Hip-hop power trio drives new beat for New York; From Bronx turntables to midtown boardrooms

By Ylonda Gault Caviness and Catherine Curan
Crain’s New York Business, 1/12/2004

Everybody looks like somebody in this star-kissed crowd on an autumn New York night. Baggy-jeaned boys, miniskirted model types and middle-aged men in suits all seem glamorous as the paparazzi’s cameras flash.

No one shines brighter than the man of the hour: an admitted ex-thug from Jamaica, Queens, his wrists, neck and earlobes iced out with enough diamonds to make Liberace swoon in his grave. He goes by the name 50 Cent and multinational marketing giant Reebok is betting its future on his gangsta style.

The Canton, Mass.-based company has thrown this lavish, $250,000 shindig at a downtown club to launch its sneaker line endorsed by 50. The platinum-selling rapper has proved his physical prowess not on the hardwood, but in the hood, where he survived nine gunshot wounds. Keeping it real is critical for the young trendsetters Reebok seeks, and the company has clearly figured out that the streets of New York City 50’s home and hip-hop’s birthplace offer unimpeachable authenticity worldwide.

“This party brings a whole new halo to how people perceive Reebok a young, fun energy,” says Jay Margolis, president of Reebok International Ltd., straining to make himself heard above thumping hip-hop music. “We hope the people here at some point will want to wear Reebok.”

Once dismissed as a counterculture with limited appeal, hip-hop has leaped from turntables in the South Bronx to the boardrooms of midtown Manhattan. More than just the music of a generation, hip-hop has morphed into a commercial and cultural force that is redefining New York.

“Every year, hip-hop penetrates deeper,” says Russell Simmons, widely acknowledged as hip-hop’s godfather. “For many years, it’s been an influence on everything from fashion to cultural phenomena to commercials. If hip-hop decides (something) is hot, it’s hot.”

Entrepreneurial from the start, hip-hop always had the potential to move beyond music. Led by Mr. Simmons, a group of self-made black men cultivated hip-hop’s commercial clout, pushing the business from music into fashion, and now an entire lifestyle. Mr. Simmons, 46, Sean “P. Diddy” Combs, 34, and Damon Dash, 32 products of the streets that hip-hop music glorifies have combined CEO-sized ambition and hood hustle, expanding the American dream to include hip-hop’s hard-edged vision of the high life.

Hip-hop’s ascendance could only have started in New York, where rich and poor ride the subway together, and a walk up Manhattan’s central artery, Fifth Avenue, takes you past Harry Winston diamonds at 56th Street to the National Black Theater at 125th Street in Harlem. Anyone can relate to hip-hop’s aspirational themes, and as the lifestyle has grown to dominate America’s youth culture, its color line has faded. Today, what was once considered black, urban and scary is simply youthful, popular and highly profitable.

New growth phase

Now that hip-hop is so obviously a New York business success story, it’s entering a new phase of dramatic growth that will continue to reshape daily life in the city. The moguls have achieved enough critical mass to expand their empires to financial services, film, beverages and head-to-toe fashions for the whole family. They are evolving into political power players and pillars of traditional philanthropy. Corporate America, meanwhile, is rushing to partner with hip-hop stars Missy Elliott appeared in a recent Gap ad and finally buying into the black-owned businesses it once ignored.

Hip-hop’s rise reverberates throughout New York in other, more subtle ways, challenging stereotypical notions of race and class by creating a whole new generation of black entrepreneurs. Hip-hop is introducing terms such as bling bling (flashy jewelry) into everyday speech. People who’ve never heard of Missy or 50 dress in casual, loose-fitting apparel for any occasion, and favor certain labels because of hip-hop’s style-setting power.

“The suburban Westchester soccer mom and her husband jump into their SUV he in his Timberland boots, or something like it, and she in her J.Lo-esque sweats,” says Constance C.R. White, New York-based style director for eBay. “They aren’t consciously thinking of hip-hop as a black thing. Hip-hop has simply come to define what is casual and youthful.”

Hip-hop music, which makes up about 16% of U.S. music sales, is now broad enough to encompass the soft stylings of pop star Ashanti as well as a subgenre called acid rap, and old enough to have a second generation of fans. Last fall, in a reflection of hip-hop’s power, for the first time in history songs by black artists held all top 10 slots on the Billboard Hot 100 chart.

According to Simmons Lathan Media Group, 45.3 million people worldwide spend $12.6 billion annually on hip-hop media and merchandise, including music, television, publications and fashion. Vibe/Spin Ventures’ Vibe, a music magazine with a hip-hop flavor, commands a circulation of 825,000, and beat The New Yorker to win the National Magazine Award for General Excellence in 2002.

Nonviolent roots

Hip-hop started in the early 1970s in the South Bronx as an alternative to violence. Neighborhood DJs and MCs created a lyrical substitute for gang warfare by vying for musical supremacy, says Jason King, associate chairman of the Clive Davis Department of Recorded Music at New York University. Savvy young entrepreneurs notably Mr. Simmons started independent music labels like Def Jam Records, and hip-hop grew. In 1985, Mr. Simmons signed a distribution deal for Def Jam with Sony Corp., helping set a course for his deal-making future.

Hip-hop’s early development reflected a seat-of-the-pants creativity common to disenfranchised groups, which are often denied access to traditional paths of success and forced to rely on strength and cunning for survival.

“The hustle mentality the whole ‘Try to make a dollar out of 15 cents’ way of thinking is ingrained in the culture,” says Jameel Spencer, president of Blue Flame Marketing+Advertising, a division of P. Diddy’s Bad Boy Worldwide Entertainment Group. “Whether you’re a white kid from Detroit or a black kid from Compton, the streets give you that training.”

Initially, hip-hop music was not particularly violent and actually denounced brand mongering. Run-D.M.C. riffed, “Calvin Klein is no friend of mine/I don’t want nobody’s name on my behind.”

But the emergence of gangsta rap from Los Angeles in the early 1990s hardened hip-hop, giving rise to a thug ethos that’s still prevalent. Public ire created by Ice-T’s “Cop Killer” fueled sales of hip-hop’s most violent element. An intense East Coast-West Coast rivalry left several dead bodies in its wake: In 1996, Los Angeles’ Tupac Shakur was murdered, and less than a year later, New York’s Notorious B.I.G. was gunned down in an act rumored to be payback.

Good timing

Even as hip-hop was growing up tough, Mr. Simmons led development of another facet: its business potential. A 1992 Black Enterprise cover featured in his auto- biography shows him sitting on a Rolls-Royce, wearing a hoodie and jeans. The following year, Mr. Simmons spent $175,000 to open a clothing store in SoHo with rough wood floors and the playful name Phat Farm, from a hip-hop word for “cool.” His line included loose-fitting jeans, hoodies and khakis.

Skeptics abounded, but the timing was right. Couturiers such as Karl Lagerfeld for Chanel were borrowing from hip-hop, and inner-city kids were spending big on Tommy Hilfiger and Polo to flaunt their logos.

Now a full-scale fashion empire with sneakers, womenswear, and men’s suits, which are best sellers at Macy’s Herald Square, Phat Fashion’s retail revenues hit $615 million in 2003. In a sign of the company’s increasing sophistication, Kimora Lee Simmons, the model turned fashion designer Mr. Simmons married in 1998, recently spent $1 million to banish the SoHo store’s rustic touches, adding a crystal chandelier and polished slate floors.

Phat Farm’s 20% annual revenue growth rate is all the more dramatic because traditional menswear sales have been declining. Mr. Simmons’ collection thrives because of his star appeal. Affable, enthusiastic, profane and always in motion, this former low-level drug dealer turned yogi and devoted family man, maintains a carefully cultivated image: that of a tycoon who is still close to his Hollis, Queens, roots.

He’s happy to sell business suits to aging hip-hop fans like himself who are thriving in the corporate world. But he is savvy enough to rarely be seen in a suit, favoring the informal, accessible look of a baseball cap and Phat Farm sweats.

“Russell is the one to move hip-hop forward. He has grown up, is raising a family, and every guy in hip-hop wants to be like him,” says Tom Silverman, founder of Tommy Boy Records.

Mr. Simmons is leading hip-hop’s forward march by developing as many new business ventures as he can think of. He recently launched a debit card with Visa, and has already signed up 240,000 customers for a fee of $19.95 each.

Since hip-hop and sports are closely intertwined, Mr. Simmons is also seeking his slice of the multibillion-dollar athletic apparel market with a collection created with his brother, Joseph Simmons, a former rapper now known as Reverend Run. Mrs. Simmons is developing a jewelry collection with old-line Manhattan jeweler Fabrikant, as well as a furniture line.

American fashion’s biggest players are finally paying attention. The nation’s sixth-largest publicly traded apparel manufacturer, $2.4 billion Kellwood Co., is producing the Run Athletics line and just last week said it will pay $140 million plus incentives for Phat Fashions.

Mr. Simmons sets a standard other hip-hop moguls emulate. Like him, Mr. Combs and Mr. Dash are building diversified empires and attracting serious attention from investors eager for global growth. Last fall, Mr. Combs received a $100 million investment from California billionaire Ron Burkle and Los Angeles-based private equity firm The Yucaipa Cos. to expand Sean John, his clothing brand. Mr. Dash’s fashion brand, Rocawear, is rumored to be attracting several suitors for a majority stake.

Mr. Combs defines his clientele as America’s multicultural youth. His top executives, whether in marketing, retail or real estate, all repeat this mantra: Sean John customers are America’s trendsetters.

“Sean John is a lifestyle brand, the future of fashion,” insists Jeffrey Tweedy, executive vice president of Sean John. “Hip-hop is also the way you present yourself, the way you wear the clothing. You can put on Gucci mixed with Sean John mixed with Fendi. It’s not always just a baggy jean.”

Mr. Tweedy expects Sean John to reach $1 billion in wholesale sales by 2008. The 5-year-old label racked up $400 million in retail sales in 2003. A store on Fifth Avenue will open early this year, with nine more planned nationwide by 2005. A women’s collection and a fragrance are also on tap. At Federated, one of the biggest department store chains in the country, Sean John occupies 153,000 square feet of floor space making it the store’s third-largest player in menswear, behind only Polo and Tommy Hilfiger.

“We’re taking real estate, we’re taking dollars, we’re buying real estate, we’re making an impact in advertising, we’re really into focusing on becoming a global brand,” Mr. Tweedy says.

Newfound importance

Mr. Combs also carries a seal of approval from New York’s notoriously snobby, nearly all-white fashion cognoscenti, who last year inducted him into the exclusive Council of Fashion Designers of America. His company, Bad Boy Worldwide, has revenues of about $300 million.

His importance and the allure of hip-hop astonish people offended by its undercurrent of violence and sexism.

Mr. Combs was arrested in 1999 for assaulting a record executive, and tried in 2001 on gun possession and bribery charges related to a 1999 shooting at a Manhattan nightclub where he’d been with then-girlfriend J.Lo. He was acquitted of the gun and bribery charges after a highly publicized trial. 50 Cent, who carefully conceals a bullet-proof vest beneath his fashionable throwback jerseys, glorifies violence (”I been hit with a few shells, but I don’t walk with a limp”) and denigrates women in a song titled “P.I.M.P.”

But this underbelly has fostered, not impeded, growth. Perhaps that’s because violence and sexism are widespread throughout American culture, available at the flick of a TV power switch and common in children’s video games.

“Hip-hop is not responsible for producing sexism and violence,” says Mr. King of NYU. “But it’s been a conduit, and to that extent it reflects larger society.”

When the moguls started out, they had a sense of being ignored or underestimated by mainstream companies, of doing things for themselves. That feeling was summed up in the name of a pioneering black fashion label, FUBU (For Us By Us), created by Daymond John and three of his friends from Queens.

Now, that phrase could be rewritten to read Big Business Buying Us, as the biggest brands in the world tap hip-hop’s youth appeal. Recent examples range from McDonald’s hip-hop flavored “I’m lovin’ it” campaign, to Old Navy hiring sexy rapstress Lil’ Kim to hype its sweaters for the holidays.

Late last year, $4.3 billion Liz Claiborne Inc. spent $114 million to buy Manhattan-based hip-hop brand Enyce. Karen Murray, group president of menswear for Claiborne, admits that although hip-hop labels existed five and 10 years ago, Liz wasn’t interested back then.

“The hip-hop trend has real legs now, because it’s becoming mainstream this is what young kids wear,” says Ms. Murray.

Even without direct deals, businesses across New York are catching on. At Harry Winston, the hottest new item is a $16,000 pendant made-to-order with a customer’s initials. To traditional high-end shoppers, it’s a diamond- encrusted pendant. To connoisseurs farther uptown and in hoods across America, it’s an iced-out medallion.

Bling bling is in

“Hip-hop has given bling bling to the world,” says Carol Brodie, Harry Winston’s global communications director. “Now, the luxury customer no longer looks at jewelry as something stored in the vault; she wants to wear it every day.”

Not all businesses are ready to openly embrace hip-hop, however. Much of corporate America still hides behind euphemisms such as “trendy” or “urban.” “It’s just a code word for black,” says Kenny Mack, founder of hip-hop marketing firm Direct Impulse.

The young men’s sportswear department at Macy’s Herald Square could be mistaken for 116th Street: The bass is banging, and loose-fitting denim and logos are everywhere. Yet when asked about the store’s hip-hop offerings, a spokeswoman responds: “What do you mean, hip-hop? To me, that’s way out there. … It’s really just trend merchandise.”

Terminology can mean the difference between a dealmaker and a deal breaker. Andrew Lauren, son of Ralph, has produced G, a sophisticated black film updating The Great Gatsby, inspired by P. Diddy in the Hamptons. Despite success at the Toronto, TriBeCa and Urbanworld Film Festivals, Mr. Lauren is still searching for a distributor. “I don’t think studios look at hip-hop with the respect it should have,” he observes.

Filling office space

Still, hip-hop’s rise is prompting some New York City executives to discard preconceived ideas about black ghetto-fabulous style. Doug Winshall, senior vice president of Trizec Properties Inc., owner of garment district office tower 1411 Broadway, underestimated hip-hop’s potential in the early 1990s. Now it’s the district’s fastest-growing leasing category, and Mr. Winshall closed a deal with Mr. Dash because he recognized a moneymaker when he met one no business suit required.

“I was only surprised I had not heard of Rocawear, and that they required 35,000 square feet,” Mr. Winshall says.

As the moguls continue to make inroads into philanthropy and politics, they may just redefine hip-hop in mainstream minds as a positive force for New York and America.

Mr. Simmons, who as usual leads hip-hop’s latest evolution, has formed the Hip-Hop Summit Action Network, a grassroots political organization. The group is registering thousands of voters and attracting Democratic presidential hopefuls. He has pressured New York politicians to reform the state’s harsh Rockefeller-era drug laws, though so far the effort has yielded more headlines than action.

Mr. Simmons has also called upon hip-hop artists to lead their communities by acting and rapping responsibly, and many are stepping up. Mr. Combs ran the New York City Marathon to raise money for the city’s public schools. Working with the New York City Mission Society, Manhattan’s oldest social-service organization, Mr. Dash and his partners have donated $250,000 in the past four years to fund after-school basketball programs in his home neighborhood, Harlem. Even 50 Cent is in: Fifty cents of the $80.50 purchase price of the new Reebok G-6 sneaker is donated to charity.

“Hip-hop has gone from fighting the power to being the power,” says Sylvia Rhone, chairman and chief executive of Elektra Entertainment Group. “Where it goes from here will depend on what the movers and shakers of the genre do with their power.”