June 23, 2017 / THE WORLD'S A STAGE, WHAT'S YOUR STORY?
June 23, 2017
Michael Morrow was packing his office wrapping up a decade as a successful Creative Director at Nike. It just so happened that his Nike departure was a couple days before the annual football game between Oregon State and Oregon. Known to locals as the Civil War, this one was especially weighty as it matched the #5 and #8 teams in the polls.
A soon to be former colleague (and Ducks fan) walked into his office and said he thought it’d be a good game. For Morrow, who grew up in Oregon State’s hometown—he calls it “Corvallis, Center of the Universe” —good wasn’t quite the way he felt about it. He jumped up and expressed his opinion a little more forcefully of domination by the Beavers. And then he went to join his family for dinner. While at dinner, he thought about stuff to wear to the game. On a napkin, he sketched out the design of a helmet in Oregon State colors with a Mohawk of spikes and a few ducks impaled on them.
“A buddy gave me a black skateboard helmet so I could make it. The glue had barely dried by game time,” Morrow said, “but I wore the helmet anyway and it got a great reaction.” That sparked some searching. He took a look at the helmet category and saw a couple different angles: technical cycling helmets focused on performance attributes and functional helmets mostly in black. “Basically, there were bike geek styles that serious cyclists would wear and basic helmets for kids. They were all boring and none had personality.”
He kept thinking about his helmet idea while he spent a few years building a creative agency for clients like ESPN and Disney. He finally concluded that if he could produce helmets with cool designs then people would be more likely to wear them…and buy them.
“At Nike, we sold a lot of hats with logos and teams on them but there was nothing like that for bike helmets.”
All along, Morrow built relationships. He’s the sort of character who quickly establishes rapport with people and comes across as someone to be trusted with an honest opinion and a genuine nature. “I grew up on sports fields. Me and my friends learned pretty quick that we needed each other in order to win and we also did better when we said what was on our minds. We could be up front without being obnoxious. And it was all in a spirit of doing better next time out.” He’s tapped into those relationships to build Nutcase.
A Specialty Brand that Started in Mass Retail…
Over time, Morrow focused more on his helmet ideas. He created the brand, Nutcase, and the story. “We wanted to make helmets fun. To make them into something you’d want to wear without being told you should.”
So where would one try to start selling a product like that? A friend of Morrow’s knew the buyer at Target so Morrow made samples and sent them in. “I wasn’t expecting them to take it but they loved the designs. And then I thought, uh oh, we’re going to have to make them now.” The initial helmets became a hot seller. The category leader, Bell Helmets, rolled out their version of cool graphics within the first year. Target also came out with a store brand helmet. Meanwhile, Walmart picked up Nutcase too.
Even though he’d started in mass retail, Morrow was considering what would be the best channel to aim for. Always willing to ask for opinion, he packed up samples for a specialty line of helmets and had a chat with Bike Gallery in Portland. “I really wanted to know how they thought Nutcase would do in bike shops.” After Bike Gallery gave an enthusiastic green light, Nutcase signed up a few other leading bike shops and had a go.
As those close to specialty retail know, a brand attempting to pivot from mass retail distribution to specialty is an unusual and bold move. It’s also the opposite of what usually happens. Target and Walmart have 6,500 stores in the US. There are 3,800 specialty bike shops…85% of which are single location businesses. Along with the fragmentation of the channel, customer margin and support requirements are different and that requires a different go to market strategy. There’s also a long-standing resentment from specialty retailers toward mass. Crossing that chasm isn’t easy nor—in most cases—advisable. Nonetheless, Nutcase did it.
Understandably, it took a few years to get going. Despite the temptation to utilize distributors upon their entry into specialty retail, Nutcase initially used a handful of independent reps in key markets. They did bring their own merchandising angle. Bike helmets were typically stacked on shelves in their original boxes. Nutcase wanted visibility so they offered free branded helmet hooks so consumers could see their products on the wall.
And Morrow’s sportswear background came through in their thinking. “I wanted us to think like a T-shirt company and keep coming out with designs,” he said. His hope was to sell more product and also be harder to chase. “Since we were competing with big companies, all these new designs would be a problem to them. A few pennies to us didn’t matter but to a big company spreading that out over their supply chain would add up. Why would some big company CFO want to chase a small design group in Portland?”
Using International Distribution to Fuel Domestic…
And then a German kid saw Nutcase at a US trade show and told them about an opportunity that would inspire the company to (again) make an unconventional move. ISPO, the giant sporting goods and athletic show in Munich, had a section devoted to innovative new brands. “They had a contest for a free spot in their ‘Brand New Village,’” said Morrow. “We submitted and won a spot.” ISPO also had a runway show with athletic models sporting items from the new brands. Suddenly, Nutcase’s cool factor became very visible at the show.
“We were pounded with interested distributors,” he said. “So we set up a master distributor in Europe and got rolling.” Pretty quickly, international sales were far bigger than US. For a number of years, international represented 75% of their overall turnover. That also helped alleviate cash flow issues as European customers were making a down payment in advance of production and then paying Nutcase’s suppliers directly before shipment. “For us, it was a run to daylight…we were going where the money was,” according to Morrow.
They were also learning about consumer appeal of their products. In countries with a high design ethos and bike helmets are worn regularly like Belgium, Denmark, and Japan, Nutcase does well. “Denmark was our first real country distributer. The Danes live on bikes, wear helmets, and like to look good,” he said. “They ate up Nutcase helmets from Day 1. They’d line up outside stores like they were waiting for doughnuts.”
Nutcase then built distribution in Australia, Canada, and Japan among others. International distribution can complicate business for some companies. For Nutcase, the rapid growth and payment circumstances helped feed their growth in the US.
Using patience and a lot of work to build the US…
Over time, the company patched together a network of independent reps to crack into independent bike shops. “Just like with our international business, we found that certain areas cared more about design and we sold well in those areas. We tended to be more appealing in urban areas than in suburbs.”
Nutcase is now available in more than 1,000 independent specialty stores in the US as well as REI. “We’re a little like Led Zeppelin which made it big abroad before growing in the UK where they’re from. We’re doing well and have lots of opportunities ahead.”
Michael Morrow, Scott Montgomery, the Nutcase family, and friends have built a unique brand and business. Here are a few lessons from their success that apply to businesses in other categories:
Original post on the BottleRockAdvisors Blog.