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The rocky history of North Face
In this episode of StartUp Forensics, we’ll talk about one of the coolest clothing brands
in the world: The North Face.
That’s right.
It seems like the brand has existed for decades and that their high-end products last
forever. And this is true.
But The North Face (TNF) has had a rocky history of successes and failures. It went from
the precise and technical world of outdoor adventure to the urban streets and rap music,
to becoming a popular icon.
The brand faced bankruptcy several times and, at one point, was rescued as part of a
very, VERY cheap merger.
Since then, TNF has slowly risen to the top, where it stands today. But now, the world
is very competitive, and the retail industry
faces tough questions regarding its future.
So, it seems that TNF’s story isn’t over and, without a doubt, there’s still more
adventure to come. This is a brand that has survived for
decades, through thick and thin, and still hangs
on.
Today, we’ll talk about: How The North Face was born
First signs of turmoil Another iteration, another north
Internal chaos Revived, yet again
Our story begins in the sixties; that’s right, FIFTY years ago. Two adventurers and
explorers, Douglas Tompkins and Susie Bell, wanted to create the best clothing for people
like them: adventure seekers.
Back in those days, adventure equipment was bulky and unattractive. So, their idea was
to create efficient outdoor gear of the utmost
quality and, yes, their products weren’t exactly
cheap, the complete opposite.
But their target demographic understood this. In fact, price didn’t seem to matter.
Which felt like a risky move at first, since neither had sales experience and their products
were really expensive. But they had a very clear understanding of what adventurers
needed. They WERE adventurers.
In fact, the name North Face comes from the harshest, coldest and, therefore, more
challenging part of any mountain in the northern hemisphere of the world: the NORTH
FACE of the mountain.
When they launched in 1964, even with a small store, they went all out. They hired none
other than The Grateful Dead.
Within just two years, North Face would be a hit, but Tompkins wanted something
different. So, in 1968, he sold his share to Kenneth Klopp for just $50 thousand.
Now, it’s not like Tompkins didn’t know business. Years later, he would create, along
with Bell, the brand Esprit, a standard in 80’s
fashion. But he wanted adventure, so he sold everything and bought the biggest piece of
privately-owned land in the world.
Google it.
But, back to TNF.
Under Klapp’s guidance, TNF growth was small and measured during the 70s, and their
catalogue was limited.
Their first products were backpacks and ONE coat, the Sierra Parka, with the first tent
designed and produced in 1974.
But TNF’s core idea remained intact. Their tents had excellent thermal resistance and
were lightweight, making them very easy to carry.
And, innovation wasn’t only restricted to tents. TNF loved Gore-Tex, the famous
waterproof fabric, making it a staple in its products. The brand became known for being
innovative and cool, they even collaborated with Apple back in the day.
Why not? Both brands broke out of the norm. It seemed right and, it did work for a little
while.
The brand garnered an underground following and slowly spread outside the world of
adventure. The bulky, imposing coats became trademarks of the rap scene.
Artists like the Beastie Boys and Notorious B.I.G. gave the brand more exposure in a
completely different audience.
And this would be key in the 90s.
During the 80s, the brand became the one and
only choice for skiing and mountain climbing. In fact, they were so established
that TNF was the ONLY premium brand for outdoor activities.
Finally, as the 80s drew close to an end, TNF was growing fast. And, UNFORTUNATELY,
it was then that Klopp and management
But, amidst this growth, Klopp and management made decisions that would cost them
dearly.
First, in order to have control of the entire production process, the brand began
manufacturing all its products instead of outsourcing part of them.
There was only ONE problem: they weren’t ready for that next level of manufacturing.
Orders were delayed, some products ran out and there was no internal stock control.
Also, they went ahead and opened OUTLET stores all over the U.S. so sell off discount
products and materials. But they were a premium store.
So, why have an outlet? For CHEAP products? TNF isn’t cheap, is it? Their customers
had never purchased TNF for its price, so the
stores were confusing. Customers didn’t like
them.
There was, then, a lethal equation: logistical chaos and a lot of empty stores. So, despite
their successes, TNF was simply not profitable.
Klopp decided to pull the plug and, in 1988, he sold TNF to Odyssey Holdings (OHI).
OHI, well, didn’t do a GREAT job.
They did try, though. The early nineties brought in winds of change, or at least, that was
the intention. They brought Marsden Carson as TNF’s directors. Stores were closed and
the catalogue reduced to only the profitable products. And it seemed that TNF was now
making profit.
BUT.
OHI went bankrupt. 1993 saw them file for Chapter 11 protection. During 1994, TNF
operated at a loss, but it was too much.
It eventually had to be sold at auction for $62 million to J.H. Whitney & Co., Cason
and Williams S. McFarlane.
This new North Face had one aim: regular people.
They also want high quality clothes, right?
The brand had already seen that the brand appealed to young rappers in NYC, how could
they expand on it?
Well, they did take advantage of the whole rap thing. Remember, this is the 90s. Rap
was BIG. Urban New York became a seeping ground
for rap music and gangsta fashion, so TNF created more jackets and outerwear.
It WORKED.
LL Cool J, Method Man and many others just looked really good in North Face. And young
kids wanted to emulate them. So, North Face became THE brand to have.
In fact, it became so attractive that their famous Nuptse jackets were prized by muggers.
One fan of North Face, photographer and almost mug victim Pravan Kuntmala, recalls:
And, some of that collecting, is by mugging. Even shoplifting.
But it didn’t stop there. The streets of New York City were just a gateway to the world.
Yes, they were still very, very expensive. Some of them were worth $600 of today’s
dollars, but any people liked the new casual wear that was resistant and looked great.
So, it was only natural that they open a store
in Columbus Avenue, New York, which became a
hub for everything North Face.
And just when things were looking great, then came the whole accounting issue.
It seems that even if TNF changes hands, it
somehow drags along business issues from the past. The 90s were very good years but
kinks began to show.
Logistic issues were still plaguing them. Winter gear was delivered when winter was
already over and camping gear was late for camping season.
But the problem went A LOT deeper.
Turns out that, between 1999 and 2000, TNF’s financial reports were FALSE, and their
stock prices were inflated: in 2000, North Face had told its shareholders sales were
$238 million when, in reality, there had been a
net loss of $100 million.
So, naturally, shareholders sued. Even the SEC got in on it.
The lawsuit caused so much of a ruckus that NASDAQ halted their trading until things
were sorted out. It was truly a complicated moment for the brand.
There in the background, it echoed. Chapter 11, bankruptcy.
The company’s value plummeted, from $17 to around $2. There was no turning back.
Remember how the first auction got $63 million?
Well, this time around, when VF, the current owners, purchased it, they paid ONLY $25.4
million.
Now, let’s talk about VF for a moment.
This is one of the world’s biggest apparel companies in the world. Only in the U.S. they
control 55% of the backpack market. Besides North Face, it owns Jansport, Eaglecreek,
Eastpak, Timberland and Kipling.
This company knows outdoor gear, so HOPEFULLY, they make it work.
TNF seemed profitable. And, with their knowledge,
VF could finally make this right. Their strategy was simple.
They invested heavily in producing regular clothing for people who didn’t REALLY do
outdoor activities but still wanted that look, maintaining their high quality and good looks.
And that's not the reason why I own North Face items.
It was also time to branch to other markets, so they allied with designers such as Junya
Watanabe in 2006 and created regional products for Europe and Asia.
The 2000s were really good for TNF and more and more young people seeped in the
urban culture of chaotic city streets dabbed in the brand. Rap still had a close relationship
with TNF.
Just last year, Drake purchased a classic North Face/Apple coat for $825 at an auction.
The brand had managed, through the rocky paths, to maintain the classic adventurer
customer, the rapper world and now had the entire world at grasp.
So North Face was a cultural icon and it grew as such.
What once was a $25.4 million-dollar purchase, averaged $2.3 billion in sales in 2016.
Products now include t-shirts, shoes, hoodies and jackets; but also tents, boots and
thermal wear.
VF has relied heavily on its management and manufacturing knowledge to boost TNF to
higher sales and their products are still top of the line quality.
The brand is still at the top of the outdoor gear industry, where…yes, it doesn’t stand
alone anymore. Competition is tough, but TNF has
managed to sustain itself and even expand, opening exclusive TNF stores all over the
world.
VF understands what the customers want, so they segmented their products into new lines
like mountain sports, lifestyles, urban exploration and athletics.
And Mountain sports are still the golden goose, as they represent 61% of TNF’s entire
business.
But, what does this all mean to that brand that started out in a small store in California?
Is it still the same brand?
Even VF is not immune. The retail world is suffering and from 2013 to 2016, though their
sales were at the millions, VF was unable to reach its target sales, prompting management
to act and reorganize their portfolio.
So, yes.
To a degree, this is still that same old TNF, with the good and the bad that comes along
with selling clothes in an everchanging world.