Hanky Panky co-founders Lida Orzeck and Gale Epstein tell Moneyish why an ESOP was the key to preserving their 40-year-old lingerie company’s culture
This story might seem like a stretch.
Lida Orzeck and Gale Epstein, the co-founders behind the cult-favorite lingerie empire Hanky Panky and its trademarked “World’s Most Comfortable Thong,” had sporadically mulled an exit strategy from the company they launched four decades ago. Now in their 70s, the friends say they’d long abstained from accepting investment money, and flat-out refused to sell — even tasking their executive business consultant, Judy Stewart, with rejecting hungry buyers. Consulting with their longtime father-son accountant team, they hatched a plan.
That costly, time-consuming plan one year in the making stayed on the Q.T. until this past Oct. 12, when most of the company’s 175 employees gathered at their Jamaica, Queens warehouse and cutting room for a 40th-anniversary party. There, the duo revealed what Orzeck calls the company’s “best-kept secret”: They had transferred ownership of the company to workers through an employee stock-ownership plan, or ESOP.
An ESOP is essentially “an employee benefit plan that allocates shares of the company to full-time employees based upon their salaries,” accountant Jonathan Ehrlich, who advises Hanky Panky with his father, Terry Ehrlich, told Moneyish. And since the plan costs employees nothing and existing 401k plans stay in place, he said, “there’s only upside” for workers. “Even if the value of a business went down, the employee still benefits because they’re getting something they wouldn’t have gotten if an ESOP wasn’t established,” he explained.
In the event that the company is sold, the accountant added, “employees get their share of the selling price — so no matter what is done with the business, the employee still has a large retirement account.” Around 7,000 ESOPs operate in the U.S., according the National Center for Employee Ownership, and research has shown these plans can boost productivity, employment and sales over the expected levels absent an ESOP.
“The ESOP is like a 401k plan on steroids. It’s really a very robust retirement plan. And that means protection for all of our people,” Orzeck told Moneyish. “Should the company eventually be sold down the road, people will get a piece of the action.” Per the terms, employee stakes are based on longevity with the company and salary; around 20 people have been with the company at least 15 years, Stewart says. Orzeck would remain CEO, while Epstein would stay on as president and creative director.
Ali Lange, a business planning analysis manager who began her Hanky Panky career about seven years ago as an intern, says she understood the significance and rushed to call her work partner, Nicole Procida. “We were thrilled,” Lange said. “I think becoming an ESOP was really the message that they cared about us as employees.”
Not everyone grasped the idea, and the company would hold educational sessions. But despite widespread Googling, Orzeck said, “a lot of people did understand: This is a good thing. This is a very good thing.” “It’s a way for the average working person to have a really nice retirement account without them contributing to it,” Jonathan Ehrlich said.
“There was a lot of crying,” Orzeck recalled. “But then we delivered the bad news that we were still in charge.”
Orzeck, a 70-year-old Brooklynite, and Epstein, a 71-year-old St. Louis native, trade off narrating their origin story with a familiar rhythm. As canon goes, ever-crafty Epstein was working as a sweater designer in 1977 when she started fiddling with hand-embroidered handkerchiefs from a local linen store, cutting them up and fashioning them into lingerie. She decided to gift the resulting bra and panty set to Orzeck, whom she’d befriended 10 years earlier through a mutual friend, for her 30th birthday.
Orzeck adored the undies and suspected others would, too. And so with no formal business training — Orzeck holds a Columbia University doctorate in social psychology, and Epstein attended the Parsons School of Design — the two slipped into the underwear game. Epstein produced a sample collection that Orzeck shopped around to buyers in New York and California, and “every buyer I showed the collection to placed an order,” Orzeck said. In a single weekend, Epstein sewed 12 dozen bras and bikini underpants for Lord and Taylor; Orzeck packaged and schlepped them by car to the 39th Street loading dock. “That’s how it was done back then,” she said.
The partnership worked because they “trusted each other,” Epstein said. “We knew each other for so long before; we knew each others’ ethics, we knew our business sense.”
“And yet,” Orzeck added, “it’s not like we sat down, discussed it and made a decision: ‘We would make great business partners’ … Everything moved forward so fast that we had to sew this; we had to deliver that.”
By 1986, Epstein had refined the signature one-size-fits-all stretch-lace thong, Hanky Panky’s holy grail that now retails around $20. While her pal can’t lay claim to the thong, Orzeck says, “she invented the comfortable thong” in an era of tightening pants and demand for a non-visible pantyline: “My goal as a designer was to bring comfort as well as sexiness to the customer,” Epstein said. “The beauty of that thong, once it was perfected, was that it had no back so it fit so many different people (and) body types.”
Today, with a quick eyeball, Epstein and Orzeck can diagnose whether a woman needs their original- or low-rise variety. “We’ve been called the Jobs and Wozniak of thongs,” Orzeck said, paraphrasing a line from author Emanuel Rosen’s “The Anatomy of Buzz.”
Hanky Panky chugged along on a boutique-business scale — but all hell broke loose in 2004, when a front-page Wall Street Journal story outed its “lace butter” thongs and name-checked celebrity customers. (Moneyish and WSJ share a common parent, Dow Jones.) “Everybody wanted Hanky Panky,” Epstein said. “When we sat back and took a breath, it became quite clear to us that nobody else could deliver the Hanky Panky thong,” Orzeck added.
Counseled by Stewart and their accountants, Epstein and Orzeck scaled up: The brand now sells in more than 60 countries and annual sales approach $50 million, they say, claiming Hanky Panky sells one thong every 10 seconds. “We have been profitable every year we’ve been in business,” Orzeck said. “That does not mean we were a big company — we were small and growing; we bootstrapped. And from the very beginning, Gale and I did not take money out. We just put it back in.” (On the whole, meanwhile, the thong may have enjoyed its moment: Sales fell 7% between 2014 and 2015, according to NPD Group, while sales for briefs, boy shorts and high-waist briefs rose 17%.)
Hanky Panky prides itself on its “sisterhood” status and multigenerational clientele, Orzeck said, and emphasizes the desire to look and feel good independent of the “male gaze.” Though the brand didn’t advertise for years, she added, it benefited early on from word-of-mouth publicity, with customers “talking about it, giving it as gifts, sharing it with their sisters, their mothers, their daughters.”
“You can go to a cocktail party and talk to a grandmother, mother and daughter,” Stewart said, “and they’re all wearing Hanky Panky and they all love it.”
Orzeck and Epstein anchored their entire business in the Northeast, working out of Jamaica, Queens for cutting, warehousing and shipping, and sending work to sewing contractors in College Point and Corona, Queens, and Philadelphia. “We wanted to have a profitable company with a good reputation that preserved certain ethics and values,” Orzeck said, “where people were employed right here, enjoying their jobs and supporting their families.” “There’s a lot of talk of bringing manufacturing back to the United States — it is not easy, even to remain here,” Epstein added.
Sustainability forms another cornerstone of Hanky Panky culture: Manufacturing local cuts down on CO2 emissions, they say, and the company recycles old electronics and uses recyclable packaging and shipping materials, low-impact dyes, recycled printer paper and filters to purify city tap water. The two are also ardent philanthropists to environmental, social justice, women’s rights and animal welfare causes — though, in a bit of irony, Orzeck admits, the trustees now looking out for employees’ welfare may not view her and Epstein’s charitable giving as positively. But “our philanthropic genes are not going away anytime soon,” Orzeck said, adding she and Epstein have already beefed up their own personal giving.
The decision not to sell was a no-brainer, the co-founders say. “We’ve been around the block more than once in our 40 years of running a company,” Orzeck said. “We know that when companies get sold, they kind of lose their culture, they lose their legacy, they lose their integrity, they’re different — no matter what’s been promised to them.”
And the ESOP, Orzeck noted, is in some ways “a soft exit plan” since she and Epstein still run the show. “But had we wanted to walk away, we certainly could have sold the company for a much higher price on the open market. That is capitalism. That’s the way that successful entrepreneurial businesses go,” she said. “We found an alternative that is a bit under the radar, just like our company was for so long, and it suits us perfectly.”
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