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Schwag bag

Who can explain the allure of those logo-stamped gimmes that tech companies hand out by the armload? All of us! And the schlock wave is still rising – fast.

By Warren Berger (Published January 2001)

Jerry McLaughlin doesn’t pretend to understand the many mysteries of schwag.

“Honestly, I don’t think anyone has figured it out,” says the amiable, babyfaced 36-year-old CEO of Branders.com, a Bay Area startup that is using the Internet to reinvent one of the oldest advertising shticks on Earth – logo-stamped freebies, aka promotional products, tchotchkes, swag, or, if you prefer the faux-Yiddish derivative, schwag.

McLaughlin, a former venture capitalist who surprised and probably worried his Silicon Valley colleagues when he announced he was giving up high finance to peddle two-buck stress balls and translucent mousepads, simply can’t explain why smart, tech-savvy people (including lots of millionaires) are so enamored of chubby pens, garish hats, and letter openers shaped like @’s. Why do they grapple and lunge for the stuff at tech conventions: Comdex, Macworld, Seybold, and the like? Why do they schlep bagfuls back home, and – in the case of true addicts – hoard it in locked file cabinets? “Maybe we’re all pack rats by nature,” McLaughlin says with a shrug. He should know.

McLaughlin is sitting, at the moment, in his office at company headquarters, where schwag lines the walls, decks the halls, even whizzes through the air (Branders employees like to hurl beanbag squeeze balls). Schwag is also strewn across a table, allowing McLaughlin to point out samples of the “Comdex Nifty Fifty” – a motley assortment touted on Branders’ Web site as must-have freebies for anyone hoping to draw crowds of moochers to a trade show booth. There’s a tiny plastic car with attached rotating brooms. (More than a mere toy: It also sweeps the crumbs off your desk!) A stuffed terry-cloth monkey doll that doubles as a screen-wipe. A foam-filled stress toy shaped like a tiny armchair (when you’re not squeezing it to relieve tension, it’s a seat for your cell phone).

A monkey screen-wipe! A crumb-sweeper car! A foam cell phone-chair! Today’s schwag industry, 450,000 products strong, may soon double in size.

Is it possible that these gizmos will set techies on fire – the way, say, the glowing rubber balls did at last year’s PC Expo? “No idea,” McLaughlin says, grabbing the gelatinous little phone seat to give it a good squeeze. Believe it or not, he’s sold 100,000 of these in the past month, and damned if he can explain that, either. “When a product like this takes off,” he says, “a part of me always steps back and asks … why ?”

Why, indeed. McLaughlin and the growing swarm of dotcoms staking a claim in the promotional products business may not fully understand the schwagmire they’ve wandered into. But their invasion over the past two years has sent shock waves through a formerly fusty, old-school industry that, until now, was completely dominated by distributors and sales reps who peddled knickknacks the old-fashioned way: by knock-knocking on office doors and spilling forth bags of trinkets,magnets, and laminated luggage tags.

The industry might well have remained a relic but for one thing: There’s gold in those gewgaws. In 1999 alone, the nation’s 18,000-odd promotional products distributors sold $15 billion worth of goods, according to the Promotional Products Association International (PPAI). That’s a lot of Customized Readymade Apparel and Products, if you’ll pardon our acronym.

It may also be just the tip of the iceberg-shaped paperweight. Along with Branders, a virtual wagon train of startups today – 4imprint.com, Madetoorder.com, Corporategear.com, PromoCity.com, Skribo.com, and iswag.com, to name a few – is setting out to conquer the e-schwag frontier. In response, even the old guard suddenly got religion. Last January, one of the world’s largest distributors, Chicago-based Ha-Lo Industries, shelled out $240 million – more than a third of its annual revenue – for Starbelly.com, a tiny startup (named after a potbellied Dr. Seuss character) that built virtual schwag stores; Ha-Lo subsequently vowed to shift its entire operation to an online model. In September, the historically technophobic PPAI announced its partnership with promoOrder.com, a Web site builder that would help PPAI members go virtual. The Advertising Specialty Institute (ASI), a rival trade group, hitched up with PromoMart.com, a virtual superstore, and with ASItransact.com, a virtual store builder. Suddenly, an industry that last year had almost no presence in cyberspace – and this year had only about 3 percent of its distributors online – was predicting that nearly half the vendors would be selling on the Web by 2005.

The revolution has some schwagmeisters squeezing their own stress balls. The rapid transition to new media, some fear, could shake out lots of traditional sales reps who can’t get up to speed fast enough. Others worry that the small group of corporate heavyweights on top of the schwag heap will snuff out the masses below – the underfed corner stores hawking T-shirts and snow globes, the mom-and-pop operations selling logoed key chains and tire pressure gauges.

For the rest of the world, though, the shift means … more stuff! The online explosion has not only expedited ordering and delivery, but has also allowed customers to design their own logo-laden landfill using imaging technology (in case you find yourself wondering how the sacred company name would look on a cow-shaped squeeze toy). Gone are the days of paging through endless paper catalogs. At schwag Web sites, thousands of products are mere mouseclicks away, from mini-Frisbees and kazoos to clear plastic Red Hot dispensers (“the perfect gift for your hot prospects!” as Branders.com says). And if those don’t ring your translucent chimes, take heart. The schwag industry, currently bulging with an estimated 450,000 distinctive products, could soon double in size, officials say.

And you thought the world was full of crap already.

There are those who believe the world was always full of schwag. In medieval times, armor makers gave out free, name-engraved wooden pegs so customers could hang up their goods, according to Making Our Mark, a history of schwag issued by the ASI.

But adorning free merchandise with logos didn’t begin in earnest until about a hundred years ago, when merchants started printing their names on horse blankets, flyswatters, and burlap bookbags. To a large extent, the enterprise lurked in an obscure little corner of the business world, the ugly stepchild of advertising. The fact that one of its pioneers was an ex-convict didn’t help matters.

Charles Ward, the revered godfather of the industry, owed his start in the business to a narcotics trafficking conviction that landed him in Leavenworth prison in the 1920s. Ward’s cellmate was convicted tax evader Herbert Bigelow, cofounder of Brown & Bigelow, a Minneapolis-based promo products and calendars business. After both men got out of jail, Bigelow hired Ward, who rose quickly through the company ranks.

In 1933, a vacationing Bigelow fell out of a capsized fishing boat and drowned. Ward took over the company and turned it into a powerhouse. He hired ex-cons and cheesecake illustrators (images of diaphanously dressed women adorned many of the company’s calendars and ashtrays). He also signed artist Norman Rockwell and won clients like the Boy Scouts. By the late 1940s, Brown & Bigelow was one of the biggest calendar printers in the world.

After Ward’s death in 1959, new renegades arrived. Lou Weisbach, founder and chairman of Ha-Lo Industries, is a former high school basketball coach who started out in the 1970s selling t shirts from his car trunk and over the next 30 years built a $650 million empire. The schwag industry likewise grew steadily, if somewhat defensively: A guarded attitude prevails among some company officials, perhaps in direct proportion to the number of times they’ve been described as schlockmongers. As Angie West, marketing director for PromoOrder.com, challenged me in mid-interview: “You’re not going to use the word tchotchkes in your article, are you?”

Like much of the business, the pitch has hardly changed: Advertorial contraband gives you a warm, fuzzy feeling, then takes over your brain.

Even more than the word tchotchkes, though, what the schwag establishment dreads is change. Much of the business, the Net aside, still operates as it did 60 years ago. Sales distributors – or “counselors,” in industry-speak – help customers navigate through catalogs and pick products; they handle orders, find suppliers, and take markups of anywhere from 20 to 70 percent.

The products, meanwhile, are often mass-produced in Asia or somewhere else overseas, then shipped to America’s 3,000-plus “decorating” factories, as they’re known. There, the cheap generic objects are stamped with logos, and transformed into brand-building tools used by some of the most powerful companies in the world.

Journey to the heart of schwag, and you’re likely to find a factory like Prime Resources, one of America’s busiest suppliers, located in a gritty, crumble-down section of Bridgeport, Connecticut. Potholed streets and tenements lead to the barbwire compound gate. It’s a long way from Comdex.

Inside the factory, some 15 million unstamped, naked tchotchkes sit in plain brown boxes stacked two stories high. The smell of logo ink almost chokes you.

But the couple dozen assembly line workers, many of whom appear to be recent immigrants, don’t seem to notice – they’re too busy stamping stress balls with tech company logos.

Jeff Lederer, meanwhile, has welcomed me in a very schwag manner. The business development chief, whose dad owns the 400-plus-employee firm, has put my name in flashing lights on the electronic message board over the receptionist’s desk. (It’s an old gimmick, but effective: We’re all vain enough to get a charge out of seeing our names posted on anything, anywhere.)

A fair amount of this winter’s trade show freebies will come from Prime Resources, where the most technically advanced thing you’ll find is the “robot calculator,” a little gadgets with a spring-loading mechanism that makes it sit up for easy use. “We were the first to have robot calculators,” Lederer says proudly, as he pushes a button on one of them and we watch it elevate, slowly and only slightly. And now? “Now everybody’s got it,” he sighs. Fighting knockoffs is a nightmare, he says. Look at squeeze balls: What could be easier to imitate? “We had them when nobody else did,” Lederer tells me, almost wistfully.

Lederer’s company tries to stay ahead of the pack by offering increasingly weird squeeze toys, some resembling human organs ready for rough handling. Heart-shaped squeeze toys. Brain-shaped squeeze toys. There are also squeeze toys that look like tires (if that’s a Firestone, don’t squeeze it too hard, I’m thinking). And right before me, rolling down the assembly line, is the good old cell phone-chair squeeze toys: Jerry McLaughlin and Branders sold a big batch to General Magic, a voice application service provider, and now some weary-looking workers are pulling on a plate-printing machine, hand-stamping a logo on each one.

One of Lederer’s jobs is to find generics like the phone chair at product fairs in Asia. Meanwhile, it’s up to the distributors to convince companies that slapping their names on the items will bring goodwill and profits. This is the real art of the schwag business, and it’s something “counselors” continue to do well: They persuade and remind the corporate world that schwag is indispensable in connecting with employees and prospects, and that it delivers the biggest bang for the, um, penny.

Although some businesses today give away pricey computers, clothes, or even cars, much of the stuff costs as little as a few dollars or cents apiece, enabling companies of all sizes to promote products without spending huge amounts on advertising. Even if you’re Coca-Cola (a Ha-Lo client), and can afford the priciest media campaigns, the tchotchke still manages to reach people in ways that ads can’t touch.

Talk to anyone in the schwag business, and they’ll trot out the well-worn but research-proven pitch: Little logoed gifts, like advertorial contraband, can give you a warm, fuzzy feeling, and then take over your brain. “Everybody looks at the calendar four times a day – you can’t beat that for exposure,” enthuses Fran Ford, president of Castelli Diaries, which makes (surprise!) promotional calendars. “Then there’s the key chain,” he adds. “You walk out of your house, and you’re getting that subliminal message every time you grab your keys.” And don’t get Ford started on pens: “If I give you a Chinese-lacquered Mont Blanc,” he says, a victorious gleam in his eye, “now I own the real estate in your pocket.”

It’s a philosophy that many companies buy, wholesale – particularly with the growing fever of viral marketing. Today’s marketers “have to get their name in front of people by any means necessary,” says Tom Collinger, head of Northwestern University’s direct marketing program and an expert on promotional business products. In the current guerrilla war over elusive mindshare, tchotchkes are a first line of attack – which helps explain why the schwag industry has enjoyed double-digit growth each year for the past decade. Another key accelerant, though, are tech firms. They just can’t get enough of that clunky junk.

There’s always a celebratory event going on in this industry – a startup, an IPO, a new product, a tech trade show.”

McLaughlin, seated in his Foster City office, just south of San Francisco, is expounding on the reasons why tech companies spend so much on PC-mounted rearview mirrors and martini-glass pebble candles.

In our infocentric society, trade shows have become tribal bonding rituals – you are what you snag. The schwag is both ID and merit badge.

And what happens if you show up at a trade show schwagless? “You feel naked,” McLaughlin says.

Viral marketing is all about spreading your brand’s germs, and a trade show like Comdex is, according to Cap Gemini Ernst & Young consultant Christopher Meyer, “just one great big sneezefest.” All visitors are willing and eager carriers, every object they carry is itself a carrier, and all the objects end up stuffed in a big logo-stained bag that may be the most important carrier of all. “The biggest bag wins,” as Ha-Lo marketing executive Lisa Nomura puts it, “because all the other bags get stuffed into it.”

Schwag at these events is not only ubiquitous, it’s a kind of social currency: You are the schwag you snag. VIPs get their palms greased with PalmPilots and leather cd case. A little farther down the food chain, and you might receive logo-covered backpacks and bowling shirts. If you’re just a faceless member of the e-masses, expect iMac-tinted pens (anything translucent is “in”), along with paper clips, flashlights, and, perhaps more than anything else, tins of mints (there should be very little bad breath among techies this year).

If you went to Comdex in November, you might also have gotten McLaughlin’s little desk-sweeper car, available to all who wandered by the Cyrsh Technologies booth. Yes, it’s silly, but so much the better. To the true schwag junkie, even dreck is good. “It’s there, it’s bright, it catches your eye – and it’s free!” explains Jenifer Jenkins of Computer Help Fast, who favors glowing, bubble-filled drinking glasses.

Patti Kunsman, field communications manager at Network Appliances, covets pens – she has hundreds of them, from the high-end Mont Blancs to the “chubbers.” When they’re not locked in cabinets at the office (“you can’t leave them out or they’ll disappear”), she displays them proudly. “I think there’s a sense of hipness about having a cool tech company’s items,” she says. “It means you have a connection to them.” But it must be a truly cool tech company, she adds: “Who wants to wear an AMD shirt?”

That sense of wanting to be associated with happening brands, including one’s own, is a key component of schwag lust. Futurist Watts Wacker, a self-described schwag aficionado (he likes Krispy Kreme doughnut logos), believes people’s tendency to display their corporate freebies represents a new strain of tribalism that runs especially strong in the tech world. “Schwag becomes a way to identify people who share your culture and belief system,” he says. “In a more tribal world, which the infocentric society is, schwag lets me find my mates.”

Given the various warring tech factions (Mac versus Windows, Ellison versus Gates, Napster versus the RIAA), schwag becomes almost a political statement, Wacker says. It can also be a merit badge, says Ryan Mathews, Wacker’s partner at the FirstMatter consulting firm. “It not only shows what tribe you’re in, but what you’ve accomplished in terms of attending trade shows or getting into private meetings at the booth,” Mathews says.

As schwag has evolved into a status symbol, even the word itself is gaining respectability. Once it was slang for stupid, or for low-quality reefer, or, in the classical, dictionary sense – spelled swag – it meant ill-gotten gains or booty. Today schwag has morphed its way into the American lexicon, sans criminal undertones. And so, there’s now The Schwag, a Grateful Dead tribute band, and “schwag hags” who covet “schwag bags” hawked at extreme sports events. And there are the industry professionals, who wish the word would just go back where it came from.

“Calling things schwag these days is like calling really good direct marketing ‘junk mail,’” says Don Libey, president of the Philadelphia-based investment banking firm, Libey-Concordia, and a longtime industry observer. “When you look at where the industry has come in terms of product quality, it’s phenomenal: some of the things being given away are the finest quality you can get in the finest stores in America,” Libey says. “Look at the crystal! Look at the wood products!”

Jerry McLaughlin is making virtual schwag out of a virtual blank T-shirt. Logged on to Branders.com, he drags the tee to the site’s “design studio,” plants a customized logo on it, makes the logo smaller, bigger, changes the color, fiddles. The cyberdesign option, as McLaughlin sees it, is nothing less than a magic bullet – it gives customers an immediate take on how their products will look, sparing them the catalog searches and chats with sales reps, the paperwork, and the potential misjudgments. “Nobody really wants to spend time having some guy show you a bunch of these things,” says McLaughlin. “They want to see what it’s gonna look like with their logo, order it, and be done with it.”

Unless, that is, they happen to work at Branders’ headquarters, where schwag is a ritual. Today, for example, is Logo Friday, which means that people walk around in logoed getups in an attempt to win prizes (one woman is covered head to toe in buttons and bangles). Before the contest begins, McLaughlin congratulates staffers for “selling more in one week than the typical distributor in this industry sells in two months.” The group lets out a holler, just as they do whenever a big order comes through. (“All right! Five-thousand Post-it notepads!” someone screamed from a cubicle earlier that afternoon.)

McLaughlin, a former marine officer and lawyer turned VC with the Silicon Valley firm Altos Ventures, stumbled into this business three years ago, when he was asked to review a business plan brought in by David Sipes, a onetime Booz Allen Hamilton consultant. Sipes was building a startup that would eventually become … Branders.com. And, as he boned up on the industry, McLaughlin was struck by two things.

“First off,” he says, “I couldn’t believe how much money was being spent on this stuff. Then I started to look at the process people had to go through to get these gadgets, and my reaction was, ‘You’ve got to be kidding!’ It was so out of the high tech loop, so fragmented.”

Altos turned down the request for funding, but McLaughlin kept in touch with Sipes, who eventually asked him to sign on as CEO. The company incorporated in early 1999, raised $30 million from VCs and other private sources, and debuted in January 2000. By that time, several others were getting toeholds on the Web. Bradley Keywell, who’d started out selling sports jerseys to Kmart via paper catalog, launched Starbelly.com in March 1999, enabling corporate customers (Intel, among others) to order logo products online. In the summer and early fall of 1999, Madetoorder.com and 4imprint.com – schwag companies that had already established themselves with paper catalogs – launched sites as well.

“Taking this business online was a no-brainer,” says VC Phil Summe of Flatiron Partners, which backed Starbelly.com. “It was pretty clear that if you could apply technology to a fragmented, inefficient industry, it could be wildly profitable.” At first, few industry insiders took that view seriously. “People were saying, ‘That’s not the way this business works; it’s a huge business and it’s not going to turn on a dime,’” Keywell recalls. “And we said, ‘Wrong!’”

“Taking this business online was a no-brainer,” says one VC. Thus the flurry of startups like Branders.com, Madetoorder.com, 4imprint.com.

Keywell was soon proved right. Last January, the same month that Branders’ design-your-own site went up, Ha-Lo – in what wasn’t so much an acquisition as a capitulation – announced its deal with Starbelly, and Keywell was named president of the merged company. His mandate: to take Ha-Lo online, and fast. “It sent a shock wave through this business,” says Neil Sexton, CEO of a smaller startup, Corporategreetings.com. It was, the trade magazine Catalog Age declared, the AOL-Time Warner merger of the promotional products industry.

Not everyone was pleased. In Making Our Mark, ASI chairman Norman Cohn proclaims that “the Internet is dangerous.” Cohn’s fear, shared by many industry veterans, is that online schwag vendors could make reps and distributors obsolete. As one veteran Ha-Lo sales rep recently grumbled: “The company seems to feel everything will be online – but the salespeople are saying, ‘Hey, I can’t be replaced!’”

For his part, Keywell is trying to ease tensions by insisting that the company strike a balance between online ordering and live-and-in-person customer hand-holding. But some pure-play Internet companies, Branders among them, think Ha-Lo’s half-and-half strategy won’t wash. “Companies with legions of traditional salespeople don’t necessarily warm up to the online model,” says Larry Lunetta, Branders’ general manager.

Others say it’s the startups that should be worrying. “There is a whole lot of proliferating and scrambling and people running around launching Web sites and trying to make this work,” says Libey, the investment banker. The only companies that will succeed, he believes, will be the ones offering “superb blends” of technology, products, and experience. The conventional wisdom also holds that schwag is a “high-touch” business – meaning that customers must be led to it. “Pure Internet plays don’t cut it,” Libey maintains.

McLaughlin begs to differ. “This business was made for the Internet,” he says. Moving the ordering process online means that, instead of toting catalogs and shuffling paper, his 36-member sales staff has more time for actual selling. Is it working? McLaughlin is resolutely mum about sales figures so far, but in terms of traffic, Branders has scored at least a modest success by industry standards: It has drawn about 12,000 unique visitors each week, leading its competitors.

Still, it’s early in the game. Today’s e-schwaggers are dividing a minuscule pie of about $500 million – and banking on industry projections that Net sales will skyrocket by 2,500 percent in the next five years, with overall industry sales climbing to more than $30 billion a year – $13 billion of that online.

Why? Because the easier it is to order stuff, the more stuff you’re going to order, says Summe of Flatiron Partners. “Now people can order customized products for, say, a big meeting next week, which couldn’t be done before,” Summe says. You can even get some logoed goods in 24 to 48 hours, thanks to various e-osks (short for ekiosks), – computer setups that sell schwag in corporate lobbies in New York.

These days, you’ll never know where you might find schwag – or where it will find you. Try on some new Levi’s jeans, and your pockets might be stuffed with DVDs of Levi’s TV spots. Stand in line outside a New York restaurant, and troops of guerrilla marketing teams might hand you a copy of Tolstoy’s War and Peace with an ad sticker inside for Foodline.com, a restaurant reservation Web site. “This should help you pass the time. … Next time, make reservations online,” the sticker says. The book’s schwagness is near-perfect, notes campaign creator Michael Dweck, president of the New York ad firm that bears his name. “You can’t just throw War and Peace away – it’s a classic!”

Schwag is already the carrot that prompts people to fill out online marketing surveys. Schwag is the bribe that gets consumers to memorize online ads. (Parrot our slogan back to us, and we’ll send you these nifty bubke.com coasters!)

The upshot of all this should come as no surprise: yet more schwag. Can this possibly be a good thing? Some insist that as the junk proliferates, quality is improving. Big-name retailers like Lands’ End are increasing their online schwag efforts (the catalog company last summer formed an alliance with 4imprint.com). Giveaways at gatherings like Seybold and Macworld feature more bomber jackets and fewer windbreakers, more crystal and leather and Palm Vs. TEDX-goers last year got schwag bags with Tommy for Men cologne, coffee-table books (and one-per-person teddy bears that a number of bigwigs reportedly wound up stealing). And at Comdex 2000, where the the mother of all schwag – a Chrysler PT Cruiser – went to a raffle winner, Ask Jeeves provided freebie butler service if you had too much schwag in your bag to make it out the door.

McLaughlin, for his part, thinks trade show exhibitors will soon hand out tokens or cards that are redeemable at schwag Web sites. That way, you could pick your schwag and have it delivered, instead of lugging it around convention halls. Status laws would still apply, of course. “If you’re the guy they’re trying to suck up to, you get the $40 card,” McLaughlin says. “But let’s face it, most of us are gonna get the under-$5 card – the one with the sweeper car and the screen-wipe monkey.”

In a sweeter vein, others say, the schwag world might grow ever more responsive, ever more attuned to the human need to feel special.

“The product will become much more individualized,” Keywell says. Still a tchotchke, but ultrapersonal. What might such a thing look like? Consultant Christopher Meyer offers this slightly unsettling prediction: Someday soon you’ll arrive at a Comdex booth and be handed a Pez dispenser – and the head will look like you. Try throwing that in the garbage.

Source: Wired 9.01: Schwag Bag: