Two Rival Swim Retailers Plunge Into Partnership
When it snows in Minnesota, bikinis sell. The worse the weather, the more people want to get away—generally to warm locales. And what do they pack in their getaway bags? Swimsuits. But department stores and national chains have historically made the mistake of limiting their swimwear season to spring and summer. In that blind spot, two Twin Cities-based retailers saw opportunity.
For five years, Nani Nalu and Big Island Swim & Surf coexisted, each with its own focus. Nani Nalu at 50th & France specialized in fit for women of all shapes and sizes; a few posh west-metro zip codes away, Big Island in Excelsior concentrated on resort apparel and accessories for men, women, and children. While many independent boutiques have faltered, the two that sell swimsuits year-round in Minnesota have thrived. And just when competition between them was really heating up, they surprised customers, and even their own staffs, by merging.
JB Swim is the new parent company of Nani Nalu and Big Island Swim & Surf. Although they work behind the scenes as 50-50 partners, co-presidents Jennifer Cermak of Nani Nalu and Brittany Reger of Big Island plan to maintain their separate storefronts. Together they run five stores in three states, manufacture a private-label line, and anticipate $4.2 million in sales this year. In a retail niche dominated by chain stores and one-off boutiques located primarily on the coasts, with a mounting online threat, JB Swim could become a formidable player in the swim market, which has grown by 9 percent in the past year, according to NPD Group.
“They’re an anomaly,” says swim industry veteran Rose Macke, a sales rep for Jets by Jessika Allen, an upscale swim brand sold at New York’s Bergdorf Goodman and hundreds of specialty boutiques. “I am constantly looking at stores around the country, and I always use Nani Nalu as an example. There is so much room for expansion. I think people will be in for a surprise.”
Stores account for the largest share of U.S. swim sales, at 67 percent. JB Swim’s co-presidents say their goal is to eventually open five to 10 more stores around the country. But first they need to combine their point-of-sale system, address overlapping resources, and mesh the cultures of two very different brands. More fundamentally, they hope to finally be taken seriously.
“We have the chance to be a small, powerful brick-and-mortar business. We need those [added storefronts] to be taken seriously,” Cermak says. “Anytime I talk to people about my business, I hear, ‘Swimsuits? Do you sell anything else?’ I just had 150 customers through the door in one day in mid-March. So, yep, I’m selling swimsuits.”
On her own
Jennifer Cermak is every reluctant beach-goer’s best friend. She understands that busty women don’t feel comfortable in halter styles. She knows that navy is more flattering than black. She’s down-to-earth but makes a $250 swimsuit seem essential. She has customers who will save for years to buy a Nani Nalu swimsuit; others drop $4,000 on a new swim wardrobe before every winter getaway. The common theme, she says: “Our customer wants help solving a problem.”
Cermak opened Nani Nalu (it means “beautiful wave” in Hawaiian) in 2006, after struggling to find flattering swimwear for her honeymoon. And that was after working a stint at Everything But Water at Mall of America.
Cermak attended the International Academy of Art in Tampa Bay, Fla. She designed swimwear for Abercrombie & Fitch—and created her own line, which she sold on the beaches of Clearwater—before moving home to Minnesota. When it came to stocking her store at Ridgedale Center, she brought in a wider range of sizes than department stores carried. She sought out suits with underwires, padding, crisscross straps, and other features she knew would make a difference in comfort and fit. She offered to special-order for customers she couldn’t fit in-store. She decorated her fitting rooms as “cabanas” and took appointments so she could spend considerable time with each customer. Her greatest satisfaction, she says, came from the tears of joy (and relief) women shed when they found a swimsuit at Nani Nalu.
JB Swim Vital Stats
Revenue (2018 est.): $4.2 million Employees: 37 Stores: 5*
*Three Nani Nalu stores in Minneapolis; Boulder, Colo.; and Kansas City, Mo.; two Big Island Swim & Surf stores in Excelsior and Galleria, Edina
After a year testing the market at Ridgedale, Cermak decided her high-touch concept was better suited for a boutique setting, so she moved to 50th & France. Within three years, she needed to expand to her current 4,000-square-foot flagship on 50th with double the fitting rooms and a parking lot in back. Customers travel to Nani Nalu from across the metro (average drive is an hour and 20 minutes), but also from North Dakota, Iowa, and Illinois. On busy days, they may wait as long as two hours for a fit consultation.
“Nani Nalu has an incredible reputation in the swim industry. They are known for their unparalleled customer service and always striving to meet the needs of their customers,” says Gwyn Prentice, founder/owner of Helen Jon, a swim brand sold at boutiques, resorts, and chain stores nationwide. “We do not come across other stores like Nani Nalu.”
Because Nani Nalu is a destination, Cermak decided to expand out of state rather than splintering her Twin Cities business. In 2014 she opened at Kansas City’s Country Club Plaza, an upscale outdoor shopping area that draws from beyond its immediate neighborhood. Two years later, she added a shop in Boulder, Colo., on Pearl Street, the main commercial drag.
With no outside investors, Cermak propelled Nani Nalu north of $2 million in annual revenue. But she found herself in limbo: larger than most of the independent boutiques that are her neighbors, smaller than national specialty chains, and unable to make the next leap alone.
“I didn’t have anyone to talk to about the challenges,” Cermak says. Oddly enough, she turned to Reger, her one direct competitor in the Twin Cities.
Reger’s path to store ownership differs sharply from Cermak’s. In 2011, she and her husband bought a downtown Excelsior building that housed the swimwear store Bungalow. Real estate is a sideline for Reger’s husband, Mike, co-founder and former CEO of Northern Gas & Oil. (He was recently reinstated as CEO, having settled a wrongful termination suit against his former employer in late 2017.)
Reger had no retail experience, but she loves fashion—almost as much as she loves accounting. She became a partner in Bungalow, but the business fizzled. She closed it, renovated the building, and in 2012 opened Big Island Swim & Surf. While Nani Nalu promises women a suit that won’t slip as they dive into the pool, Big Island sells the jet-set lifestyle, from summers on the lake to exotic getaways. It’s the string bikini to Nani Nalu’s form-flattering one-piece.
The two stores carried some of the same lines but gravitated to different styles within each collection. They respected vendor boundaries. They were even friendly with each other at industry events.
“I didn’t want to like her,” Cermak says. “But I did.” Then Reger decided to open a second location in Galleria’s expansion wing, less than three miles down France from Nani Nalu.
“We feel swim is a very important year-round category and would like to see it grow even more in the off-season, when other retail stores don’t carry it in Minnesota,” says Galleria leasing director Jennifer Smith. “We know many of our shoppers spend their winters in warmer climates—not to mention holiday breaks, spring break, and [purchase for] gift-giving.” Galleria talked to Everything But Water, which had previously tried to acquire Nani Nalu, but Smith set her sights on Big Island. “We were really interested in seeing something more unique.”
Reger, who viewed Galleria as a place to gain regional visibility for her business, decided to break the news to Cermak in person.
“My first reaction was, ‘But Brittany, I didn’t go to Wayzata all these years because of you in Excelsior!’ ” Cermak says, recounting that tense meeting.
“You might have said that in your mind,” Reger clarified. “But you were so gracious and sweet. One of the things [Cermak] said was that it would be so nice having a destination for men’s and children’s swim closer by, so she could send people. I came away thinking, ‘She’s such a pro.’ ”
Cermak’s response was reasoned. “The reality is, if it hadn’t been her, it would have been a national chain. I’d always rather have people shopping local.”
How to Team Up Successfully
Merging two businesses is a big decision, but making it work is the real challenge. Leigh-Erin Irons, co-chair of Fredrikson & Byron’s Private Equity Group, offers this advice:
Don’t be afraid to have the tough conversations upfront about what happens if things aren’t going well. They can be extremely informative about whether a merger or partnership is ultimately the right decision.
- Take the time to understand and plan for integration. Even large companies with armies of people focused on details struggle with integration. Hit the ground running with a solid plan to get things off on the right foot and reassure customers, employees, and other partners that the transaction is something to be excited about.
- If it is a 50-50 structure, consider adding a third, independent industry expert to the decision-making process. Outside perspective can help if there is a deadlock.
Even with Big Island just minutes away in Edina, Nani Nalu saw first-quarter growth this year, Cermak says.
“Competition is good for business,” Reger says. “It brings more people to the area. If a customer isn’t finding what she needs at one of our stores, she can go to the other nearby. We often see the same customers in the same day.”
The merger happened fast. After years of dancing around the topic, Cermak and Reger sat down in December and decided they both wanted the same thing: growth. The best way to achieve it was together. Customers won’t notice major changes—for now. Behind the scenes, they’re pooling resources. “We’re figuring out how to share knowledge and maximize opportunity,” says Cermak, who will run sales and marketing for all five stores. Reger prefers to stay behind the scenes, focused on the dollars. Big Island might start offering fit clinics. Nani Nalu will likely pick up beach accessories, a strong category for Big Island that Nani Nalu had previously avoided.
The Digital Dilemma
Like most brick-and-mortar retailers, Nani Nalu and Big Island Swim & Surf struggle with shoppers who use them as showrooms, only to order from a different retailer on the internet. “I’ve had customers in the fitting room with the perfect suit on their body tell me they’re going to buy it online,” says Nani Nalu’s Jennifer Cermak. “I try to tell them: If you buy online, you’re contributing to the demise of retail, and we won’t be here for you to try things on in the future.” (Nani Nalu does not currently sell online. Big Island offers select merchandise through a third-party site for boutiques called Shoptiques.com.)
“Online sales are so difficult to manage,” says Cermak, citing the labor of fulfillment and risk of getting saddled with excess inventory, with an online return rate often at more than 30 percent. Nani Nalu has experimented with posting product on social media, but Cermak says the conversion to sales hasn’t been significant. For now, the retail partners are focused on delivering a memorable store experience and creating exclusive products not available elsewhere. But digital opportunities are top of mind. Says Cermak: “We can’t ignore it.”
But two distinct retail brands give them more options for expansion. Nani Nalu makes sense in destination shopping areas, particularly in other midsize Midwestern markets, where you don’t find many swim-specific stores, Cermak says. She and Reger think Big Island is better suited for tourist areas.
This month, Cermak and Reger will do their seasonal buying together for the first time. They expect to negotiate exclusives with brands that would have demanded volumes too high for either to handle alone.
“We’re doing this for all the same reasons big retailers do it,” Cermak says. “It just makes us so much stronger.”
National Trend: Retail Mergers
With retail slumping, mergers and acquisitions are up 15 percent in the past year, according to a study by law firm RPC.
Among the most noteworthy:
Amazon + Whole Foods
Amazon acquired the grocery chain in 2017 for $13.7 billion. The move helped Amazon prove it was serious about bricks and mortar and has resulted in price cuts at Whole Foods, which has long battled the perception it is overpriced.
Wal-Mart + Bonobos
Buying the digital-first men’s fashion brand last year for $310 million helps Wal-Mart boost its savvy about selling online, to better compete against Amazon.
Quicksilver + Billabong
The two beachwear brands peaked in the 1990s and have been stumbling since. Quicksilver was purchased by Oaktree Capital Management, which added Billabong to its roster in January, in a deal valued at $300 million. Both have shown some signs of rebound.
Allison Kaplan is editor in chief of Twin Cities Business.