Look! New Brands. That’s Great! Or These People Are Crazy. Or Both.

/0 Comments/in , , /by

Probably both. It’s not like brands haven’t been coming and going for years beyond count in skateboarding.

Historically, there have been two categories of new brands. The first was the truly new company started by some skaters who wanted in on a burgeoning industry that just happened to be something they loved. The second were the new brands that came from established companies where brands came and went as their popularity rose and fell with time and the popularity of the brand’s team.
 
Let’s look at who may be crazy and who may not be, and why.
 
The list I was sent of around fifteen “new” brands turned out to be mostly brands started by existing companies. Some of the ones not clearly associated with an existing brand I tried to contact, but in a couple of cases I either couldn’t find a phone number or email address on the internet, or I didn’t get an answer.
 
The reason I was hoping to reach some new brands not associated with existing companies is because when they are popping up, skating is prospering and dynamic. The level of enthusiasm and optimism that leads to skaters starting new brands or new shops is just what we need in this industry.
 
Brands being started by existing companies, on the other hand, may or may not indicate any market growth. They may represent just that ongoing brand rotation I referred to above we all know about.
 
Certainly the almost weekly phone calls or emails I use to get from kids who were going to start shops or brands are a thing of the distant past. I always tried to encourage them to go for it, but also to do it with a certain level of business realism. I wonder if any of them ever pulled it off.
 
Excuse me as I wipe a tear from my eye, sign deeply and bemoan the loss of “the good old days,” when men were men and margins and prices were high and you could sell everything you could get or make.
 
Was I suppose to say, “People were people” to be politically correct? Oh, the hell with it.
 
Anyway, in a desperate attempt to get back on topic, let’s look at how the business model of starting a new independent brand has changed.
 
Same Old New Business Model
 
The bad news, I suppose, is that the expense side hasn’t changed all that much. At first, when you’re very small and “underground,” building one shop and one order at a time, maybe you can get away without some of the usual expenses.
 
As you begin to grow, you will need team riders. You have to begin to advertise and promote. You will find yourself giving away more stickers and promotional product. iThere are magazines to be advertised in and trade shows to go to. My guess is that none of this has gotten much cheaper, though trade show booths bigger than my house (and with more floors) are largely a thing of the past in the core skate industry.
 
You’ll have to pay rent or a mortgage when you outgrow your garage, and it’s likely you’ll need employees who will, inconveniently, want to be paid. So will the phone company.
 
And while you do what you can to control expenses like any competent business person, a lot of these expenses are unavoidable. Especially, maybe, the marketing expenses since you’re product is the same as everybody else’s and without brand differentiation you’re ultimately toast. In fact, if skate isn’t growing as fast as it use to, maybe you need even more of those marketing expenses.
 
Let’s hope, of course, that you also have some revenue. More than expenses, eventually, would be nice. And of course you’d like that revenue to come from selling full price, high margin decks that kids buy because the brand, or skater, or both, are cool. You and every other brand.
 
But I suspect that part of the market, in both percentage terms and in total decks sold, is not as big as it use to be and may be getting smaller. And prices, at both wholesale and retail, are expected to come down in the broad skate market.   You know the drill; Shop decks, China, blanks, competition, fewer core shops, wider distribution, no real product difference, blah, blah, blah, blah.
 
We’ve been through that analysis enough, so let’s just recognize the danger of less revenue from the same number of products sold even if the percentage margin is the same. You are in general going to need to sell more decks to make the same total gross margin dollars. Those dollars are what you need to pay all those pesky expenses. So breakeven is a little farther away, in terms of sales, then it use to be. Financial risk is higher and more bucks have to be invested in the business.
 
And now that I’ve got anybody who was actually thinking about starting a new, independent brand standing in a puddle of their own making, let me tell you that you should go for it. But plan for it and recognize the changes in the business as a way to improve your chances of success.
 
Old New Brands
 
It’s not a surprise that of the 15 or so new brands on my list, no more than three or four are really independent new brands. And it may not be that many. We all know of cases where somebody has started their “own new brand” that is distinct from a marketing point of view but is supported financially and logistically by an existing skate company.
 
Which, by the way, makes a hell of a lot of sense. Starting from scratch is a pain in the posterior region. If you’ve already got a warehouse, accounting system, and product source, there’s not a reason in the world not to take advantage of it. Especially since the consumer will probably never know the difference and will be just impressed by a correctly marketed new brand supported by an old company as a new brand from a truly new company.
 
And many retailers, I suspect, would prefer to have a new brand from a company they know they can count on for quality, delivery, service, and marketing. For better or worse, they aren’t prepared to take the same risks on new brands they use to be.
 
Just to confirm that, I spoke with Craig Nejedly, President of the wheels and soft goods brand Satori Movement. Within the last year, the company has launched the new skateboard brand Creation.
 
“Some of our retailers had been asking for a deck for while,” he indicated. “Finally, we couldn’t see any reason not to accommodate them.”
 
But it isn’t a blow out the doors, grow at all costs kind of approach. Far from it. Unsold inventory is kept to a minimum. Growth, at this point, is determined by pull from the retailers, not by demand created by marketing. Between the terms he gets from the factory and the way the retailers pay, Satori hasn’t had to invest a whole lot of capital in the new brand to make it fly. And marketing dollars only go out the door based on sales dollars coming in. Marketing, at the moment, is based more on limited distribution and scarcity than on advertising and promotion.
 
I’ve always thought that was a good plan. Demand creation through some level of scarcity is probably better marketing than, well, marketing.
 
When Taking a Risk Isn’t
 
From the consumer’s point of view whether a new brand is independent or not may be irrelevant since the consumer doesn’t know. But when I see new independent brands, I know the market is more vibrant and optimistic and probably growing. So my advice to those interested into getting to the skate business is to listen, but not be intimidated, by people like me telling you how hard it can be. That’s true but it’s not the whole story.
 
As a new brand, you can do things the existing brands wouldn’t even think to do. In fact, if you come out of the shoot doing exactly what everybody else does but trying to do it a little better or differently, with your goal being to take somebody else’s market share, you reduce your chances of success and for sure you don’t do much to grow the market.
 
Why don’t you make a deal with the local skate park so that a pass to the park comes with each deck you sell? How about arranging a skate demo where people wouldn’t expect it? Include a coupon that’s good for a discount off a deck if you’re over 40. Okay, maybe that’s a retail strategy. Think of the parents that would get dragged into the shop. My point is that as a small brand, there are few rules about what you can do and can’t do.
 
Forget what all the other brands are doing. As a new brand, don’t benchmark yourself against your competitors. Figure out something new you can give the skater. It’s what the customer wants that matters. Create a new market instead of fighting over a crumb of the existing one. It’s your best, and maybe your only, chance.

 

 

The Basis of Competition; How Do We Sell More Stuff?

/0 Comments/in , , /by

It’s funny how the fundamentals of business never change. Three years ago at the Surf Industry Conference in Cabo, I facilitated a panel of people from the skateboard industry because skate was going off and the surf guys thought skate was going to have them for lunch or something. Then skate sales plummeted though, happily, they are recovering now.

Many of us were around when snowboarding was going to take over the world. It didn’t.  And last week at the first ever and hopefully annual Snowboard Industry Conference at Laax, there was a great gnashing of teeth and ringing of hands over the fact that snowboarding didn’t seem to be growing and might even be declining.
Business cycles are immutable and inevitable. That’s especially true because of the way companies in an industry choose to compete with each other. They bring those cycles on themselves. This article will look at how we bring this death spiral of competition on ourselves, how we compete, and finally suggest a general approach (there’s no room to outline it in detail) that describes how an individual company might change that and sell more stuff.
This article had its genesis on the last evening of the Snowboard conference, when Tim Petrick of K2 was kind enough to buy a couple of bottles of just excellent red wine.  We were talking about the snowboard market’s perceived stagnation. In a BGO (blinding glimpse of the obvious) I spewed out something like “We got to do some things differently!”
Well, everybody was kind enough not to say, “What the **** does that mean?” Still, it seemed they were waiting patiently (and reasonably) for me to explain what I meant and perhaps even to say something useful. I tried. I really did. But my thoughts were unformed. An attempt to expand on the idea just sort of died and the conversation moved on.
Still, the initial impulse was right. We do need to do some things differently so that our sales and margins can increase.
The Death Spiral of Competition
We’ve done it to ourselves you know. Declining prices, over distribution, some say stagnant participation, high marketing expenses, and the commoditization of the product. Inevitably there’s some search for blame. But at the end of the day we can all point the finger at each other and we’d be right. Every company does what it perceives to be in its own best interest. Of course. Me too.
 We all do things to try and grow the market, but at the end of the day we find ourselves battling each other for scraps from the other company’s table in a market that isn’t growing that much. And even if we succeed what have we accomplished? Probably just pushed prices down further or increased marketing expense. We’re left with the same circumstances and maybe we’ve made it even a little tougher to succeed. There’s no “sustainable competitive advantage” from anything we do. All we can think to do to grow is expand distribution, open retail stores, diversify or acquire somebody (often just a form of diversification).
It’s no wonder that maybe a little of the optimism has gone out of snowboarding. This is a hard business we keep making harder by our competitive actions.
How We Compete
Here are the things we all do to one extent or another: They aren’t listed in any particular order.
·         Sponsor contests and events
·         Teams
·         Advertising
·         Give away product
·         Prices, terms and conditions
·         Strategic alliances
·         Graphics
·         Product features
·         Distribution
·         Trade shows
·         Films
Are any of us really doing any of these things much, much better than our competitors? I’d say no, though some have the resources to do more, which doesn’t necessarily mean better.
And those larger companies seem to be applying more and more of those resources to diversifying or expanding into the larger fashion/lifestyle business.
Our competitive environment is largely a zero sum game. What one gets, the other loses.
When we’re not busy diversifying to reduce our dependence on this hard industry, we’re focused like a laser on what the other companies are doing. To some extent we go to trade shows because they go and make sure our displays are comparable. We price according to their pricing. We run similar ads in the same magazines. We benchmark our product lines against theirs.
We’ve expanded distribution so much that we’re putting the specialty shops, which we all seem to believe are a bedrock of snowboarding, at risk. We’re eating our young. Is this any way to run an industry? You bet it’s not.
 Has anybody noticed that my entire diatribe here hasn’t even mentioned the snowboarder? Kind of odd isn’t it?
The Consumer
You remember them. The person who actually buys the product and, hopefully slides down the mountain? The one without whom we would all have to get real jobs? How can I possibly have written two thirds of an article on how we compete and not have even mentioned them? Doesn’t that bother anybody? It sure bothers me.
The goal here, as I understand it in my simple way, is to create more snowboarders who snowboard more often so that we can sell more stuff (thanks Tim). Sorry to be quite so mercantilist about it, but that’s what we all want to do I think. Otherwise we’ll be working in industries that have their trade shows and conferences in Kansas City. I’m quite sure I like Laax better.
I’m not quite sure I think going to trade shows where we all talk to each other helps us sell more. I get concerned when companies say they only sell product their team riders approve, because I don’t think team riders, or riders of that caliber, make up a very large percentage of the customers to whom we want to sell more. I know that making stuff cheaper in China because everybody else is and so we have to do it (which is true) doesn’t help us sell more. I hate it when we make it cheap and convenient for people to rent equipment, make no money on it, and excuse that by calling it marketing. And end up selling less.
How Do We Sell More?
 
The first thing I’d ask you to do is stop focusing quite so much on your competitors. They aren’t the ones you need to impress. I know that sounds risky. But on the other hand, what’s more risky than trying to compete in an industry that, if you believe the people at the conference, is stagnant to declining and where the process of competing is apparently making things worse, if you think my analysis has any validity.
Second, I want you to figure out who your consumer is and why they buy your product. You already know that? Great. But if you were to explain it to me and it involved reps opinions, anecdotal evidence, and a discussion of the kinds of stores where your product is sold, I might think you didn’t really know, or at least that you weren’t really sure.
Third, look very, very closely at how you compete. Start by creating a list of the ways the industry competes. Include on the list things that you do that others don’t, if any. Which of these are more or less important? How does the way your company competes in these areas differ, if at all, from your competitors?
This is not quite so obvious at it seems.   You would put team riders on the list I’m sure. But sponsoring team riders is something you do- not how you use them to compete. “Why are they important?” I might ask. “They influence kids purchase decisions,” you declare. “Prove it,” I say. “How exactly do they do that?”
“Everybody knows” can not be part of an acceptable answer.
The slicing and dicing would continue. Do they just influence kids? What do you mean by “kid” anyway? What are the things they do that create this influence? What makes them successful at it? How do you measure that? How many riders do you need?
As you can see, the list of how you compete evolves pretty dramatically over the process and become more focused. Some things will come and some go. General competitive ideas will be broken down into a number of more specific ones.
And so would your sense of what was actually important. And what was not. When you were finished, and if you did it right, your spending would have become much more efficient.
That is a good thing, and it might even help you sell more stuff, but it doesn’t get your out of your competitive space and mindset.
The process of evaluating your competitive strategy in detail and of being forced to question sacred assumptions generally leads to new ways to compete. It also tends to eliminate unproductive ones and put more focus on those that really work. It changes your company’s strategic profile.
There was package delivery before Fed Ex. There was ocean shipping before somebody thought of containers. There were winter sports before somebody decided one plank might be more fun than two.
Overnight package delivery, containers, and snowboarding kind of seem like common sense now, don’t they? But they didn’t to industries that were focused more on their competitors than their customers and potential customers.
Want to sell more? Take a hard look at your customers, what they want, and why they buy from you. Just for the moment, forget your competitors. If the process leads to a new market space your issues with competitors will take care of itself.