Retail 2.0

Nau, a new apparel brand, offers sporty, chic clothes and a novel online/off-line business model, along with a focus on community action

A few months ago, a dapper, 57-year-old named Chris Van Dyke arrived at the Hilton Hotel in Portland, Ore., for the Venture Northwest conference, where he planned to pitch his new company, Nau. He carefully set up his booth only to see an attendee mistake the exhibit for a coat rack and proceed to hang up his coat. In a way, it shouldn't have come as a surprise: Nau is in the apparel business, while the conference was dominated by technology startups.

Yet Van Dyke wasn't really as out of place as he might have felt. His Portland-based company aims to revolutionize retail by merging the brick-and-mortar and online shopping experiences. When Nau opens its first four stores in Boulder, Seattle, Chicago, and Portland this spring, customers will be able to try on the clothes—a sporty-chic line of jackets, T-shirts, sweaters, pants, and dresses that sell for $45 to $350 apiece—and then either buy them outright or order them online, using an in-store terminal. Buyers using the "Webfront" option, as Van Dyke calls it, will get free delivery and a 10% discount.

The online price discount is one of several ways that Nau aims to be a different kind of retailer. Webfront shoppers will also be able to donate 5% of the price of the purchase to one of 12 non-profit groups. "Every single customer will be engaged in the giving process," says Ian Yolles, the company's vice-president of marketing. With pages taken from the playbooks of Amazon (AMZN), JetBlue (JBLU), and Patagonia, combined with a few ideas of its own, Nau aims to become a chic, stylish and socially driven national clothing brand.

Mix and Match Sales

Of course, Nau's ability to do good hinges on whether consumers will forego instant gratification in favor of the Webfront approach. Here, briefly, is how it would work: When a customer wants to buy a garment, she takes a card bearing the product image, name, and barcode from a holder sitting on the display shelf or attached to the garment bar. The shopper scans the card at the Webfront terminal, selects a color, size, and quantity, then enters a user name (registered shoppers will have their shipping address and billing information stored in the system), and presto.

Such hybrid retail/e-tail has never been tried in fashion before, though the startup's informal research indicates that as many as 70% of consumers might be swayed by the discount on purchases of $100 or more. Nau's current business model assumes that just 30% of buyers will chose to use Webfront in the first year of operations, but that the percentage will creep up. The in-store e-commerce effort is complemented by a Web site, due to launch at the end of February and expected to sell all 100 items in the company's line-up.

There are certainly plenty of signs indicating the Webfront idea might fly: E-commerce sales continue rising at double-digit rates, with Americans having spent $24.6 billion shopping online in the recent holiday season, according to researcher comScore. And last year, 63% of some 67,000 U.S. households surveyed by consultancy Forrester Research investigated purchases online.

Ahead of a Trend?

Of course, for many shoppers, online research of prices or customer reviews is the first step towards a store purchase. Others survey products in a store to decide which they want and then find the best deal online. In others words, for many consumers the Web and the mall are both parts of a larger shopping experience. "Nobody has really done anything to connect the dots and take discontinuity out of customer behavior [online and offline]," says Yolles. "Webfronts reflect how people actually shop."

If that proves to be the case, Webfronts could transform the retail industry in years to come. "It's an interesting approach," says Peter Kim, an analyst at Forrester. "I'm waiting to see if they can carry it off."

If they do, he says, Webfronts could start popping up in retail stores—offering everything from apparel to hardware—everywhere.

For Nau, the Webfronts are more than just a retail novelty—they're key to Nau's socially conscious business model. Consider inventory. By shipping goods from its central warehouse directly to consumers, the company won't need to keep a heavy inventory load at the retail stores, where space is at a premium.

Philanthropic Symbiosis

And Nau hopes the self-service machines will allow the company to hire fewer staffers. Add to that the fact that the outfit will be selling directly to consumers, not through a third-party retail channel, and you can see why Van Dyke expects to achieve 72% gross margins, compared to 45% to 60% margins for other apparel retailers.

Those fat margins, in turn, will support Nau's social agenda by allowing it to contribute the 5% of every Webfront purchase to a Nau-approved cause. But the company's relationship with its non-profit network also has a strategic, marketing function. The rear wall of each Nau store will feature another set of touchscreens, offering information on the 12 environmental and humanitarian non-profits, including Conservation International, Mercy Corps, and the Oregon Food Bank (for Portland-based buyers). In turn, the non-profits will promote Nau to their members through in-store events, newsletters, and joint speaking engagements. In effect, these organizations will become part of Nau's grassroots marketing effort, which will include a small number of print ads.

Much of Nau's remaining marketing budget will go toward Web storytelling, such as the video about one staffer's environmentally-conscious friend who lives in in a solar-power mobile home in Olympia, Wash., which was posted to the Nau blog in December. The clip made it onto Yahoo! (YHOO) Video's home page, garnering more than 440,000 page views in six hours. "We think that's a much more authentic, credible approach to building a brand," says Yolles.

Nature in Store

Nau sees its Web-powered approach to retailing and its prominent social agenda as two pillars supporting a brand that's all about sustainability. The third pillar is green design, including everything from architecture to the clothing itself. The company's 6,000-sq.-ft. office is located on the first floor of a two-story, LEED-certified, green building near Portland's hip Pearl neighborhood.

And its retail spaces are defined by features such as the stump-like stools made of reclaimed timber in the dressing rooms. Its clothes feature custom-made environmentally friendly fabrics and non-toxic dyes. (The company employs third-party labs to make sure its fabrics and contract manufacturers adhere to Nau's strict environmental and labor standards.) Nau's polyester-based clothes are recyclable: You will be able to turn them in at a nearby store when they're no longer wanted. The rest of its garments, made of cashmere or merino wool or organic cotton, are designed to be biodegradable.

More subtly, the clothing's color palette—think chocolate, charcoal, olive, and sea—doesn't change much from season to season, and the modern, elegant cuts are designed to go from the mountain to a hip café. The idea is to reduce the amount of clothing a person needs. It's about "being smart about how you consume. We're trying to create new, cool, timeless classics that wouldn't go out of style quickly," says Mark Galbraith, the company's vice-president of product design, whose team is working almost non-stop in a large open space at the rear of Nau's warehouse-like office, just beyond the sea of cubicles.

A Business Model to Watch

While Nau's sporty-chic look differentiates it somewhat from the majority in the outdoor-apparel market, that doesn't meant it's without rivals. "The outdoor market is pretty competitive," says Robert Samuels, a vice-president for apparel and footwear at J.P Morgan Equity Research, adding that Wolverine (WWW), the maker of the popular Merrell shoes, is expected to launch a Merrell-branded line of urban/sporty apparel this fall.

Especially challenging for Nau is the fact that companies such as Merrell already enjoy strong brand recognition among outdoors enthusiasts. Yet Nau might be able to build up its brand thanks to its focus on sustainability, and the fact that the Webfronts, and its unusual business model, will help it earn higher margins.

The Nau folks aren't new to this game, either: The company is filled with former executives from Nike (NKE), Patagonia, Adidas-Solomon, and Cole Haan. For his part, Van Dyke has several best-selling products under his belt. While he started out as a lawyer, becoming Oregon's youngest district attorney at age 28, Van Dyke's career took a turn while he was working in Nike's legal department.

Soon to Be a Household Name?

At the time, he was living in a houseboat, and he thought, wouldn't it be nice if Nike made water shoes? That led to the Aquashoe which, in its second year in production, became Nike's No. 1 volume seller. Since then, Van Dyke has worked in product management and marketing for Nike and Patagonia.

Van Dyke knows his ambitious plans will require significant funding, and Nau has raised more than $24 million so far from investors such as Steve Luczo, chairman of the board of storage maker Seagate (STX). "It's backing something I hope catches on, it's a great model for others to pursue," says Luczo, of Nau's green retail mission. But to keep going, Van Dyke will have to raise another $6 million by the end of May, and another $15 million in early 2008, he says. If all goes according to plan, and the Webfront concept takes hold, Nau will open 150 stores nationwide by 2010.

It was this endless fund-raising effort that led Van Dyke to the Venture Northwest conference in October. Taking the stage to talk about Nau, he showed the theatrical flair of his famous father, Dick. Flipping through a stack of cue cards, he presented the many reasons that the assembled venture capitalists shouldn't invest in his company, whose goals—to be good to the environment, for instance—seem to go against the grain of traditional business thinking. So far, these points haven't deterred investors.

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