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Small Business
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Getting started: Smoke shop
graphic October 22, 2001: 6:31 a.m. ET

Breaking into the cigar business, steeped in tradition, is a challenge.
By Hope Hamashige
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  • De La Concha Tobacco Shop
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    NEW YORK (CNNmoney) - People in the cigar business describe it like an exclusive club where membership is largely dependent on your bloodline. If your last name is Fuente, you are in. Likewise, the Padron family name carries a lot of weight.

    Garnering a loyal clientele is key to the success of any cigar shop. Discriminating cigar smokers want to know when they walk in the door that they can get top of the line products and a wealth of knowledge about the fine new cigars from top cigar makers from around the world.

    That is precisely what customers get when they step into Lionel Melendi's shop, De La Concha in Manhattan. Melendi's name, too, speaks volumes to cigar lovers.

    Lionel Melendi learned the business from the ground up working in his grandfather's factory on Henry Street in Brooklyn Heights as a boy. In 1963, he opened his shop in midtown Manhattan where he has since instructed his own sons about the proud tradition of cigar making that has been their family business now for four generations.

    "We have clients who come in that have been coming to us since the day we opened," said Melendi.

    There is an undeniable romance surrounding their business. The cultivation, preparation, and manufacturing of fine cigars are all considered arts by those in the business. The long bloodlines of those who practice and preach appreciation of cigars are celebrated and add a little regal touch to their industry.

    That is, in essence, both the beauty and the headache of the cigar business. If you are born into it, the business is open to you. If it is not, membership into their clubby world is hard fought.

    A supply dilemma

    During the cigar boom of the 90s, which propelled cigar sales in the U.S. to $2.2 billion in 2000 from $693 million in 1993, many cigar lovers opened shops, hoping to profit on the reborn popularity of the stogie. Many quickly learned that buying sought after cigars is not as easy as one might think.

    There is simply, explained Melendi, a finite supply of the truly great cigars in the world. Just because there is increasing demand for supply doesn't mean that manufacturers like Arturo Fuente are going to make more cigars. They aren't.

    Creating a cigar like the Opus X, for example, is not something that can be hurried. It is comprised of a unique, truly fine blend of tobacco. The process of
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    curing and fermenting the leaves is a long one. And only the very best rolling hands in the world are allowed to create these masters of the cigar world.

    Even when the world is clamoring for more Opus X, they aren't going to get it. And just because there are hundreds of new cigar shops who want to buy doesn't mean they are going to be available to them either.

    The Fuentes have been selling to the Melendis for generations, however, so there will always be Opus X in their shop.

    "People don't realize how hard it is to get supplies," said Melendi. "Many of the best major brands simply will not sell to new people."

    One who did it

    That is not to say it's an impossible feat. Take Diana Gitts. She broke through not only the name barrier, but also the gender barrier through a combination of pluck, passion and top-shelf marketing skills.

    Gitts sort of stumbled her way into the cigar business. She had a small shop in the section of Chicago known as Old Town where she sold housewares and a selection of cigars.

    Eventually, as she developed a personal interest in cigar making, the stogies took up more and more space in her shop. Now, after 40 years, her Up Down Tobacco Store is an institution and one of the premiere smoke shops in the nation.

    But the clubby world of the cigar business was hard to break into. She traveled the globe, spending a lot of time in places like Florida and the Dominican Republic, trying to make the connections she was not born into. She attended trade shows everywhere and, although she was really the only female cigar retailer around at the time, the industry warmed up to her.

    Melendi said she made a big impression every time she went to an industry show or conference by always having an eight-inch cigar in her mouth. She also worked hard at developing the clientele that didn't instantly gravitate to her shop because she was an unknown quantity in the business.

    Gitts regularly holds parties for her customers where they get to sample some of the best she has to offer. She's also held "cigar schools" at her shop to educate her customers about craft and to help lure new customers.

    "The cigar business is different from anything else," said Gitts. "People like to buy them in the same place all the time."

    An expensive idea

    Even with all the right connections, owning a cigar shop is an expensive proposition. Melendi just spent well over $1 million remodeling his store, adding the very latest in air filtration and ventilation to keep his inventory in top condition.

    The very bare minimum, he estimated, that anyone would need to open a small shop would be $500,000. Gitts said anyone wanting to open a smoke shop should have at least $2 million to spend. Just the equipment to keep the humidors running can cost up to $20,000, said Gitts.

    The labor costs in running a small shop can be high, too, she said. Maintaining the equipment and caring for the inventory is much more labor intensive than most people believe, she said. It never pays, she added, to take on inexpensive help to keep down costs. She looks for people who love the business and are highly skilled and knowledgeable.

    Most new shop owners probably won't see a profit for at least a year or two while they work on building that ever-important devoted clientele. Once profitable, most shops can expect at least a 15 percent to 20 percent return on their investment.

    "It can be very lucrative when the shop is well run," said Melendi.

    And like many retail businesses, sales are not consistent from year to year. In her best years, Gitts said she has sold up to $5 million worth of cigars.

    Her advice to anyone who wants to try their hand at running a cigar shop: "Don't get into it the way I did. But this is a very exciting business." graphic

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    De La Concha Tobacco Shop





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    Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.

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