Let me start off by saying this: I don't usually spend too much time reading financial analysis of publically-traded "skateboard companies". But considering that I've been bored at home with a pretty severe back injury for the past two days... I simply couldn't find anything better to do while I was laid up and rendered immobile in bed.
Of the many "industry analysts" in the market today, my personal favorite has got to be Jeff Harbaugh. Jeff's a great guy. We've had a pretty lively discussion here and there over the years. And, to be totally honest: I've learned a lot from him. He's also a very funny fellow. As "funny" as a business writer can be, I suppose... maybe even, a tad funnier. And, he's hella smart. That much is obvious, if you ever read any his writings. I would fully recommend that you do... at least once in your life. But, whether you make it past that "once" is pretty questionable.
The problem is that Jeff's so fucking brainy, that I don't really understand what he's talking about most of the time. The same held true for his recent analysis of the Billabong report, which I also totally failed to completely understand.
The Billabong Report
This week, my reading-of-choice was Jeff's analysis of Billabong's annual report. Jeff's story was sub-titled "Why Their Retail Strategy is a Match to the Economic and Industry Environment". It sounded sort of intriguing, at first. You can read it here, if you'd like:
http://www.jeffharbaugh.com/2010/08/30/billabongs-annual-report-why-their-retail-strategy-is-a-match-to-the-economic-and-industry-environment/
But, be warned! In it, you're gonna find a whole lotta crazy "analyst-speak". Stuff like currency fluctuations, Australasian sales reports, "less promotional retail environments" ("Huh?!"), EBIT ("Earnings before interest and taxes"), "remuneration reports" (Don't even ask me what the hell those are), and a couple of pages about the various Billabong-owned retail stores, and why they're basically a really good idea for Billabong to pursue.
In short: A whole lotta stuff that the average skater won't really give two tosses about.
The Billabong Empire
Before I begin my personal "analysis" of all of this, let's take a quick look at who Billabong is, and what they own. Courtesy of Wikipedia, which you can find here:
http://en.wikipedia.org/wiki/Billabong_%28clothing%29
In here, we see that Billabong owns:
- "Billabong", the surfwear brand (Duh)
- Von Zipper (Sunglasses?)
- Element (Mall-store skateboards, more "softgoods" than you could ever imagine, shoes, and some lame-ass, johnny-come-lately "longboards")
- Palmers Surf (A retail chain, I assume?),
- Nixon (Watches and shit)
- Xcel (Some sort of surf-stuff that I couldn't care less about)
- Tigerlily (I'm frankly too scared to even look this one up),
- Quiet Flight Surf Shop (More surf shops),
- Dakine (Snowboard packs, waxes, and other "essentials" that nobody seems to need),
- Sector Nine (The current "sales leader" in the longboard game),
- Two Seasons (Another retailer),
- RVCA (We all know what that is...)... and, most recently,
- West 49 (The Canadian equivalent of Zumiez).
The Problem
The basic problem that I'm dealing with here, as I see it... is that most of our industry, as well as the analysts that watch and cover it... are fairly quickly running off of a giant cliff, and falling into a huge chasm of consequence from which they won't be able to recover. I call it the "Putting your eggs into the wrong damned basket" syndrome. Let me explain:
Most of the industry is banking on this paradigm of "corporate skateboarding" being "the future of our sport, and our industry". They tend to see it... if I'm reading it correctly... as a reasonable and logical "evolution" of our business model. The same sort of "logical evolution" that has historically affected other "business models" that are more or less unrelated to skateboarding. The key words here, as far as I can tell, are "historical" and "unrelated".
For my part, I'm not sure that the business evolution that affected a company like, say, Ford in the late 1950's... or Burton, in the 1990's... has any bearing whatsoever on what's gonna happen to the skateboard industry in the next five or ten years.
In layman's terms: Just because something was true "in the past", doesn't mean that it will be just as true in the future.
Remember: At one time, everybody who was anybody was convinced that the Earth was flat. I'm assuming this might have also included the "Earth Analysts" of the day...?
If we take a hard look at Billabong from Jeff's perspective... we do see a vast corporation with many diverse holdings and acquisitions under its belt, that has it's own retailer chain in place, and that has a pretty impressive cash-to-debt ratio... or whatever. So, from a "corporate analysts" point of view, yeah... maybe Billabong does look pretty fancy-ass over there.
The problem is that, from a skaters' point-of-view... all I see is a horrendously "dated" business model, filled with a bunch of brands that reek of either gayness, decline, or indifference. None of which bode well for Billabong's long-term future.
Of course, I'm no surfer over here. And clearly, Billabong has "positioned" itself as a much larger "player" in surf, than skate (or snow, for that matter).
Still, I think that my basic assessment still holds true: While the next quarter or two might look pretty chipper, and maybe there's a few good years left in The Bong's business model... I still can't see any of these brands being serious contenders, five to ten years out. A lot of them are losing customers, right now.
And, what's worse: The paradigms that govern our industry are changing, as well. That means that the entire "retail" paradigm, from the top down, is also under attack as we speak.
I'm seeing that one happen right in front of my eyes, every day.
The Paradigm Shift
Let's take "Billabong", the surfwear brand for starters. Who wears Billabong, here in central Indiana...? Well, the average "Billabong" customer is typically a clueless, 30- to 40-something male that thinks that the "wave" motif is kinda stylish, and "fresh". Being in Indiana, of course... miles away from any beach... none of these guys actually surf.
Even worse: Their kids- who also don't surf- usually opt for Hollister gear. Because God forbid, they don't wanna be caught dead wearing the same knock-off, fake-ass surf shit that their parents are rocking... which is sort of ironic, considering that Hollister is a "brand" that's rooted in pure fiction, while Billabong is actually kinda legit, and actually has some real surf-history behind it. But, none of that matters. Kids know everything, you can't tell them jack shit... and of course, perception is always reality. What does that mean? Hollister rules, and Billabong blows. And, that's just the way it is.
For most middle-americans (and even, a great many coastal-americans), Hollister represents the most "legitimate" paradigm in all of surfing. And, this is a brand that is widely known for being built on pure fiction...! This represents one end of the market spectrum, while your local, "core skateshop" is at the opposite end. Billabong, like so many others, is caught in the "murky middle" that's to be avoided at all costs.
In the world of skate, the situation is even worse. Element had a ton of credibility "back in the day" (which, to most kids, was about five years ago). But today? Element is the mall-store choice for "posers" and "noobs" everywhere. Sector Nine still has a few fires burning under the surface... but even they too will be eclipsed sooner than later by a whole second-and third-generation of longboard brands that are already smaller, faster, and far more "cutting edge" than Sector Nine ever was. Let's face facts: The last time that Sector was "cutting edge" was somewhere between 1993 and 1999. In those days, Sector was pretty much the only game in town. Today, the world is quite different. The longboard industry is "evolving" and "maturing". Whoever thinks that Sector Nine will be an "industry leader" in the coming years, is simply out of their minds. Any quick read of Concrete Wave and/or Silverfish Longboarding will tell you that Sector Nine is not a "leader" at all. Their advertising in Concrete Wave is "spotty" at best, which obviously means that an "inconsistent message is reaching the target market". And as far as Silverfish is concerned, Sector Nine doesn't even exist.
Those happen to be the two most credible medias in the entire longboard world, and Sector Nine's not even a real player in either one of them...?! What does that say about Sector Nine, today? Let alone, tomorrow...?
Even Abec 11... a specialty wheel manufacturer that has a hell of a lot more "credibility" than Sector Nine ever will... has a whole army of even smaller and more nimble competitors (that make superior products, mind you) nipping at their heels, in the form of Alligator, Orangatang, and Seismic.
Things are moving pretty quickly in the world of skate. Clockwise from top left: The brand-new Abec 11 "Centrax"; the Bennett "Alligator"; the Seismic "Hot Spot"; and, the Orangatang "In Heat". If you're a serious longboarder...? Then, you're probably riding one of these wheel brands... not, Sector 9's mass-marketed, middle-of-the-road widgets.
But, that's what mega-companies like Billabong "specialize" in! So, where's 'The Bong' gonna go from here...? A bigger company that makes lower margins on increasingly generic "pricepoint" product...? Or, a smaller company that can catch up to, and then out-develop the competition...? Well, on the "development" side... the "competition" is obviously pretty stiff, and already miles ahead. So, I'm bankin' on pricepoint crap.
Oh, almost forgot! Where'd these images all come from...?! Socal Skateshop (www.socalskateshop.com). Aka, "the internet". Which is where an awful lot of Billabong's (read: "traditional retail's") former customers are going these days... not, a Billabong "corporate store".
If you dare to transpose those various "assessments" over the entirety of Billabong's holdings, what would you see? A bright future for Billabong's shareholders? A fire sale to "liquidize" their assets...? Some sort of bankruptcy...? Or, an eventual "partnership" with Wal-Mart or Target...?
"Small Is The New Big"
That's a quote from Seth Godin that I heard from Michael Brooke a couple of years back. At the time, I thought that it was a pretty obvious truism. Today, it's more obvious than ever.
If we're going to use the various experiences and lessons learned from "unrelated industries" as our "operating benchmarks", then let's face facts and go the whole hog: "Big", is out. "Big", is dead. "Big", was the ultimate measure of success for decades. But, not today! The fact is that Ford was huge, in the 1950's. And Billabong is huge, today. But, if we look at Ford's "global performance" over the last 50 years, we can very clearly see that the car-consumer of today is vastly different than the car-consumer of today. And likewise, the goals of a car maker are vastly different, as well.
In Ford's 1950's heydays, "success" was measured in how many millions of nearly identical units your company could pump out, and sell to masses of sheep-minded consumers that didn't have too many choices readily at hand. That is essentially where Billabong is, right now. Making tons of crap for consumers that aren't particularly "informed", or "saavy".
However: Look at the Ford of today. The Ford of 2010- as well as most of their competitors (who now number in the dozens, and not the "five" or so of 1950)- now make much smaller quantities of vehicles, but in dozens of "segments"... each "segment" aimed at a unique, well-defined, "emerging", increasingly informed, and clever audience. For proof of this, Google the new Nissan Juke crossover. A vehicle that will surely be considered awkward and ugly to most "mainstream" buyers, but will surely find a small band of loyal enthusiasts in some "niche market", somewhere.
The Nissan Juke... quite possibly, the ugliest vehicle ever built (Even taking into consideration the '58 Edsel, and the Pontiac Aztek... both abominations in their own right...). However: This is "the future" of everything... from automobiles, to...
... longboards! Bustin has carved out it's own "niche market" by offering "mass customization" as a practical means of operating. As a discerning customer, you can order any shape, any graphic, any color, and any size board you want... and built with whatever components you want. There are literally dozens of skateboard companies- hardgoods, and soft- that are increasingly tailoring their product lines to quick turnaround and customized fulfillment.
So, you tell me: Where does this leave the mega-corporation, the "independent" retailer, and the mass-market retailer...? Stale, out of the game, and dead. In that order.
Sure, it's not gonna sell bazillions of units. But: It'll sell enough to turn a profit for Nissan. And hopefully, at a profit-per-unit to justify the investment in those bug-eyed running lamps and horrendously oversized wheelwells.
We could also discuss farmers' markets. Where yesterday's "commodities" are found at today's "health-conscious, locally-owned roadside shopping emporium"! I heard a statistic from a farmer recently that said that his local farmers' market was responsible for only 5% of his volume, but 25% of his profits. Not too shabby, given that these things are usually sold by the bushel, eh...?
The simple fact is that, as the consumer find ever more options available to them... as well as ever more channels to research, compare, and purchase those options... net volumes decrease, while profit margins per unit sold tend to increase. Because, you're no longer selling masses of widgets. Now, you're selling highly specialized products to increasingly discriminating consumers.
So, what does that mean? Simple: The last fifteen years' worth of Jeff Harbaugh essays just went right out the window. Fifteen years ago, the prediction was more identical units, lower operating margins, higher promotional expenses, and rampant consolidation into an industry dominated and defined by The Mega Company. Which is both "right now", as well as "right, now".
But, it won't be either tomorrow...
The "Niche Future", is Today
Although I truly respect and admire the Jeff Harbaughs of the world, the simple fact of the matter is that I live in a world where the on-the-street observations that I make every day, tell me far more than the balance sheets of any major corporation ever could.
For example: I had a series of conversations with some of the "higher-ups" at Unity this weekend. Unity is a small hardgoods-specific brand out of North Carolina, and a frequent "advertiser" at The Solitary Life. They've been experimenting with some neat new marketing and sales initiatives over there, and I wanted to see how those were going. So: I asked.
And, the answer was exactly what I thought it'd be: Everything Is Up! Going great! Gangbusters, even!
Intrigued, I followed up by asking where the growth was coming from? Wholesale orders from independent distributors? Retail orders from independent skate shops? Maybe they finally got that call from Zumiez, or a Billabong outlet somewhere? Nope! The biggest growth market is in direct-to-consumer, online sales. Which is predictable, because the independent distributor paradigm (like the "corporate skateboarding paradigm") is dying-to-dead, the "core retailer" is too immobilized to move anywhere (or, try anything new) at the moment... and as for "big-box skate retailers", the Unity dudes would probably rather punch a Zumiez in the face, than to actually take a call from those fat old non-skating fucks.
So, in the world of a militant little brand with a big mouth (like Unity), there just aren't a lot of options... except to appeal directly to your target market: Other militant skaters that are sick and tired of the bullshit.
Problem is: It's working. Which only tells me that there's a lot of militant skaters out there that are all too willing to ditch everybody- Billabong, Element, the core retailer, and Zumiez included- and go with the smallest, and the "realest" game in town. And it's not just Unity, either. It's pretty much everybody. Every small, agile little company with a superior product and an audience that will listen, is taking the conversation out of the "retail store" altogether, and going to The 'Net, where everything "fun" seems to be happening these days.
Big Mess (a small company) just released a limited-run (13 total) series of Del*13 models (obscure '70s pro, but with a small and loyal online following), via an internet forum (not, a "retailer" at all), for a whopping $100 a pop ("favorable margins")... as "riders" (disposable consumer products)...!
Here's the Big Mess board I referenced above. Only thirteen made at $100 a pop, they were gone in about 24 hours, via Skull and Bones (the online forum). Photo by natedogg75... ie, one of the happy customers. I see a lot of this going on, but it's a game where Billabong is entirely unprepared, and unequipped, to play.
My question is: What's this all gonna do to Billabong's "new equity", if trends continue as they're going today...?
Let me ask that another way, if I may: Let's say that Jeff is right in his assessments. Let's say that Billabong's "retail initiative" is the right course to take, right now. Well, Where does that leave Billabong's "retail initiative", tomorrow? When everybody stops buying mass-made, identical widgets in stores, and starts buying [relatively] custom-made, highly discriminating widgets online...?
If "Small is the New Big", than "Tiny must be the New Huge"
The fact is that, in a world where everybody wants to be an "individual", and nobody wants to be a part of "the herd"... the cards are clearly stacked against mega-brands that merely "market", or "play" unique and special... and toward a landscape of tiny little brands that truly are unique and special.
In this emerging world, Billabong (and, their associate brands) are gonna be toast. And I don't give two shits what their "balance sheet" has to say about it.
In these industries of ours, the pendulum of tastes, styles, and trends is always swinging to and fro in predictable uncertainty.
Twenty years ago, freestyle was huge. Ten years ago, it was dead. Next month, we're going to the World Championships where something like 2.2 million spectators are predicted to attend.
Twenty years ago, skateboarding was ruled by the "Big 5". Ten years ago, it was ruled by the "Little 100". Today, we're back to something like a "Big 7".
Twenty years ago, "skateboarding" was massive. Ten years ago, it was recovering from near-death. Today, it's bigger than ever.
Twenty years ago, pro skaters were superstars. Ten years ago, they were living on ramen. Today, they're bona-fide celebrities with reality shows.
What Jeff and his cohorts don't realize is that, twenty years ago, we had our first wave of "corporate" skateboard companies (and "lifestyle brands"). At the time, this was new, and novel! But a few years later, they all ceased to exist. Taken down by rapidly evolving events beyond anybody's control.
Today, we live in a world where "corporate skateboarding" again seems like a sustainable paradigm for the future of our business. Once again, we've all forgotten our history, and the true nature of this beast that we live with, and that supports us. The Beast, is pretty fuckin' fickle.
If you build an empire around The Beast, and his predictably unpredictable ways? Then the future is predictably gloomy. Get with the program, and get small. Before it's too late.
