August 1998
Volume 25
Number 4

by E. Edward Hoyt III, Editor
Interview by E. Edward Hoyt III and Robert M. Lockwood, Publisher

Guess Again. From his abundantly-stocked tobacco stores and buzzing mail- order business - famous for insider deals and blunt commentary - to his wholesale operations and cigar manufacturing interests, Lew Rothman knows the pulse of the cigar industry like no other. Scrutinized for his discount pricing over the years, Lew is now gobbling up defunct and overstocked brands at every corner, taking a huge portion of the "Don Nobody" brands out of circulation, and out of your way. You might even end up convinced that he's one of the best things that's happened to the retail industry.

Cigar Retailing a'la Lew
In 1971, early on in the long, sleepy decline of the cigar, Lew Rothman was running his first retail tobacco store in Manhattan. It was tiny: a sparse 14 by 21 feet. A sign out front nonetheless read "World's Largest Cigar Store." It was little more than wishful thinking at the time, but it was a clear indication of the irreverent retailer's attitude. A successful store meant more than just standing at the register ringing up sales, he recognized. It required a passion for the customer's best interests. It meant creating a little excitement. It meant submersing oneself in the product.

So what if the store was small? He looked to the ceiling and built vertical showcases in the otherwise wasted space. He threw out the boxes the cigars came in to squeeze as many as he could onto the shelves. He then convinced Villazon & Co. to ship him cigars without any boxes in the first place - the birth of the modern bundle - and passed the savings of the merchandise's reduced cost on to his customers. Even today, with any cigar he desires at his fingertips, he smokes the store's returns instead because he "wants to know what the hell's the matter with them." Had tobacco retailing ever seen the likes of a guy like this before?

The world's tiniest cigar store was just a precursor to what Lew - a relatively soft-spoken guy with endless opinions - and his business would ultimately achieve. A career built as much on mastering the subtleties of satisfying customers as it would be on thinking big. Very big.

Consider the full scope of Rothman's now publicly-held 800-JR Cigar, Inc. Last year he sold $135 million worth of cigars and tobacco at his five retail stores, two superstores, in his direct-mail catalog, and through his wholesale division. To feed that voracious demand, he buys cigars by the tractor-trailer load, trucks at a time. He is in fact the largest single account at each of the top U.S. cigar manufacturers. In North Carolina, he's building 1.5 million cubic feet of new humidified warehouse space just to store his ever-growing inventory, which he currently pegs at about 60 million cigars.

Retreat of the Don-Nobodies
When he's not visiting the few factories that are still rolling cigars at the moment, most of Rothman's time seems to be spent sifting through samples and fielding calls from small distributors, private labelers, and ex-manufacturers with roomfuls of cigars to sell, but which nobody is buying. At least not at the prices their champions had planned their personal fortunes on.

These are cigars that Rothman buys "for next to nothing." They are going nowhere - fast - and companies are willing to deal. Rothman then sells them for a fraction of their original suggested price; prices he says finally represent a fair value for the consumer. Cigars you no doubt bought at full price. The same merchandise that could very well be sitting on your store's shelves. Stuff that pretty much stopped moving when the big brands came rushing back.

Don't blame Lew; thank him for clearing these cigars out of the marketplace, and out of your way.

The market, flooded with overpriced, often substandard cigars, needed help, and that certainly wasn't Lew's fault. And neither is the almost endless wave of briefly-empowered upstart manufacturers, importers, and boutique lifestyle specialists that continue to knock on Lew's door, trying to unload their suddenly unwanted merchandise. Lew's merely doing the inevitable, and has the capital, warehouses, and long-standing familiarity with the market to intelligently do so. Most of these manufacturers have already moved on to new industries. These are the brands Lew certifies as "dead."

If it Walks Like a Close-out...
"If they sold it to me, it's the end of the line," Rothman explains matter-of-factly from his sprawling tobacco store, cigar bar, executive offices, and mail order command center in Whippany, New Jersey. "This is where the buck stops. This is the graveyard for cigars," he says of his clearly enjoyable buying spree. "If you sell a brand to me - not for continuous sale, but as a close-out - then everybody in the nation, 60 days later when our flyer hits, is going to know that this brand is kaput."

How quickly the great cigar shortage of the 1990's boom changed colors, leaving the industry ripe for a shakeout of proportions few could have imagined only a few months back. Supply and demand came into balance "for about an hour," Rothman declares sarcastically. There are already more brands gone from the active market today than there were total brands available prior to the boom. Throughout the Dominican Republic and Central America, the same might be said about factories. And Rothman couldn't be happier.

"There'll never be a time in history when I can buy cigars for the price I can buy them now," Rothman beams. "I would rather invest in cigars than in General Motors stock, or something like that."

Dozens of new manufacturers are no longer making cigars and have closed up shop entirely. Some are still technically in business, but only selling cigars that they previously made, never to roll another batch again.

If it's a buyer's market for consumers, who after several years of searching for their favorite out-of-stock brands can now select from a more complete range of merchandise, then for industrial-sized bargain hunters like Rothman, the opportunity to pick and choose among the withering brands of yesterday is the chance of a lifetime. In today's cigar theater, he is planted firmly at center stage.

Economies of scale and a flush balance sheet at 800-JR Cigar, which sold 76 percent more premium cigars last year than in 1996, makes buying up cigars by the millions a plausible reality for Rothman. No other industry player wields the financial resources, wherewithal, or humidified warehousing to make such purchases possible. But can there possibly be any good in all of this for small, independent retailers?

Absolutely. Rothman's voracious cigar appetite is not only putting suffering brands out of their misery, but he's removing large blocks of merchandise from immediate circulation, in addition to those brands that go directly into his mail-order division. "A lot of it we're just putting in storage. I made a couple of buys recently. I sent two 48-ft. trailers and put them in cold storage, and I'll probably leave them there for a year or two. They're not going to do anything but get better." This is a key factor for Rothman when dealing with cigars that he never would have touched during the boom. While some were lousy cigars at any price, others were often fine, but priced entirely too high. They failed to meet Rothman's credo of "a quality product at the right price." That's all changed.

"The cigars I bought were ones I thought were the best of the non-brand cigars at a price," he says of one recent purchase. "In a year or two or three, I'll put them back out for sale. In the meantime, they're just going to rest," aging in his North Carolina warehouses.

Rothman is far from done. Buying trends at this summer's annual Retail Tobacco Dealers of America (RTDA) Trade Show and Convention, in August in Nashville, Tennessee, will largely determine the fate of many small cigar brands and companies. In the aftermath, a clearer picture will emerge as to how long the cigar glut will continue to clog the system. JR Cigar will be there, not just selling its own products, but ready to buy up desirable overstock or relieve go-for-broke exhibitors who may decide, by show's end, to call it a wrap. "At the RTDA," he says, "we're going to have five booths that sell, and one booth that buys." Even for Rothman, that'll be a first.