Nautica Enterprises, Inc. Business Information, Profile, and History

Company Perspectives:

Over the past two decades, Nautica has become an international symbol of style, quality, and value. Throughout the years, we have kept pace with changing consumer preferences while staying true to the classic styling and modern sensibility that has given our products such broad appeal. We make it our business to understand consumers and to consistently offer the convenience and comfort that defines a trusted brand. Whether it's for leisure, career, or home, Nautica is recognized as an accessible brand that features innovative designs and quality fabric.

History of Nautica Enterprises, Inc.

Nautica Enterprises, Inc. operates as a leading apparel wholesaler and retailer. Its wholesale businesses design, market, and distribute sportswear, activewear, outerwear, the Nautica Jeans Collection, tailored clothing, swimwear, and sleepwear. Nautica opened its 100th retail outlet in 2000, followed by a flagship concept store in Rockefeller Plaza in New York in April 2001. Its merchandise is found in over 1,500 in-store shops in department stores across the United States. Products including Nautica Golf, fragrances, neckware, footwear, watches, hosiery, eyewear, rainwear, leather belts, wallets, gloves, scarves, and home furnishings are also licensed across the globe in over 20 countries. The majority of Nautica's sales stem from operations in its top two markets--the United States and Europe.

California-Based Company: 1966-75

Nautica originated in 1966 as Pacific Coast Knitting Mills, a firm engaged in manufacturing and distributing double-knit natural and synthetic fabrics in Vernon, California. This company had net sales of $2.1 million and net income of $55,533 in fiscal 1968 (the year ended February 29, 1968). It went public in 1971, offering a minority of its outstanding shares for $8 a share. The company ended fiscal 1972 with $4.1 million in sales but only $44,340 in net income.

In 1972, Pacific Coast Knitting Mills acquired, for $850,000 in cash and notes, almost all the stock of Van Baalen Heilburn & Co., a Rockland, Maine, firm engaged in manufacturing and distributing men's sportswear, swimwear, and robes, generally under the trade name State-O-Maine. Van Baalen, which originated in 1921 in New York, had moved to Maine in the late 1930s to lower its labor costs. At the time of its purchase it was making robes under the Christian Dior name and had long-term contracts with designers John Weitz and Pierre Cardin. The company had net sales of $3 million and net income of $51,880 in fiscal 1971. It was renamed Van Baalen Pacific Corp. after its acquisition.

With Van Baalen in tow, Pacific Coast Knitting Mills raised its sales, but its earnings remained modest. In fiscal 1974, it had record sales of $5.3 million but net income of only $22,000, a circumstance attributed by management to substantial knitting-mill losses. Sales grew to $5.9 million in fiscal 1975, but the company took a $1.5 million loss because of discontinued operations. Its stock quickly fell out of favor with investors, dropping as low as 12 cents a share in 1973 and two cents a share in 1975.

New York-Based State-O-Maine: 1975-83

In June 1975, the knitting-mill business was sold to Stanley Flaster, the president of Pacific Coast Knitting Mills, who renamed it Flastex, Inc. Flaster's wife, who owned the biggest block of Pacific Coast stock, and Myron Herschler, its vice-president and another big investor, sold their shares to Harvey Sanders, the company's chairman, secretary, and treasurer, and Milton Weinick, a director. Sanders and Weinick were partners in a New York City accounting firm that bore their names. Sanders emerged with 41 percent of the stock, and Weinick, named vice-president and treasurer, with 31 percent. The company, renamed State-O-Maine, moved its headquarters to New York and won a $725,000 loan from the National Bank of North America, but only on the condition that Sanders also loan the company $225,000. In 1979, Weinick became chairman as well as treasurer, with Sanders as vice-president and secretary. Sanders's rank rose to president in 1983, and he added the title of chief executive officer in 1992.

State-O-Maine made modest profits in the late 1970s but was still shunned by investors. In fiscal 1980, it earned $245,000 on net sales of $12.7 million but ended the fiscal year with a long-term debt of nearly $1 million. Three years later, the company had upped its sales to $19.2 million and its net income to $509,000--steady if unspectacular figures. Customers for its robes and jogging suits included Bloomingdale's, Nordstrom, and Saks. The firm's fortunes advanced that year when a department-store executive introduced Sanders to David Chu, a young, Taiwanese-born clothing designer. Chu and a partner had started a company called Nautica in 1983 and had introduced a collection of brightly colored men's outdoor jackets. They sold well, but the partner did not want to invest the necessary funds for expansion. For a small amount of cash and the assumption of about $1 million in liabilities, State-O-Maine bought out Chu's partner in 1984. Chu later traded his 20 percent interest in the company for State-O-Maine stock.

Nautica's Rise to Prominence: 1984-91

Sanders and Chu devised an expansion plan combining Nautica's products and maritime-based image with State-O-Maine's production and distribution network. This plan entailed selling only to carefully selected high-end stores--only one or two department stores in each market outside New York City--and showcasing Nautica's products as a collection rather than splitting them by categories. These products grew to include men's dress shirts, neckwear, hosiery, belts, suspenders, small leather goods, jewelry, watches, gloves, hats, sunglasses, fragrances, and skin care. Nautica's growth was spectacular, its sales increasing from about $1 million in fiscal 1985 to about $20 million in fiscal 1988, about half-and-half to department and specialty stores. Outerwear accounted for about 45 percent, "activewear" for another 40 percent, and casual sportswear, a line introduced in 1987, for 15 percent. A full collection of women's products was introduced in fall 1988.

Fueled by Nautica's popularity, State-O-Maine became a hot company in the late 1980s. Sales soared from $28.9 million in fiscal 1986 to $75 million in fiscal 1989, and net income shot up from $1.6 million to $5.4 million. The company's market capitalization grew from $2 million in 1983 to $74 million before the end of 1991. At first about half the company's production was manufactured in Rockland, but this proportion fell to one-third as Nautica established a Hong Kong subsidiary and increasingly outsourced its needs to Far East suppliers. In 1990, State-O-Maine halted production at its Van Baalen subsidiary, restricting the operation to distribution and importing all of its clothing. State-O-Maine opened retail stores in New York City and Newport Beach, California, in 1987 and a Rockland factory outlet store in 1988.

By the end of fiscal 1991, in which Nautica accounted for $63 million of State-O-Maine's $95 million in sales, Chu was a major presence in his field. He maintained total command over the Nautica image, with design control over every style in both the men's and women's clothing lines--now totaling nearly 500 pieces--and also over the licensed products, such as watches and fragrances. He even designed many of Nautica's fabrics. In an interview for a cover story for Bobbin, Chu said the Nautica image represented the "relationship of people to nature. What we try to do is provide functional apparel that is stylish--apparel that can be worn in all kinds of weather and all kinds of nature patterns. ... The beauty about the textile industry today is the new technologies featuring new fabrics, waterproof fabrics, and microfibers, which make the final product more functional."

By the spring of 1991, Nautica had established nearly 100 in-store shops, with distinctive deck flooring in certain areas. Its high-end image was fiercely protected by Sanders; when a department store marked down its goods mid-season, the account was dropped. Nautica's carefully crafted marketing plan included advertisements in such magazines as GQ, Esquire, Sports Illustrated, Vanity Fair, and Vogue, and also sponsorship of sailing competitions, including the United States and international Youth Sailing Championships. For 1992, it created its very own championship in Portugal: the Nautica Cup. That year State-O-Maine opened an expensive new showroom on Manhattan's elegant 57th Street and hired 10 additional designers and merchandising coordinators. However, Nautica's money-losing women's division, which never accounted for more than 15 percent of sales, was discontinued in May 1991.

Continued Expansion and Growth: 1992-96

State-O-Maine added another arrow to its quiver in 1992, when it acquired Bayou Sport for an undisclosed sum. With annual sales volume of about $5 million, this company was manufacturing and marketing men's moderately priced cotton woven and knit shirts, swimwear, slacks, and shorts under its own name. Reflecting the overwhelming presence of the biggest sector of its business, State-O-Maine was renamed Nautica Enterprises in 1994. That year the number of Nautica shops within department stores reached 428. Nautica also had 543 specialty accounts and 18 factory outlet stores. The far-flung number of retail stores licensed abroad under the Nautica name included ten in South Korea and nine each in Mexico and Japan. Licensed products--including boys' and girls' wear, luggage, and even Lincoln-Mercury Villager vans--now made up about 25 percent of sales, which totaled $151 million in the fiscal year.

Fiscal 1994 was better yet, with net sales reaching $192.9 million and net income $16.8 million. Sanders--who owned about 11.5 percent of the company--took $6.6 million in salary, according to a trade publication. During the calendar year the number of in-store shops rose to 548. They were averaging 800 square feet in size and $400 in sales per square foot. The number of outlet stores increased to 31; they averaged about 3,000 square feet and $375 per square foot.

In fiscal 1995, Nautica Enterprises advanced once more, its net sales reaching $247.6 million and its net income nearly $24 million. For the 1991 to 1995 period, it posted an average annual gain of 24 percent in sales and 54 percent in net income. The 1995 profit margin of 10.5 percent was the third-highest among the apparel industry's mid- and large-size public firms. That year, the company's accounts grew to 1,100 department stores and more than 500 specialty stores. Sanders announced that he planned to double the size of some of its new in-store shops to an average of 2,200 to 3,000 square feet, compared to the 800- to 1,800-square-foot range of the current ones. In 1996, the company continued its aggressive outlet-store expansion, presented a new Nautica Competition activewear label, announced a licensing deal to sell women's wear under the Nautica label in August 1996, and announced a licensing agreement to market Charles Goodnight robes and loungewear.

Fiscal 1996 was another record-busting year for Nautica Enterprises, its net sales reaching $302.5 million and its net income just short of $32 million. The company opened 146 new shops and expanded 122. In September 1996, it announced its entry into the home-furnishings market with three home-textile licensees: Dan River for sheets and bedroom ensembles; Ex-Cell Home Fashions for shower curtains, bath accessories, and table linens; and Leshner Corp. for bath and beach towels. Company executives estimated Nautica Home would register about $50 million in retail sales by the end of its first year. The women's line, produced through a licensing agreement with Bernard Chaus, opened in more than 100 new in-store shops. Men's tailored-clothing and infants'/toddlers' lines were also in the works. In 1996, the company announced a joint venture with Financo to distribute the Nautica men's collection throughout Europe, where it would open a showroom in January 1997, a license agreement with Unionbay to design and market a men's denim collection, and a license agreement with Kellwood Co. for dress shirts.

Nautica Enterprises ended fiscal 1996 with 885 in-store shops and saw potential for an eventual 1,500 such shops--a number reached at the start of the millennium. It expanded the size of 159 of its stores in 1996, of which over 40 featured a separate area for the Nautica Competition line. Nautica ended fiscal 1996 with 58 freestanding stores and 145 in-store shops in 30 foreign countries. New openings scheduled for 1996 included Argentina, Brazil, and Beijing, China. Nautica Enterprises had virtually no long-term debt in 1995.

Nautica Enterprises in the Mid-1990s

In fiscal 1996, Nautica International, Inc., a wholly owned subsidiary of Nautica Enterprises, was offering an array of men's sportswear, outerwear, and activewear, primarily targeted to the 25-to-54-year-old age group. Sportswear included sweaters, woven and knit shirts, rugby shirts, pants, and shorts. Outerwear included parkas, bomber jackets, and foul-weather gear. Activewear included fleece and french terry tops, french terry pants and shorts, T-shirts, and swimwear. This clothing came in three principal groups: Anchor, Crew, and Fashion.

State-O-Maine, also a wholly owned subsidiary, was offering Nautica-brand robes and loungewear, sportswear, and swimwear under the Bayou Sports label, apparel designed and sourced for private-label programs--which were first introduced in 1993--and robes and loungewear under the Charles Goodnight label. Except for the Nautica-brand furnishings, these products were more competitively priced and more broadly distributed than the company's other offerings.

Nautica products were being sold primarily to leading department and specialty stores. Its principal customers included Dillard's, May Company Department Stores, Dayton-Hudson's, Marshall Field, Federated Department Stores, Bloomingdale's, Lazarus/Rich's, and Nordstrom. State-O-Maine was selling primarily to department stores, including the first four above, and such national chain-store operators as J.C. Penney and Sears, Roebuck.

Nautica Enterprises maintained a high profile for its products by advertisements in national and regional magazines and through a cooperative advertising program with its retail customers. This effort was being augmented by a series of special events and sponsorships. In fiscal 1996, the company was the official clothing sponsor for the U.S. Sailing Team and the official apparel sponsor for two events on the Senior Professional Golfers' Association tour.

Nautica Enterprises' products were being designed by the company's own staff and manufactured chiefly in Hong Kong, China, the Philippines, Malaysia, Singapore, Saipan, Thailand, India, and Turkey. The Nautica name and related trademarks were being licensed for sale abroad--both wholesale and through a number of retail stores--by Nautica Apparel, a wholly owned subsidiary.

Nautica Enterprises operated 38 factory outlet stores in fiscal 1996 through another wholly owned subsidiary, Nautica Retail USA, and it maintained flagship stores on Manhattan's Upper West Side and in Newport Beach, California. It was operating three warehouse and distribution facilities in Rockland, Maine, two of which were owned by the company and the third leased. It was leasing administrative and sales offices and a design studio in Manhattan and was also leasing sales offices in Dallas.

Continued Growth and Expansion

Nautica entered the late 1990s on solid ground. In 1997, the firm purchased the E. Magrath Apparel Co., a seller of golfwear under the Magrath and Byron Nelson brand names. The company also expanded its product line with the addition of bed and bath products and plans were set in motion to create a housewares and furniture line. During that year, Nautica introduced a women's swimwear collection.

In 1998 however, Nautica terminated its license agreement with Bernard Chaus--the firm that manufactured the Nautica's women's sportswear line. While Nautica remained a powerful force in men's fashion, the women's sportswear line did little to boost profits. As such, the company focused on launching various different products targeted towards women including a sleepwear line that debuted in January 1999. A December 1998 WWD article commented on the strategy claiming that, "although it still is without a women's sportswear collection, Nautica is hoping that other product categories will keep the Nautica brand alive in women's minds."

During fiscal 1999, earnings rose by four percent while sales increased by 14 percent to $552.7 million. As outerware sales faltered due to warmer weather trends in the United States, the company was forced to markdown merchandise to make way for the new season's fashions. Nevertheless, the company continued to strengthen as well as broaden its brands. During 1999, Nautica secured licensing agreements for its Home Accessories, Dinnerware, and Stemware product line. In the fall of that year, the Nautica Jeans Company was created to target consumer between the ages of 16 and 35. Initially the line only included men's jeans; however a women's denim collection was included in fall 2000.

Nautica continued its growth strategy into the new millennium and the company opened its 100th retail outlet. The men's fragrance line, Latitude/Longitude, was launched along with the contemporary designer John Varvatos collection. During that year, the company discontinued its Nautica Sport Tech line after recording several periods of lagging profits due to increased competition and soft retail sales.In May 2001, Nautica purchased Earl Jean Inc., an upscale brand that fit in with management's plan to move into high margin product markets. During that year, the company's major focus was on expanding the Nautica brand into new categories, expanding its brand portfolio, exploring future distribution opportunities, and strategically positioning its global business. Sanders commented on the firm's direction in a 2001 Daily News Record article stating, "Building on the current momentum and capitalizing on the best opportunities that exist, we will focus on the expansion effort on our core markets and scale back operations in less profitable countries."

It was during this time that the apparel retail industry as a whole began to struggle. As the U.S. economy showed signs of weakening, department stores sales fell due to faltering consumer confidence. Nautica however, was convinced that it would continue its tradition of providing products with style, value, and brand appeal. With no long-term debt and with a solid strategy in place, the company appeared to be well-positioned to battle future economic problems.

Principal Subsidiaries: Nautica Jeans Co.; Van Baalen Pacific Corp.; John Varvatos Co.; Nautica Apparel, Inc.; Nautica International, Inc.; Nautica Retail USA, Inc.; Nautica Europe Holdings Ltd.; Earl Jean Inc.

Principal Competitors: Liz Claiborne Inc.; Polo Ralph Lauren Corporation; Tommy Hilfiger Corporation.

Chronology

• Key Dates:
• 1966: Pacific Coast Knitting Mills is established.
• 1972: The firm acquires Van Baalen Heilburn & Co.
• 1975: The knitting-mill business is sold to president Stanley Flaster and is eventually renamed State-O-Maine.
• 1983: David Chu and a partner establish Nautica and launch a line of outerwear.
• 1984: State-O-Maine buys out Chu's partner and acquires ownership of Nautica.
• 1987: State-O-Maine opens retail stores in New York City and California.
• 1988: A full collection of women's products is launched; the company's sales reach $20 million.
• 1991: The women's division is discontinued.
• 1994: State-O-Maine changes its name to Nautica Enterprises Inc.
• 1996: The company launches a sportswear line entitled Nautica Competition.
• 1999: Nautica launches a Men's Jean line along with a Women's Sleepwear line.
• 2000: The 100th retail outlet store is opened.