In three years, Rothy’s saw sales of more than $140 million; now, they must balance expansion with fending off copycats
Animal print can be a snooze,” sighs Lesley Clifford. The director of merchandising at Rothy’s, the fast-growing maker of 3D-knitted footwear, is bantering with the creative team in the basement of the startup’s San Francisco headquarters. Drawings of vision boards and fashion trends are pinned to the walls.
Roth Martin, the company’s co-founder, is here to review a lineup of colours for a new boot—the startup’s fifth silhouette, slated for launch in the fall. While the navy and solid colours look beautiful, and pass Martin’s approval, no one is happy with that animal print.
“I don’t think ‘snooze’,” responds Erin Lowenberg, the company’s creative director, who’s consulted for brands like Patagonia and Gap. “I think the one we sampled isn’t good enough.”
Overall, though, Martin is pleased. Lowenberg steps out to take a phone call, and Martin teases her when she returns. “We recoloured the whole line while you were gone,” he says.
Getting the perfect colours and patterns are essential to fashion success, and there has never been a more critical moment for Rothy’s. In three years, Rothy’s—a mash-up of Martin’s first name and the nickname of his co-founder, Stephen “Hawthy” Hawthornthwaite—has rocketed out of nowhere to $140 million in revenue, mostly built on low-cost social media marketing and word of mouth. Look down at a woman’s feet the next chance you get. She’s probably wearing a pair, especially if she’s under 40. Meghan Markle, for one, is a fan. The Duchess of Sussex was spotted wearing the brand’s black point-toe flats (priced at $145) while pregnant with the royal baby.
Behind Rothy’s success are shifts in both shopping patterns and what women want in footwear, a giant market with $72 billion in US sales ($34 billion of which is women’s), according to market research firm NPD Group. Heels and hobbling are out: Comfort and sustainability are in. “Consumers are not going to give up on sustainability, and they’re not going to give up on comfort,” says NPD analyst Beth Goldstein. Obsessive Rothy’s customers wait in line outside the company’s miniature Fillmore Street store and join a private Facebook group for self-described Rothy’s addicts with nearly 14,000 members. “We’re creating a product that women love,” says Martin, 46.
And a company that investors love. With a valuation of $700 million after its most recent funding round, Rothy’s has raised just $42 million in equity from investors led by Lightspeed Venture Partners and Goldman Sachs. Martin and Hawthornthwaite continue to own a majority of the business, a combined stake that Forbes pegs at roughly $500 million. Rothy’s won’t comment on that stake, but the small amount of outside capital is by design. “If you have gobs of money, you might be inclined to go out and start buying customers or making dumb decisions,” Martin says.
Importantly, rivals have noticed all the adoration Rothy’s is receiving, too. Private equity-owned Cole Haan, for example, now offers knitted shoes, though more are for men than for women. Everlane, a San Francisco-based clothing startup popular with the same group of millennial shoppers, recently introduced its own knitted flats that look a lot like Rothy’s. With footfalls from competitors growing around it, Rothy’s has to translate its first-mover advantage into something enduring.
Martin will have to do it without the person who’s been at his side the whole time. Hawthornthwaite stepped down as CEO in June after taking a leave from the company for health reasons. (He wouldn’t comment for this story but will remain on the board and act as a “strategic advisor”.) Martin is now interim CEO as well as chief creative officer. As Rothy’s contemplates moves into new styles, its own retail stores and possibly going beyond shoes, Martin insists Hawthornthwaite’s departure won’t slow the startup down at all. “The company is in just as good a position as it ever has been,” he says.
Roth Martin grew up in San Francisco, the bluest of blue blood in his veins. His father’s side: The de Youngs, founders of the San Francisco Chronicle. His mother’s: The Matsons, founders of Matson Navigation, now a $1.6 billion (market cap) shipping giant. After graduating from Boston University, he spent five years at Glencore, the commodities-trading firm, then returned to San Francisco.
While renovating a Victorian, he began collecting mid-century furniture and art objects. It intrigued him, and in 2003, he opened a gallery with a business partner.
Hawthornthwaite, meanwhile, went to Duke, then Wake Forest for law and spent his career in finance, including time at global investment bank GCA and Barclays. A South Carolina native described in his online bio as a “well-dressed Southern gentleman”, Hawthornthwaite gravitated to working with ecommerce companies as a banker.
The two became friends through their wives, Emily and Erin, who met in a moms’ group, more than a decade ago. They trained for marathons and triathlons and got together with their families (Martin has four kids, Hawthornthwaite two).
In 2012, Martin was tiring of the art world’s demanding, wealthy collectors, and Hawthornthwaite wanted a chance to run his own business. At the time, Martin recalls, San Francisco was overrun with women wearing black yoga pants. But Martin didn’t see a go-to shoe to wear with them. “My wife would buy fashionable ballet flats and go back the next season and they’d be gone, or she would wear running shoes when she wasn’t running,” Martin says. Despite having no experience with shoes, he and Hawthornthwaite figured they could create something better.
After a 2013 trip to China, they came up with the idea of knitting—then a new concept for shoes and one that meant production could be done with less waste. The yarn itself is made of recycled plastic water bottles that are sterilised and melted into pellets.
Like 3D printing, 3D knitting starts with a computer design, but from there the processes differ. Rothy’s 3D knitting machines have thousands of needles that race back and forth and knit the yarn into the shoe’s uppers; a 3D printer, by comparison, creates parts layer by layer. These 3D knitted uppers come off the machine in one piece, unlike typical shoe construction that stitches pieces together, and can simply be attached to a recycled rubber sole.
Martin and Hawthornthwaite wanted to make their knitted flats in the US. They figured they could better control the process if it wasn’t thousands of miles away at a Chinese contract manufacturer. Made-in-America was also a pretty good marketing hook. They attempted to do it at a 3,000-square-foot factory in Maine but couldn’t produce a shoe at scale without quality problems. The margin for error on shoes is minuscule—6 millimetres separates a size 6 from a 7—and skilled workers were tough to find. “It was getting laughable with our friends and our wives whether we were ever going to make a shoe and whether we were ever going to launch,” Martin says.
They tried for a year, self-funding the operation, ultimately putting in $1 million each. Martin returned to China in 2015 to find other options. They shut down the Maine factory and set up two knitting machines and a programmer in the industrial city of Dongguan.
That December, Rothy’s turned on its website. Martin emailed a few thousand contacts from the gallery, and Hawthornthwaite did the same to his network. As friends and business contacts bought shoes, word spread. “We were desperate to get the product out after so much time,” Martin says. “In short order, we sold $100,000 worth of shoes.” With no support staff, they were overwhelmed by simple things like exchanges. Quality and fit still weren’t quite right. For the next six months, they went dark.
In 2016, things began to come together. Martin began building the factory in China, allowing Rothy’s to manufacture its shoe in-house. The company also launched in the farmer’s market at the Ferry Building in San Francisco. People waited in line, ordering shoes on iPads. Like other direct-to-consumer startups, Rothy’s relied on Facebook and Instagram (where it now has 235,000 followers) to get consumers’ attention at low cost.
There were still kinks to work out as demand far exceeded their production capacity. In January 2017, when Rothy’s opened its new China factory, the startup made 900 pairs of shoes and sold more than 4,000. At the peak, the waitlist for certain styles reached the tens of thousands. “The brand just sort of took off,” Martin says.
In 2018, Rothy’s sold over 1 million pairs of shoes. It will likely sell closer to 2 million this year. Today its lineup includes round-toe and point-toe flats, loafers and sneakers in a variety of colours and patterns (priced from $125 to $165), plus kids’ loafers and sneakers ($65). The China factory now fills six floors with 140 knitting machines and some 500 workers.
While traditional fashion brands work more than a year in advance, Rothy’s is immersed in its lineup for this coming fall and winter. It learns from its customers’ online purchases what to make more of, and what to cut, and holds contests on its website to determine what discontinued styles to sell again. Some shoes (like a pink camo) are duds with its customers, but others (such as a marigold point toe) become unexpected winners. “If we ever make a mistake, we might have two weeks’ stock rather than four days,” Martin says. The result: No excess and no discounting—ever.
The downside of speed is that if something doesn’t work, there may not be time to fix it. Earlier this year, Martin was excited about a summertime slide with a vegan leather sole. But as the new sandal went from prototype to production, there were quality problems. Days before the slated May launch, Rothy’s pulled the product, a decision that Rothy’s president Kerry Cooper called “heartbreaking”. A new sandal will debut in 2020. The decision will not meaningfully impact Rothy’s revenue this year, according to Cooper, and the company will recycle the small quantity of sandals it had produced for launch.
Rothy’s will open stores in a handful of cities, including Washington, DC, New York and Los Angeles this fall. It soft-launched sales in Shanghai earlier this year with a shop within the WeChat messaging app, a popular way to sell in China. Rothy’s is the rare American brand to choose China for its first international foray. Why? Its manufacturing is there, and distribution is easy. “It’s measured growth,” Martin says. “We try to do things in a disciplined way, but that doesn’t mean we’re afraid to try something new.”
Hawthornthwaite’s departure is a blow. Any founder’s exit is a demarcation point for a startup. But over the past year and a half, Rothy’s has built out an experienced, mostly female executive team, led by Cooper. She joined as president and chief operating officer after stints at Levi’s, Walmart and online fashion retailer ModCloth (as well as a two-and-a-half-year run as CEO of Choose Energy, a retail energy marketplace). This spring, Rothy’s added Dayna Quanbeck, former chief financial officer at Charlotte Russe, a now defunct clothing retailer for young women, as its first full-time CFO. The new execs have experience scaling businesses, an operational skillset that creative founders often lack and that Rothy’s will need on its way to an expected $280 million in sales this year. “Where we are now is different because I am here,” Cooper says. “They’ve never built companies.”
Longer term, Martin is thinking about new products that build off Rothy’s sustainable ethos. What exactly, he won’t say. But as look-alikes crop up—like Everlane’s $98 knitted flat—staying ahead of the competition is key. Of the imitators, Martin says: “Is it annoying? Yes. Is it somewhat flattering? Yes.”
His mind, though, is already racing ahead. “Innovation,” he says, “is the ultimate trump card.”