The Retailer’s Dilemma; Are There Any Snowboard Shops Left?

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Use to be that I’d scurry home from Vegas in March with my extra backpack full of snowboard dealer packages and, like a kid at Christmas, throw myself into them to see what was new. It still takes an extra backpack (though a smaller one- fewer brands but a lot more pages per brand). This year, though, there didn’t seem to be any urgency to reviewing them. Not having to make buying decisions, in fact, I didn’t get around to really reading them in detail until, well, actually, it was late June.

I’ve also been thinking lately about what “the snowboard industry” is now and how things have changed for retailers. That thought process, and the realization that it hadn’t mattered that I waited to June to read the new product packages, led me to think about retailer strategies and buying decisions. Retailers, I think, have to make buying decisions differently. And they look at snowboarding as just one piece of their selling strategy. Here’s why.
 
The Snowboard Industry- What Is It?
 
Five or seven years ago, snowboarding lead the way, representing an emerging demographic of young people interested in individual sports. Posers were disdained. If you didn’t snowboard, you shouldn’t have been wearing snowboard clothing. Margins on hard goods were a lot higher, and retailers could build credibility around snowboarding.
 
Today, thank God for posers.   They buy a lot of high margin soft goods, shoes and accessory items. They aren’t even posers anymore. They are just people who want to wear stylish, functional soft goods. We all got to wear something, after all. Retailers carry hard goods because they legitimize them as an action sports lifestyle store. But they’d much rather sell shirts, jackets or jeans that earn them a fifty percent plus margin than a snowboard that earns them a thirty-five.
 
I’m not suggesting that retailers don’t care about hard goods, or that selling them doesn’t make a contribution to a store’s overall success. But retailing is a very tough business, and my hat’s off to those who succeed at it. Selling higher margin items to a bigger potential customer group is a significant chunk of the success equation.
 
And it’s not just true in snowboarding. There’s not a lot of margin in skateboards, wakeboards, or surf boards (or skis or roller blades) either. In all these sports, the brands produce the hard goods and support the teams, advertising, and promotion to legitimize the sport and, maybe more importantly, the lifestyle image with the target audience. But it’s the soft goods players who grow like mad and make a lot of the money because they can sell to a bigger group of consumers.
 
Retailers who are still in business figured out a long time ago that they can’t just sell snowboard product. They’ve got to have cash flow year around because their overhead goes on all year, and they generally don’t have the balance sheets to support a long period of low sales. As larger corporations and the media have grabbed hold of action sports and demographic it represents, the lifestyle has come to be, for better or worse, more of a focus than the sport in the larger population.
 
Surfers skate, skaters snowboard, snowboarders surf. A skate shoe company I know does snow influenced clothing. The commonality isn’t the equipment- it’s the attitude, music, clothing, lifestyle. The equipment is just a tool. It use to be more of a statement. The equipment makers have contributed to this by making lots of quality equipment that’s often hard to tell apart and then endlessly trying to distinguish it by claiming various technical innovations that most of the time aren’t significant. If they are significant, they are drowned out by the promotional noise.
 
If you want to know what’s happened to the snowboard retailers who’ve fought this trend, check out your local court’s bankruptcy filings. But why should they fight it? A shop may have its roots in snowboarding, but here’s its chance to sell higher margin product to a larger customer base year around in more than one sport without the former danger of being seen as “selling out.”
 
Retailers can’t set the general trends- they can only recognize and take advantage of them. Since they are operating in an environment where there are, frankly, more of them than the market can reasonably support, recognizing and taking advantage of trends is a critical thing to do.
 
I hate this, but snowboarding has become a cog in the great corporate, action sports, youth demographic, marketing machine with the result that snowboard retailers have to approach the sport differently. The sport is still distinctive, but what it represents isn’t.
 
Retailer Challenges
 
With this background, I’ll try and put myself in a snowboard retailer’s shoes for a minute. I have the privilege of ordering in March or April something I won’t receive or start selling until late summer or fall, and have only three or so months to sell at full margin. If it doesn’t snow, I could be screwed, but that’s life. The hard goods margins aren’t that great, and I’ve got to work the system for all the discounts, free POPs, and show bonuses I can get. I know all my choices aren’t going to be right, and the probability is very high that after Christmas, or even before, I’ll have to offer some discounts. I feel better than I did a few years ago that the stuff will show up more or less when I want it, but I know there will be some delivery glitches.
 
Where I am right on the product I choose, I may not be able to get any more of the hot selling stuff when I run out in early December. My flexibility in ordering is constrained, to some extent, by brand requirements that I take product in certain proportion, by minimum order requirements, or by the space I have in my store. My ability to grow my order may be reduced by the brand imposed credit limit.
 
Boy, life was almost better when you couldn’t get enough product, it was always late, and the quality was suspect. At least you could count on selling it all at a good margin.
 
Back to the Brochures
 
There you sit, having gone (or not gone) to more trade shows at the worst time of the year than you could possibly have a use for. Before you is a pile of paper two feet high with catalogues, price sheets, credit applications, terms and conditions and order forms. These are just the official snowboard brands. Now what?
 
My recommendation is to always begin with the Mervin catalog. At least you their narrative will keep you grinning as you review their product line. And it might ward off the depression you feel when you see some brands have the ski and snowboard prices in the same place. But shortly reality and inertia set in. Reality is:
 
·         You’ve got to carry the right hard goods mix, but really want to leave as much room as you can for the higher margin soft goods.
·         Your customers are probably a more diverse group, and you may not live and die by snowboarding like you use to.
·         All the major brands offer monster products lines that start, after a few hours of study, to look a little too much like the others. They all cover all the price points, have comparable terms and purchasing programs, and similar advertising and promotional programs.
 
Inertia comes from the fact that you’re already carrying – what? Burton, one or two other major brands, maybe one of the few surviving niche brand where you don’t have too much local competition, and one of the former high flyers that tanked and has been sold to somebody who’s trying to capitalize on any left over brand equity as your el cheapo model? Five brands is about the max I’d say. Merchandising them all well is going to be an effort. Three brands would be better.
 
What’s going to make you change brands? The rep from a brand you don’t carry has pictures of you at that Vegas party you don’t want to see the light of day? Okay, that might do it. A major customer service or delivery snafu? Maybe. Prices and terms are pretty comparable. A lot of kids asking for a brand you don’t carry? Yup, that would do it. Major technological differences among product? In your dreams.
 
The bottom line is that with five or even three brands, you’ve got all your bases covered. If I were a retailer, I’d try to pick brands that helped me sell soft goods, though I admit to not knowing exactly how to do that.
 
Hard goods have become props to support the apparel and shoe sales that I suspect provide more than half the revenue and gross margin a typical store earns. It doesn’t seem to me like successful retailers are in the snowboard business anymore. They’re in the lifestyle, action sports, soft goods business.     

 

 

Quality Financial Planning for Every Action Sports Retailer; No Accounting Degree Required

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Rarely, but once in a while, I come across something I want to plug. Not too long ago, it was the new Board Retailers’ Association (

www.boardretailers.com

. If you haven’t joined yet, get moving.  Opps, there I go plugging them again.).

 
This time, it’s some inexpensive, easy to use, financial planning software that the Retail Owners’ Institute has developed. So today, instead of ranting and raving about some possible industry trend, or saying something depressing about how the skate industry might be evolving, I thought I’d say glowing things about this software in the hope that some of you might check it out.  
 
I doubt there’s an action sport retailer (or at least not a successful one) who hasn’t figured out that some form of good financial planning is a requirement for success. I’ve written from time to time about cash flow, budgeting, margin analysis, and financial statements. I’ve tried to present some simple ways to approach those issues, but at the end of the day the need to create and manage separate templates for all the planning tools, or trying to integrate them, can be a bit of a daunting task. This software solves that.
 
I became aware of the software, called Strata-G Financial Planner, when I went to a seminar on retailer financial planning at the Snow Industry Conference in early April. Yeah, I know it was the Snow Industry Conference, but let’s get real- most core retailers are not just skate, or snow, or surf and, fundamentally, they have a lot of the same business issues. So I decided to write this for Skate Biz because that was my next deadline and no other pressing topic was popping into my head. What? TransWorld has reorganized again? Only one biz mag now? Never mind.
 
Retailer Owners’ Institute Co-Founders Richard Outcalt and Patricia Johnson started going through their presentation on financial statements and how the balance sheet related to the income statement and stuff like that. This was not exactly the dynamic and inspiring part of the presentation, especially for a finance trained guy like me who, for better or worse, has had the accounting classes they were trying (with some success) to compress into 20 minutes instead of two years.
 
So my eyes glazed over a little. But when they got to the part of the presentation that focused on the financial planning software, I perked right up.
 
It Can’t Be This Easy
 
That has my immediate and overwhelming thought. Three lousy input screens covering historical data and some rough plan numbers for the next year that you can modify with a click of a button is all that’s required?   Then it spits out projected income statement, cash flow, and balance sheet by month with ratios included? And you can add the departments you could possibly want and it gives you open to buy for each one? 
 
Where the hell was this thing when I needed it? Every financial model I ever built took at best days to create, and there was always some fudge factor to get the balance sheet to balance. Uhh, actually, you see, it’s not that I really  fudged my balance sheets. I mean, it’s not like it really mattered. Give me a break- it was only a little, tiny, teeny weenie fudge. And I was the only one who would ever find it anyway- I made sure all my models were complicated enough to guarantee that.
 
Anyway, how ‘bout this Strata- G Financial Planner Software? Ain’t it great! Go to http://www.retailowner.com/ and check it out. You can even download a fully operational copy for evaluation purposes that works for five days, which means I have three days to finish this article.
 
There are a couple of reasons why the software is so easy to use. First, the structure of the financial statements is such that it really only works for retailers and, from my point of view, it’s particularly well suited to smaller retailers. What that means is there isn’t a bunch of extra stuff that adds complexity in the name of giving the software “flexibility,” which I have found is often a code word for making software too complicated to use.
 
Second, it’s financial planning, not accounting software. That means there aren’t endless line items for you to complete. It’s concerned with showing trends, not detailed nuts and bolts. Operating expenses, for example, are entered in only five line items; payroll, selling, occupancy, administrative, and depreciation expense. Want more detail? Want a different line item for each size of post it note you buy? Great! There are lots of people who will charge you a fortune to create that model. I personally will charge you as much as you want to pay, so call me.
 
In the end, when you have that gloriously complex model, you won’t be able to see the forest for the trees, which kind of prevents you from achieving the whole goal of financial planning. And, by the way, it will also leave you right down in the mud with me, fudging your balance sheet to get it to balance for no good reason other than that you love to screw with Excel.      
 
What could keep this software from working for you? To get the most use out of it the fastest, you need good historical numbers to enter as a starting point. I have to believe that most successful skate retailers (or snow or surf or candle retailers, for that matter) already know that and have those numbers. If you’re one of the shrinking number of retailers sitting there thinking either 1) “I’ve got those all in my head,” or 2) “My accountant gives me that stuff two months after the end of my fiscal year,” or the dreaded and ultimately fatal 3) ”I don’t need that- I run this business on my gut,” do not visit the Retailer Owners Institute’s web site and do not download this software and do not waste even the ridiculously cheap $139.00 this software costs, because you’ve got bigger problems to solve first.
 
Did I say $139.00? My mistake. At this presentation, I was sitting next to Board Retailer Association founder Roy Turner. His eyes lit up at approximately the same time as mine and, being as impressed as I was with the software, he’s made a deal with the Retail Owners Institute. Members of the Board Retailer’s Association can now purchase the software for $100.00.  For those hundred bucks, you not only get the planning software, but training software that teaches you all about open to buy and financial planning. It usually sells by itself for $119.00
 
Using the Financial Planning Software
 
If I were a retailer, there are two things I would use this software for. As a management tool, I’d use it probably weekly to make sure my plan reflected any real or projected changes in business conditions and to make sure I had a plan that made me a profit for the year. Margins looking better (or worse) than originally projected? Take thirty seconds to change it in the impacted department and see what the change for the year looks like. Higher or lower inventory levels looking likely? Put in the new inventory numbers and see how your open to buy changes.
 
The magic here (assuming you have those historical numbers) is that Strata-G takes almost no time to use and will get more and more valuable as you use it. Even entering the initial data will take very little time, though of course you can spend as much time as you like envisioning the future.
 
When you think that the future you’ve envisioned might change, you can project how those changes will impact your business and decide whether and how to react sooner rather than later. Changes made sooner rather than later have more of an impact over the year and are usually less painful to make in the first place.
 
The second thing I’d use Strata-G for is to make my banker, or other financing source, happy. Bankers are not interested in taking risks. They are not impressed by three inch thick financial plans because extracting the essential facts from them is time consuming. They have to present and defend their loan to you to others in the bank and the easier you make that, the more they like you. I make those observations as a former banker.
 
This software allows you to give your banker the information they need to understand your plan and financing requirements in a simple but complete format. You can do some simple “what-if-ing” with your banker so you are both on the same page in terms of possible risks. The only thing I might add to the information you can print out is a list of assumptions. It’s always nice to explain why you did things the way you did them. It gives bankers a warm feeling to know that you’ve considered the possible impact of things that could go wrong.
 
Go take a look at this software. It will save you time and help you make better business decisions faster.

 

 

Public Wisdom, Maybe; Comparing the 1999 and 2000 Buyers Guides

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I hold in my hand the Transworld Skateboard Buyers Guides from 1999 and 2000. Everything you could possibly want to know about decks, trucks, wheels, and bearings are in these guides.

 Well, okay, Transworld exercises some discretion in which brands make it into the guide and which don’t.   All the product from each brand isn’t necessarily included. Not everybody has actual suggested list prices so the ones included may be a little suspect. Certainly, the prices don’t bear much relationship to what things really retail for, do they?
 
Still, there are a lot of data points, and when you’ve got a lot of data points something statisticians call “regression to the mean” takes over and you find that you may be able to glean some relavent information in spite of all the inaccuracies.
 
I’ve spent a lot of time figuring out average prices and price trends and comparing them from one year to the next and listing and counting brands to see who’s there and how it’s changed from one year to the next. My fingertip is raw from punching the calculator button, and I’ve damn near gone blind staring at the guides (nobody warned me you could blind from reading skateboard buyers guides). So caveats aside, what can we learn from the two Guides about how the industry is evolving?
 
After we’ve looked at the Guide data, we’ll travel to a major skateboard internet site and see how the data checks with retail reality.
 
Decks
 
The 1999 Guide featured 411 decks from 49 brands. The 2000 edition had 402 decks from 60 brands. The increase in the number of brands has more to do with who Transworld put in the guide than with the number of brands there really are. The numbers exclude longboards.
 
The average suggested retail price for a deck declined from $54.79 to $53.35, or about 2.6%. The overall range of prices also moved down. In 1999, decks were priced from $39.95 to $76.95. In 2000, it was from $33 to $67. In 2000, everybody pretty much dropped the cents from their prices, rounding them to the nearest dollar and, incidentally, making my calculations a lot easier. Keep in mind that blanks aren’t included here.
 
MIK-
 
Here’s the distribution of decks by price for 1999 and 2000. I suggest you do a chart that shows the number of decks at each price point for each year.   You kind of need to do it, because I’m going to refer to it.
 
1999
 
Price               Number of Decks
 
34              3         
40              20
45                  20
46              90
47              14
48                  11
49                  22
50                  106
51                  4
52                  2
53                  5
54                  1
55                  35
58                  8
60              11
70              137
77                  1
 
2000
 
Price   Number of Decks
 
33          1
35              1
37                  2
40                  2
45                  7
48                  7
49                  2
50                  115
51                  3
52                  33
53                  99
54                  2
55                  38
56                  4
59                  10
60                  63
65                  3
66                  7
 
The two charts show the distribution of decks by price for the two years. Check out how the distribution has tightened up. There are fewer decks at either the lower or the higher price points. In 1999, there were 180 decks priced under $50. In 2000, the number is 22. Similarly, 1999 included 137 decks at $69.95 (I call them $70 on the chart). There aren’t any in 2000.
 
The distribution of prices has gotten a lot tighter, and the average suggested retail price moved up because of the huge decline in the number of lower priced decks. Basically, what you’re seeing is that consumers can’t afford to pay $70 for a deck (or can’t be convinced that it’s any better than a $50 deck), and nobody can make money on full graphic, branded decks that retail for under $40.
 
This tightening of the price distribution is absolutely consistent with a market where there are few real differences among products. The consumer is price resistant, and the brands all find themselves on the same cost curve. That is, it costs them all more or less the same for a deck. It’s inevitable that prices move closer to each other.
 
Wheels, Trucks and Bearings
 
There were 208 wheels in the 1999 guide from 48 brands with an average cost of $31.25 per set. The 2000 guide featured 224 wheels from 58 brands with an average cost of $30.58, down two percent. Again, be cautious in concluding anything from the number of brands.
 
Sets of wheels were priced from $24 to $43.95 in 1999 and from $20 to $40 in 2000. Prices moved down about four bucks per set, but the spread between the lowest and highest remained the same.
 
Now if I was really diligent (read that obsessive/compulsive) and had nothing else to do with my life, and loved the feeling of calculator buttons moving under my fingers, I’d go back and create the same kind of chart for wheels I did for decks. My guess is you’d see the same trend towards a tighter distribution of prices, and for the same reasons.
 
28 trucks were available from 19 brands in the 1999 guide. The average price, excluding the product for $100 a set, was $38.50 per set. They ranged from $19.60 to $100 per set, but if you take out that $100 set, the top price was $55.50 for a set. 
 
In 2000, 21 brands offered 43 trucks. The average price was $40.56, up 5.3%, excluding the $100 product. Prices ranged from $22 to $52.
 
Happily, there are fewer bearings to count and calculate. In 1999, sixteen brands offered 26 bearings. The average price was $20.79 a set and they ranged from $9.60 a set to $36.50 a set.
 
The 2000 guide featured 22 bearings from 15 brands at an average price of $19.73 (five percent lower than the previous year) excluding the $120 ceramics. Prices ranged from $10 to $37- basically the same as 1999.
 
Trends Across Products
 
The number of brands was up in all product categories except bearings, where it dropped by one. The number of product offerings was up everywhere except in decks, where it declined by two percent. Prices fell except in trucks.
 
It’s hard to interpret the increase in the number of brands. I want to emphasize again that it is probably more how Transworld put the Guides together than how the actual number of brands changed. I guess there are some new companies, and new brands also represent new offerings from existing companies trying to find a marketing advantage. It’s troubling for the industry as a whole that such a maneuver is part of the basis of competition. It just confirms the similarity of product from brand to brand.
 
Prices are tending down, at least slightly, even in what I believe is the hottest market that’s ever existed in skateboarding. In snowboarding’s go-go years, you could raise prices each year. The implications for what the market and industry may be like when (not if) growth slows aren’t very encouraging. Right now, if I were a brand that was having trouble meeting demand I wouldn’t try to meet quite all of it.
 
Yup, you heard me right. When business isn’t so good, the companies that will get through it successfully will be the ones who have nurtured their brand’s market position, built their balance sheet, and controlled expenses. The skateboard industry’s consumers tend to lose interest in any product that everybody has. What better way to support your brand then to make it just the slightest bit harder to find? I think it may be better marketing than some of the things you spend advertising and promotional dollars on.
 
Another trend, obscured by the coming and going of brands in the industry, is the dominance of perhaps the five or seven largest players.  As I watch deck prices move towards each other, with every player on basically the same cost curve, I’m certain, for better or worse, that these companies will end up with the lion’s share of the market. I’m not saying there isn’t some room for smaller players, but every industry has this trend towards consolidation.
 
Back in the Real World
 
Because of my healthy skepticism about the picture painted by the Guides, my nimble fingers have taken me to a major internet retailer of skate products. I didn’t check out every brand in every category, but I looked at a lot. Decks, including grip tape were either $44.99 or $49.99. Add some shipping costs, but may be subtract sales tax depending on where you are ordering from, and the price isn’t too far from the average price of $53.35 in the 2000 guide. Then, of course, there are the store brand decks for $29.99.
 
Almost all the trucks were either $33.98 a set for plain metal, or $37.98 for painted. The average price in the 2000 guide was $40.56. That number included both painted and plane metal trucks. Again, not so far off from this site’s prices if you take account of shipping costs.
 
Wheels were $23.96 a set “unless otherwise noted.” I saw some at $31.96 a set and there were the store brand wheels for $15.96 a set. That’s quite a different from our 2000 guide average price of $30.58.
 
To nobody’s surprise, the Guide’s suggested retail prices are higher than street prices when compared to one very comprehensive web retailer. We also confirm the tendency to move towards a simpler pricing structure, recognizing the lack of real product differentiation.   But except for wheels these retail prices are not that much higher then the Guide average prices. 
 
It looks like, at the end of the day, the lack of product differentiation is pushing product prices lower, but high demand is controlling, though not eliminating, that trend. At least for the time being.

 

 

Snowboards from Afar; The Potential Impact on Retailers

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In the early 90’s, when snowboards started pouring into the U.S. from the Austrian ski factories, there were claims that consumers wouldn’t accept boards labeled “Made in Austria.” Mostly, those claims were made by U.S. factories threatened by foreign production. If there was a marketing advantage to a board “made in the USA,” it didn’t last long, and smaller inefficient U.S. producers went out of business.

In our consolidated, mature industry, brands are taking the next and inevitable step of looking for ways to cut production costs while maintaining or even improving quality. Boards have and are coming in from China, Tunisia, and Spain, and we can reasonable expect to see numbers from lower cost countries grow.
 
In seeking lower cost product, what are the issues the brands have had to consider? What’s in it for the retailer?
 
The Cost Equation
 
There are four basic components to the cost of a snowboard- materials, direct labor, factory overhead and allocated overhead.
 
No matter where you build it, Tunisia, China or Tierra del Fuego (uhhh, there are no factories in Tierra del Fuego as far as I know) the materials that go into the board are the same. You have the same choices of where to buy them. If everybody buys their materials from the same suppliers, the material cost of making a snowboard will be more or less the same for everybody. Would it make sense to start your own factory to make, for example, cores in a low labor cost country? Maybe. If you have enough volume. If you can get the right wood. If you could actually make them for less than it would cost to buy them from an efficient, established source.  
 
Direct labor is often the major advertised justification for making a snowboard outside of Europe or the U.S. Let’s say that you’re paying somebody $13 an hour, including taxes and benefits in the U.S. to make snowboards. If they work, for example, eight hours a day, 25 days a month, labor cost is $2,600 a month.
 
For sure direct labor is cheaper in China. Jim Ferguson, the President of Heelside doesn’t make boards there, but he’s a thirteen-year veteran of China, lived there, and has a boot factory there. “You don’t pay an hourly wage in China,” he said. “You pay monthly and the cost includes room and board.” He estimates his average cost is $150 per worker per month, and indicates that he’s more generous than many employers. But from his point of view, he more than gets it back in continuity and loyalty.
 
 Well, even without a calculator, I can tell that $2,600 a month is more than $150 a month. A lot more. So clearly if you compare the cost of a worker in a less developed country with the cost of one in the developed world, you’ve got a savings that’s somewhere between significant and huge.
 
Hold on. It’s not quite that simple. There are two related issues. Training and productivity.
 
If it took 11.33 (2,600 divided by 150) workers in China to make the same number of boards that one worker in the U.S. could make in a month, then there would be no direct labor cost advantage to making boards in China.   Both factories would spend the same amount of direct labor money to make a given number of boards. And maybe, when you first open the doors in China, that’s the case. Don’t underestimate the labor training costs in a new manufacturing operation. It’s easy to find people to make skate shoes in Korea. They’ve been making shoes there a long time. Out in the fabled Isles of Langerham, though, they’ve never heard of snowboarding.
 
Let’s also dispose right now of a common delusion about labor. Just because it’s cheap doesn’t usually mean that if one worker isn’t doing the job you can throw ten more at it and fix the problem. It may be true in ditch digging, but not in snowboard manufacturing. Only one person can work a snowboard press at a time, and ten untrained people can’t resolve the problems caused by one who doesn’t know what he’s doing. 
 
Having said that, it’s important to recognize that a lot of complicated products are produced perfectly well in so called third world countries and making a snowboard ain’t rocket science.
 
Things start to get really interesting when you look at overhead. Here in the States, if we want to start a factory, we see either a contractor or a commercial real estate agent, tell them what we want, and they either build it or find it. Maybe we’ve got to make changes or improvements in a rented facility, but we can generally assume that the place will have a level floor that isn’t dirt, and that water and power is easily accessible. We probably count on a road. 
 
All the money you have to spend to get the place the way you want it is called leasehold improvements. It gets amortized over time on the income statement. It can be a huge number in a low labor cost country.   
 
What does it cost a brand to have managers live in third world country? Maybe it’s only temporary until things are up and running smoothly- like a year or two. Who will perform maintenance and repairs on complex machines? How long does it take to get parts? In the States, you get them by FedEx the next day. In a low cost labor haven, you may have the expense of keeping a big inventory to keep things going.
 
But then, there are those costs for workers again, so it doesn’t cost much to keep the place clean. Or maybe you don’t have too. No Environmental Protection Agency after all.
 
Putting It All Together
 
Obviously, there are cost savings in making many products in low labor cost environments. Everybody’s doing it. In making the decision to go for it, the brands are asking the following questions:
 
·         Is the product already being made in the country I want to produce in? If so there’s probably already some experience there, and it’s easier to get going.
·         Can I just buy from an established producer, perhaps helping them improve their technology and processes, rather than starting my own factory?
·         Am I in this for the long run, and can I build enough volume? There will likely be some surprises and additional costs, both ongoing and of the one time startup nature.
·         Are those seductive, loudly trumpeted, low worker costs enough to make up for the additional expenses and surprises? As much as anything, that comes back to the issue of volume. There has to be enough volume so that the direct labor savings per piece are greater than the additional overhead costs.
 
The Retailer Perspective
 
Assuming that, in fact, it turns out to be cheaper to produce a board (or other product) of the same quality in these new locations, what benefits can the retailer expect?
 
For a start, it should be clear from the above discussion that production in low labor cost countries is not the magic potion of higher margins. Obviously, the benefits are expected to be there. But one manufacturer I spoke with described the years it took to get it right.
 
Also, remember that the brands aren’t necessarily rolling in dough. It’s not easy to make a buck in the snowboard hard goods business right now whether you’re a retailer or a brand.
 
So what retailers shouldn’t expect is to see sudden, big price reductions on wholesale product prices.
This is especially true because not all of anybody’s boards are likely to be made in lower cost countries. Marketing and research and development considerations suggest that production at traditional sources will continue. I’m sure we can all hear it now. “Well, yes, we’re making a few boards in Nepal, but our high end stuff still comes from our hi tech factory in the states and all our R & D is done there.”
 
But retailers may benefit in other ways. If there is, indeed, more margin for brands, you could see some of that show up as better customer service and expanded advertising and promotion by the brand. Part of the extra income may just stay on their balance sheet as additional profit, making it easier for them to make and sell the retailer boards they often don’t get paid for until six or more months from manufacture.
 
Often, the relationship between the brand and the retailer, at least in terms of product wholesale pricing, seems like a zero sum game. One wins, one loses. In this case I don’t think that’s true.
 
Assuming that the brands did pass through all of their supposed cost savings realized from moving production to low labor cost environments, retailers would inevitably, in the normal course of competing with each other, begin to lower prices. Each would know they didn’t really want to do it, but would feel the competitive situation required it.
 
Do you think that such cost reductions would make your sales volume go way up if your competitors had reduced prices in the same way? My guess is no.
 
Would you rather earn your usual margin on a $400.00 board, for example, or a $300.00 board?
 
If you sell the same number of $300 boards as you were selling of $400 boards, your total margin dollars decline. That’s a bad thing.
 
Cost reductions from new production locations won’t happen overnight. When (if?) they do happen, I’d select certain select, gradual price reductions to be passed on to retailers because the brands compete with each other in the same way that the retailers do. Overall, my hope is incremental profit for the brands goes into supporting the sport and the retailers. Maintaining brand image is key to everybody making a few bucks.
 
 
Check out the table below, taken from U.S. government data, showing snowboard imports from selected countries in 1999.
 
Country                      Units                           Value                         Cost Per Unit
 
Austria                       198,535                      $14,587,818              $ 73.48
Spain                          39,679                      $   3,771,523             $ 95.05
China                          67,765                      $   3,379,457             $ 49.87
Taiwan                        39,676                      $      623,477             $ 15.71
Tunisia                           4,600                      $      581,826             $126.48
Canada                      230,326                      $12,033,129              $   52.24
 
Some caveats and warnings about these numbers. Call me naïve, but I just have a hunch that all those boards coming in from Canada aren’t made there. I also suspect, especially in the case of the product coming from Taiwan, that the goods aren’t all what we’d call snowboards. Just materials for a real board cost several times the unit cost of $15.71.
 
As a retailer, you should keep in mind that these prices include second qualities, closeouts, kids stuff, and snowboard like products you wouldn’t be caught dead with in your store. So don’t look at any of these unit costs as necessarily indicative of what you’re favorite brand is getting the new season’s first quality boards for.