Life in the Real World; Hoisted by My Own Petard

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I’ve had the luxury, over the last couple of years, to be able to dispense advice and commentary from the relative safety of an observer’s perch. Suddenly and, amazingly, of my own choosing, I’ve given up a perfectly comfortable life style to reenter the snowboard management fray. I must be out of my mind.

I’ve done this at a time when the snowboard industry consolidation, if measured by the number of companies, is probably entering its final year. But we’ve become part of the winter sports industry. That industry is going through some hard times, and the continued scurry to embrace snowboarding as its savior is perpetuating some tough and irrational competitive conditions that aren’t going away quickly.
 
When I last sat in the management chair, in the early 90s, industry conditions were, well, just a bit different. Remember when we could sell everything we could get made, there weren’t enough factories to go around, and raising prices ten percent each season was a no brainer? Ah, those were the days.
 
Since that move from management to consulting, I’ve dispensed a bunch of advice in this space. I trust it was at least worth what you paid for it. Four ideas have stuck with me.
 
·       Protect Your Brand Name
·       Know Your Numbers
·       Find a Niche
·       Don’t Kid Yourself
 
How has the relevance of these ideas changed as the industry has involved? Maybe more interestingly, am I taking my own advice? Let’s see.
 
Protect Your Brand Name; It’s All You’ve Got
 
I’m there. I get an “A.” Maximizing sales isn’t the goal. Increasing sales at a respectable rate, selling out every year and earning a profit is. Growing too quickly can mean lower margins and higher short term working capital requirements. Who needs that? The best advertising and promotion that can be done is the kind where the retailers says, “Say, I sold it all at full margin, and when I called to order more, they were all out!” Next ordering season the poor sales rep, with any luck at all, will find himself faced with having to control the increases requested by the shops to make sure they sell out again. And you didn’t spend a single marketing dollar to get that.
 
Then there’s the issue of gray market sales. Avoid them, I’ve said. It’s not that simple. Your distribution can get better year by year, but it will never be pristine. The impact on sales if you arbitrarily cut off all the sales that might be gray market could be too severe. Every snowboard brand has some gray market sales. Everybody. And I think most of us know where they are. When the boards are going to somewhere Hitler and Stalin fought a tank battle, it’s pretty clear they aren’t staying there.
 
Four or five years ago, brand name hardly seemed to be an issue. If it was a snowboard, it sold. With hindsight, it looks obvious that those who succeeded managed to grow while controlling their distribution and bringing some brand equity to their name. It was a fine line to walk. One the one hand, you had to get out of the awkward “tweens,” that level of sales between, say, five and fifteen million dollars where you needed to act like a larger company, but couldn’t afford to. On the other hand, if you tried to push sales too hard, your credibility as a brand suffered. To put it succinctly, you had to perform and grow according to the market’s expectations, but no faster. Too slow or too fast and you were toast.
 
So building your brand was just as important, and difficult, as it is now. It just didn’t seem quite so urgent.   
 
Know Your Numbers; Cash Flow is Everything
 
Opps- so far, I’m only a Cplus to B minus on this one. I’ve got the numbers thanks to some good systems and people. In fact, even as I write this they’re sitting on the desk next to me waiting to be studied, analyzed and dissected (“Crunch me, crunch me!” I hear them whispering). But I’m finding that management issues during the first month or so have left me with precious little time to spend the consecutive hours required to really get into them. I can wing it pretty well because I already know the financial model of a snowboard company, but that’s no excuse.
 
They are also not “my” numbers yet. They’re somebody else’s. Cash flow, I’ve said, is a living, breathing thing. By creating your own model, working with it and thereby internalizing it, you develop certain instincts for how the money moves through a business. In a highly seasonal business like snowboarding, there’s probably nothing more important than the dance of the cash flow. I’m prepared to give myself something of a break on this issue, because I haven’t really been at it long enough to have the necessary gut instinct for this particular company’s cash flow.
 
At a time when everybody is struggling to make a profit, and so few are succeeding, knowing and managing by your numbers should be at the top of everybody’s management priorities. It always should have been there. Five years ago, however, flush with high margins, soaring sales, Japanese prepayments and COD terms to retailers, knowing and working with your numbers didn’t seem quite so compelling. In truth, it wasn’t. You didn’t have to invest as much money, and you got it back sooner. Boy I miss the good old days, where various management miscues could be hidden behind ravenous product demand.
 
 Find a Niche; Know Your Customers and How You Compete
 
I can console myself on this one by remembering that when I gave the advice, I acknowledged that it was not a trivial thing to do. In fact, I said it was time consuming, detail oriented, hard work to really figure out who your customer is. I know the market niche and the basis of the company’s competitive advantage. But as far as what kind of consumers are actually buying the stuff, I haven’t even gotten around to asking the question. Let’s give me an incomplete.
 
And let’s acknowledge that it will always be an incomplete. The process will always be never ending, unless the market stops changing.
 
A niche, it turns out, is a necessary survival mechanism. The hundreds of companies who didn’t have one, or the basis for creating it, aren’t with us any more. Creating a niche is a long term process, and it was five or more years ago, when it didn’t seem to matter, that you had to have begun the process if you wanted a niche you could defend in current business conditions. Some companies found theirs, then lost it in the struggle between growth and credibility I described above. Some stumbled on it, and kept it in spite of themselves.
 
Don’t Kid Yourself; Make the Hard Decisions
 
The rumors are always worse than the truth. Ignoring it won’t make it go away. Change is easier when you make it before you have no choice. Bullshit is inevitably dysfunctional to an organization. Etcetera.
 
We kidded ourselves as an industry for a long time. Sure there was going to be a consolidation, but it would be somebody else who would be the consolidatee. We were brainwashed by the wonder years. No hard decisions required. We couldn’t bring ourselves to believe that snowboarding was just another industry, as susceptible to competitive trends as any other.
 
Guilty. Along with most of you. In my first snowboard management incarnation I was a believer. Even though I knew better from my experience in other industries. The excitement was contagious, the opportunity apparently endless. The bullshit smelled great.
 
Never again. I’ll have fun, but I won’t lose my perspective and objectivity. May I suggest that you shouldn’t either?
 
Well, I guess these four ideas have held up pretty well. They weren’t any more or less valid five or seven years ago then they are now. The irony is that in the past they were easier to ignore, but paying attention to them then might have made consolidation a little more manageable for some companies. Like compounding interest, little changes can have a big impact given the advantage of time.

 

 

News from the North; Lessons for the Snowboard Industry from Canadian Resorts

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Last April, I headed to Tremblant for the Canadian Ski Council’s annual symposium on the state of the Canadian resort industry. Naturally, my naïve anticipation of great snowboarding had nothing to do with my decision to go.

Groomed hardpack with mud and rocks sticking through on narrow runs wasn’t what I’d expected. Thanks El Nino. At least it motivated me to go to most of the seminars and presentations. Nor did I miss a single dinner or cocktail party. I’ll be there again next year even if the snow conditions are lousy.
 
One of the presentations I attended was by a gentleman named Richard Basford of Integrated Marketing Strategies. He’d conducted for the Canadian Ski Council their annual Skier/Snowboarder survey and was presenting the preliminary results. Here’s some selected survey results that really jumped out at me.
 
First, Richard said that about 20 percent of the Canadian resorts’ winter visitors were snowboarders. No big surprise there. Then he announced that out of 4,293 responses, only 7 percent considered themselves beginners as skiers (three times skiing or less) and 9 percent considered themselves novices. That’s a total of 16% of the survey that’s just starting to ski. 
 
Now, the numbers for snowboarding were, respectively, 36 percent and 17 percent, for a total of 53 percent who are starting to snowboard.
 
Only fifteen percent of skiers have been skiing for two years or less. The number is 69 percent for snowboarders!
 
Go back and read that again, please. It’s okay- I can wait.
 
By the way, I’m pretty certain that a similar situation exists in the United States. Jim Springs of Leisure Trends presented some numbers at the SIA show in Las Vegas this year that supports that conclusion.
 
I looked around the room at the group of Canadian resort managers and owners who were attending the presentation. They were all sitting there calmly. Nobody asked a question, fainted, said “Oh dear!” or anything. I wondered if they were all hopelessly hung over from the previous evening’s business meetings. Some of them were definitely moving, so they weren’t all dead.
 
If you put a frog in cold water and raise the temperature slowly they say he’ll boil calmly to death rather than jump out. That same type of behavior-denial and perseverance during a period of change- seems to be going on in the winter sports industry right now.
 
For me, that stark, black and white survey was kind of an epiphany.
 
If the number of people starting to ski is relatively low, the drop out rate among beginners is high,and the number of existing skiers is declining due to aging, how many skiers will there be in ten years? In twenty? On the other hand, the percentage of snowboarders new to the sport is high. I’ll bet that the drop out rate is lower than skiing. I’m confident we aren’t starting to retire from snowboarding because of age. Snowboarding is growing, though not as fast as it use to.
 
But snowboarding is only twenty percent of the total. For every twenty snowboarders, there are still eighty skiers. It’s not clear to me that the industry can rely on the growth of snowboarding to make up for the decline in skiing, assuming current trends continue.
 
Somewhere in the bowels of some ski manufacturer or resort group the trends I’ve alluded to have been more thoroughly quantified and analyzed. In a more formal and systematic way, they have reached the same conclusions I’ve reached. That’s why there’s a proposal for the resorts and manufacturers to fund a three-year, $57 million promotional campaign. That’s why summer activities, tubing and mini skis are being embraced and promoted. That’s why individual resorts are upgrading facilities and creating more terrain even as, overall, their financial condition is not improving.
 
What are the implications for the snowboard industry? Two main ones, I think.
 
First, while much of the expected consolidation, measured by number of brands, may be behind us, competitive conditions are still very difficult. The brands may be gone, but most of the production capacity, with its need to keep producing something, still exists. If ski companies can’t make money selling skis (one projection is for pre season ski orders for 1998-99 to be down ten percent or more) they are going to continue to flock to the growing sport of snowboarding.
 
The evolution of the snowboard industry from its entrepreneurial roots as a distinct sport and market to a part of the winter sports industry is already being confirmed by the market segmentation that is occurring. There’s no longer a bias against snowboards made by ski companies and, with the exception of Burton, the success of every independent snow board company seems to be an uphill battle. More and more boards are sold by large companies to which snowboarding is just one of a number of product lines.
 
This industry evolution is consistent with most business theories that suggest you must either compete on price, as a volume producer, or by defining a market niche that will allow you to sustain your competitive position even though you’re more expensive. But the explosion of quality product at lower and lower prices has made it tough to be a traditional niche player. If everybody’s product quality and pricing is basically pretty comparable, that leaves marketing as the primary way to differentiate your brand. 
 
The second implication for the snowboard industry is that what the resorts are doing matters. We’re past the point where just the fact that they let us on the lift is enough.
 
Resort shops are charging manufacturers for space and displays like grocery stores charging for shelf space. Exclusive deals are being made to supply rental fleets- witness Rossignol and Intrawest. Joint promotional efforts are becoming more frequent. It seems like “resort marketing” should start to be a standard category in every snowboard company budget.
 
The Canadian Ski Council survey provided some additional statistics. They may be important as snowboard brands consider their marketing position given the increasing importance of resorts in building a brand. Sixty percent of resort visitors won’t be staying over night. Half expect to board/ski for only one day on a given trip. Seventy six percent live two or less hours from the mountains they visited.
 
Perhaps this says something about the location of the shops snowboard companies should focus on. Maybe there are products that can be developed just for the day boarder. Maybe we should be providing benches and lockers, or at least having banners, in the day lodges.
 
I’m beginning to believe that snowboard brands should be interested in building relationships with some local resorts and sharing information with them for the benefit both of the company and the resort. I’d try and use the resort’s perspective, and information they would hopefully share on the composition of their visitors, to help me differentiate my brand.
 
We’ve all talked about our period of consolidation ending. If that is measured by stabilization in the number of snowboard brands, we can expect to be there in less than a year. But the end of the brand consolidation should not be assumed to imply a return to a more rational competitive environment.
 
The snowboard industry is not the distinct industry it use to be. It’s part of the winter sports industry and subject more than ever to the trials and tribulations of the ski companies and resorts.
 

We can learn a lot by looking at who’s visiting resorts and what they are doing while they are there. Maybe we can even help the resorts deal with some of their own competitive issues