Interesting Survey of Specialty Retailers

Concrete Wave's Michael Brooke was kind enough to send me a first quarter 2008 Specialty Retailer Survey performed by Board Trac in cooperation with the Board Retailer's Association. Michael has had some thoughts on the survey, and you can check out what he said here http://www.silverfishlongboarding.com/option,com_mojo/Itemid,108/ but I had a few comments myself.

66.4% of the respondents had only one store front and 23.1% had annual sales of less than half a million dollars. I think we can assume that these smaller retailers fall into the one store front category. Anyway, I was surprised that large a percentage of stores had such low revenue. Maybe there are some that are only open part of a year or something. I know there are exceptions, but I've felt for a while (and said in writing) the the business has gotten too competitive for retailers to succeed having higher sales. I'd love to hear from some of these small retailers and have them explain to me how they do it.

There are a lot of interesting statistics on different skate, surf and snow products in this report (including shoes and apparel), but there were a couple of stats that really floored me. 61% of the respondents listed Sector 9 as one of their top six skate brands. Not their best selling necessarily, but among their top 6. Element was second at 59% and third was Private Label/Shop Decks at 52.4%.

We all knew that Sector 9 was doing great, and it's no secret that shop/private label decks are taking a lot of sales. But seeing those two sitting there on that list (the other three were Plan B, Baker and Girl) makes you realize how much the skate market has changed.

Also interesting were two other charts. One asked retailers to choose from a list of 13 factors that they thought were "Important Considerations for Stocking Brand." The other listed the same 13 factors and asked if they were "Important Considerations Why You Carrying (sic) a Brand." I have no idea what the difference between stocking and carrying a brand is, but the results of both charts were similar.

95 to 98% of the retailers thought things like the demand for the brand, customer service, the brand's image, etc. were important. The lowest on both charts, at 65 and 67% respectively? Teams/pros. I haven't seen the survey document, but I guess you could pick all 13 as important as you wanted to, and some probably did. But Teams/pros coming in at the bottom has to make you think. Most of the companies will tell you that their brands are "team driven." This survey might suggest they should think about that. If anybody has any other interpretation of that particular data point, I'd love to hear it. In the meantime, this study seems to be floating around so if you don't have it and want a copy, and are reading my blog, email me and I'll send the PDF.

Abercrombie & Fitch 10Q for the quarter ended May 3

I was perusing Abercrombie & Fitch's recent 10Q and came across the following interesting information. Their total sales for the quarter were $800 million. Of that total $330 million, or 41 percent, came from their Hollister stores. They have 460 Hollister stores representing 44% of their total 1,047 stores.

Maybe five years ago, at a Surf Industry Conference in Cabo, I asked a panel of specialty retailers something like, "What are you guys going to do when there are 5,000 brand owned retail stores competing with you?" It wasn't a very popular question and the only answer I got, before they moved on as quickly as possible on to a less inconvenient question, was something like, "We're prepared to compete with anybody."

Now, I guess there aren't 5,000 brand owned stores today, but if you add the Hollisters, Zumiez, VF and related stores to the brand owned stores, I wouldn't be surprised to find we're close to 5,000. I might even think to include some of the large format sporting goods stores like Joe's that are very well merchandised and presented.

I'm pretty sure the guys who were on the panel, and certainly the one who made that comment are still around. They can and are competing! But my sense is that a lot of others aren't. The reason? Well, there are issues like margin, effective management of open to buy, sales volume and other stuff I'd call, for lack of a better term, "quantitative" factors. But assuming you have all those things under control, and you have to just to be in the game, it comes down to customer service.

Every specialty retailer will tell you they compete based on customer service. Correct answer, but what does that mean exactly? It does not mean saying, "Hi, can I help you" or some such thing to everybody who walks in the store. It means making a measurable difference in the shopping experience that makes it worth while for your customer to come to your store and spend a little more.

When I bought my last pair of snowboard boots a couple of years ago at The Snowboard Connection in Seattle, I tried on about 12 pair and at the end of the day they had to order the right pair for me (very big and I guess strangely shaped feet). I think I paid full price. I know I didn't give a damn about the price. They were the right boot.

That's customer service and it's the specialty retailer's only chance. I've got an article coming out in Transworld Business that describes how that might be done with skateboard technology, if I may use those two words in the same sentence. It's not in the issue you're getting now but in the next one.

Customer service is doing things that other stores can't or won't do with individual customers. It requires good hiring, retention, and endless training. You have to measure it and figure out how to reward based on it. When all is said and done, it's your only advantage.

Hardgoods- Skate, Surf, Snow- All the Same Pattern

I have no idea why it took me so long to recognize this. I'm sure you've all figured it out long ago and I'm wasting my time. Well, that's okay. It's a blog and it's my time to waste.

About 2000 they started making snowboards in China. About 2004 they started making skateboards in China. About 2005, they started making surfboards in China. Okay, I may have the dates wrong, but it doesn't matter. And it may be China, or it may be another country where stuff is cheap.

Anybody see a pattern here? Snow, skate, surf each went through their period of angst as sourcing for hard goods moved to other, less expensive countries. Lots of wailing, ringing of hands and gnashing of teeth by the industry.

And the result. Some companies got hammered. That's always what happens. Other companies figured out how to adjust and did okay.

Meanwhile, the consumer- you remember them- the people who actually buy our products at retail and without whom we ain't got no business- they got a better deal. They got a good product for a lower price. It costs them less to participate.

And we thought that was a bad thing. Or at least some of you did. I never did. I didn't look at it as good or bad. I looked at it as inevitable if skate, surf, snow were going to prosper. It's just how industries evolve.

Please don't confuse what's good for the industry for what's good for individual companies. The companies that succeed are always the ones who recognize that they can't sail into the wind. They figure out how to sail with the wind even if they have to make some uncomfortable and inconvenient changes in how they do business.

It's coming up with product improvements that are for real. It might be deciding that there's only so much you can do about price competition and that you have to change your distribution to give you more volume. It might be recognizing that your growth prospects are limited, but that you can keep your margins high by focusing on a customer group that's particularly loyal.

Isn't it amazing though? Snow, skate surf, each went through the same cycle with cheaper production and price competition and each time some people were surprised and tried to rally their industry to "fix" the problem.

There was no problem. There were only opportunities if you sailed with the wind.

Sorry To Be a Pessimist, But It's a Real Recession

I've often been accused of being a pessimist by people who didn't like what I was saying, even when I turned out to be right. But you know, sometimes they were right. I was too pessimistic. So I've tried not to be. And that extended to the article I wrote for Transworld Business that showed up in the trade show issue called Subprime, Teen Spending and the Economy, where I tried to be balanced to positive in evaluating economic conditions and how they might impact the snow/skate/surf industry.

But here in my blog, I can write anything I damn well please. Having watched certain economic conditions deteriorate even further in the last few months, I want to tell you that we are almost certainly in a recession (though it's never official except in hindsight) and that we will not be immune to it. If we were more or less immune to the last two, it's because they barely qualified as recessions. This is a real one lead by a decline in consumer spending, or at least consumer spending that's shifted to food and energy. Go take a look at the number of retail bankruptcies and the closing of stores by big chains.

We're in the worst financial crisis since the depression (that's not only my opinion). Today I read that people who have other than excellent credit are having trouble getting car loans. People are going to have to "settle" for less car than they want. What an inconvenience- having to buy a car you can afford. Hardly seems fair. America is in the midst of deleveraging. Good. We need to. Or at least it was inevitable that it happen.

The good news? Generally, large companies across the board are in pretty good shape. Inventories are under control, debt levels are low, and a weak dollar (don't look for that to change) is making our exports more competitive.

Can we hope not to be hit as badly as other parts of the economy? Hope, yes. Skateboard hard goods especially I would expect to be somewhat recession proof. But we are being impacted. Right now.

Hope springs eternal, but I hope that hoping isn't keeping you from doing what you know you need to do. You know- all the usual stuff; manages expenses, control inventory, pay down debt, build your balance sheet.

Oh, and one more thing. Those of you who are strong brands, and I include quality retailers as brands, are going to find opportunities here as others who haven't done quite so focused and consistent a job running their businesses over the years get into big trouble. So don't let me being a pessimist or your being correctly cautious in how you run your business make you lose the chance to try some new things. Use the uncertainty to your advantage!

Skate Retailers, Brands, and Margins

Just today, I had occasion to listen to a conversation among skate retailers and skate brand executives. It was a positive exchange where they discussed issues of mutual concern and ways the industry could address them. Lurking behind the whole discussion, of course, was the issue of better margins on skate hard goods for retailers. One gentlemen, known for inconveniently speaking up and stating simple truths that are somewhat uncomfortable to hear (not me for a change) stood up and said, "You know, this is all about getting better margins. How do we do that?" There was a bit of a pause, and then the group went back to issues like team riders and distribution and how the industry could cooperate in these areas.



The problem, of course, is that margins are not an area where cooperation, at least at this point in the industry's evolution, is very likely. As far as I know, higher margins (in both percentage and dollar terms) can come from only three things; controlling distribution, desirable product features that distinguish the product from its competitors, or marketing that leads to strong branding. Successful companies have to do all three I was correctly reminded.



But the snag, as you may have figured out, is that industries don't do these things as industries. Companies do them as part of the normal and continuing competition that occurred among companies. So naturally the discussion was somewhat out of place in a discussion of how various industry companies could cooperate.



I've been in meetings in the skate industry where this has happened before and I'm pretty sure I'll be in another one. Next time I'm going to stand up and ask why we're framing as issues of industry cooperation things that companies have to do individually. That will probably be the last meeting I'm invited to.

What Skateboarding is Really About

A week or so ago, I was up in Bellingham, Washington for dinner with some friends. My wife was shopping before dinner and, not being particularly drawn to that activity, I saw some guys skating and went to watch them.

Bellingham, for lack of a better word, is in the process of being gentrified. Old buildings have been restored, and these three kids were skating at the corner of one such building. What they were skating was a remnant of the architect's sensibilities. Embedded in the sidewalk, flowing out from the corner of the remodeled building, was what looked like a section of the old building's wall. Picture a rectangle maybe six by fifteen. But it's tilted. And not level. And not exactly a rectangle. And there was what I guess was an old chunk of concrete stuck in it.

The edge of the "rectangle" the skaters were trying to slide on went up at maybe a 15 degree angle. The area they had to land on after sliding it wasn't flat. As I watched them, I finally thought to myself, "Holy shit! The laws of physics don't allow this."

But what was cool was that they didn't care. They kept trying wondering, I think, why I could possibly care. They probably couldn't succeed, but they were having fun and learning something. They left after about 20 minutes but you know what? They'll be back. And they still won't succeed. But they will still have fun and become better skaters for trying.

There's a lesson in there somewhere that goes a bit beyond skateboarding.

Heelys- Opps

Months and months ago I wrote a Public Market Watch in Transworld describing Heelys business model and financial results. I noted that they seemed to be succeeding with a business model that was contrary to what we in action sports thought was contrary to how you build a brand. Specifically, they started in the big box stores and were working their way down to specialty retailers.

Happily, I included in that article a comment about how they were expecting much lower sales the next quarter. Guess what? It seems they were right. On February 28th Big 5 Sporting Goods issued a press release announcing that sales were down for the quarter with same store sales declining 4.7%. They blame the economy but then go on to say, "sales results were impacted by a significant deterioration in the performance of the roller shoe product category over the prior year, which accounted for approximately 45% of the same store sales decline."

Though I'm sure it's happened, I don't remember ever seeing a retailer focus so directly on a single product caused sales decline. I guess I better go check out Heelys' filing. Maybe they are another Razor Scooter after all. Sometimes, I guess, conventional wisdom is right.