The North Face, Inc. History

Address:

2013 Farallon Drive
San Leandro, California 94577
U.S.A.

Telephone: (510) 618-3500
Fax: (510) 618-3531

Public Company
Incorporated: 1994 as The North Face, Inc.
Employees: 518
Sales: $158.23 million (1996)
Stock Exchanges: NASDAQ
SICs: 5699 Miscellaneous Apparel & Accessory Stores; 2399 Fabricated Textile Products, Not Elsewhere Classified

Company Perspectives:

The North Face has developed a superior reputation for quality, performance and authenticity by providing technically advanced products capable of withstanding the most extreme conditions. For nearly 30 years, the Company's outdoor apparel and outdoor equipment have been the brand of choice for numerous high altitude and polar expeditions. These products are used extensively by world-class climbers, explorers and extreme skiers, whose lives depend on the performance of their apparel and equipment. To maintain and further enhance this unique legacy, the Company continuously develops and introduces innovative products that are functional and are designed to be both technically superior and, in many instances, to set the industry standard in each product category. The Company cultivates its extreme image through its targeted marketing efforts and its teams of world-class climbers, explorers and skiers.

Company History:

The North Face, Inc. is a manufacturer and distributor of high-grade equipment and apparel used in mountaineering, skiing, and backpacking. While the reputation of North Face was built on outfitting expeditions, the company's later growth has come through the introduction of high-tech apparel in upscale retail stores. With Summit Shops, North Face has established its use of a "store within a store" concept. Summit Shops are located within the company's wholesale customer's stores. As of 1996 there were 25 Summit Shops, with another 100 planned for opening sometime in 1997. The company also operated nine retail stores, two distribution centers, and three outlets in the U.S., with domestic distribution to approximately 840 wholesalers representing nearly 1,200 storefronts. Virtually all of the company's goods are manufactured, to North Face's specifications, by some 50 unaffiliated contractors located in North America and Asia.

The Early Years: 1965-73

According to the 1996 company prospectus, the name North Face originated with the company's founders and comes from the fact that the north face of a mountain in the northern hemisphere is usually the most formidable and challenging for mountain climbers. North Face was founded in 1965 by outdoor enthusiasts retailing premium-grade backpacking and climbing equipment. North Face began to wholesale and manufacture backpacking equipment in 1968. The business continued to grow and expand. In the early 1970s North Face added outerwear to its product line.

Innovation in Product Design: 1975-90

Innovative product design and consistent development and introduction of new products have always been North Face's greatest strengths. In 1975 North Face introduced a benchmark in the outdoor equipment industry with its geodesic dome tent. This design became the standard for lightweight, high-performance tents used in high-altitude and polar expeditions. The geodesic dome also became very popular for general backpacking and camping as well. The same year North Face also introduced another original, sleeping bags incorporating shingled construction of synthetic insulation. Like the dome tent, these sleeping bags have become the industry standard.

In the early 1980s the company launched its "extreme skiwear" line. Another addition to the North Face product line came in 1988, when the Expedition System was introduced. A complete line of severe cold weather clothing consisting of integrated components, the Expedition System was designed to be used together in various combinations. According to the company, there is wide use of this clothing system by world-class mountain climbers. By the late 1980s North Face was the only manufacturer and distributor in the United States of a comprehensive line of premium-grade, high-performance equipment and apparel used in mountaineering, skiing, and backpacking.

Shaky Ground for North Face

While the reputation of North Face products has remained sound, internal decision-making has occasionally been questioned. During the growth phase of the 1980s, the company attempted to manufacture all of its own products. This led to problems of obsolete materials, large amounts of capital invested in an inventory of finished goods, and late delivery of high-demand products. However, these were not the only detriments to the financial health of North Face. In the late 1980s, North Face opened outlet stores to sell lower-priced products in an effort to dispose of obsolete materials. The product reputation of North Face was based on a high-end, or expensive, association with the inherent product quality. The lower-priced products confused or missed the intended consumers and did not help the company's overall image. Also, these outlets were not well received by North Face's wholesale customers and were eventually closed. All of these business activities had a negative effect on North Face's finances and launched the company into the next phase of its history.

In May 1988, Odyssey Holdings, Inc. (OHI) acquired the company, known at that time as North Face Corporation. OHI owned about 30 companies in the outdoor and brand-name apparel industry and was at that time headed by William N. Simon, now president of North Face.

In January 1993, a new executive staff was recruited to make needed changes in North Face's operations. Among those newly recruited was Marsden S. Cason, who was at that time the president of North Face and a director and executive officer of OHI. Some of the significant changes initiated by the new management team included hiring experienced executives and operating managers, establishing a focus on sales and gross margin, expanding contracted sources of goods and materials, closing discount outlets, and discontinuing unprofitable product lines. Eventually, as a result of these initiatives, the company would realize a significant increase in sales and profits. However, in 1993 the parent company, OHI, filed for protection under Chapter 11 of the U.S. Bankruptcy Code.

A Dramatic Turnaround Beginning in 1994

North Face continued to operate at a loss until 1994, when the strategic changes mentioned began to take a positive effect; 1994 was a year of significant transitions for North Face. On June 7 the company was purchased at public auction for $62 million by a group consisting of J. H. Whitney & Co., Cason, and William S. McFarlane. On June 8, 1994, TNF Holdings changed its name to The North Face, Inc. Also in June 1994 Cason was appointed CEO of North Face.

The 1990s: Opportunities, Threats, and a Look to the Future

One of the inherent weaknesses of being in a focused, niche industry, according to experts, is attempting to sustain growth in a field with a limited number of customers. This is what necessitated the introduction of Summit Shops selling Tekware as North Face attempted during the 1990s to obtain a share of the leisure apparel industry. Such a shift represented a major departure from traditional North Face territories. North Face's success in this new venture depended, in part, upon the buyers of casual wear, a market that can be fickle. For North Face, entering this market could be seen by industry observers as either a weakness or an opportunity. In addition, another possible weakness that presented itself was overdependence on contracted vendors to supply the majority of the company's manufactured goods.

The largest area of opportunity that North Face was involved in was the expansion into the casual apparel industry with the introduction of "Summit Shops." Another area of opportunity for North Face was the possibility of future government contracts for tent sales, given the company's longtime association as a supplier to the U.S. Marines Corps. Finally, further development and introduction of new and innovative designs of products in the future seemed to be a likely avenue for North Face to gain or retain market share.

Nonetheless, North Face faced very real threats to its future growth. While the company remained subject to the same kinds of business threats that any business faced, such as major shifts in consumer tastes and preferences, its most prevalent threat was competition. Archrival Patagonia, for example, had historically carried a very similar product line. And there always loomed the threat of new competition because of relatively low barriers to entry and the possibility of a breakthrough in product design.

While North Face had weathered some rough and challenging times, the company seemed by the mid-1990s to be on firm footing and ready to begin another new phase. North Face recommended itself as a company poised for future growth by building on its strengths: brand-name recognition, product reputation and differentiation, innovative product design and diversity, aggressive entry into the casual wear market, and, as attested to by company profits and increases in the value of the company's stock, the decisive and able senior-level management that will continue to drive North Face's climb to success.

Principal Divisions: A5 Adventures, Inc.

The North Face, Inc. History

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