Archive for month: March, 2000

My web connection is, indeed, infuriatingly slow, but it looks like there may be less research than anticipated. You can pretty much find any deck, truck or wheel you want at prices competitive to shops. Let me give you one example- the first site I visited.

 

The Ask Jeeves search engine sent me to MySimon’s skateboard buying page when I asked where I could compare product prices. There were 38 board brands listed and north of 300 decks available on line mostly through FogDog and N.A.G. Skate House. A couple could be bought from Sports Authority. Almost all the decks were priced at $49.95.

 

There were 150 trucks from 17 different brands available at 12 different on line sellers. The overwhelmingly common prices were from $14 to $19 (per piece). A mere 410 wheels from over 30 brands could be purchased from 12 retailers. Sets of four wheels were priced typically from $25 to $29. Note the same product was sometimes available from more than one on-line retailer so 300 decks, for example, isn’t necessarily 300 different decks.

 

I checked out Fusion, Earthsports and CCS to name just a few. I looked at some shop sites, and some brand sites. For the most part, the brand sites aren’t selling directly, but my initial conclusion stood up. You can, indeed, get anything you want. Not everything every place all the time. But pretty much everything someplace most of the time.

 

What are the implications for the industry?

 

 

The idea of entropy as used in the second law of thermodynamics says, to use an example, that if you drop a hot rock in a bucket of cool water, the temperature of the rock will drop, and that of the water will rise, until they are equal.

 

When I bought my Palm V, I went to CNet.com. It showed me the list of 20 or more places where I could buy the product. I sorted the list by price, and bought from the cheapest place (after taking shipping costs and sales tax into account).

 

All the water molecules in the bucket, being identical to each other, become the same temperature. All other things being equal, Palm Vs should all be priced the same. Modern economic theory sort of mimics the second law of thermodynamics; prices will fall until marginal revenue equals marginal cost the textbooks say.

 

Of course in business, all things are never equal for either Palm Pilots or skateboards. Even where the products are effectively identical, various market “frictions” such as distribution, production efficiencies, advertising and consumer perception create points of differentiation that can justify some price differences among essentially identical products. Happily, skateboards aren’t water molecules.

 

On the other hand, they aren’t as distinctive as Palm Pilots.

 

The temperature of the rock and water in the bucket only fall and rise to a certain point on the assumption that the heat can’t get out of the bucket. That is, it’s a closed system. That’s not true with the skateboard industry. It’s an open system where companies and product come and go. If heat can go through the side of the bucket, then the temperature can drop further. In business, the comparable result might be irrational competition, where marginal revenue is pushed below marginal cost on the assumption that the other guy will fold first.

 

Happily for skateboarding, favorable demographics and the resulting market growth seem to be putting more hot rocks in the bucket and at least keeping the temperature from falling. Business seems good right now.

 

 

Where other industries are agonizing over how their products should be distributed on the internet, skateboarding has made its decision. I can’t say that every deck, truck, wheel and bearing of every brand is available on the net, but an awful lot are. My gut is that most are. Enough so that, as an industry, we are suggesting to the consumer, at least from a distribution point of view, that there’s nothing distinctive or special about the product.

 

“Here’s a bunch of decks-they’re kind of all the same,” we proclaim by our actions. Web sites show them all in rows like soldiers standing at attention with the prices the same or close to each other. Perhaps it doesn’t matter, and this is just an extension of a skate shop with decks lining the walls. It’s also the result of a distribution system where brands not only sell direct to retailers but to middle men who distribute the product further. For better or worse, distribution is simply not controlled as well in skateboarding as in some other industries.

 

Maybe Elvis left the building long before the internet became an issue. Skate hard goods have been awfully similar for a long time in features, pricing, functionality, and durability. Many of the online sites where you can buy boards are also brick and mortar retailers.

 

And there’s some good news. In spite of broad distribution online, product isn’t finding it’s way to the big discounters. There was no significant branded product, and mostly no skateboard product at all, on internet sites for Costco, Garts, Sports Chalet, GI Joes, Sports Authority and some others I now can’t remember.

 

 

Someday, if it’s not already out there, some web search bot is going to be able to find a particular brand and model at the lowest price like I did with my Palm Pilot. As that happens, skateboards (or any other product) become even more like the water molecules in the bucket and price becomes a bigger consideration- especially since we’re presenting the product on the web as all kind of the same anyway.

 

The tool we’re left with to buck that trend is the old, reliable advertising, promotion and team budget. Old and reliable, but damned expensive. If margins drop because of over supply and the product being hard to differentiate, and what differentiation we can do requires a big marketing budget, then this becomes an industry where only bigger players survive.

 

For retailers, the question is simple- at least simple to ask. If prices are more or less equal, can a web site create a “community” on line that will motivate somebody to buy on line rather than visit a shop? A good shop is a community too. More than any web site I hope and expect. Seems like a good shop with a good web site has a lot going for it. The question, simply put, is whether a customer would rather have the instant gratification of getting the product right away as opposed to the convenience of ordering on line but waiting a few days for it to arrive. An awful lot depends on the experience the customer can expect to have at the shop. But we already knew that, whether the competition is another store or a web site. 

 

It’s hard to see any problems on the horizon when the economy and industry is booming and factories can’t make enough decks. But we’ve got an inverted interest rate curve (short term rates higher than long term rates), and four interest rate increases with more expected. Historically three increases have often preceded a stock market correction and a recession. I’m not prepared to declare that the “new economy” has relegated traditional economic relationships to the dust bin of history. Some of you “elders” who actually remember what a recession in skateboarding and in the economy in general is like might share the experience with your younger colleagues.

 

 

I started out pessimistic about how the skateboard industry was utilizing the internet, but given our target customers and the fact that products were already tough to differentiate from each other, I’ve decided we’re doing a pretty good job.

 

First, leading brands are being kept out of discount chains- both on the internet and in brick and mortar. That is a huge victory. It’s probably the single biggest reason why there’s any margin left in hard goods at all and why teams and other forms of promotion work as well as they do.

 

Second, lots of shops have embraced online sales as an extension of their existing business, rather than seeing it as competition. Used correctly, it’s a way to move close out product without damaging your shop’s image, collect customer information, expand sales, build your image and maybe reach customers. My parents were the TV generation. I’m from the PC generation. Skateboarders are generally from the online generation. Embracing reality rather than fighting it usually makes a whole lot of sense.

 

Finally, brands are using their internet to support their products and the sport but not to compete with other retailers. The future there has to be online ordering and accounting and seamless information exchange with your customers. Eastern Skateboard Supply is one example of a company already doing that.

 

Skateboarding’s customer demographics diffuses some of the issues usually associated with internet sales. We’re not trying to pull our customers on line- we’re following them.