How Wall Street Puffed Up Sales of $800 Down Parkas

For brands such as Canada Goose and Moncler, snowy trails are better exposure than any runway
Corrected

(Corrects the location of Mackage in the seventh paragraph.)

Fashion doesn’t take many cues from dog kennels in Fairbanks, Alaska. But in Lance Mackey, a rangy 44-year-old professional dog-sled racer with a greasy ponytail and a chunk of jaw lost to a battle with cancer, a high-priced parka has found a winning spokesmodel—even if Mackey doesn’t seem too concerned with his head-turning wardrobe.

Urban shoppers who never go near a racing sled are clamoring for the down-swollen coat Mackey wears during his annual moment of global fame: his (often successful) campaigns to win the Iditarod. For Canada Goose, the manufacturer of Mackey’s parkas, which cost as much as $1,200, the snowy trails are better exposure than any runway. “I’ll take Siberia over Moscow any day,” says Chief Executive Officer Dani Reiss. “Because if I get Siberia, I will get Moscow. We make the warmest jackets on earth, and cities get cold, too.”

While most of the retail world is stressing over holiday sales and the European economy, the high-end down coat could not be hotter. Once the uniform of adventurers and Aspen playboys, the big, bloated parka full of feathers has successfully made the transition from frontiersmen to fashionistas. “In a lot of places it’s what the Louis Vuitton handbag was 10 years ago,” says Mona Bijoor, whose JOOR online wholesale marketplace will process about $2.6 billion in spending this year among elite retailers and fashion labels. “You can tell that it’s a trend because puffers aren’t a core thing for certain brands, and even they are starting to do them.”

Moncler, an Italian company known for sporty, shiny down coats, posted a 60 percent jump in revenue from 2011 to 2013. In the first nine months of this year, its sales climbed another 18 percent. Moncler has been a staple in Swiss ski lodges and the rest of the world’s snowy playgrounds for more than six decades. But it wasn’t until 2006 that the company introduced a haute couture line for women, and a high-fashion men’s line followed three years later. In the past year, Moncler has opened stores in dozens of conspicuously temperate places as part of a push to get its products into urban environments. It’s betting its future on Hawaii—where a Moncler store is already open for business—instead of the Himalayas.

Canada Goose has increased its annual revenue from $5 million to more than $200 million in the past 10 years. The Trillium, its best-selling women’s coat, goes for about $695. This month, Canada Goose opened a New York office and showroom to better connect with the high-end retailers that do much of their buying in Manhattan. It also doubled production at its Toronto factory this fall. “There’s never a slow time for us,” says Reiss, who’s both CEO and the grandson of Canada Goose’s founder, Sam Tick. “Even now, demand is far exceeding supply.”

“We’re the Land Rover of clothing,” Reiss says. “Most people driving a Land Rover are never going to take it off-road, but they’re really happy to know they can. And it’s the real thing—it’s not a Suzuki Sidekick.”

Also capitalizing on the trend are relatively new brands like Mackage, a Montreal-based label that started selling a down-heavy line of outerwear in 1999. The coats cost $590 to $1,150 and are often trimmed with raccoon fur. Even traditionally sports-focused brands such as the North Face and Patagonia have moved upmarket, stitching together down coats with bloated price tags. Patagonia’s Fitz Roy jacket costs $450 and has the sheen of a Moncler garment. The North Face’s Himalayan Parka sells for $650.

“Premium down” is Nordstrom’s fastest-growing category in women’s outerwear, according to spokeswoman Pamela Lopez. “Function is a huge part of the appeal,” she says, even if the average Nordstrom shopper won’t need to survive in subzero conditions. Customers are looking specifically for big logos, she says, establishing Moncler and Canada Goose as “status brands.”

There’s particular irony in how well-heeled Wall Street types are driving the success of the big down coat, rather than mountaineers or models. Professional investors were the first to buy into the idea that this niche of apparel could grow quickly and cover a wide range of shoppers, not just those on ski slopes or dog sleds.

The Carlyle Group, a Washington (D.C.)-based buyout firm, bought almost half of Moncler in 2008. Among other things, Carlyle’s capital helped bankroll a line of parkas for children, an expansion into Japan, and dozens of new retail stores. Eurazeo, a Paris-based investment fund, came around in 2011 to buy almost half of Moncler, including a chunk of Carlyle’s shares. At the time, Eurazeo Chairman Patrick Sayer called it “one of the best brands” in luxury.

Canada Goose fluffed its finances more recently. A year ago the company sold a majority stake to private equity giant Bain Capital for an undisclosed sum. At the time, Bain’s Ryan Cotton said the label “exudes authenticity.”

The swell of capital helped both companies spread their marketing messages more widely and more lavishly. Canada Goose hands out hundreds of jackets every year to celebrities at cold-weather film festivals in Berlin, Utah, and near its Toronto headquarters while outfitting doormen at fancy hotels and fielding special requests from Hollywood. Moncler likewise now offers a line designed by Pharrell Williams and hired celebrity photographer Annie Leibovitz for a recent slate of print ads.

Moncler hired photographer Annie Leibovitz for a recent ad campaign.

Moncler hired photographer Annie Leibovitz for a recent ad campaign.

Source: Moncler

While investors came early to the potential of sleeping-bag-shaped coats, many chichi fashion brands missed out—and lost the chance to corner a particularly lucrative market. Puffy parkas, despite a goofy look, have a few very attractive features for manufactures and retailers.

A down coat is generally based on a simple design. With the exception of some fabric innovation, the high-priced versions for Moncler and Canada Goose haven’t changed much since Italian mountaineers of the 1950s were first tackling the Himalayas and European ski culture first took hold in Aspen, Colo. That means when the weather starts to get warm, retailers of goose-down parkas don’t have to slash prices to clear out inventory. Last season’s stock, if stored in a warehouse for a few months, will likely sell again next fall at full price. “Maybe they change it a little bit technically,” says Bijoor, the wholesaler, “but you and I wouldn’t even notice that.”

A big, bulky coat also doesn’t flatter a silhouette, another counterintuitive feature that looks particularly attractive to supply-chain managers. Apparel companies can get away with fewer sizes, and customers are less likely to return a coat that doesn’t fit just so. There’s quite literally a lot of cushion between medium and large sizes.

These features allow down coats to carry puffy profits. When Moncler finally sold stock on the Italian exchange about a year ago, investors clamored for shares in part because the company pocketed 16¢ for every $1 in sales. It was one of the strongest debuts of all European companies in 2013. Inditex, the world’s largest apparel retailer, has a slightly slimmer margin of 14 percent. Fast Retailing, which is making a play for the down market with its Uniqlo coats, makes just 5¢ on every $1 of revenue.

The tricky thing for these companies will be keeping all that time spent around Manhattan catwalks from damaging their cold-weather cred. In a recent note to investors, Goldman Sachs analysts praised the prospects of Moncler. Alongside the coat maker’s narrow focus and room for expansion, the analysts specified “heritage” as a key asset. In short, the back story is critical to pushing these parkas.

That’s why Moncler has a new line commemorating an Italian expedition to K2 that it outfitted 60 years ago, with six new coats full of heat-sealed tape, Velcro closures, and pockets for CB radios. The publicity materials are careful to consider the less adventurous consumer: “As was the case then, the mountain experience also becomes the style experience.”

Canada Goose has a similar strategy: Mackey is coming out of retirement to drive a team of dogs in the 2015 Iditarod. He’ll be the one in the coyote-fur hood, looking like so many of Manhattan’s bright young bankers.