The time is "Nau" for new concept in retail

It wasn’t much more than a year ago in May 2005 that SNEWS® first broke the story of an eclectic gathering of industry minds and investors under the mysterious moniker of UTW – click here to read. By the end of the year, UTW had become officially known as Nau, with sights set on an official announcement of the company’s launch set for August 1, 2006. For Chris Van Dyke, president and CEO; Mark Galbraith, vice president of product design; Ian Yolles, vice president of marketing; and Jill Zillegen, vice president of sustainability; the time is indeed “Nau.”

The four sat down with SNEWS® in early July to shed more light on the founding principles under which the company was founded, what its operational and growth goals were, what its product mix will be, and how the company fits in as a new member of the outdoor industry.

Currently at Nau’s Portland, Ore., headquarters, there are 35 employees. Each is a shareholder of the company. While some have elected to take equity positions in Nau, it was never a stipulation of employment, we were told. Return on investment and making millions was not a driving force for those who signed on to help launch this idea either.

“For the core group of people that coalesced around this idea, the average cut in compensation is anywhere from 40 to 70 percent, with many who are working here having chosen to leave very secure employment,” Yolles told SNEWS®. “Certainly, we all believe in the ideals associated with Nau, but the other key element in the assembling of our team is that many of us knew one another, and with Nau, we were drawn to the idea of being able to work with each other on something new and unique.”

Things are certainly moving quickly for the team. Consider that in a year, the company has had to create a brand, develop its own retail concept and distribution strategy, and establish a full product line—all from scratch.

In May, the company had its first of what will be an annual shareholders meeting, held appropriately, Van Dyke told us, at the BridgePort Brewing Company. A few less than 50 attended, including Eric Reynolds, who helped launch the company with Van Dyke but is no longer involved in the day-to-day operations.

Van Dyke pointed out that three rounds of funding have been successfully completed for Nau, with the bulk of the investment dollars coming from individual investors. There is only one institutional investor of any significance, we were told, and that investment accounts for less than a third of all money received.

“All key milestones on the funding side have been hit,” said Van Dyke, who also told us that additional rounds of financing will occur as part of the operational plan for the company.

In late June, Nau placed its first buy orders, with significant purchase order commitments for spring 2007 delivery – a milestone for a start-up company with no purchasing or sell-through history, Galbraith said.

All products will be distributed direct-to-consumer only via three distribution channels. The first will be through the web, utilizing a site design and e-commerce platform customized for Nau by Blast Radius, a Vancouver, Canada-based, company.

Nau will also open up to five retail stores. The concept design of the stores is in partnership with Portland, Ore.-based, Skylab Design Group and Jeff Kovel, whose design work includes Gateway Computer retail stores, Nike Studio@255, ESPN and The Front Climbing Gym.

“In creating the stores, we have also partnered with Green Building Services here in Portland,” Zillegen told SNEWS®. “In many ways, we are helping to develop a new Leeds standard for leased stores, since there is no current standard for leased retail spaces currently. What is very important to us is that we utilize green materials, renewable resources and more that meet or exceed the expected certification standards, so when a Leeds standard is established, we will be in compliance.”

For now, the stores will be located in the West, with possible sites focused on street-based locations in major metropolitan areas, for example, also in Seattle, Wash.; Los Angeles, Calif.; San Francisco, Calif.; and Denver.

The third point of distributioncentral to the Nau core belief is one of customer-directed giving. “When a customer purchases from us, either in the store in on the web, part of the essence of the brand is a commitment to sustainability. Five percent of each sale will go to support the work of change-agent organizations, and part of the customer experience will be to ask each customer where they’d like their funds directed, selecting from a menu of options,” Zillegen told us.

“Each of the employees of organizations and non-profits that we select to work with will be able to purchase our product directly at a discount, with the five-percent donation still applying on pro-deal purchases – a special pro-channel to support employees and organizations that really need the support,” Zillegen said.

The concept of sustainability is central to everything Nau does, perhaps even more so in the design and development process Galbraith subjected his team to during the creation of the company’s first product line.

The product line, which consumers will see in early 2007, is made up of a mix of 120 or so styles, both men’s and women’s. For now, Nau will not offer children’s sizing or styles. The product line is a mix of technical layering systems with a combination of base layers, soft shells, waterproof shells and lifestyle and sportswear apparel.

While Galbraith told us that it will be immediately evident that the designs Nau is presenting are uniquely styled with a focus on beauty and performance, what will not be so evident is that each piece reflects tremendous progress in terms of ensuring global sustainability.

It begins with the manufacturing partners around the globe that Nau will use. According to Galbraith, Nau has a non-negotiable code of conduct that applies to manufacturing partners that addresses human rights, issues in transparency and reporting, and environmental rights which are all third party verified.

“Coming from Patagonia, I am used to a general direction for the company of sustainability, but not in a manner that controls how and why a product is created and produced,” said Galbraith. “Out of the gate, we established that if even if a product design was solid, it if could not be produced in a sustainable manner, we would not pursue that product category at all.

“It was sobering and a challenge for the last year and a half,” added Galbraith.

However, the resulting outcome is significant, and will have far-reaching implications for the entire outdoor industry, Galbraith said. Beginning with raw materials, Galbraith’s team determined that cotton must be certified organic, both wool farming practices and how wool is treated must be sustainable. If a product is made with synthetic, that fiber must be recycled and recyclable.

But that was only the beginning. The Nau team began working with an established restricted substances and known toxins list. It eliminated fibers using dyes, finishing chemicals, formaldehyde and other chemicals that contain known toxins.

“Design aesthetics had to be durable for long-term use, not get trashed immediately. Features, color and fit have to be something that feels current and hold up from year to year—not simply be something that is trendy for a few months, then gone,” said Galbraith. “That presented some very interesting design challenges that affected our color pallet and our design ethics.”

Of the 40 fabrics, fibers and other raw materials used in Nau products, only two or three of them could be bought off the shelf. Thirty-eight were new polymer, new composite, or represented a different design criteria because of the product.

“The fabric companies are investing too because they have put a lot of R&D into it. Obviously, they believe in our plan, but they have looked out there in the market and know that more is going to happen in this area and realize that by helping us, they are putting themselves on the leading edge,” Galbraith said.

What is unique about Nau’s approach to all this development is a desire to share the technological advancements, not lock them up as proprietary.

“I don’t want the technology to be proprietary and fabric to be proprietary,” Galbraith told SNEWS®. “We are saying to the suppliers: Sell it, and the more the better because the more viable it is, the more it supports the growth of sustainable materials. We only want the aesthetic at the end to be differentiated.”

And word is getting out. Galbraith told us that some vertically integrated brands in the outdoor market have already begun coming to Nau to learn about the new technologies and how they might utilize them in their product lines.

However, as hard as Nau has tried, not all products are able to be manufactured utilizing sustainable materials. There still is no fluorocarbon-free DWR that meets performance requirements, Galbraith said, although tremendous progress has been made in the treating and lamination and coating of fabrics. He said he expects that solid sustainability solutions will be available soon.

“From a sustainability end, it is a process,” Zillegen told us. “We have points we want to achieve that are aspirational. And there are points we can achieve today, but it is a roadmap and we are not there on everything. RSL (restricted substances list) is a process that goes above and beyond what is required in the U.S. and is closer to the EU-established restricted list.”

Initially, Nau’s product will only be available in the United States. The company is intentionally restricting the distribution market to ensure the company can best serve its customers. And it is that connection with the customer that is most important to Nau.

“You can come in and try on product, and if you choose, you can pay for the item and walk out with it,” said Van Dyke. “You can also walk up to a self-service kiosk and order product for shipment to your home. Should you choose to do that, we give you 10 percent off the retail price. The reason we are able to do this is our costs of shipping directly out of the warehouse are significantly less and we are passing that savings on to the customer.”

Van Dyke told us that the Nau stores will carry less inventory, so they will be less cluttered. Since each store is also smaller than many of its competitors, and will require fewer employees, there is additional cost-savings that can be passed on to the consumer. He also pointed out that with the company’s distribution model utilizing a centralized warehouse, it can effectively customize stores and presentations based on regional and gender demographics. 

The efficiency does not stop there. At the end of a season, if there is stock that needs to be discounted, the inventory is centrally located, making it much easier to control margins and ensure brand integrity and image. After all, Van Dyke confirmed, Nau is a premium brand that will not engage in discounting and chasing price devaluation.

Across the board, from acknowledging and embracing the customer tendency to migrate back and forth between retail brick and mortar and the Internet, to providing an in-store shopping experience that is far from conventional, Yolles acknowledged that to succeed Nau must establish a connection with the customer. One that goes well beyond a unique shopping experience and a product that, while not inexpensive, is a great value for the features offered.

“First of all, we have paid attention to what is actually going on in the marketplace and in the literature around the growth of the lifestyles of health and sustainability market,” Yolles told SNEWS®. “That market is growing at a significant trajectory – it is a $250 billion plus market now. Companies, such as Whole Foods, have clearly tapped into a value and values base proposition and that is their connection with the consumer.”

Customers are also more cynical and less and less trustful of corporate messages, Yolles told us. So Nau will be relying on third-party storytelling, based on the uniqueness of the shopping experience and the culture of sustainability that each customer will become a part of to drive the brand message forward. Word of mouth, media, Internet blogs, its non-profit partners and what Yolles termed “thought leaders” will be relied on to spread the gospel and word of Nau.

SNEWS® View: Audacious? Yes, as we said before, this venture will either succeed brilliantly or fail in a spectacular fashion – there will be no middle ground. There is no doubt the team that has been assembled is elite in experience, rich in creative imagination, proactive in driving social change, and committed to a set of values in a way we have never seen before. And, it is for that reason, we suspect, that Nau’s time has arrived. The market is ready. The customers are ready. If Nau can deliver the product that meets the expectations established by the shopping experience, we will be toasting their success years from today. And, we suspect, the influence of the company’s values and set of beliefs could have and should have far-reaching implications for driving change in how future concepts in retailing and manufacturing are executed in our industry – and that is all good.

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