Nautica is marking 30 years on the oftentimes choppy seas of retail — and the business is in ship-shape condition today, with sales on the upswing and ambitious initiatives bolstering the brand.
The company, a unit of mammoth VF Corp., continues to expand its global footprint with international partners and ramp up its e-commerce goals, and is relaunching a wholesale women’s sportswear business this season as well as plotting a return to full-price freestanding retail in the U.S.
The multiprong growth plan comes against the backdrop of a yearlong marketing campaign that will celebrate Nautica’s three-decade anniversary, which the company is heralding as “30 Years on the Water.” The achievement will be touted in everything from advertising and window displays to shopping bags and Nautica product itself that bears special markings on labels and hangtags with the rubric “Since 1983.”
“It’s a true testament to the strength and relevance of the brand. Nautica is internationally recognized and worn — and it also incorporates the latest design technologies while still staying true to its roots and maritime heritage. That’s what consumers responded to 30 years ago, and still do today,” said Eric Wiseman, chairman and chief executive officer of Greensboro, N.C.-based VF Corp. “What began as a collection of outerwear 30 years ago has become a leading global lifestyle brand representing the finest in men’s, women’s and kids’ apparel and accessories, as well as a complete home collection. From eyewear to swimwear, home to watches, today Nautica has 58 licensed categories, all of which reflect the brand’s commitment to quality, integrity and service.”
VF Corp. acquired Nautica Enterprises Inc. in 2003 for $600 million, establishing it as the anchor of a newly established sportswear coalition. Today, Nautica rings up $1.5 billion in annual retail sales in 75 countries, including all licensed categories. According to VF estimates, Nautica is the third-largest men’s sportswear collection brand in U.S. department stores.
“It’s a wonderful milestone for the brand. What it speaks to is that it stands the test of time,” said Karen Murray, president of VF’s sportswear coalition and the executive with direct oversight of Nautica. “At the end of the day, it says a lot about this type of product and look. Whether you call it nautical or red-white-and-blue, this clean, classic, colorful and bold look really resonates with men.”
For the past four years, Nautica has posted compound annual growth of about 6 percent a year, mostly from the men’s sportswear business, according to Murray. “We’re planning more accelerated growth for 2013. Our outlet business is really gaining momentum, as well as e-commerce. Overseas, growth in international territories is being driven by China, Latin America and Israel in the Middle East,” she added.
Nautica will crown its anniversary publicly on Friday with a big-budget runway show at Lincoln Center during New York Fashion Week.
“We usually do a smaller-scale presentation. This is a bit bigger and more of a celebration. It’s been five years since we did a runway show,” said Murray. “We’ve had great momentum with the brand for the past three to five years. Every year gets better. We are proud of what we achieved. That will come across loud and clear when anyone looks at the runway.”
According to VF’s most recent 10-Q filing, operating margin in the sportswear coalition improved to 10.3 percent in the first nine fiscal months of 2012, up from 9.7 percent, on the strength of a greater percentage of revenue from higher-margin direct-to-consumer sales and a declining percentage of sales from lower-margin distressed product.
“The charge when I came in was to really make sure that this core men’s product line was reestablished,” said Murray, who joined VF Corp. as president of the Nautica business in 2007 and was promoted to president of the sportswear coalition in 2008. “I would say each year it’s improved. We’re at the point right now where for the past two to three years, we are putting on nice sales increases and we are more profitable. Our department store business is very strong and our global business is very strong. Our business online has traction now and is growing at 50 percent gains each year. The reason that it’s got such momentum is that we have been very consistent and offer strong price-to-value on all our products. That’s key.”
Nautica’s key competitors in department stores are Polo by Ralph Lauren and Tommy Hilfiger, with the trio usually grouped together stylistically as the traditional “red-white-and-blue” brands.
“If you look at collection floors in the U.S., we are always surrounded by Tommy and Polo. The other brands are more updated or contemporary, such Calvin Klein, Kenneth Cole and Perry Ellis. They focus on rope-taupe-and-beige and grays and blacks,” explained Murray. “We all share a space, but our lane is with the classic brands.”
Nautica offers a value proposition compared to Polo, with prices across the board that are 20 to 25 percent lower than the Ralph Lauren brand. Pricing is on par with Tommy Hilfiger in many product categories.
“Polo has always been the premium position. We look at core categories and we try to get the sharpest price we can. We have a pair of jeans, a woven and a knit shirt, each for $50, and we have a sweater program at $45 year-round. Of course, we also have elevated product that sits above that. But it’s about strong product, quality made, at a strong price value,” said Murray.
To differentiate itself further from its competitors, Nautica has embraced a performance stance on many styles, incorporating wicking properties and extra-durable fabrics to its designs. “We’ve added those characteristics in core product like pants and woven shirts. They are wrinkle-resistant, they wick moisture, travel easily and are comfortable. We do this in wovens and knits, our performance fleece and in our outerwear. We call out all these additional benefits, and have been able to differentiate ourselves from the pack and find a ‘white space’ on the men’s collection floor,” said Murray.
Last year, Nautica made a big change to its knit polo shirt — which it calls a deck shirt — switching from an all-cotton fabric to a performance fabric that is 60 percent cotton and 40 percent polyester. It was a big gamble, as the short-sleeve knit category represents almost 30 percent of all Nautica sales. The new shirt looks and feels like cotton but has the performance attributes of a synthetic, such as moisture wicking, wrinkle resistance and holding up to washing better.
“It was a big leap for us, but it worked. It’s been a home run,” said Murray. “Continuing to deliver on the performance platform is key. It differentiates the line, and we know the customer really values these performance features.”
Knits, woven pants, fleece, swim and denim have been top category performers for Nautica in recent seasons. Outerwear, an important category historically for the brand, has been more difficult, due to macro weather trends. Consumers are increasingly choosing lighter-weight alternatives to heavy coats,
“Outerwear is a category that seems to shrink a little bit every year, not just for us but the entire marketplace, due to global warming. That is a category I wish were stronger,” she observed. “Other businesses are infringing on that and taking market share, like knit active or performance fleece or sweaters or blazers or completer pieces. All of those items are being worn as outerwear. The outerwear season is effectively November and December and after Christmas those items are half the price, so it’s not a money-making proposition for anyone at this point. It’s a tough business.”
In the U.S., Nautica is wholesaled in about 1,500 department store shops with partners including Macy’s, Lord & Taylor, Dillard’s, Bon-Ton, Belk, Boscov’s, Stage Stores and Peebles. In Asia, the brand is sold at 397 points of sale; in Latin America, 302; in Europe, 54; in India and the Middle East, five, and in Canada and Australia, 153.
Macy’s is Nautica’s single largest wholesale partner and has carried the brand since its first season 30 years ago, when it was founded by designer David Chu. The collection is versatile enough to sell in smaller as well as larger Macy’s doors around the country, said Jeff Gennette, chief merchandising officer for the retailer.
“It’s got very strong core items that are unique to the Nautica brand that work for smaller doors but it also has enough fashion and breadth to work in larger flagships. It’s a line that works in many doors in all parts of the country. It used to be mostly Eastern Seaboard, but now it’s strong all over, including the West Coast,” he said.
Gennette recalled that the brand suffered somewhat years back when it became too focused on key items and thus too commodity oriented.
“Under Karen’s leadership, the brand has gone back to its roots and its reason for being,” he explained. “I think the line is looking very fresh and relevant. We just finished a strong year together. I think Karen is one of the smartest leaders of the brands that I do business with. She is really rooted in great product and she understands the sell-in as well as the sell-through.”
The Nautica customer at Macy’s tends to skew older, with more than 50 percent of sales to consumers ages 40 to 59. The customer base is multi-cultural, with brand appeal among African-Americans, Hispanics and Asian-Americans, Gennette pointed out.
Outside of wholesale, Nautica operates 87 outlet stores in the U.S., with that number expected to remain relatively stable in the near future.
“We don’t really have plans to grow the outlet business in the U.S.,” said Murray. “If there’s an opportunity here and there in a premium center, we’ll look into it. We want to grow the business overall but not necessarily open many more stores.”
The company is planning to go into full-price retail, according to an internal brand overview, but specific details are unavailable at this point.
“I would tell you that we are constantly exploring the opportunity domestically and we’ll have much more to share with you later this year,” explained Murray, noting that she believes full-price retail would benefit the brand. “We are a company that does things methodically, and we want to make sure we’re doing it right. We are doing our due diligence, and we’ll be ready to talk about full-price retail in another quarter or two.”
Nautica previously operated a 14,000-square-foot flagship store at 50 Rockefeller Plaza, which it opened with much fanfare in April 2001 but shuttered in August 2004, following its acquisition by VF. The store was originally expected to ring up sales of $10 million to $12 million in its first year, but just six months after its debut, Nautica was already reporting full-price selling below expectations.
About 29 percent of total Nautica sales are from international markets, with that number growing from 20 percent four years ago.
“I think we should keep growing the international part. The more we can grow overseas the better it is. I would have no problem if it was 50/50,” said Murray. “But before we embark on new territories and spaces, we do consumer insight work. Right now we are doing consumer segmentation to help us guide those decisions on which markets to enter.”
China, Latin America and the Middle East are Nautica’s biggest markets around the world, in that order. The company recently entered Russia, Turkey, Brazil and South Korea for the first time. In South Korea, the brand has staked out a more premium positioning with local partner Amanex, with a focus on technical performance wear.
“It’s more elevated performance product than what is in the U.S. They have some of the sportswear from the U.S. but the high-end performance pieces that are $500 and $600 is exclusive to Korea now,” Murray pointed out. “None of the product is in the U.S., but there is a conversation about us reverse-selling it here. I think some of these items would do very well online.”
Overseas, there are 62 freestanding Nautica stores in Greater China, 38 in the Middle East, 45 in Southeast Asia, 44 in Mexico and Latin America, 11 in South Korea, two in Australia and two in Europe. The stores are operated by Nautica’s network of 21 international license partners. Wholesale distribution internationally is in about 1,600 department and specialty stores.
In license categories, Nautica has 19 licensees in 58 categories, including: Coty for fragrances; ES Originals for footwear; Essex for umbrellas; Fishman and Tobin for children’s apparel; Fownes for cold-weather gear; Levy Group for men’s tailored clothing and topcoats, men’s main-floor outerwear and women’s topcoats; Raj for women’s swimwear; Marchon for eyewear; PVH for neckwear; Randa for luggage and backpacks; Royce for hosiery; S. Cohen for tailored clothing in Canada; Li & Fung for dress shirts; Swank for belts and small leather goods; Timex for watches; Crown Crafts for infant and juvenile bedding; Lifetime Brands for tabletop; Louisville for utility bedding; and Revman for fashion bedding and bath. (For more on licensing, see pages 28-30.)
Annual wholesale sales from all Nautica licensees were approximately $500 million in 2012.
This year, Nautica is relaunching its e-commerce site with a focus on a streamlined shopping experience and richer brand storytelling. The company has set a goal of generating 10 percent of all sales via e-commerce within the next three years. Asked where that figure stood today, Murray responded that it’s “not where we want it to be.”
The company first launched its e-commerce business at nautica.com in 2008 with a full assortment of men’s, women’s and children’s apparel and accessories.
In another relaunch, Nautica is trying its hand at women’s sportswear again, following two earlier failed attempts. The company already offers some women’s sportswear within its own outlet stores and via international license partners in overseas markets. However, the brand has had difficulty gaining traction in the U.S. wholesale channel in the category.
“It’s a bit of a sore spot as it was launched twice unsuccessfully before,” said Murray. “I think we weren’t priced competitively and the line was the wrong expression of the brand for the female audience — it was boxy and men’s wear-oriented. Today, we are using fluid fabrics that drape like silks and Modals. It’s a big change. Our offering is very feminine. It’s quite sexy and fitted.”
This latest incarnation of women’s sportswear is launching this month at Belk, Dillard’s and Lord & Taylor, with additional stores to come. “It’s product that was available overseas, but we are expanding it for the U.S. market and making it more extensive,” said Murray. “It’s important for any successful global brand to have a dual-gender presence.”
The in-house sportswear will join an existing in-house women’s sleepwear business and licensed women’s outerwear and swimwear. An advertising campaign launches this month to trumpet the reintroduction of Nautica women’s collection sportswear to U.S. department stores.
“We still have work to do to realize the potential in women’s sportswear,” said Wiseman. “We’re moving cautiously but deliberately here, but I’m really encouraged by the progress we’re making and the success we’re seeing.”
While nascent, Nautica women’s sportswear could eventually outsell the men’s business. “At the end of the day, a lot more women’s apparel is sold than men’s in department stores, so I can’t see why that wouldn’t be true for Nautica,” said Murray.
The men’s focus of the brand up until now has stemmed from its roots in outdoor and sports, particularly with connections to the sea. To that end, the company today is the title sponsor of two high-profile triathlons — the Nautica Malibu Triathlon and the Nautica South Beach Triathlon. Since 2009, Nautica has also been the largest single sponsor of Oceana, the ocean conservation organization. In 2012, Nautica became a sponsor of Charity:Water, which raises funds to bring clean drinking water to developing countries and communities.
“One of the brand’s greatest strengths is providing a consistent image of who the Nautica consumer is, representing their deep connection with the water,” said Wiseman. “The brand has really solidified its position around being a brand for those who live their lives on or near the water, and a big part of that connection with consumers has been forged through our Ocean2Ocean campaign.”
That campaign launched in 2010, with storytelling that found inspiration from the people and places along America’s coastlines. “Design and marketing teams traveled together — literally from ocean to ocean — finding unique nautical inspiration,” explained Murray. “The product reflected these discoveries, and marketing focused on real people that are truly living the Nautica life. Their stories were told online, in print and through social media.”
Nautica launched an interactive blog called Nautica360 in 2010 and became active on Facebook, Twitter, YouTube and Flickr. The brand now has garnered three million fans on Facebook.
The company conceives and executes its advertising campaigns in-house, having exited a relationship with Laird+Partners in 2009.
“Nautica was so focused on ‘man on a boat.’ It was a very lonely guy on a boat. It’s not all the brand is about. We are about families and dual gender and friends and connection,” said Murray, whose in-house team has guided the brand toward imagery of men, women and families together.
As president of the sportswear coalition, Murray overseas Nautica as well as the North American business of Kipling, with the latter comprising about one-fifth of the group’s revenues.
“Eric Wiseman has given me a very long leash, but at the end of the day, it’s a financially driven company and we have checks and balances to make sure that I’m doing the right thing,” said Murray. “[We utilize VF’s] corporate resources in the areas of systems and strategy. There is a consumer insights team there, headed by Stephen Dull, that helps me make more informed decisions.”
Brands within VF are encouraged to share best practices and innovations with each other.
“We share all the time. I am welcome to fly out and sit in the fabric department of The North Face or fly up to Timberland and talk about strategy. VF has a huge denim capability, and I can go down to Lee and talk about a denim process. Conversely, we have a great relationship with Macy’s, so they might want to talk to me about that,” Murray pointed out.
VF holds an annual internal conference dubbed VF Max, staged at locales from the MIT campus in Cambridge, Mass., to New York City, where leaders from the company meet with outside thinkers and innovators. “We’ve had Robert Redford speak to us, and we had Julie Taymor talk about the challenges of staging the Spider-Man musical. It’s about how to solve problems and innovate and do something different and unique,” Murray recalled. “Who would think that you could learn something from Spider-Man?”
VF Corp. is known for a research-driven approach to strategic and business decisions. At Nautica, market-research practices are leveraged across the entire spectrum of business processes, including understanding consumers’ evolving needs, optimizing communications, maximizing the effects of spending and guiding innovation.
This past holiday season, Nautica invested in shoppable billboards at the two New York City airports, John F. Kennedy International and LaGuardia. Shoppers could scan items from the billboard on their smartphones via QR codes, which would bring up the item from the Nautica e-commerce site. Nautica conducted a consumer intercept test to evaluate the performance of the shoppable airport billboards, learning that while consumers were familiar with QR codes, they did not like using them. It turned out the billboards did little to drive actual sales, but were highly successful at driving brand awareness and equity.
“This was something we would not have been able to determine from sales data alone,” said Murray.
Other recent research included a listening lab to help guide the redesign of the e-commerce site. This revealed that consumers were surprised at the breadth of offerings and competitive prices on the site. Another shop-along study found that men particularly like mannequins as part of their shopping experience to help them easily figure out entire outfits.
A market-mix analysis showed the strong benefits and synergy of spending on social and digital marketing in tandem with more traditional advertising buys.
“It was fascinating to learn how the multiple consumer touch points really help to strengthen our connection with our consumer,” said Murray.
As a unit of VF, Nautica is part of a diversified portfolio that stretches across outdoor, denim, sportswear, contemporary, footwear and accessories.
“VF’s overall growth strategy is based on actively managing a highly diversified global portfolio of leading lifestyle brands. Nautica’s diversified product mix and global distribution is perfectly aligned with that strategy. The brand is stronger today than it has ever been and [has] many growth opportunities,” said Wiseman, who earlier in his career oversaw Nautica when he held Murray’s current position.
“What stands out was [how] we all felt about bringing Nautica into the VF family of brands and taking it to its next level of growth,” he recalled of his time at the helm of the Nautica business. “Nautica was one of the first acquisitions VF made, once we put into motion our plan to transform the company with the addition of more lifestyle brands, so it really was a milestone for us.”