Nau Is Then

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"They did a fantastic job creating something out of the ordinary in the eco-fashion frame of mind," says Cheryl Roth, co-founder of OrganicWorks, a New York eco-focused branding company. "It was different, and very cool." But others considered the Star Trek-like snugness and neutral colors pricey and uninspired.

"There was a sameness to the merchandise, a certain blandness," notes Candace Corlett, president of WSL Strategic Retail, a New York consulting company, about Nau's color palette of charcoal grays and chocolate browns. "Even if you wanted to participate in the goodness idea of Nau, there weren't a lot of items you felt you just had to take home."

Yet subdued colors and a pared down silhouette were part of Nau's performance-meets-sustainability-and-beauty package. Colors were constrained because the company banned toxic dyes and finishes, which often give clothes brighter, sharper colors. As for the style, Yolles says the idea was to make it last and appeal to consumers for at least 10 years, through the ups and downs and changing tastes and colors of "lifestyle" fashion.

The Price of Nontraditional Retail

Critics say Nau might have been more successful by adopting a traditional retail strategy, including setting up boutiques within department stores. This would have broadened the brand's awareness and placed the clothes in a setting amid a wider variety of styles and labels. In a department store, "you get tons of traffic and hints about what works and what doesn't," explains Howard Davidowitz, chairman of Davidowitz & Associates, a New York retail consultancy and investment bank.

Another mistake, he says, was Nau's relatively small, low-impact stores, which averaged 2,000 square feet. These were located in different settings, including traditional closed shopping malls, and in Chicago, the best-performing store, on a busy shopping street of boutiques in the Lincoln Park neighborhood. Still, says Davidowitz, "customers don't want a small selection in tiny stores. They want a large selection at a good price."

Selling through department stores, however, would have meant rethinking Nau's corporate philosophy. The company wanted to keep total control over its product presentation, which might have been altered by department stores that tend to cherry-pick what styles they prefer. "We wanted to present the products and our rich story, and design the customer experience, and that would not have been possible" in department stores, says Yolles, who does not regret the decision.

Delayed Gratification

With an emphasis on online shopping, the stores also created the perception that one of the most important elements of retail—a shopper's instant gratification of walking out of the store with purchase in hand—might not be met at Nau.

But that wasn't exactly the case. Customers could view all Nau merchandise in the store, try on what they wanted, and then decide whether to buy on the spot and take it home or order online at an in-store computer kiosk (about 45% opted for online, more than Nau executives had anticipated). While stores did stock "every color and size of every model," Yolles says, and typically restocked twice weekly, the dual strategy meant Nau kept less inventory on hand than conventional retailers. This reduced store square footage, staff size, and the ecological footprint. But, he acknowledges, "there was the possibility that, like at other stores, you wouldn't be able to get what you wanted."

Perhaps Nau was too fashion-forward, with its higher production costs—the company's sustainable fabrics cost 10% to 20% more than commercially available offerings—and unusual products, like a $32 men's boxer made of a biopolymer derived from corn, sold in a new age-y store. While Nau's prices were comparable to like-minded retailers Patagonia and North Face, they couldn't match megaretailers such as Steve & Barry's, whose $8.99 dresses sold in massive, unadorned stores are wildly popular in tough economic times.

Retail consultant Corlett says shoppers like to keep things simple. "The concept of going into a Nau store and seeing a sparse presentation and unfamiliar products without racks and racks of clothes, and then choosing a charity, and possibly going home without the purchase—it's too complicated for anyone," she explains. "We're just not ready for that."

Ernest Beck spent almost a decade as a staff reporter for the Wall Street Journal in Budapest and London. After leaving the Journal in 2002, he became a freelance contributor to numerous publications including the New York Times, Metropolitan Home, and SmallBiz. He is the editor of the book Brancusi's Endless Column about a mysterious sculpture in Romania (Scala, 2007).