So Long, Big Guys A handbag designer boosts profits--and its image--by shunning mass retail distribution.

Growth doesn't always bring profits, as Todd and Jan Haedrich have learned. After several years of doubling sales, the co-founders of Frenchtown, New Jersey, handbag-maker My Flat in London have put the brakes on sales to pursue better profitability.

"What I've learned is that [selling to] a large vendor has hidden costs," says Todd. Large department stores, for example, whittle away profits by demanding concessions like a generous return policy and long payment terms. Boutique retailers, on the other hand, often pay faster, are less demanding and can increase the perception of the brand's exclusiveness. By cutting out unprofitable customers, the Haedriches have reduced their need for capital, improved cash flow and magnified profits. This year's projected sales of $5 million are up by just 15 percent over last year--but profits are up by more than 40 percent.