When the founders of Portland (Ore.)-based Nau first came together in 2005 to lay the groundwork for a sustainable fashion company, their strict eco-principles and innovative e-tailing strategy appeared to be ideas whose time had come. Its stylishly minimal clothes in muted colors, made of sustainable materials such as organic cotton and recycled polyester, went on sale in 2007 and appealed to outdoorsy types and city dwellers, tapping into the growing green fashion trend. Nau's few bricks-and-mortar stores were eco-friendly showcases for products, but customers were encouraged to buy online with a 10% discount. And as part of the company's social enterprise initiative, 5% of all sales—from a $38 tank top to a pair of $138 "lean jeans"—were handed over to nonprofit organizations, chosen by the buyer.
"All the ingredients were in place for this business," recalls Ian Yolles, vice-president for brand communications, about the startup's corporate, design, and brand philosophy. Indeed, in its first and only year of operation, Nau attracted a cult following; Even today its Web site is jammed as the company sells off remaining stock at half-price. But at a board meeting in Portland on May 1, the directors decided to shut it down, just two weeks after its L.A. store had opened.
So what went wrong?
Nau's business model, with its multiple retail channels and sophisticated product line—as well as a heavy commitment to the ideals of sustainability, including tracing the origins of the wool it used back to the sheep in New Zealand—was not only ambitious but capital intensive. Yet Yolles believes it was largely external factors, from the liquidity crunch to a general nervousness among investors about retailing in a recessionary environment, that contributed to Nau's demise. Taken together, "these issues raised larger questions," Yolles says, about the viability of the fledgling business.
Solid Start
Nau started out on a solid footing, with executives like Yolles and Chris Van Dyke, son of entertainer Dick Van Dyke, all with experience at companies like Nike (NKE) and Patagonia. Before the market went sideways, it raised $35 million from private investors, private equity firms, and hedge funds. This went toward research and development of the company's signature sustainable fabrics and design of its quirky, slim-fitting style. A third-party distributor working out of a Portland warehouse was contracted to handle online sales. Nau opened five stores—in Chicago, Portland, Seattle, Boulder, Colo., and Los Angeles—and had plans for more this year in San Francisco and Boston as well as second stores in Portland and Seattle. Staff grew to 60 at the Portland headquarters, with about 40 sales associates in the stores.
By the end of the first fiscal year, sales "had met or slightly exceeded targets," Yolles says, although he declined to provide figures; $250,000 had been donated to charities. But Nau had burned through its initial capital and wasn't forecasting profitability until late 2009 or early 2010. It needed further financing to open more stores and pump up revenue but was struggling to persuade investors and board members to pledge more money as the economy and the retail sector deteriorated. In the end, Yolles says, the company was $5 million to $10 million short of its financing goal.
At Once Fresh and Bland
Retail analysts agree Nau brought fresh ideas and a sense of social responsibility and green awareness to its business. But they also suggest some aspects of its retail model and design approach were flawed.
Take the clothes. Many fashionistas and design insiders say Nau raised eco-chic—famous for resembling formless, floppy yoga pants or pajamas—to a new level.