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| New Era’s 59Fifty, MLB’s exclusive cap since 1994, has won over fans of baseball and fashion. |
While a cutting machine trims the bills for New Era’s signature 59Fifty fitted baseball caps, CEO Chris Koch is explaining the 20 or so steps that will transform unidentifiable scraps of fabric into headwear that will fill the diamond during this week’s World Series.
Part of the fourth generation of his family to run this cap business, which started 85 years ago in Buffalo and now resides in Derby, N.Y., Koch knows the production line intimately. Still, his explanation of the “22 sets of hands” that will touch the caps before they are boxed isn’t easy to understand; the cutting machine makes too much noise. While the New Era assembly line isn’t as cacophonous a production facility as, say, the nearby GM plant, the privately held company has nonetheless been making a lot of noise lately. The humming at the plant is merely theme music for a business now barely able to keep pace with burgeoning demand.
After last year’s World Series victory by the Boston Red Sox, many MLB licensees, including New Era, wondered whether the Red Sox windfall would last through the holiday shopping season. A year later, and well beyond the Red Sox dividend, mushrooming sales of the 59Fifty, which has been MLB’s exclusive cap since 1994, have pushed New Era into uncharted waters.
Koch said overall sales are up 60 percent for the year. MLB’s numbers, which include the Red Sox bump since they track a fiscal year that begins in November, has New Era sales up close to 150 percent. While total company revenue for the privately held New Era is not available, best estimates run at $250 million to $300 million a year.
The domino effect has produced a number of firsts, according to MLB. Hat World is now the biggest retailer of MLB licensed apparel. Sales of MLB headwear have exploded to the point where caps outsell the rest of MLB licensed apparel for the first time. MLB apparel (including headwear) is outselling the rest of MLB’s licensed goods. And, among baseball’s business partners, only MLB’s national media partners are contributing more to the bottom line than New Era — an astounding fact as it stands.
MLB licensees will sell more than 30 million caps this year, with New Era accounting for most of that, an estimated 70-80 percent of sales.
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| John Farallo moves some St. Louis Cardinals Authentic Collection caps at the New Era plant. |
“I’d be lying to you if I said we forecast this,” said Koch, who is dealing with growth by opening a new distribution center in Harrisburg, Pa. He’s also looking at additional distribution sites in the Midwest, West Coast and Hong Kong within the next year or so, and there’s a search for a new corporate headquarters.
“We’ve got some high stress, and a lot going on, but we’re still throwing logs on the fire,’’ Koch said, “and the last guy that suggested to me we should slow down isn’t working here anymore.”
Certainly, there are on-field reasons for New Era’s success. After Boston’s World Series win, the rate at which Red Sox caps sold doubtless convinced retailers to buy more. MLB as a whole is sound economically. For the second consecutive year, and with the help of a franchise move from Montreal to Washington, the league set an attendance record, as did the New York Yankees, MLB’s top attraction.
“Baseball is arguably healthier than it ever has been economically,” said former MLB Properties President Rick White, who signed New Era to its first exclusive license, and is now CEO of Phoenix Footwear Group. “Under those circumstances, an exclusive [on-field] headwear deal should outsell anything. No other sport has caps on the field of play.”
New Era has been growing steadily for five years. Authenticity is at the root of every successful sportswear brand. New Era never had to pretend to be authentic because it was on-the-field; and its reputation for quality manufacturing has long been established. However, its recent growth was a triumph of form and function. New Era the manufacturer has become New Era the marketer. While fan-driven sales are still important, they are automatic for any licensee with exclusive rights. It’s the ability of this company to attract the fashion-driven consumer that is turning heads. New Era is now a company with enough fashion savvy that the urban market accounts for between 40 and 50 percent of sales. Fashion caps also command a premium beyond what the headwear seen on MLB fields costs.
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For at least half of their customers, the New Era trademark on the side of the cap is as important as the MLB team logo on the front. Allen Iverson may be a top NBA endorser for Reebok, but look carefully the next time you see him out of uniform — the cap he’s wearing usually is from New Era.
New Era entered the fashion arena somewhat reluctantly in 1994 when movie director and cultural influencer Spike Lee asked if the company would manufacture red Yankees caps for him. Koch now acknowledges that initially he didn’t think he would sell any of the caps, nor did he think the design would be approved by a sport as wrapped up in tradition as MLB. The success of the cap veered the company into the fashion world, where it has become adept.
“It’s the only hat the hip-hop crowd will wear,” said Glenn Campbell, co-founder, executive vice president and general merchandise manager of Hat World, which has seen a 25 percent spike in MLB sales at its 600-plus stores this year, pushing its baseball business to an unprecedented high — more than 33 percent of sales. “New Era has become as generic a brand as Kleenex or Xerox.’’
Brand building was not exactly part of New Era’s DNA. Founded in 1920 by Koch’s great-grandfather, who made “Gatsby” caps out of wool to match men’s wool suits, the emphasis was always on manufacturing. In the mid-90s, Chris Koch saw a need for a branding effort. “Even baseball fans didn’t know who we were,” he said.
His late father (and then boss), David, was by no means convinced. He thought that if you made a good product and delivered on time, that was enough. The younger Koch saw how marketing had elevated brands such as Nike and forged ahead with a new identity, acquiring field-level signage in every park and additional signage in 21 dugouts.
It wasn’t that his father agreed to it, Koch said. “I just did it,” he laughs.
Those branding efforts, combined with the authenticity provided by an exclusive MLB on-field deal and a reputation for quality gave New Era a platform on which to build itself as a fashion brand.
“It’s like a Brooks Brothers button-down shirt or any other staple. Everyone knows it’s well made, so if it can catch some fashionability, you’ve got lightning in a bottle,’’ said Sal LaRocca, senior vice president of global merchandising at the NBA, which counts New Era among its headwear licensees. “New Era recognized that authenticity could translate into fashion and they were able to harness and grow that side of their business without losing any authenticity.”
Koch said one piece of advice he did take from his father was to hire experts and get out of their way. So New Era now has marketers from Motorola, Schering-Plough and Sony, and designers from across the fashion and music world.
“They’ve been able to keep pace with growth because [Koch] has surrounded himself with bright people and they’ve invested a ton in design and logistics,” said Mitchell Modell, CEO of the 127-store sporting-goods chain that bears his family name. “Because of New Era, baseball caps are now a 12-month business. We sell a ton for the holidays.”
For example, if you need a cap to wear on Halloween next week, there are black and orange 59Fiftys for every major league team. New Era also does special MLB hats for Christmas and St. Patrick’s Day. Hat World’s site sells more than 160 styles of New Era Yankees caps, including green on green, seersucker, and plaid. The subtle tweaks New Era will add when requested, such as a contrasting fabric patch under the bill, add more variety.
“The biggest driver (to growth) is that we’ve gotten good at constantly bringing new looks to market,” said John DeWaal, New Era’s vice president of global marketing. “On a monthly basis, or even more often, there’s a reason for our consumer to go back and shop.”
Domestic manufacturing facilities in New York and Alabama help New Era serve the churning market. The company also manufactures in China.
A portion of any success is timing, and New Era’s achievements are no exception. Two marketing trends that helped Starbucks grow to more than 9,500 locations have also helped New Era flourish. Like the $4 cup of coffee, the $25-$35 New Era cap is an affordable luxury, and one that’s considerably cheaper than buying the best suit or shirt. The mass customization pioneered by Starbucks is also an integral part of the company’s growth story. With heavy users keeping as many as 15 caps in their closet rotation, New Era has found a way to fill a need quickly and creatively.
“It’s become like women and shoes,” said Hat World’s Campbell. “Customers now expect to get a different look from New Era every month. And they’ll do things with fabrications other vendors can’t or won’t.”
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| An assembly line stitches up a variation of the Atlanta Braves cap at the Derby, N.Y., plant. |
The people within New Era maintain that they’re just reacting to fashion, not setting style. Even 85 years ago, selling hats was all about hooking up with the rest of the outfit. That hasn’t changed.
“We never considered ourselves cool enough that we could figure out fashion,” said New Era President Peter Augustine, who has been with the company for 16 years. “We just work hard to stay in sync.”
Some caps bear testimony to New Era’s willingness to experiment with trends — and in lots as small as 30 caps. There’s a few dozen Washington Nationals hats that incorporate two recent fashion trends: they’re pink and they carry a faux Burberry plaid. And a Philadelphia-area retailer wanted four dozen Phillies 59Fiftys in the distinct Philadelphia Eagles midnight green.
“We didn’t really chase after the fashion market, it came to us organically,” said Matthew Pantoja, who became manager of New Era’s urban business unit after consulting for urban fashion brands such as Sean John and K-Swiss. “One of the things we have to keep in mind every day is to keep that fine line.”
New Era is loathe to be known as a trend-setter, reminiscent of the days at Nike when fashion was known as “the F word,” even though then, as now, eight of every 10 athletic shoes purchased weren’t used for athletics. MLB licensing chief Howard Smith, a former Reebok marketer, says Nike and New Era have a lot in common: “Nike never sits still, and New Era is the same. They both continue to reinvent themselves, and the competition can never close the gap because New Era and Nike are already the category leaders.”
Certainly, no one expects the rapid growth to continue unabated. The fashion tide will inevitably ebb. Koch’s forecast for next year sees business “slowing” to 30 percent growth, though company principals expect continued growth overseas, where 20 percent of revenue now originates. The kids’, women’s and college market are also seen as important future revenue sources. DeWaal calls the plans for additional market segmentation “niching the niche.” However, while business is rocketing, no one inside the Derby, N.Y., headquarters has time to figure out the reasons behind this year’s growth, much less answer related questions, such as how New Era can have its best year in Canada with virtually no NHL business because of the lockout.
Another intriguing question is whether New Era will remain independent or be bought by one of the footwear brands it competes with in the licensed cap market. Koch is loathe to address those questions. Insiders say that a few companies have made a run at New Era but that, for now, Koch wants to remain independent.
“Within sportswear brands, we own the head and Nike owns the feet,” said Augustine. “That’s pretty good turf for us to defend.”
