Practicalmadness

Okay, I just noticed a referer from mail.nau.com — hi folks! — so I’m going to pre-empt the inevitable e-mails from either Nau employees or devotees by expanding on what I wrote below, and posting a couple of supplementary links.

So I’m sitting in my office, trying to make up my gulliver about what to do with my afternoon, when I see an item on Gapers Block about Nau — a Portland-based clothing label whose schtick was that all their garments are sourced from “sustainable” materials like organic cotton and recycled polyester — shutting down all operations at the end of the day today and as such liquidating the inventory at their Halsted St. store at 50% off before padlocking the doors.

How sudden was Nau’s collapse? Well, according to this article from The Oregonian Nau — who announced their immediate shutdown late on Friday — were telling journalists as recently as early Friday that they were under pressure but still open for business. Which tells me that whatever letter, phone call or smoke signal that convinced them the game was over came during the business day Friday, and that their financial picture was so dire that they couldn’t even afford to keep the company running an extra day or two to finish liquidating their inventory.

I’d had my eyes on a pair of their so-called “Loose But Not Slutty” mens jeans ($150) for a while, but at those prices I wanted to wait until I’d lost a few (dozen) more pounds and could count on not dropping any more sizes before splurging on fancy things. At 50% off, many of the items I would never have considered picking up — like $75 polos or $100 cargo pants — suddenly entered a more accessible realm I like to call the “Banana Republic zone.” All told I spent $350 on Nau clothes, after spending an hour studying and deciding while my fellow vultures filed into the dressing rooms with literally armloads of organic tank tops and recycled windbreakers.

Anyway, the time spent studying their clothes and the hours spent wearing them since have made me think a bit about why this company went out of business. Their website says they’re closing shop because of what they refer to as an “extremely risk-averse” environment in the wake of the subprime mortgage meltdown, in which investors are hesitant to spend any money on anything.

This raises a couple of questions for me. Nau are trying to paint themselves as a hapless victim of the capital markets, but to the best of my knowledge there are two businesses that have been recession-proof since time immemorial: the Mafia, and high-end retail. The rules of the retail game may change slightly during a downturn (i.e., the middle class may move some of their spending from Whole Foods to Costco), but as anyone who’s seen a movie about the glamorous 1930s ought to know, times are never so tough to make rich people stop spending money on pretty clothes.

So Nau’s problem wasn’t that they couldn’t raise capital, though that’s what finally killed them, in the same way that pneumonia might be the final cause of death for an AIDS patient. Their problem was that even though people who can afford $75 polo shirts will be just as able to afford them next quarter as they were last year, Nau couldn’t find enough of those people to make a profit.

Funny thing, but after spending time in their stores and buying some of their closeout-priced products, this makes total sense, for a few reasons:

• Forgive the marketing-ese phrase, but what exactly was Nau’s brand story? They made fashion-forward sportswear made from sustainable materials like recycled polyester and organic cotton. But that’s just a detail of manufacture, and their designs were all over the map. Some looked like standard yuppie-wear (see above reference to polos and jeans), some (like their cargo pants) looked more at home on the Starship Enterprise than an American sidewalk. Nau’s schtick was sustainability, but you can’t look at the clothes and get that. Fashion retailers aren’t selling a context for their wares, they’re selling a context for their customers, and it seems Nau epically failed to understand that, or at least to express their concept in a way that could expand their customer base beyond the true believers.

• Why did Nau have retail stores in five cities? Come to think, why did they have retail stores at all? The vast majority of their customer base — that’s to say, nearly everyone east of Portland — would have had to order online anyway. They described their retail outlets as “webfronts,” where they would sell clothes but encourage customers to place the actual orders online. Nice idea, but that doesn’t change the fact that they had to support the cost and hassle of building out, staffing and running five retail locations. So it wouldn’t have saved them a single penny if those customers ordered their products from a web kiosk or not.

  This reeks to me of trying to pre-empt customers’ needs, as if some executive or consultant looked at an online-only business model and said, “hmm, I dunno, I have to have my secretary do all my internet for me. Maybe you should have some stores just in case someone as clueless as I am wants to buy your product.”

• Sustainability is great, but how does buying a pair of $100 khakis made from organic cotton (and spandex) save the planet? I’m not suggesting it doesn’t help, but just as Nau failed to provide a compelling narrative for their product, they also didn’t really expand on their mission enough to make spending a premium on drab, earth-toned sportswear seem like a good deal.

• I think one of their biggest blunders was donating 5% of every sale to one of ten charities (chosen by the customer from a list at checkout). That was a nice gesture (both contributing and letting the customer pick), but it contributed to the lack of focus. It seems like it would have been smarter to either (a) use that 5% to purchase carbon offsets, which would have been a “more bang for your buck” eco-proposition (“we’re sustainable and carbon neutral!”) or (b) cut prices by 5% to maybe lure in more customers.

Ultimately, I think there was a way this company that could have been profitable, or at least viable enough to attract more capital even in a bear market. The retail stores were a fatal error, the marketing was a mess and the product compelling but neither luxe nor accessible enough to attract the right kind of audience.

I really like these pants of theirs I’m wearing, and it’s sad that these are the only pairs I’ll ever be able to own. But at the same time I’m well aware that while I love them at $50, I might never have walked into the store if they were $100. That’s not because I’m not willing to spend $100 on pants, I’m just not sure I’d have spent $100 on these pants. And though I’m not a typical consumer in the broader sense, I think I am pretty typical of the target audience for these clothes. If it took a 50% closeout sale for me to even begin to consider their product a good buy, they were overpriced.

There was a definite “we built it, why aren’t they coming?” aspect to Nau’s fall; they were green, they made nice clothes and they acted as if they were a brand to be reckoned with. It seems that along the way, they just got so excited about themselves they forgot the most important rule of mercantilism: if you sell shit, make sure you’re not spending more money selling it than you can expect to get back.

Late Update

There’s no denying the capital markets are rough right now, and suffice to say I’m glad I’m not in dire need of investment cash. And as I’ve had to remind friends, business partners and at least one girl I’ve taken out for drinks lately, I’m only an armchair economist. But I do study business and solve problems for a living, and after reading some of the comments posted online by Nau’s workers and fans, I feel I should say a few more words to put the above into context.

Let me first point out that I am not usually in the habit of spending a thousand or so words bitching about things I don’t care about. Like I said, I was interested in Nau before they closed shop and I’m happy with the items I bought from them during yesterday’s closeout. The more I wear this pair of twill cargo pants, the happier I am, and the more I back down from my earlier “$100 for this?!” viewpoint.

But isn’t that kind of the story of Nau in a nutshell? Given a little more time they could have refined their marketing message, or could have found enough new customers via word of mouth that it wouldn’t have mattered. The next collection’s looks may have been more confident, more focused. If they’d weathered the economic storm, a stronger dollar or lower shipping costs might have made it viable to offer the same great clothes at more accessible prices. All of the nitpicks could have been addressed, given time.

More than anything else what strikes me about this story isn’t that Nau went out of business, but that it seemed so sudden and took everyone so much by surprise.

It’s easy to just attribute everything to those pesky, inscrutable capital markets. But seriously: five stores? I’m having trouble understanding why, if the web store or any of the four existing stores were not yet profitable enough to at least sustain themselves, Nau felt it was a good idea to burn capital on opening a fifth unprofitable store even as it was becoming increasingly obvious that this was going to be a rocky year for retail. If the existing stores were in the black and the company still collapsed, then there were deeper problems.

In any event, it’s not like there weren’t canaries in this here coal mine. Nau may not have been able to escape disaster, but they could have bought themselves some time. Instead they bet everything and tragically lost.