Spy Optics’ 3/31/07 Quarterly Report: Lemonade Out of Lemons

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Until recently, it’s been kind of a tough road for Spy Optics (publically traded under the corporate name of Orange 21). Though sales grew from $22.3 million in 2002 to $42.4 million in 2006, profits of $911,000, $500,000, and $807,000 in 2002 through 2004 gave way to losses of $1.7 and $7.3 million respectively in 2005 and 2006. Gross profit, at 51% in 2002, had fallen to 41% in 2006. In addition, there was the expense of being a public company, the distraction of a shareholder lawsuit, and the usual stresses associated with an acquisition- in this case their primary manufacturer located in Italy.

Apparently the Board of Directors got tired of this and over the last year a number of positive things have happened. The lawsuit was settled in early May. There have been a lot of personal changes over the last year or so. Mark Simo, the Chairman of the Board and former CEO, has stepped in as CEO, replacing former CEO Barry Buchholtz who was sent over to run the Italian operation (Hmmm. Feels a bit like, “You bought it, you go run it!”) Fran Richards, formerly of Transworld and Future USA came in as VP of Marketing in April of 2006. The old CFO resigned (I don’t quite know if that should be in quotes or not) and was replaced by Jerry Collazo in August of 2006. He’s a CPA with 20 years of diversified financial and accounting experience. They hired Jerry Kohlscheen as Chief Operating Officer giving them another 20 years of experience in manufacturing and operations.
 
So, what has all this high powered talent been doing exactly? A lot, I’d say judging from their recent quarterly releases.
 
 They must be making a lot of money now, right? Nope. Still losing it. Almost $1.8 million in the quarter ended March 31, 2007 (they were late filing the report) on sales of $9.4 million. But I am impressed with the way they are losing it. Okay, there’s no good way to lose money. But a lot of what they are doing, which is costing money, has the feel of getting their house in order. Let’s look.
 
They reported that gross profit increased to 52.2% from 48.1% in the same quarter the previous year. It was indicated that the increase was “primarily due to sales during the three months ended March 31, 2007 of some inventory items that were previously written down and efficiencies achieved at LEM S.r.l.  LEM is the acquired Italian manufacturer.
 
This particularly increase in gross margin may be partly a onetime event, but it shows that they are getting their inventory in order and improving operations at LEM.
 
Sales and marketing expense was up 9% while sales didn’t budge. But two-thirds of this increase was the result of additional depreciation on point of purchase store displays. Why is this good? First, it’s a non cash expense. More importantly, it implies a realistic approach to their numbers and balance sheet values much like the inventory write down mentioned above. That’s great to hear. Ever try and run a business without good numbers?
 
General and administrative expenses were up 17%, or $400,000. But half of that was employee related compensation in the US. Yes, these new people who are going to do wonderful things want to be paid. $100,000 was severance for employees at LEM- part of getting that operation working efficiently I assume. Another hundred grand was getting some new systems up and running. Like I said, you can’t run a business without good numbers. They also cut their legal and audit fees by $300,000 but had some additional expenses for depreciation and bank fees related to a new loan agreement.
 
See the trend here. Higher expenses- yes. But spent on the right things.
 
This continues when they talk about warehouse expense being higher because of air freight resulting from manufacturing delays. Well, nobody likes to pay air freight, but the only thing worse it not getting the product to the customer on time.
In the words of their Chairman, Mark Simo, “We continue our efforts to stabilize the business and position it for long term growth.” That’s what it looks like to me.

 

 

K2’s 2006 Annual Report

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      For the longest time, I thought about K2 as a ski and snowboard company. But that’s ancient history. They call themselves a “premier branded consumer products company” and divide their business into four segments: Marine and Outdoors ($407.6-million in 2006 sales), Action Sports ($421.4-million), Team Sports ($383.4-million), and Apparel and Footwear ($182.3-million). That’s a bit over $1.3-billion in total 2006 revenues.

      Snowboarding, obviously, is included in the action-sports segment. And now, going directly to the discussion of that segment, I’m going to tell you exactly how each of their four snowboard brands are doing, right?
      Not hardly. They don’t provide a breakdown beyond those four segments. The only piece of information I was able to find was in footnote thirteen of the financial statements on page 92 of their 10K where they note that one-third of the action-sports segment (around $140-million) was snowboarding. They also note that one-third of the apparel and footwear segment revenue ($61-million) was skateboard shoes, apparel, and accessories.
      If only fifteen percent of K2’s 2006 revenues were in what we would all call action sports, why am I writing about them? Two reasons. First, $200-million still isn’t small potatoes in the action-sports industry as it has traditionally been defined. Second, in discussing their business, they say a number of insightful things about their strategy and the industry’s evolution that are worth highlighting.
      Let’s start by remembering what K2’s product lines include. Snowboarding and skate we’ve already mentioned, and we all know about their ski business. But they are also selling snowshoes, paintball products, baseballs and gloves, softballs, fishing kits and combos, fishing rods, personal flotation devices, hunting accessories, all-terrain vehicle accessories, inline skates, Nordic skis, and snowshoes. I think that covers it.
      K2’s management thinks that “the growing influence of large format sporting goods retailers and retailer buying groups, as well as the consolidation of certain sporting-goods retailers worldwide, is leading to a consolidation of sporting-goods suppliers.” As a result, they expect retailers to buy increasingly from fewer larger suppliers. This, according to K2, will allow those retailers to operate more efficiently and cut their costs. Those few larger suppliers will be “those with greater financial and other resources, including those with the ability to produce or source high-quality, low-cost products and deliver these products on a timely basis to invest in product development projects and to access distribution channels with a broad array of products and brands.”
      In its market, including the action-sports business but obviously going far beyond it, K2 thinks size matters. Their general strategy of improving operating efficiency, maximizing how they utilize their distribution channels, leveraging existing operations and “complementing and diversifying its product offerings” reflects this. 
      The second part of this strategy is making acquisitions “of other sporting-goods companies with well-established brands and with complementary distribution channels.” So far, they have made two in 2007. There were three in 2006 and two others in 2005. They note that much of their revenue growth in 2006 came from acquisitions made in 2003–2006.
      There are two things they don’t talk about—opening retail stores and expanding into the fashion/apparel business. K2 is largely a hardgoods (I think a baseball glove is a hardgood) company that believes an increasing percent of its sales and profits will come from large retailers and that those retailers will control more and more of the market. Fifteen percent of its sales were to Wal-Mart in 2005 and 2006. Given their strategy and analysis of how the market is evolving, that makes perfect sense.
      And now, three weeks later, after this story is long gone to the editors and basically out of my memory, but about one day before it was too late to do anything about it, K2 goes and sells itself to Jarden , who had revenues of $3.8 billion in 2006 (see the related story in this issue). Jarden is a “leading provider of niche consumer products used in and around the home.” They have a huge stable of brands, many of which we all recognize.  They divide their business into three segments- branded consumables, consumer solutions and outdoor solutions. K2 will become part of their outdoor solutions and snowboarding will become an even smaller piece of the whole pie. Jarden’s growth strategy “is based on introducing new products, as well as on expanding existing product categories which is supplemented through acquiring businesses with highly recognized brands, innovative products and multi-channel distribution” Go back and review K2’s strategy and market analysis and you’ll see why the two companies thought it made sense to get together.
 
      I’m not sure our comfortable little action-sports niche is still little, or comfortable, or a niche, but sitting in it we have tended to make fun of in-line skates, team sports and, not very long ago, skis. K2 doesn’t care. They’ve just looked at where they think the industry is going and have devised a strategy to respond to that evolution—which, as far as I know, is what management at any company is suppose to do.
      Okay, you’re not K2. There is no sale of fishing poles in your future. But if you think their analysis of the broader sporting-goods market and its retailers is valid, what does it mean for your brand? Snowboards, skateboards, and surf boards are, I’m afraid, sporting goods. They are not isolated from these trends.

 

 

Billabong’s Half Year Results- 12/31/06; The Impact of Acquisitions

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I love reading Billabong’s reports. No, wait, I hate it. Actually I’m hopelessly conflicted. On the one hand, being traded in Australia, they don’t have to comply with the U. S. Security and Exchange Commissions filing requirements. There’s less small print and less mind numbing and sometimes superfluous information. But there’s also less information in general. Still, though they are allowed to take a bit more, let’s say, poetic license, they do a pretty good job of presenting the critical information.

 
And it’s not like they have anything to hide.
 
In the six months ending December 31, 2006 they had revenue in Australian Dollars of $614 million (all these numbers are in Australian Dollars). Today, February 27th, there are about 1.2712 Australian Dollars to a US Dollar.).
 
Oh, and while I’m thinking about it, here’s the link to the reports themselves in case you want more detail than I can provide here. http://www.billabongbiz.com/investors-reports.php
 
Anyway, that six month revenue number was up 25.3% from $490 million in the six months ending December 31, 2005. I’m just going to refer to those two six months period as 2006 and 2005.
 
2006’s net profit was 90.5 million compared to 79.5 in 2005. Now, EBITDA stands for earnings before interest, taxes, depreciation and amortization. It’s kind of a measure of operating income. Below, I show you their comparative revenues by geographic segment and the EBITDA associated with those segments, along with a couple of other numbers. This table is taken directly from their report. Billabong has allocated its corporate overhead to each of these segments based on sales. 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
You can see that Australasia sales grew 13%, the Americas by 31%, Europe by 39% and the rest of the world’s sales fell by 28%, but the last number was small to start with. EBITDA for the whole company was up around 11.2%, though it fell in Australasia by 6.8%. My favorite number in this whole report is the gross margin of 53.7% for 2006, more or less the same as the 53.8% in 2005.
 
Okay, you might wonder, is all this about just growing their existing business? Let’s start to answer that with a little side trip to the balance sheet.
 
It’s a strong balance sheet. Current ratio (current assets/current liabilities- a measure of liquidity and the ability to pay operating expenses) is 3.48. The debt to equity ratio is less than one.
 
Long term debt grew 110% to 332 million. The table above showed interest expense up from 1.7 to 7.7 million, so that’s no surprise. Inventory grew 42%. Property, plant and equipment were up 76% and the ever popular intangible assets grew from 542 to 662 million. The balance sheet’s close relative, the cash flow, shows big increases in receipts from customers and payments to suppliers and employees, and a payment of 23 million for property, plant and equipment. 
 
These balance sheet and cash flow changes don’t occur just because of the sales increase, so it’s off to the footnotes we go to find out what happened.
 
Note 6, Business Combinations, seems a likely candidate for some explanatory information. On November 1, Billabong acquired the Amazon Group, and paid cash of 21.146 million. That’s mighty close to the 23 million payment for property, plant and equipment shown in the cash flow.
 
Amazon, by the way, is a 19 store multi-branded retail business in New Zealand. As of December 31, 2006, Billabong “international retail presence lifted to 144 stores (up from 110 at 30 June 2006) and contributed more than 16% of the Group’s global revenue for the first half of the financial year. Retail EBITDA margins were above those achieved by the Group” (italics added).
 
I’m guessing we can expect more retail growth from Billabong, if only because they say, “Further store openings are planned in the second half in Europe.”
 
We also learn that in October of 2005, they acquired 60% of the assets of Beach Culture International and in November, the Pacific Brands Retail group, “which had been operating Billabong outlet stores under license.” Also during this period, “The previously licensed Billabong operations in Singapore, Malaysia and Indonesia were integrated into the group.”    Just to finish the list, Nixon, acquired in January, 2006, now accounts “for approximately 6% of the Group’s global sales.”
 
You can see where the balance sheet changes came from when you think about the impact of these acquisitions. Some new assets came into the balance sheet. New sales, and new expenses also showed up, in some cases in place of royalty payments. Nixon’s numbers don’t show up in the six month comparison because they were acquired in early 2006. The debt? Well, Billabong had to pay for all this stuff.
 
You also get a glimpse into the company’s strategy. They’ve told us to expect more retail and I wouldn’t be surprised to see more acquisitions. If, like most brands, they are interested in expanding into the broader fashion/apparel market (because how else can they continue to grow?) look for brand extensions, and maybe advertising and promotions that start to position the brand in the broader market.
 
How about B for Billabong? Oh, wait, never mind. Somebody already did that.

 

 

American Skiing Sells Steamboat; Leverage and Seasonality- a Tough Combination

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How many of you were with me in nineteen ninety whatever at the Transworld Snowboarding Industry Conference when then American Skiing Company (ASC) Chairman Les Otten stood up and thanked the snowboard industry for saving the ski resorts? Apparently we didn’t do enough- at least not for ASC. Its last ten years have been largely a process of trying to deleverage itself after an aggressive expansion left it, judging from its reported results, with an untenable financial model.

The sale of Steamboat to Intrawest for $265 million in cash was announced on December 19th, 2006. At that time it was expected to close on or before March 31, 2007. The sale was the result of a review of ASC’s strategic options that it initiated in July.
 
What are they going to do with all that green stuff? “It is anticipated that net proceeds from the sale will be used to repay all existing senior debt and outstanding revolver balances under ASC’s senior credit facility and certain other indebtedness.”
 
ASC is going to pay down debt, which is what they’ve been doing for a long time. A little bit of historical financial data is instructive. The numbers below are in millions of dollars and are for fiscal years ended July 30th.
 
 
 
 
 
2000
2001
2002
2003
2004
2005
2006
Net Revenue
 
$372
$373
$272
$265
$284
$276
$308
Operating Expenses
 
$377
$441
$385
$262
$274
$269
$289
Interest Expense
 
$36
$53
$50
$47
$88
$82
$87
Net Loss
 
 
$52
$142
$207
$82
$29
$73
$66
 
 
 
 
 
 
 
 
 
 
Total Assets
 
$927
$807
$522
$475
$431
$423
$383
Total Liabilities
 
$540
$538
$416
$414
$671
$737
$763
Shareholders’ Equity
 
$185
$45
($155)
($237)
($241)
($314)
($380)
 
I recall thinking back when this all started that ASC was counting on no bad snow years and very optimistic growth projections. You can see that their revenue has trended down. But so have their operating expenses, which they worked hard and effectively to control. For the last four years, in fact, they managed to show a small operating profit.
 
But it didn’t matter, because that was overwhelmed by their interest expense which grew from $36 to $87 million in six years. Notice the decline in total assets as ASC sold other assets to try and get out from under their debt and interest burden. In spite of their actions, total liabilities grew and shareholders’ equity fell.   
 
There were various kinds of creative financings and refinancings where, to use one example, preferred dividends were accrued, rather than being paid in cash. Why? Because ASC didn’t have the cash to do it any other way.
 
They could do everything right- hell, I think they did do a lot of things right- they were at the forefront of some of the reengineering of ski/snowboard schools and rental programs that took place- and it just wasn’t enough. Even if the snow was good every year and they grew regularly I don’t think they could have gotten out from under their growing mountain of debt without asset sales. It’s interesting to note, for example, that ASC’s resort revenue per skier visit grow from $64.92 in fiscal 2002 to $73.87 in the year that ended last July.
 
Look at the chart again. Consider what happens when too much leverage and seasonality are mixed with some bad luck and perhaps a little too much optimism. Still, I don’t criticize ASC for trying. If nobody ever took a calculated risk, we wouldn’t get in our cars in the morning to drive to work.
 
Look at your seasonal business and your growth plans. How much leverage is enough and how much is too much? Are you going to constructively use debt or is it going to use and abuse you?               

Can We All Please Just Calm Down? A Business Perspective on Blanks

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I can’t believe I’m doing this. Oh lord, how many people am I going to piss off this time? I mean, I could just lay low and let the slings and arrows fly back and forth but no, I just don’t have the intestinal fortitude to keep my mouth shut. Instead, there’s this almost pathological need to try and reduce a highly controversial and frankly emotional issue to a series of business bullet points. I guess I’ll console myself by remembering that I’m not going to say anything here I didn’t say some years ago in Market Watch.

I might as well get it over with. Maybe it will help me sleep at night.
For those of you who live at the United States Air Force weather station three miles from the South Pole (and don’t have an internet connection), IASC and the leading skate hard goods companies created and wrote the 32 page insert called “Under Fire” that you all received in the recent issue of Transworld Business.
My hats off to them for achieving a level of efficiency and cooperation that, honestly, I wasn’t sure they could pull off. And they succeeded in highlighting what I think most of us would agree are the major issues confronting the skateboard hard goods industry today and identifying some action items. What I’m going to do is review those issues and then go a little deeper into the business implications of what they are saying and advocating.
Remember that “Under Fire” is a consensus document. That is, not everybody who was represented in it would agree with everything everybody else said. Still, I thought there was remarkable consistency across a number of key points.
And the Key Points Are……
The bedrock of the whole argument is that pros are the foundation on which skateboarding is built and that their influence is key to getting kids excited about and continually committed to skating. Okay, I agree that pros have big influence on the core of skating. How much? As much as they use to? Don’t know.
The next point is that the brands’ marketing activities, including their support of pros, is critical to the health of skateboarding. If skaters are buying blanks and shop decks (I consider those separate categories, and will discuss why later) rather than the more expensive branded decks, the brands can’t afford the same marketing programs. That’s simply a financial equation. Can’t argue with it.
And, the argument continues, if professional skateboarding and the associated promotional activities aren’t strong and can’t be continued at the same level skating, as an activity, a lifestyle, an attitude, and as a business is fated to decline.
Well that would suck if it actually happened. What do the brands want to do about it?
First, they acknowledge that it’s time to introduce some technology and innovation into skate hard goods to give skaters a reason to buy the more expensive branded decks. We’re already seeing some of that start to happen and you’ll see more. But of course it’s not an instant solution. The industry has spent a lot of time, effort and marketing dollars to convince skaters that a skateboard is a seven to nine ply laminated product made of hard rock Canadian maple. Skaters seem to believe it. Getting some of them to pay more for something that ain’t quite that, even when the benefits seem obvious, will take some persuasion and some time.
I guess where we’d like to be in where, for example, golf is. You know- they come out with “new and improved” models every year and people buy them even though there’s nothing wrong with their old stuff and the new stuff is expensive and doesn’t necessarily make a difference in their game. Or like in automobiles- where the newest technology appears in the top of the line product and works its way down year by year.
This will require, however, that the pros be in lock step with their sponsors.
Second, they recognize the shop’s need for a better margin on branded hard goods. What are they going to do about it? Somewhere between lots and nothing. There are brands already offering better margins and some that just don’t want to compete at the lower price point. There is, by the way, nothing wrong with a business decision to not offer a less expensive product if that’s what your market position and targeted customers require.
“Under Fire” is only “the first step in IASC’s plan to continue educating and informing the industry about this issue.” There will be additional steps in the program. The supplement ends with a call to action suggesting some tactics that all the industry’s stakeholders should consider.
So, Where Are We Exactly?
You remember all this from a few years ago. Skating takes off, skate parks start to sprout like mushrooms, brands can’t keep up with demand. Everybody’s happy. Then the market gets big enough for the foreign, low cost manufacturers to notice it. “Hey, we can make this cheap,” they say. They’re right. The usual startup problems. Problems resolved. Eight bucks landed cost for a blank skateboard if you’re buying in quantity. Maybe less. Consumers get the idea that the quality of blanks and shop decks are the same as the branded deck. Big price difference. Product wears out. No fundamental change in the product in 20 years or so. Percentage margins decline. Worse, total margin dollars earned on a deck decline. Fifty to seventy percent of deck sales world wide (you pick the number you believe) are blanks and shop decks.
So after a period of rapid growth, the industry matured a bit and started to consolidate. Product becomes a bit of a commodity, price and margin pressures, volume matters, etc. Look, I’m not going to go through this for the 14th time. All the usual things happen that happen to any industry in its life cycle. Big surprise. It’s so predictable it’s boring.
Anyway, wherever you go, there you’ll be. And here we are. There are some business issues implicit in Under Fire that it didn’t specifically discuss. Well, you can’t blame them- if they had, you’d be confusing this thing with the telephone book. But me, I always wanted to write a phone book.
Why People Buy
As far as I know, there are three things that motivate people to purchase a product. They are advertising and promotion, product features, and price. It appears, right at the moment, that advertising and promotion isn’t working too well for branded skate decks. If it was, there would be no Under Fire and I wouldn’t be writing this. Which, frankly, would be fine with me. There must be a better use for a Saturday morning. I mean, I could be doing yard work. Never mind. I’ll write and send the two teenagers out. Same to you kids. No, you can’t play with the chain saw.
New product features? Well, uhh, there really haven’t been any that have caught on, though hopefully that’s starting to change.
That, I am afraid, leaves us where we really, really didn’t want to be. At price. Let us then discuss the elasticity of demand with regards to price. If the blank/shop deck is, say $20.00 and the branded deck is $50.00 and you’re a fourteen year old without a lot of money or the a parent of a fourteen year old who knows you’re going to be back in this shop in a month, that’s a big difference. Apparently, too big a difference for a lot of people.
How big a difference wouldn’t be too much? Judging from the discussion of the demand for the $35 branded deck in the sacred supplement, the retailers seem to think that’s a price point at which they can sell branded product. But would $40 also work? Or does it need to be $30? What kind of and how much advertising and promotion and product innovation can change that?
We don’t really know. Or at least I don’t know. Actually, I guess I do know the answer. The answer is, “It depends.” Isn’t that helpful? It depends on the brand. It depends on the shop. It depends on buyer motivation. Has anybody out there rigorously asked 500 skaters, or even 100, why they bought the skate board they bought?
Right at the moment, if we asked a bunch of skaters, we know quite a few of them (fifty to seventy percent I suppose) would say that price was a big factor, as is their belief in a lack of meaningful product differentiation. More troubling, I suspect that if we asked our questions just right, we’d find that many are indeed influenced by the pros- but that doesn’t translate into buying a branded deck.  Finally I’d expect to hear, “I support my local skate scene.” And that brings us to our next topic.
Blanks and Shop Decks
Let’s define a blank as a skate board either with no graphics at all or with graphics with absolutely no legitimate connection to skateboarding. There will always be a market for both. Some percentage of the market, especially lacking any real or perceived product differentiation, will always want to buy the cheapest thing they can. It’s true in any market. And somebody will always supply it.
I’d like to say that again- If the customer wants it, somebody will always supply it. Lacking a change in skater perception and motivation, every store and shop that stops selling blanks creates an opportunity for somebody who does sell them.
The non branded board with graphics has been the province of the larger chains and sporting goods stores, often as completes. There’s no possible reason for a “real” skate retailer to carry them, if only because they’d make more money on their shop decks as well as promoting their shop. They are going to be around, and I imagine the quality has improved.
Shop decks, though, are a different story. What I hear, and what I suspect is often true, is that a shop deck, in a good shop’s neighborhood, is essentially a lower priced substitute for the traditional branded product. It offers a certain customer the same sense of legitimacy, belonging, and connection to skating and the skate culture that they use to get from the branded pro deck. And it’s cheaper. And shops make good money on them. I wonder how many shops put out their own pro models. Shop decks are not going to disappear. In fact, they may get stronger. And as I said, I don’t think the success of shop decks is just a price issue.
Maybe, with the right technology and promotion by the brands, shop decks can become the entry level boards.
It would be interesting to collect some good information on sales of shop versus blank decks as I’ve defined them. They really are separate categories, but they’ve been lumped together.
The Role of the Pro
I suspect there are some people who feel no need to collect any data on buyer motivation. They believe they already know the answer they’ll get back. In Under Fire, most of the brands say their companies are rider driven, or words to that affect. Always have been, always will be. That’s a valid statement of principal, but it may not be an adequate basis for a business, judging from the decline in the sale of full price branded decks.
I would not try to push a comparison between snowboarding and skateboarding too far. But I will point out that snowboarding use to have a pile of pros and sell lots of pro decks. Once the industry matured, that started to decline until today, the number of pro snowboards sold is vanishingly small.
That doesn’t mean that the pros don’t still influence snowboarders. But what the snow board brands finally figured out was that the best pros were worth whatever you had to pay them. The ones that you just flowed product to and maybe offered contest and photo incentives were influential at their local scene. All the riders in the middle? Not worth what they cost was the decision, and they are gone.
By the way, my definition of the best pro is not just the one who’s the best skater. It’s also the one who’s personable, responsible, professional, and shows up on time.
The other things that happened, in surf especially, is that the apparel and footwear companies picked up most of the team/pro sponsorship and other marketing expenses.
Is this how skateboarding will evolve? I don’t know. Skate hard goods companies have historically been the bedrock of skate boarding.   Certainly shoe and apparel companies are spending plenty of money supporting skateboarding.
So here’s the marketing matrix. Some skaters are influenced by the pros and buy pro decks. Some are influenced and buy the pro’s brand. Some are influenced, but still buy what’s cheap, maybe spending their money on shoes and clothing again. Some are influenced and would like to buy the pro deck but can’t afford it. Some don’t give a shit and buy whatever is cheapest as long as they perceive the quality is equivalent.
Well, we’re back to buyer motivation. Let’s talk to those few hundred skaters and figure out just where the industry (and individual companies) should be spending its advertising and promotional dollars.
Distribution
Everybody gets together to discuss distribution, tries to blame the other guy for the so called mess, and nothing changes. I’ve seen it too often, and I’m not talking just about skateboarding. Anybody who runs a company in the action sports business sits at their desk and ponders distribution every day. They know who they can absolutely sell to. They know who they should definitely not sell to right now. They try and figure out when and what and how much they can sell to all the accounts that don’t fit neatly in the “sell” or “don’t sell” categories. They ask themselves, “What will other accounts think? How will it impact the brand? How much money can I make? What’s the potential for growth? Is it consistent with my brand’s market position and brand strategy?”
So distribution evolves as companies grow and brands change. It just does. There is no mess. There’s just normal industry/brand/retailer evolution. Do what’s right for your business given this inevitable fact. Don’t look for somebody to blame, and don’t wait for it to be fixed.
Industry Evolution
Industries change. They just do. Companies adapt or die.  The customer always gets what they want. You can influence them, but not always as much as you’d like. An industry succeeds when the companies that make it up compete. Part of that competition is always innovation. Some do well, some don’t. But the industry itself progresses; sometimes kicking and screaming, but it progresses. I guarantee that every company will do what it perceives to be in its own best interest.
I went to the Park and Recreation Convention here in Seattle last October. Basically this is the convention of people who sell stuff to playgrounds, and I can only say that I wish I was a kid again. Lots of cool stuff that’s beyond what I could have imagined when I was of an age to use it.
I saw Per Welinder from Blitz there, manning the IASC booth and promoting skate parks. I walked around a corner and came face to face with Beau Brown, formerly of Sole Tech and now COO of Radius 8, a seller of portable skate ramps. His face was all aglow from the huge number of business opportunities he thought he had at the show. As we talked, a guy from some municipality came up and, apparently amazed to learn that portable ramps existed, asked how quickly he could get some. He guessed at the price, kind of suggesting that one might cost $3,000 as I recall. Beau, who seems to have a nasty ethical streak he needs to get over, told him that no, the one he was looking at was only $300. The guy scurried away to get his boss.