Phat profits: from entertainment to apparel, Rush Communications has become the leader in urban-focused products by moving to its own beat. (B.E. Industrial/Service Company Of The Year).

At a black-tie event on a cloudy April evening, Russell Simmons is doing something one might not expect from one born of hip-hop culture: pressing the flesh and schmoozing with the best of them--shaking hands with politicos such as former New York City Mayor David Dinkins, the Rev. Al Sharpton, and attorney Johnnie Cochran--and posing for pictures like a presidential candidate just before election day. The chief executive officer of New York City-based Rush Communications Inc. is clad in a black suit, T-shirt, and spotless white Phat Farm "Classic" sneakers, mingling like a pro. Simmons, the budding political activist, is learning the ropes of an arena new to him.

Fast-forward a few days and he's in his sizable but warm executive office, replete with earth tones of greens and browns--command central for the Rush Communications Empire. The only adornment mounted on the walls is a 3-foot-long, framed charcoal sketch of Simmons and his wife, Kimora Lee (who serves as the president and creative director for Baby Phat, the company's apparel line for women). This time it's a different kind of power meeting. A dozen or so students, part of a high school entrepreneurial program, pepper him with questions--some having to do with his business and some well off-topic. "How many phone calls do you get a day?" asks one. "How did you get started?" asks another. Meet Simmons, the philanthropist.

Some 60 minutes (and several phone calls) later, Simmons is in Times Square, stuck in rush hour traffic and late to a business powwow. His white Ford Excursion crawls through a river of yellow taxis and buses that seem to stretch the length of Manhattan. His cell phone rings repeatedly, voices on the other end urgently seeking his approval, his input, and his green light. Simmons, the businessman, is doing what he does best--making deals.

DEFYING THE ODDS

It's just another day in the life of the CEO of Rush Communications--the 2002 BLACK ENTERPRISE Company of the Year. This diverse and dynamic company has been ranked among the largest black-owned businesses in the U.S. for a decade. It defied the odds last year, posting $192 million in revenues, a stunning 92% increase from 2000's reported figures--despite a harsh economy that led to falling revenues and paltry profits for companies of all sizes.

The fashion industry was one of those hardest hit by a recession that curtailed discretionary spending, yet the Phat Farm Men's apparel line--Rush's core business--grossed $120 million, twice that of 2000. Baby Phat, the women's apparel line launched in 2000, grossed $30 million in 2001, triple the previous year's total of $10 million. Phat Farm's Kids apparel tacked on another $25 million last year, up from $15 million in 2000. The remaining $17 million was generated by other businesses, including, Oneworld Magazine, Def Pictures, and RSTV (producers of Def Comedy Jam and Def Poetry). Growth is the name of the game at Rush, where reported revenues have grown more than 400% over a five-year period.

Much of this growth was achieved by successfully tapping into the ever-expanding popularity of hip-hop culture, which, once concentrated in urban cities, has spread to the lawns of the suburbs, where most of Rush's clothing is now sold. Simmons also cites the growth of the independent retail chains that carry his line of clothing. "d.e.m.o., one of our top accounts, grew 30% in their number of stores and grew their business 30%," Simmons says, noting that d.e.m.o. stores, which focus on hip-hop-inspired apparel, are located solely in suburban mails. According to Pacific Sunwear Inc., a casual apparel retailer in Anaheim, California, and the parent company of d.e.m.o., as of early April, the company had 740 stores in operation, 104 of which were d.e.m.o. stores.

Rush's clothing lines are carried in roughly 3,000 U.S. retail locations, more than 80% of which are independent retail stores. On the other hand, Simmons believes it's always best to hedge his bets, so the company also widened its department store distribution through Federated Department Stores, the $16.5 billion conglomerate that includes Macy's and Bloomingdale's. Over the next year, Simmons plans to increase the number of large retailers that carry his wares. According to outside analysts, his strategy is a good one.

"The marketplace is changing. The apparel segments are quite different, and the urban world is viable both from a product standpoint and a marketing one," notes Tom Julian, a fashion-trend analyst at Fallon Worldwide, a marketing and advertising firm in New York City. Julian pegs the urban apparel segment at more than $5 billion of the $50 billion in men's apparel sold each year. "That's a solid ratio and a growing one," he points out.

Julian waxes positive on both Rush's clothing lines and CEO. "He's stayed on course and his concept, Phat Farm, has embodied the culture of the street from its inception," he says. "He's proven in multiple worlds and he's committed to them all. He does not just dabble, he delivers, and he's got the fashion industry's respect alongside that of music's movers and shakers."

EARNING MUCH RESPECT

Whatever seemingly divergent directions Simmons' personal interests may lead the company in, the urban hip-hop influence runs consistently through all its products and services. Rich Slomovitz, chief financial officer of Rush for the past five years, describes the company as a brand-building business and attributes much of its success to Simmons' willingness to diversify. "The men's clothing line is still our core [business], but you can't say it's just that, because the women's [line] is doing tremendously well," he says, adding that Simmons will "find an opportunity anywhere. It's all coming together."

In addition to its fashion arm, the company is comprised of a management/promotion company (Rush Street Team); a movie production branch (Def Pictures); a television development branch (RSTV); and the company Website, 360HipHop.com, which merged with BET.com in 2001.

It should come as no surprise that Simmons--a man who created an empire within an industry that didn't even exist 20 years ago--operates with a flee-flowing business plan and is always looking to go beyond music, fashion, and entertainment. When an opportunity, regardless of the industry, is recognized, the company is quick to act on it. Simmons has become the Alan Greenspan of the Hip-Hop Economy.

Rush Communications continues to diversify: dRush L.L.C., an advertising and marketing agency, was recently formed as a partnership with New York agency, Deutsch Advertising. With such clients as Miller beer, HBO, and Courvoisier, dRush targets corporations looking to add a little urban "flava" to their marketing efforts. "We saw a need in the youth culture that wasn't being met. Russell has his finger on the pulse of what's going on with young people, and we wanted to create a cutting edge agency," says Donny Deutsch, chairman and CEO of Deutsch Advertising. There's also the fact that as the baby boomers age, much of the buying power in the U.S. will shift to generations X and Y. With hip-hop as the dominant influence in youth culture, focusing on this market makes good business sense. As with Rush's other businesses, dRush leverages Simmons' name and credibility in the hip-hop community, which will attract Fortune 500 companies. Billings for 2001 at dRush exceeded $100 million.

Along with pursuing licensing agreements, Rush forms partnerships, such as dRush and UniRush, where it owns and controls part of the business. When eyeing potential business ventures, Rush executives first analyze the business to determine whether it will weigh too heavily on the company's bottom line. "We want to make sure the deal makes sense in that every deal should stand on it's own and make money on its own," says Slomovitz. "It has to be able to sustain itself so we don't have to fund it, specifically with our licensing agreement."

BACK IN THE DAY

The origin of Simmons' entrepreneurial ventures can be traced to 1984 when he launched Def Jam Recordings, the label that spawned the careers of notable artists such as Run-DMC, LL Cool J, and Public Enemy. Rush Communications was formed in 1990 in a move to broaden Simmons' line of products and his reach. Phat Farm was introduced in 1992 and its base appeal and potential for profits soon lured Simmons away from the music business he'd founded.

In 1994 the Godfather of Hip-Hop, as he's been called, began to refocus his business away from music and into fashion when he sold 50% of Def Jam Recordings to PolyGram Records. He sold off an additional 10% in 1996. (Two years later, Seagram Co. Ltd. acquired PolyGram and renamed the newly combined music operations Universal Music Group. UMG would acquire the remaining stake in Def Jam in 1999.) Despite that, Simmons has managed to maintain credibility within the hip-hop community and has successfully pushed sales of his other products and services. But while he may have retreated from the music business, Simmons has never strayed far from the music itself. His contract as chairman of Def Jam expires in 2003, but he doesn't rule out possibly forming another record label in the future. "I'm not saying that's what we're going to do, but it's a possibility," Simmons says. "That's something we are considering."

While mulling the possibility of revisiting the music business, Rush's CEO is also delving into new arenas, such as financial services. Scheduled to launch later this year, UniRush is a 50/50 partnership formed in conjunction with David Rosenberg, owner and CEO of Unifund, a Cincinnati-based firm that purchases uncollected debt from banks, savings and loans institutions, finance companies, retailers, and other lenders and collects the principal. UniRush's first product is a card similar to a debit card, but it's for individuals who are unable to open bank accounts. Users deposit money into an account and are charged a fee when they use the cards. Simmons wouldn't provide further details on how the business operates or revenue projections except to say he is very optimistic about its potential.

WHAT'S NEXT?

On a rainy Friday afternoon, two days later, Simmons is again in the back of his SUV, stuck in another traffic jam. This time, he's running late for a photo shoot--the second for the day. With only a few hours of sleep, having delivered a lecture at Syracuse University the night before, and having awoken at 4:30 a.m. to discuss the topic of slave reparations on a morning radio program, he had had a long week. Making matters worse, this vegan and daily yoga practitioner has had to reschedule his yoga session. When asked about yoga, he waxes philosophic, quoting Eastern scriptures and referring to something he calls "God's soundtrack," where divining energies resonate through all things.

But don't be fooled by his touchy-feely tendencies. Even at the end of a hectic workweek, Simmons remains laser-focused on some of the challenges that face his company. One of those will clearly be continuing the company's impressive growth rates by not only building on existing businesses, but also adding new ones, thereby increasing revenue streams. "A lot of our new growth will be through new partnerships and new licenses," says Simmons, adding that he believes Rush Communications will someday become a billion dollar business. Looking ahead, he projects Phat Farm will top $220 million in wholesale sales alone and that Baby Phat sales will "more than double" this year.

Future plans for Rush Communications include the return of its Def Poetry Jam program to HBO in June. The company has overseas exposure in Japan and plans to extend its reach to Europe by year's end. Last fall, it launched "Premium," a men's cologne created in partnership with Stern Fragrance, a perfume manufacturer and distributor in New York City. It's the latest in a long line of licensing deals to come to fruition. "We have a suits deal pending, a bedding deal pending, and I expect the new fragrance to do well and the expansion of the lingerie [line]," Simmons says.

Regardless of how Rush grows its business, the company is weathering the tests of time and a tough economy, proving to be--like the culture it is inextricably linked to--exciting, influential, energetic, and unpredictable. Both Rush Communications Inc. and its dynamic chief executive officer seem to possess the ability to adapt to any new environment, business or otherwise. Stay tuned.

Rush Communications Inc.

Founded: 1991

          Sales      Staff

1997       $40.0      150
1998       $70.0      150
1999      $150.0      175
2000      $100.0      150
2001      $192.0      113

SALES IN MILLIONS OF DOLLARS. AS OF DEC 31, 2001
PREPARED BY B.E. RESEARCH.

Note: Table made from bar graph.