Can Tory Burch Build Another Billion-Dollar Brand?

NEW YORK, United States — If Tory Burch's "accessible luxury" empire was built on the Reva, a ballet flat adorned with a gold 'TB' buckle reminiscent of the art-deco-inspired doorknobs bolted onto grand Palm Beach homes, the crown jewel of Tory Sport, her activewear brand, may turn out to be the $125 Chevron legging, which riffs on 1970s athleticwear without being overly retro.

The leggings are highly comfortable — not scratchy or plastic feeling — made out of a densely woven but lightweight nylon fibre called Tactel. It's velvety to the touch and so opaque there's no chance of the wearer — or the company — being scandalised by see-through fabric à la Lululemon's infamous sheer pants debacle

“Real function meets style,” is how Burch, both the creative director and co-chief executive of her namesake fashion company, describes the concept for Tory Sport. “I thought we had something different to say.”

Burch first had that thought six years ago in 2010, she says, long before Lululemon became a multi-billion dollar brand; long before the birth of the much-loathed moniker “athleisure” and long before the rapid expansion of the global sports apparel and footwear market, which reached $270 billion in sales in 2015 and, according to Morgan Stanley, is on track to grow another 31 percent to $353 billion by 2020. In the US alone, sales of activewear reached $97 billion in 2015.

But “activewear” is a loose term, incorporating the gear worn when participating in rigorous exercise — like a highly-engineered sports bra or windbreaker — but also items that are intended to be worn long after the sweat is wicked away, like a pair of sharply designed leggings or high-tech knitwear meant to be thrown on after a yoga session. The vision of an American woman in yoga pants, clutching a venti Starbucks as she steps into a juice bar in a perfectly manicured suburban shopping centre, is by now a cliché. But activewear has gone further by spoiling the consumer to expect more from all garments no matter what the use case.

“The customer expects the more casual ready-to-wear lines to have an element of function today,” says Robert Burke, a retail consultant who was the fashion director at Bergdorf Goodman when the company became Burch’s first wholesale account in 2004. “You can see it in denim; there’s a lot more technology in it. But there is also more quick-drying fabric, and more comfort, in ready-to-wear.”

The designer and her brother, Tory Burch president of corporate development Robert Isen, spent three years developing the concept for Tory Sport before hiring the first members of the brand's still small team. Activewear pioneers like Sweaty Betty had been in business for over a decade, but by the time Tory Sport began to take shape in 2013, plenty of major retailers, from Old Navy to H&M, had cottoned on to the potential of the market and new brands were emerging left and right, including fashion favourites Lucas Hugh and Live the Process, as well as venture-backed startups such as Tracksmith, Yogasmoga and Outdoor Voices. "What she saw is what many people saw," Burke says. "It's more competitive than I think anyone imagined it would be."

We didn't want it to be a second part of the brand, like a second line. We wanted it to be more.

“I guess three, four or five years ago it wasn’t as clear as it is today that it’s a shift in the way women are dressing,” Burch says. “It was more an instinct; something that I was personally missing and thought could be a nice addition to our company.”

The impetus for Tory Sport doesn’t sound all that different to how Tory Burch was launched in 2004 with a quest for a perfect tunic blouse. This time around, Burch — always her own customer — was feeling let down by the activewear options on the market. “I grew up as a tomboy and an athlete and I just found myself always thinking the things I love the best were from high school and college,” she says. “Items with a more classic, a bit retro vibe.”

What’s different now, though, is Burch has plenty more to lose, despite some major advantages. With more than a billion dollars a year in revenue, Tory Burch was expected to launch an activewear concept akin to what other established brands were putting in place: a capsule collection of products that would live in many of its more than 150 standalone stores, perhaps in a corner delineated by specially made signage and clothing tags

But Burch has bigger ambitions. “We didn’t want it to be a second part of the brand, like a second line,” she says. “We wanted it to be more.”

Yet the company is advancing carefully. “One of the reasons we’ve set it up like we did is to keep it very entrepreneurial in the beginning. To keep it scrappy, to use it as a laboratory for innovation,” adds Isen. “It complements the main brand in many ways by doing that. We also take what we’ve learned from building the company over the last eight years and overlay that in Sport. It’s really the best of both worlds in a sense.”

Burch — who, in 2009, sold a minority stake in her company to the Mexican private equity firm Tresalia Capital but remains its largest shareholder — sees the new brand as an “intrapreneurial” venture for which she has not sought external backers.

Two years ago, she hired industry veteran Roger Farah, who spent nearly 15 years at Ralph Lauren, as her co-CEO and, together, they have restructured the company to prepare for the launch of the new brand, upgrading vital infrastructure and laying off approximately 100 people at the end of 2015.

We want a healthy business and we’ve spent a great amount of time restructuring our company and putting in systems that we needed [from] the beginning,” Burch explains. “With such quick growth, we didn’t put in the infrastructure we needed. Now we feel that we are poised to have the right kind of growth and also protected, because we really believe in this brand.”

To be sure, Tory Sport has its own brand identity. While Tory Burch retains a mod-ish, mid-century feel washed in the sunburnt, earthy colours of that era, Tory Sport has more of a bite.

Aesthetically, Tory Sport began with 1970s tennis icons: Bjorn Borg, John McEnroe and Chris Evert, in their colour-blocked polos and terrycloth sweatbands. More specifically, “The starting point was [Wes Anderson’s film] 'The Royal Tenenbaums,’” Burch says, “Which to me, just sort of epitomised the way I grew up and looked at sport.”

And much like her ready-to-wear brand, Burch plans on embedding these original visual cues into the permanent DNA of Tory Sport. “We don’t want to lose that ‘70s inspiration,” explains Kerstin Dorst, senior director of design and development, who joined the team in 2013 from Adidas. “We feel so confident about it.”

That consistency may be her key differentiator. “What’s unique about Tory, the reason for her success when she launched her Tory line, is that she’s very attuned to her customer, very attuned to their lifestyle,” Burke says. “She also is incredibly focused and is very clear on who she is. She doesn’t deviate from her vision.”

But the design aesthetic was only one brick in a foundation Burch began laying a half decade ago. Also critical was her approach to fabric development. “I think it was probably harder for me because I started from scratch,” Burch says. “If you talk to people on our team, certainly they wouldn’t say it was easy.”

For Dorst, that meant partnering with the right yarn suppliers. “Innovation starts at the very base with raw materials,” she says. “What is the finest yarn we can get? For instance, our legging fabric is super lightweight due to the structure, but the dense interlock makes it secure so that there is no see-through-ness.”

Star materials include Tactel, but also Coolmax Everyday, a moisturewicking fibre that the company has blended into its cashmere sweaters. “You have a sweater that feels like cashmere but is super breathable, and it’s also a pretty great price point,” Burch says, referring to the $285 tag on the brand’s perennial V-neck. “We want to be as sharply priced as possible, with the highest quality and fit.”

The Tory Sport shop in East Hampton | Source: Courtesy

While some joke that most yoga pants are never worn in a yoga studio, Burch is adamant that her performance gear must still perform. Tory Sport’s Coming & Going range — a collection of items that can be worn everyday but perform as well as straight-on athleticwear — is the brand’s most popular line. “That’s our number-one performing category,” Burch says. “It’s just sportswear that is functional and comfortable. I want things that are super functional that look natural and look like cotton — but also breathability and wicking properties and seam-sealing.”

While there will be a big outerwear push for autumn, other key sportswear categories include running and tennis, as well as golf. The brand’s leggings — the key to any successful activewear business — are also gaining traction. “Our leggings are doing extraordinarily well,” Isen says.

Exactly how well is difficult to ascertain, however. The company remains tight-lipped on the financial performance of Tory Sport, although Isen says, "We want it to be a company of real scale," and the outward investment it's making in new stores suggest the ambitions for the offshoot equal, if not surpass, that of the main line. Last autumn, the brand's original Elizabeth Street store was converted into a Tory Sport pop up, and last spring, the company opened its first permanent Tory Sport location on lower Fifth Avenue across the street of its corporate headquarters and right in the midst of what one might call "Athleisure Row," a cluster of activewear retailers that include Gap-owned Athleta, Lululemon, Nike, New Balance, upscale multi-brand store Bandier and Sweaty Betty. The East Hampton Tory Burch store was converted into a Tory Sport pop-up, which was made permanent this past summer. In September, a Tory Sport store opened in Dallas, which will be followed by the Mall of America in October, Honolulu in December and Las Vegas in March 2017. The designer also hosted a pop-up event in Los Angeles on the roof terrace of the Tory Burch store on Rodeo Drive from September 28 through October 1, 2016.

“The strategy is to look for geographic distribution around the country [that] this gives us,” Isen says of the plan. “And to be patient and wait for the right locations with the right adjacencies in the right areas.”

“And to also look at tourism as well,” Burch adds. “Ala Moana [a mall in Hawaii] traditionally has an incredible Japanese customer. It will be interesting to see this as we start to think about international distribution. We have a lot of interest from different department stores and partners in all countries right now.”

However, wholesale — which is currently 10 to 15 percent of the Tory Sport business — will remain secondary to direct retail. (Right now, the line is only distributed through its own channels, as well as Barneys New York.) “But I don’t think we have a set model,” Burch hedges. “I think we have great partners on our main brand, but Sport is different. We also want to see different adjacencies and how it works into their footprint and their business model. I think wholesale is changing too.”

Of course, the wholesale versus direct-to-consumer conundrum is top of mind for many brands, which are increasingly chasing a stronger connection with the spoilt-for-choice consumer. Burch was selling direct from the beginning, and that is perhaps one of the reasons she may be better poised to ride out this transition. Especially when compared to other mid-priced brands that rely on wholesalers to generate a majority of their revenues.

But it is Burch’s relationship with her consumer that gives the new venture its biggest advantage. It’s one of the things that convinced Farah to accept the position. “I thought Tory personally, and the company specifically, is somewhat uniquely positioned within the marketplace,” he says. “I’m amazed at how consumers respond to Tory and her message, how much they are rooting for her to win.”

The starting point was 'The Royal Tenenbaums,' which to me, just sort of epitomised the way I grew up and looked at sport.

That’s not to say it won’t be a bumpy ride. While the market for activewear may be robust — Nike has said that it would like to grow its women’s business from $5.7 billion in 2015 to $11 billion by 2020 — the category is crowded and showing signs of growing pains. Nike’s international business is still growing, but its North American revenue was flat in the fourth quarter of its 2016 fiscal year, missing estimates by about $270 million. Under Armour’s profits dipped 57 percent in the second quarter of its 2016 fiscal year, even though sales were up an impressive 28 percent to $1 billion. (It was the first time the Baltimore-based company did not beat analyst estimates since 2008.) Other brands, like Theory, have suspended their activewear lines. Kit and Ace, the biggest competitor in Burch’s technical-cashmere push, laid off about 10 percent of its staff, or 35 people, in February 2016.

Farah argues that Tory Sport is a long-term play, made possible by a privately held parent company. While the 2009 Tresalia investment generated speculation that Tory Burch was heading for an initial public offering, the designer has always insisted that it was not her intention. “When you’re public and you have to announce every quarter exactly how you’re performing, it creates a certain dynamic,” Farah says. “It’s not bad, it’s just different. Being private lets us make decisions in the view toward the long term. Sport is an example of that.”

For now, Burch and Isen are singularly focused on the product.

“You don’t have the right product, the market is unforgiving at this point,” he says. “It’s a very competitive market at the moment and customers have a lot of choice, with tremendous amounts of product knowledge. Because the customer has so many choices, she is impatient if you aren’t on brand.”

To some degree, there’s only so much you can do with a legging and pullover and a t-shirt,” Burke says. “Tory has carved out a niche because of her traditional Americana colourways and styling. I think she has an opportunity, but it’s an education process with the consumer and it’s a big investment.”

Fortunately for Tory Sport, Burch is the brand. As Farah notes, “You can’t discount having a woman like Tory as the name on the door.”

This article appears in the fourth annual BoF 500 special print edition, including a collectible directory of the people shaping the global fashion industry in 2016. Click here to order your copy.