Out Of The Gates: Reef enters apparel market with a refined, no-nonsense collection.

After spending the last three years honing in on its footwear offering and internal infrastructure, Reef has launched an apparel offering of fifteen styles of boardshorts, five walkshorts, and a tight selection of T-shirts, wovens, and knits. While the initial approach is go-slow, the new range represents the biggest brand extension in the companys seventeen-year history.

We decided we wanted to launch for Spring 04, and that decision was made early in 2003, says Mark Price, director of global marketing. Then it became a question of gearing up with the right people and support systems.

While Reef has tremendous footwear resources in terms of designers, developers, and production managers, the company is investing in its apparel department, bringing in Dino Sakelliou as apparel design director, hiring an apparel-production manager, and spending more than a hundred grand building out the offices of the apparel division.

According to Price, It would have been easy for Reef to say, Hey, lets leverage our production department. They can find some factories to make apparel. Lets leverage our shoe designers. Im sure they can come up with some good designs. But they didnt do any of that. Its a long-term project.

Price says that although the demand for additional Reef product lines existed before, the company has only recently reached the maturity needed to take on these types of brand extensions. Part of the reason it hasnt been done is that Reefs footwear business has exploded, he says. Trying to do that correctly — grow it right, staff it internally, and finance it externally — took a lot of the companys focus.

No one at Reef would ever say that its job done with footwear, but with some of these other tasks successfully accomplished, the time was right for apparel. Plus, he says, the offering naturally fits with the brand. There are companies that have gone into other product categories that represented a giant product extension, he says. Oakley comes to mind, where you have a technology company going into softgoods. But while Reefs product categories have been footwear, the company has been marketed as a beach-lifestyle company. Thats why we feel that the step into surf apparel for Reef is a manageable one.

The bulk of the styles are in boardshorts, and that will be the main focus of the initial line. Its lifestyle-driven, says Sakelliou. Boardshorts are fun and easy to understand. They make more sense than trying some clever fashion line or fancy fleece out of the gates. The marketing equity that the brand has makes boardshorts the most obvious choice.

Price nods with agreement and adds, Reef has made a tremendous investment in defining what it is. We want to make sure that the thrust of the line has credibility and authenticity. I dont think we would have the credibility to launch a jeans line in our first season. Down the road — after we establish the apparel component — all those opportunities will certainly come to us. But we have to stand in front of the retailer with confidence in what were offering and know that it makes sense for the brand.

But to be sure, going into apparel represents a big change for a brand thats already an important player in most surf shops, and Price says hes been traveling to shops to explain what it all means to the owners and managers. We want to make sure that prior to seeing the product, retailers understand exactly why we were doing it, what were going to do, and how it will be executed, he says. We preempted any questions or false perceptions they may have had by sitting down with them.

But he points out that the purpose of these visits werent to ask retailers for permission to see if the market would want the line. Were confident that the opportunity exists, he says. But we wanted to make sure that they understood why we were doing it. By and large, we got a large measure of support. Retailers say the market needs fresh brands, but that those brands damn well better have a monster marketing budget, unlimited in-store, soft terms, and be able to control their distribution.

I understand why theyre saying that, but thats an impossible set of standards for a start-up company to meet, he continues. So the opportunity we bring to the retail community is the brand power of Reef — which is on par with the big brands in our market — but with more of a boutique apparel approach.

Reef Cofounder Fernando Aguerre says it was this retailer hunger for new brands that prompted him to broaden Reefs approach: A couple of years ago we saw that most of the specialty retailers were really finding themselves trapped in three big-brand options and two or three risky start-up options. A year and a half ago we talked about the stagnation in the footwear market. I think the same holds true with apparel.

For us its almost like being more of what we are in a wider way, he continues. If you look at the list of top brands, Reef is up there. But if you look at the range of products we offer, many other companies offer more products than what we do. Its almost like, Come on, guys, its about time.

Although Reef sandals and footwear are sold to a relatively broad spectrum of specialty stores, Price says that wont be the case with apparel. We want to have a tighter distribution than the broad distribution that weve enjoyed, he says. How tight? Its difficult to say. Its something that will evolve as we go. But suffice it to say that we want it tighter.

Its hoped that every product order will also be shipped with a display rack. Thats something we feel strongly about, says Price. Were not asking for a lot of dollars up front, and that amount of product sprinkled into a store would get lost in the shuffle. Weve purposely designed a rack with a small footprint. Were offering a line plan thats easy to digest. Its not going to take 10,000 dollars to carry. If someone wants to place a ten-grand order, well take it {laughs}, but a good representation of the line will cost a lot less than that.

The existing Reef sales force will sell the apparel line, a fact thats aided by a recent, unrelated company move to have its sales reps team be 100-percent Reef reps. An ace in the hole is the fact that many of our reps have considerable apparel experience, says Price. Some, in fact, have recently gone 100-percent Reef over brands like Hurley and Rusty. That indicates to me that not only do they have a lot of confidence in Reef, but they also have a lot of apparel experience in having sold those other lines.

The scale of the line enables these reps to take a slow-as-it-goes approach when it comes to selling in the line and avoid having to leverage the brands footwear orders. If we came out with a 100-piece line looking for ten- to twenty-grand worth of open to buy and 30-square feet of floor space, then we would have to use that leverage to get that commitment, says Price. But were coming out with such a palatable program, its actually the reverse. Retailers are telling us, Look, based on the strength of your business with us, Id be crazy not to try this. Reef has such strength at retail and weve made such a palatable presentation, that its a no-brainer.

Price says this was a deliberate strategy designed for the long haul: Were a highly profitable company. We dont need to make money on the apparel program straight out of the gates. Of course, we would like for it to be profitable, but we understand that it takes time to build. We can afford to go slow.

A New Marketing Approach?

One of the more interesting topics is how the apparel line will change Reefs consistent marketing and advertising approach — and how it might affect the companys roster of teamriders.

Were definitely going to be supplementing our existing marketing investment with an apparel-specific investment. There will be ads dedicated to apparel, says Price. As of right now, I dont know if theyll look dramatically different or similar to our existing ads. Weve got plenty of time to figure out how were going to work it from a con
sumer standpoint. Suffice to say, all the building blocks — advertising, team, in-store promotions — will be in place.

Price says Reefs move into apparel is bound to create some conflicts or concerns from apparel companies who also sponsor Reef athletes. However, he says that only athletes sponsored by Reef apparel will appear in Reef apparel ads. Theres no way were going to create ambiguous advertising — thats totally disingenuous, he says. At the same time, the better athletes are being grabbed 100 percent from the broader brands, so if we went into apparel or not, our ability to compete for the services of top athletes is going to get tougher and more expensive. In many respects, were just speeding up a process thats already taking place. Well cross the bridges by athlete as we come to them.

But Aguerre says he doesnt expect many of the other brands to view Reefs move into apparel as a threat. I dont think the big apparel brands will give a fuck about what were doing, he says. For the next few years, in their eyes, were going to be no more than an ant on the highway. Were little lizards crossing the I-5, so who cares? Actually, it will be better for them to see us coming up. Its a predictable brand with an understandable message and brand identity. If anything, it enhances the marketplace by offering some diversity.

Rolling The Dice — Sort Of

With no sales track record, the initial production orders will be modest, says Price. But we have to take responsibility for the program, he says. If were going to put a rack on the floor, we have to make sure its not empty. The fewer SKUs you have, the more chance you have of having the right stock at the right time. At the same time, you have people shipping fall so early these days that the summer window has become short. So with extended delivery dates and rolling product forward into summer, you can build some flexibility into the program. Weve done everything we can, but a certain percent of it will be a roll of the dice.

Im confident that with Dinos expertise, the product is going to be sick. And Im confident that with our relationship with our retailers and with {VP Of Sales} John Wilsons sales ability, the product is going to get placed. But we need to execute. We need to deliver on time with good quality. Thats going to be the acid test.

This will be no small task given that the line will launch simultaneously around the world — a point Aguerre says is strategically important: Some companies that just do business in one country have to do everything they can to maximize that country, but when you can have growth coming from around the world, then you really dont need to squeeze or burn bridges. You can go at a pace thats more natural.

But when it comes to the production question, Sakelliou is comfortable with his options. Weve been in this game for quite a while, he says. You make friends and contacts, and you have factories you end up working with over and over. So theres a comfort level there when deciding whos going to make what.

So what are Reefs expectations for its apparel line? Will there be a time when apparel sales actually approach those of footwear? Price laughs, adding: Its our intention to exceed it. Were not putting any limitations on how big it could get. We want take the right steps and let the volume be whatever it ends up being. We believe that if we approach the business correctly, the sales will come. We dont need to set aggressive benchmarks and then try to meet them by making compromises that can undercut our long-term success.