Baby steps: with the help of his rock-star son, Don Delson morphed an ailing business selling ceramic-shoe keepsakes into a mechandiser of T-shirts for client bands.

PROFILE

Keepsakes Group

Year Founded: 1985

Core Business: Band merchandising and baby gifts

Revenues in 2001:$4 million

Revenues in 2002:$8 million

Employees in 2001:9

Employees in 2002:14

Goal: Expanding and improving its roster of acts

Driving Force: Giving musicians a greater say over their merchandising and licensing deals

HELPING his son's band and other musicians peddle their T-shirts wasn't what Don Delson had in mind when he got into business 18 years ago.

With $2,000, the former Twentieth Century-Fox executive and television producer started Keepsakes Group in 1985, targeting obstetricians looking to use ceramic baby shoes as a marketing tool for their practices. That went fine for a while, until an expansion into corporate knick-knacks went awry.

Enter Delson's son Brad, a co-founder and guitarist for the band Linkin Park. Then an up-and-coming act, the rap-metal group (now a top seller) wanted a reliable partner so it could keep control over its merchandising operation. It turned to Don, in the process gaining him entree into the band merchandising business.

"My son was concerned that the artistic integrity of the designs and their vision was taken care of in the proper respect," he said. "I wouldn't have even thought about T-shirts if he didn't ask for my help."

Facing razor-thin margins, Delson sold the corporate gifts operation, but kept the booties. "It was high labor and high cost, unlike the baby booty business," he said. "If a mistake was made on a $300 piece of crystal, our profits were blown."

Meanwhile, its more glamorous business, called Bandmerch, now boasts clients that include R&B legends the Isley Brothers and Earth, Wind & Fire and bluesy Detroit rockers the White Stripes.

Clients keep control

Most merchandisers acquire a master license granting rights to use an act's name and image. Bandmerch acts as an agent, coordinating the design, manufacture and delivery of the bric-a-bracs.

In one room of its headquarters in a remote Westlake Village office park, designers draw the artwork on a T-shirt, while Webmasters manage online stores on behalf of Bandmerch's clients. T-shirts and hats line the walls and thongs cover computers.

In three small warehouses, employees stock shelves with T-shirts and monitor deliveries to retailers that include mall-based Hot Topic Inc.

Bandmerch also plays a role in boosting music sales. Earlier this year, it helped move 16,000 copies of Linkin Park's latest album, "Meteora" with a series of promotions, including one in which CD buyers would get a discount on a customized pair of sneakers emblazoned with the band's logo.

Besides having his son's band as a client, Delson has also gotten his two younger sons into the business, scouting out new acts for Bandmerch to sign. "This business had started because of family. So it's natural that the rest of the family play a role in it," said Delson.

Delson formed Bandmerch to design and coordinate manufacturing of Linkin Park's clothes, then expanded into other areas a year later after the band's other merchandiser filed for Chapter 11 bankruptcy protection.

By 2002, Bandmerch had added the White Stripes and hip-hop act DMX. But Delson realized that he needed help. His concert division was understaffed, forcing him to personally supervise rollouts. Meanwhile bands wanted the firm to manage their e-commerce sites, but it didn't have an online division to do so.

Delson hired Michael Kromnick, a former general manager of merchandising firm PR International, to run the concert division. Kromnick introduced improvements like a portable concession stand for a more flattering display of merchandise. Bandmerch also formed an online division by hiring Jake Verslius, who had developed music promotions for bands as a marketing manager for e-commerce firm turned record label ArtistDirect Inc.

Since then, Bandmerch's roster has more than doubled to 25 artists. In 2002, the unit posted revenues of $6.4 million-80 percent of the company's revenues in only its third year.

Now the company is looking to expand its roster. This month, it opened an office in New York, where managers and their acts can stop in and check out designs. It also expanded its retail operations by hiring Matt Young, a former vice president with rival Blue Grape Merchandising, and is marketing another e-commerce service to manage online stores on fan sites--giving clients the ability to set prices and launch mass promotions.

The cost of expansion has been lower operating margins. Band merchandising has proven to have the same thin operating margins--less than 5 percent--as the corporate awards business.

But Delson says the new business will make the investment worthwhile. Besides, there's family involved.

"We're adding more capacity before we've added more business, and that's a risk," said Delson. "But we can't bring in new bands and then fall on our faces. We've made a promise to make money for them and protect their image. Besides, I want Brad to be proud."

And what of those ceramic baby shoes? That division is on track to record $2 million in revenues this year, up from $1.6 million last year. He's considering an expansion.

"The baby booty business makes people happy, and we don't lose money on it, so it might be perfect for retail," Delson said.