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Friday, 05 December 2008

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iwan ries and co.

The sour economy has made it difficult for many privately-owned businesses to survive, but Chicago smoke shop Iwan Ries & Co., a fixture in the Loop, is doing just fine because it caters to a dedicated customer base with habits hard to break.

Through five generations of tobacconists, family-owned Iwan Ries has been selling both luxury and mass brands of tobacco products for 152 years and it intends to continue its legacy through the recession.

“They’ve been in business since like 1856, since the oldies,” said a customer, 35-year-old Darren Smith of Chicago. “Five generations of business in Chicago. I like dealing with people who have been in business for a long time. They know what they are doing and they are pretty courteous, too.”

The store, appropriately, is in a two-story building that's one of the oldest standing designs of famous Chicago architects Adler and Sullivan. According to Chuck Levi, the fourth generation owner, the company has never been more than five blocks from its current location at 19 S. Wabash St., between Madison and Monroe, and it has only 10 employees, three of whom are family members.

“We’ve always been in the Loop through all the depressions, wars and problems," Levi said. "We’ve managed to survive.”

Asked how hard the business has been hit by the recession, Levi said with a smile, “We’re doing alright.”

The shop sells out more than half its inventory of cigars and most tobaccos during the course of a year. Due to the loyalty of regular customers, most of whom Levi knows by name and spending habits, the business is able to survive through almost any adversity.

“I hate to say it, but the truth is when the economy is not doing so good, people tend to drink and smoke more," Levi explained. "People are uptight for a thousand different reasons and cigars and pipes tend to be obviously relaxing. And at the end of a very bad day or a hectic day, they relax with a cocktail and cigar, or a cigar without the cocktail.”

While the store also sells an assortment of cigarettes, it has a larger variety of cigars and pipes. Levi said there are 900 boxes of cigars and 12,000 pipes in inventory -- with 2,000 pipes on display at a time. “We have more pipes on one wall than many stores carry. We probably have 70 drawers of pipes and every drawer holds 24 to 30 pipes.”

The pipes, Levi said, have the slowest turnover rate in the store. If properly stored, cigars can last indefinitely, but in the shop, as cigars are sold, the inventory is refreshed every couple of months. Tobacco is usually turned over every 60 days, but some has a shelf life of only about two weeks. Levi said that's partly because more smokers are rolling their own cigarettes. The pipes, on the other hand, have a far slower turnover rate. On average they turn every nine months.

“Most [stores] aren’t going to invest in the inventory and in the slow turnover that we do, but we’re used to it,” Levi said. “Even our accountant thinks we’re crazy, but the fast turnover in cigars and tobacco allows us to afford the slow turnover in pipes.”

The pipes range from simple corncobs priced at $3.50 up to $1500. Cigars range widely, too, from $1 to $35.

Levi said the shop tries to cater to every customer’s needs.

“We’re a full-service store. We want to have whatever it is [the customer] wants to smoke,” he said. “We don’t want to tell them, ‘you can’t smoke that because we don’t think that’s good quality.’ If you think it’s good quality, it’s good quality.”

Iwan Ries has customers all over the world. During the interview with Levi, a man from Abu Dhabi of the United Arab Emirates called to place an order, as did two gentlemen from Italy. The store's merchandise is international, too. Much of the inventory comes from the Dominican Republic, Nicaragua and Honduras, all purchased wholesale from importers.

The clientele may seem elite, but the shop also has a solid local base that keeps coming back.

On the popular venue-rating Web site, Iwan Ries is a favorite among many Chicagoans, including Andy M.

“This place is wonderful. It is located in a wonderful old building on Wabash,” he wrote. “It is a luxurious décor that makes you feel like you have walked back in time. I actually expected to see Winston Churchill hanging out in one of the humidors. But, this is not a place to go if you are working on a budget. The prices are quite high, but if you enjoy lighting up a good cigar, this is a smokers’ playground.”

Smith, the 35-year-old customer, handles real estate and construction bids for a living and said with the market the way it is, he tries to scrimp and save wherever he can.

“I smoke Newports, but I choose to make my own cigarettes,” he said. At the time, Smith was buying a cigarette-packing and rolling machine for a friend. “He was mocking me for making my own but I have the machine and all the tools and tobacco to cut down on prices.”

Despite a contracting economy, Smith says, he'll continue to make his own cigarettes and buy other tobacco products from Iwan Ries.

“I spend between $85 and $100 a month in purchases. Smoking cigarettes, buying them in Indiana, I would spend between $120 and $150 a month.”

The addictive nature of tobacco is a tough habit to break and one that most people will not sacrifice regardless of the economy, according to Morningstar Inc. analyst Philip Gorham.

Gorham covers publically traded tobacco companies that specialize in cigarettes, but he says the trend in cigarettes is likely similar in the more luxury, high-end cigar and pipe business.

“We don’t say any company is recession-proof. We expect some sort of negative impact on tobacco companies’ top lines in the coming quarter,” he said. “But, the addictive nature of the product and the immense brand loyalty in this base contributes to a kind of relative strength in these downturns.”

While Gorham doubts that anyone will be eager to buy one of Iwan Ries’s $500 pipes, he said there is a sort of resiliency in the industry that will help the company survive.

Still, Levi contends that a wide range of price points promotes stability in his business and will keep his customers happy and smoking.

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