dazzling image campaign and press coverage, Jet Smarter claimed to revolutionize the business of private jet travel.  The company had a star-studded takeoff, raising millions from early investors that included the Saudi royal family and Jay-Z.  

And there was no shortage of big-name endorsements.  JetSmarter signed up 10,000 members and became the first flying unicorn, valued at over $1 billion.  But hour investigation found that behind its elite image, JetSmarter has left a trail of outraged customers, millions of dollars in losses, and concerns about some passengers on flight.

Customers around the country, some paying nearly $100,000 for multi-year memberships, now call the company a fraud, a high-tech shell game and an unlawful bait and switch.  

SERGEY PETROSSOV, JETSMARTER FOUNDER:  The way that the system works is a natural ecosystem.  

FRANK:  It all sounded so promising in 2016 when JetSmarter’s then 27-year-old CEO and founder, Sergey Petrossov, appeared on CNBC.  

PETROSSOV:  We offer 50,000 hours of scheduled flights a year.  That’s like 125 flights a day.  There’s plenty of lobster for everybody to go around.  

FRANK:  And the members feasted at least in the beginning.  Unlike most private jet companies, JetSmarter sells individual seats on its planes, which customers book with the app.  

Sally Horchow is a Broadway producer who travels between her Los Angeles home and New York.  She paid a $9,000 annual membership to join JetSmarter in early 2015, which allowed her unlimited private jet flights.  

SALLY HORCHOW, JETSMARTER MEMBER:  The value proposition in the original company was just kind of ridiculous.  It seemed too good to be true really.  

FRANK:  It was too good to last.  JetSmarter began stripping away the benefits of membership.  No more free choppers.  No more free food.  And last year, it told customers they would now have to pay for flights which were supposed to be included in their membership.  

HORCHOW:  Holy (EXPLETIVE DELETED).  This is not what I signed up for.  This is a bait and switch.  

FRANK:  Customers like Horchow told us that changes made their expensive memberships virtually worthless.  The company’s membership agreement says that the terms are subject to change, suspension or termination at any time.  

In a statement to CNBC, JetSmarter said: The vast majority of our core customers understand the necessity of these decisions, and it is elevating the quality of people flying together.  

Andrew Pressler was one of the JetSmarter sales people signing up those members.  He said he was under pressure to hit aggressive sales targets.  

ANDREW PRESSLER, FORMER JETSMARTER EMPLOYEE:  Every other month, there was a new what the sales floor we call money grab.  

FRANK:  That’s what you called it?  

PRESSLER:  That’s what all the sales guys called it, another money grab.  

FRANK:  Pressler was fired.  The company said it was poor performance and that he lied to customers, though he said it was likely due to a call over a competing job offer.  He posted what happened on LinkedIn, where he called the company cold-hearted for firing him, but said he remained passionate about the product they provide.  

And then he got this threatening letter from JetSmarter’s general counsel, calling the post false and libelous.  

PRESSLER:  Why were they so threatened by me?  I have no idea.  Maybe because the truth got out.  

FRANK:  CNBC has learned that JetSmarter as also fallen short on its promises to investors.  JetSmarter made this confidential presentation to potential investors in 2017.  Revenues would grow from $252 million to more than $2 billion in just two years, and membership would jump from over 11,000 to over 100,000 by 2020.  

But the losses kept growing.  Today’s membership only around 8,000.  JetSmarter refused to comment on its financials.  

Members are also concerned about security accord JetSmarter flights.  

MAURICE PAOLA, DISC JOCKEY:  Take me to New York, now!  

FRANK:  We obtained this video of Maurice Paola, a disc jockey aboard a JetSmarter flight in September from Las Vegas to White Plains, New York.  About 45 minutes into the trip, according to court records, Paola began threatening passengers.  

The pilot made an emergency landing in Nebraska where authorities subdued and arrested him for making terroristic threats.  

JetSmarter said it has the most rigorous security standards in private aviation, including background checks on the majority of customers before they fly.  And on-the-ground security teams that screen for narcotics, explosives, cash and weapons for shared flights.  

But two people on the flight told us there was no security check, and there was this red flag.  Just three days before the flight, Paola had tweeted from a jail cell to the private jet, they can’t stop me.  

Customers and crew also say they witnessed passengers trying to carry drugs or cash on their flights.  This suitcase packed with suspected marijuana was confiscated from a passenger.  The picture taken by a crew member.  

HORCHOW:  There were definitely drug dealers of all kinds carrying lots of cash on the planes in designer bags.  

FRANK:  JetSmarter denied any allegations of fraud or bait-and-switch tactics, while acknowledging that a number of members are unhappy with certain changes.  The company said it is more positive about the health of our business than ever.  

For Petrossov, the original JetSmarter dream appears to be further and further away.  

For NIGHTLY BUSINESS REPORT, I’m Robert Frank.  

(END VIDEOTAPE)

HERERA:  Thank you for watching this special edition of NIGHTLY BUSINESS REPORT.  I’m Sue Herera.  

GRIFFETH:  And I’m Bill Griffeth.  Have a great evening, everybody.  We will see you tomorrow.

END

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