ATTENTION SCOTTEVEST Travel Clothing Blog Readers

Friday, March 05, 2010

Interesting story of what not to do when starting a direct to consumer clothing model

http://www.forbes.com/forbes/2010/0301/entrepreneurs-patagonia-nau-horny-toad-that-was-then.html

BE Sure to read the comments from the founder of Nau at the end. Note we have done so much better and more with so much less.

That Was Then, This Is Nau

Helen Coster, 02.11.10, 03:00 PM EST
Forbes Magazine dated March 01, 2010

Outdoor clothier Nau was nearly a victim of its own grand vision.

Shell-shocked: Nau General Manager Mark Galbraith (left) and new boss, Gordon Seabury.

When Eric Reynolds set out to launch an eco-friendly outdoor-clothing maker in Portland, Ore. in 2005, he spared no expense. Recruits included Chris Van Dyke, a former brand marketing director at Nike, and Mark Galbraith, director for technical products at Patagonia. Reynolds had plenty of experience himself: In 1974, at age 21, he cofounded Marmot, now a $107 million (sales) outdoor-gear company.

His new outfit's name was Nau (pronounced "now"), the word for "welcome" among New Zealand's Maori people. Reynolds raised $35 million, most of it from institutions and wealthy individuals like Seagate Chief Executive Stephen Luczo.

Article Controls

What Nau had in vision, connections and capital it lacked in fiscal discipline. Reynolds, who had little interest in running a new company, stepped aside in 2006. Van Dyke kept spending. To outgreen the competition he shelled out a 20% premium for raw materials like organic cotton and recycled polyester; he paid a similar bounty to use factories in China that adhered to strict labor standards. Van Dyke also buffed Nau's do-good image by donating 5% of revenue to nonprofits like Mercy Corps, a humanitarian aid organization, and Kiva, which allows users to make online microloans in the developing world. (Patagonia sets aside only 1% of its sales for philanthropy.)

Nau opened a lush Web site and four 2,000-square-foot stores in Portland, Chicago, Boulder, Colo. and Belleview, Wash. Having stores meant he had to put something in them, so Nau created 130 products, from $450 waterproof, recycled-polyester jackets to $110 women's twill cotton Chinos.

By the end of 2007 Nau's payroll had swelled to 60 full-time employees, all with health coverage and 401(k) plans, and it was on its way to opening an eighth store. The company was hemorrhaging cash: In only two years it had burned through the entire $35 million Reynolds had raised and needed another $10 million to roll out its fall 2008 line. "We were heading off a cliff," says Galbraith, 49. By May 2008 Nau had no choice but to shutter the retail stores, fire all but 6 employees and look for a white knight.

The company found one a month later in Gordon Seabury, the 43-year-old chief executive of Horny Toad, a socially minded apparel company in Santa Barbara, Calif. Seabury bought Nau's trademarks, office equipment, Web site, product designs and marketing material for "under $5 million" in cash. He summarily slashed Nau's product line to 75 items, expanded distribution through 60 smaller U.S. retailers and a handful of short-term pop-up stores, and curtailed Nau's charitable activities to 2% of revenue. Consolidating warehousing and shipping activities shaved six percentage points off Seabury's overhead. Seabury figures Nau will turn its first profit this year, at the $5 million to $10 million sales mark. Van Dyke left after the acquisition.