This article was occasioned by PPR’s release of its quarterly results, but that’s not really what it’s about. When PPR, or Decker’s or VF or Jarden releases earnings we’re interested in what happened mostly because we’d like to know what’s going on with Volcom, or Sanuk, or Reef, or K2/Ride. We never find out very much.
Volcom is in PPR’s Sports & Lifestyle Division which includes Puma and Volcom (including Electric). Puma did 821 million Euro in the March 31 quarter and “other” brands in that division, which means Volcom, did 65.6 million Euro. That’s about $87 million at the March 31 exchange rate.
Maybe ten days ago, I wrote about Nike’s quarter,
indicating it was kind of a waste of time for me to analyze Nike’s financials. Instead, I tried to focus on some comments Nike’s CEO made about sources of product innovation. The goal was to try and provide a little perspective that maybe helped smaller companies in action sports (or maybe it should be called active lifestyles?) think about how to compete and succeed in the eight hundred pound gorilla era. I think that approach is valid not just for NIKE, but for all the large companies that have bought up companies in our industry.
PPR management made clear in the conference call that they were disappointed in Puma’s results, and that they were working hard to improve them. At the time of PPR’s acquisition, there was speculation that Volcom might help Puma become “cool” and that we could see a Volcom shoe line created with Puma’s help.
At the time of the acquisition by PPR, Volcom was a company that was very strong in its market niche but, in my analysis, didn’t have anywhere to go. It was so closely identified with its niche it didn’t have the strength to break out of it. PPR, with about 4 billion Euros of revenue in the recently completed quarter, and the owner of such luxury brands as Gucci, Bottega Veneta and Yves Saint Laurent, didn’t buy Volcom for its 65 million Euros of revenue (1.6% of PPR’s total) and its growth potential in the “core” market. They didn’t buy it just to help Puma or to do Volcom shoes.
What do they have in mind? What do any of these behemoths have in mind?
At the most obvious level, PPR saw what VF has done with Vans and The North Face in its action sports segment and the associated growth rates and said, “We want a piece of that too.” If nothing else, you might expect that PPR will be interested in additional acquisitions in the space, perhaps in competition with VF.
Neither Nike, nor PPR, nor VF is interested in a brand that has no potential beyond the “core” market. It would just be too small to temp them. When the PPR/Volcom deal went down, I suggested, only partly in jest, that maybe PPR would expand Volcom into upper end boutiques. I (probably) don’t see any product collaboration between Volcom and Gucci. But I’ve watched brands like Nixon get some traction in that upper end market with some of their higher priced product, and I just wonder what’s possible. With PPR’s help, could Volcom open some stores that carried some new classes of Volcom product? Go and see what WESC is doing.
A brand, like Volcom, that’s secure in its niche and roots has the potential to grow out of that niche without confusing its customers and destroying its market. It’s not a sure thing, and it’s not easy. It’s management’s challenge every day.
For better or worse, we created that opportunity when we chose to pursue growth across markets and expand distribution. We created a much larger market, but one we couldn’t take advantage of on our own.
Large, successful companies in action sports are small, inexperienced players in the broader fashion business. As Volcom discovered, even going public and shoring up your balance sheet doesn’t solve that problem.
I’m sitting here trying to think of companies who have smashed through that barrier without help. I’m not doing very well. Everybody who is thought to have the potential to go from core to fashion seems to be acquired.
That, I guess, is the strategic point I started to think about as I read PPR’s quarterly report and looked for information on Volcom. A successful exit strategy for an action sports brand owner, in general, will require a revenue size that is proof of concept and is big enough to be interesting to a possible buyer. There also has to be an indication that you can hope, with the right support, to move past the core market and into the much larger fashion space. You can see that’s an issue for hard goods brands.
In the future, then, when I review the reports of Nike, VF, Decker, Jarden, VF and any other big companies involved in our industry, I’ll try and pull our trends and ideas that are more interesting than the change in the current ratio. More fun for me to write. Hopefully, more valuable for you to read.
Tags: Exit Strategy, PPR, Volcom