Reformation’s IPO Push Bets on Going Green in $200 Eucalyptus Pants

Fast-growing womenswear maker Reformation will be the next big test of whether a brand pitching sustainability can win over a wider audience and deliver on environmental promises.

The company, started in 2009 as a vintage boutique in Los Angeles, doubled sales over the past four years, with revenue topping $300 million. Majority owned by private equity firm Permira, Reformation touts its green cred with offerings such as $200 pants made from eucalyptus trees. The company says it’s profitable and is now eying an initial public offering.

“Reformation has an opportunity to actually pave the way for fashion businesses,” said Reformation chief executive officer Hali Borenstein. “You can be a profitable business; you can make investors money; and you can actually have a conscience while doing it.”

The company declined to give timing on when it might sell shares to the public but said it was confident about delivering value for stakeholders through a transaction such as an IPO.

The performance of brands focused on lowering their carbon footprint or using earth-friendly materials has been rocky, though. Doubts remain about how big the market for eco-conscious products can become because even though a lot of shoppers say they care about the environment, that often doesn’t translate into what they buy.

Allbirds serves as a cautionary tale. The company went public in 2021, topping $4 billion in market value as its wool sneakers — pitched as better for the planet — gained fans and pushed annual sales above $250 million. Since then, the brand’s growth has fizzled, and its stock is down about 90 percent.

“I’ve been pitched by countless numbers of people launching a sustainable brand, and those tend to fail,” said Frederic Court, an early investor in Reformation and the founder of Felix Capital, a London-based venture capital firm. “What very few brands have managed to do is to make sustainability sexy. Reformation has done that.”

In the early 2010s, Reformation got attention for its form-fitting floral dresses worn by the likes of Rihanna and Taylor Swift, helping to create what the New Yorker dubbed a “cultish” following. Meanwhile, its tagline — “Being naked is the #1 most sustainable option. We’re #2.” — connected with consumers who care about climate change. The brand later mastered outfits for big occasions like weddings just as department stores such as Macy’s began to lose their lustre. It then expanded into denim and other basics that have done well.

The company has also won fans by using transparency to promote its eco-friendly activities, led by Kathleen Talbot, Reformation’s chief sustainability officer. Scrutiny has been increasing in the clothing industry, which emits about 10 percent of greenhouse gases, according to the United Nations. One way the company plays off that is by tallying the “sustainability impact” of an item on its product page, right below fit details.

In one example, a $248 sweater made from recycled cashmere saves 600 pounds of C02 and nearly 3,000 gallons of water when compared to conventional clothing, according to the firm’s methodology. Reformation also promotes its green bonafides with data and reports. Shoppers can read online about its commitments, including sourcing all fabrics from recycled, renewable or regenerative materials by 2025, or how it’s working on using mushroom leather.

In marketing, the brand has shown a knack for holding the attention of its customers, who range from Gen-Z to Gen X and making the chain a competitor to retailers such as Aritzia, J. Crew’s Madewell and Free People from Urban Outfitters. Its Instagram and TikTok accounts feature outfit tips filmed by influencers, memes and photos of celebrities such as Paris Hilton wearing the chain’s clothes.

The company’s locations stand out with sparseness and simplicity. There’s a small selection of best-selling outfits, rather than the crowded racks of traditional shops. Customers can use in-store touchscreens to browse more items and pick ones to try on that are then delivered to a dressing room. It all has an Apple store vibe.

Analysts say that while there’s a risk that trends will shift, Reformation has set itself apart by focusing on product development and profitability — instead of growth at all costs. Unlike some young brands, it also hasn’t shied away from diversifying distribution by opening stores — it has roughly 40 now — or pursuing wholesale partnerships, including a deal with Nordstrom.

The IPO market has been tough the past few years, particularly for consumer companies. To win over early investors, brands need to show multiple years of profitability and sustainable sales growth without big marketing budgets, according to Dylan Carden, an analyst at William Blair & Company.

Permira acquired a majority stake in Reformation in July 2019; less than a year later, the company was struggling in the pandemic. Much of the retail industry shuttered stores in March 2020 in an attempt to slow the spread of Covid-19. In June, founder and CEO Yael Aflalo left the company after a former employee accused her of racism. (At the time, she admitted fault for the company approaching diversity with a “white gaze.”)

Borenstein, who’d held several executive roles at the company, took over and worked to revive a brand that sold a lot of dresses and jeans rather than work-from-home attire like leggings. Reformation rebounded with strategies that included expanding into activewear.

The next phase of growth will include adding stores in international markets such as the UK. (The company generates 20 percent of revenue outside the US.) The brand is also entering new categories, including handbags.

As the company grows, however, so does the risk of failing to meet its climate targets, says Rachel Kitchin, a corporate climate campaigner at Stand.earth, which measures companies’ decarbonisation work. Some of the materials Reformation employs, such as recycled cashmere and organic cotton, are scarcer and more expensive, which could limit their use, she said.

Environmentalists also question whether a brand producing new garments at a large scale can really bill itself as sustainable. Reformation still curates and sells vintage clothing, but those items account for only a small portion of sales.

“To make fashion sustainable, we have to wear our clothes more times,” said Veronica Bates Kassatly, an independent sustainable fashion consultant. She also argues that Reformation makes vague claims about the impact of the materials and factories it uses.

Regardless of its shortcomings, Reformation remains ahead of larger competitors. It’s one of a handful of brands that have endorsed legislation in New York State and Congress that would require more transparency in fashion supply chains. The company also has partnerships with organisations that allow for repair, recycling and resale of its products.

Borenstein agreed that buying used clothing is better for the planet but said that’s not how most people shop today.

“Where we get comfort is knowing we are giving a superior option to the consumer,” she said.

By Olivia Rockeman

Learn more:

Patagonia, Reformation Back Toughened New York Fashion Act

The proposed legislation aims to make big brands accountable for environmental impact and working conditions in their supply chain.