The New, New Green

Apparel startup Nau aims to build a sustainable business from its corn-based clothes to its eco-friendly retail model

by Heather Green

A framing machine in a textile mill looks a little like a car wash. The edges of the wide swaths of fabric are tacked using little pins to what looks like a long conveyor belt. The fabric rolls down the belt into a 60-foot tunnel, where it's blasted with a gas-fired dryer in a process called finishing that keeps the textile from stretching, and then rolls out the other end of the tunnel.

At least, that's how the process should go. But about two years ago, as Mark Galbraith waited at the far end of the tunnel of a framing machine at Malden Mills in Lawrence, Mass., no fabric was coming out. Galbraith, the head designer for Nau, a new apparel company, walked quickly up to the front of the tunnel. Yard upon yard of a new, specially designed fabric made out of crushed corn was rolling in to be heated up. But when he returned to the other end of the tunnel, nothing was emerging. The innovative textile that he and Malden Mills were developing was burning up in the bowels of the tunnel.

It's just one of the trials that Nau has undergone during the past two and a half years. Founded by Eric Reynolds, who started the outdoor-gear company Marmot in 1974, and run by Chris Van Dyke (the son of actor Dick Van Dyke), Nau is attempting to bring the green sensibility pioneered by the outdoor-apparel industry to a broader audience.

Talent Magnet

Its founders so far have raised $24 million and designed a line of men's and women's clothing that pairs a chic, clean, urban flair with a high-performance, outdoor aesthetic. Think closely-tailored men's hiking pants with slit pockets that do double duty on the hiking trail and in an office meeting. Or an Edwardian inspired women's jacket for the ski slopes or a downtown farmers' market.

"They have recognized this leading-edge consumer," says Tim Wallack, director of insights and strategy at Smart Design, a consumer product design firm. "Right now, the people who are leading the sustainability dialog are activists, but they're urban activists."

But Nau wanted to do more than be the hip brand for eco-converts. For Nau's employees—the company has attracted some of the top talent in the industry from the likes of Patagonia and Nike (NKE)—it's a chance to create a sustainable business from the ground up.

It all starts with the clothing. In a feat that industry experts say sets the company apart, Nau launched a new clothing line this spring made entirely of recycled polyester, certified organic fabrics, and biodegradable corn fiber. And after consulting a long list of restricted substances and toxins, Nau eliminated harmful fibers, dyes, and finishing chemicals. For instance, you will find nary a stitch of jet black or neon among Nau's collection because those dyes contain heavy metals.

Leap of Faith

Nau's path is fraught with risks. To meet its own requirements and offer high performance, high touch clothing, the company worked with its textile-mill partners to develop 90% of its fibers from scratch. Because the fabrics are 25% to 30% more expensive than those used by other apparel makers, the company's success depends on an innovative but experimental retail strategy to bolster margins and cut the cost of clothing to customers.

Nau is building stores, called WebFronts (see BusinessWeek.com, 1/31/07, "Retail 2.0"). Instead of encouraging customers to snap up their offerings in the stores, Nau offers free shipping and a 10% discount if they order clothes online from in-store kiosks. By selling direct rather than through a retail channel, Nau bets that it can hit 72% gross margins, compared to 45% to 60% at other merchants, despite the high cost of its fabrics.

Nau's textile partners also are taking a leap of faith by developing these fabrics even though the company isn't meeting minimum-order requirements. Malden Mills, for instance, is losing money on its work with Nau on corn textiles. If the partners' development risks and costs become too much, they could simply choose to cut the cord.