Growing Snowboard Brand Revenue; the Active Outdoor Market and Year Around Resorts

There has been much ringing of hands and gnashing of teeth around the subject of snowboard participation and what to do about it.  Studies have been done and programs implemented.  What has their impact been?  Hard to know, because we don’t know what things would look like if they hadn’t happened.

SIA reports there were 17.1 million snowboard visits to U.S. resorts during the 2004-05 season.  That number was 14.5 million in the 2014-15 season, down 15.2% over that period.  Participation during this period peaked during the 2009-10 and 2010-11 seasons at 18.9 million.

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Learn to Ski and Snowboard Month; Can’t We All Do Just One Thing?

Last week or so, SIA President David Ingemie sent out an appeal for support for the Learn to Ski and Snowboard Month bring a friend initiative. Check out the web site. Look under “The Challenge.”

While I’d love to say something strategically brilliant about the program and give you some blinding insights into its value, that should be pretty obvious. I’m afraid this is going to turn into a short commercial for the program.

If you take just a few minutes to wander around the Learn to Ski and Snowboard web site, you’ll probably figure out what I figured out- that’s there’s no reason a person planning a trip to a winter resort wouldn’t use this site. It’s full of deals and good information. Looks to me like you can pretty much plan your whole trip here.

I wonder if retailers point their customers to this site while they are in the store. Maybe they don’t like the deals on equipment part. It just seems to me that a retailer who can not only sell stuff but help the customer plan when and where to use it might have leg up. Kind of like scuba diving retailers acting as travel agents for diving trips. Of course, they make money on that.

As you all know, the snow sliding business faces the challenges of dependence on aging baby boomers, stagnating middle class incomes, an economy which, while strengthening, isn’t likely to go back to the way it used to be for a while, global warming, competitive from other leisure time activities, complete transparency (for better or worse) of pricing and costs, and the fact that our activities just don’t seem to be perceived by our potential customers (of which there are a lot) to be as cool as they once were. We aren’t alone. Other industries face some of these same challenges.

Meanwhile, among the good news I see from the winter resort is the extent to which those resorts are managing to sell summer products- hiking, mountain biking, golfing, water slides, zip lines, etc. You have no idea (well, some of you do) what a difference just getting 10 percent of your revenue during the summer makes.

Summer activities relate to winter ones because getting somebody to come to your resort in winter is a chance to convince them to come back during the summer.

There’s no magic bullet. Neither SIA nor any organization is going to “fix” the participation problem. What we’re facing, and have been facing, is a multiyear, and I am comfortable saying multidecade, ongoing issue that we can never resolve, but always work to improve. Wait- maybe I did just say something strategic.

And that’s where programs like the Learn to Ski and Snowboard Month come in. It won’t “solve” the problem. But every time this program and others like it get somebody to the hill for the first time, they create a potential customer for life. And every time a resort or a retailer makes sure the newbie has a good time and easy experience, they help do the same.

So look at the web site and think about what you can do for one person that might help get them on the hill.

Let’s Review; Lessons for Being in the Winter Sports Business

Well, here we are in the middle of a new snow season. Among the things people are probably thinking about are:

“It can’t be any worse than it was last season.” That seems statistically likely to be correct.
 
“What am I going to do with last year’s product?” Probably something brands and retailers are both still thinking about that.
 
“I am never, never, ever going to order (or produce) more than I’m absolutely certain I can sell.” I do hope you stick to it.
 
“Wow! Am I glad I wasn’t over inventoried when last season started.”
 
And, if you’re a smaller, single season company, there’s the ever popular, “I hate having to finance this business and I’m really, really tired of personal guarantees.”
 
With those in mind, I thought it might be useful to review the things you have to do to be successful in a one season business. Most of these ideas I’ve written about before, but I don’t think I’ve ever pulled them all together in one place.
 
Be Cognizant of What Is and Is Not Controllable
 
Business is good when it snows and bad when it doesn’t- and there’s nothing we can do about that. That means you’ve got to assume and prepare for an average season at best (though you might need to think about what you mean by “average” in a lousy economy with global warming).
 
You Have to Make Money 
 
I know this sounds kind of obvious, but if you can’t make money, don’t be in the business. We’re all aware of retailers who have pulled out of snowboarding after doing that analysis. Though I don’t like to see that, I say good for them for facing the reality. I guess the good news is that it helps those who remain in the business by reducing distribution a bit.
 
Unfortunately, the analysis is not as cut and dried as I just made it sound. You mean make money every year? How do you allocate your overhead to winter sports if that isn’t all you do? Is it cash flow positive even if it isn’t bottom line profitable (I doubt it)? Will it cost me customers who buy other stuff? Can I make it profitable by carrying different brands or inventory mix? Etcetera. 
 
Don’t Be a One Season Business
                               
I suppose the only snow only retailers left are shops associated with resorts, and they close in the summer. Except that winter resorts have figured out that not being a one season business is a good thing. Water slides, zip lines, mountain biking trails, golf, and other activities are allowing them to generate at least a bit of cash flow in the summer. What significant snowboard brand hasn’t, or isn’t trying to create year around revenue or isn’t owned by a larger company that has that year around cash flow?
You’d be stunned at what getting just 10% of your total revenue in the off season does for the ability of your finance person’s ability to sleep at night by improving the cash flow.
 
Basically, there’s no good way to finance a one season business except to make it less seasonal. You can do it with equity, but you really don’t need to tie up all that money all year and your return on equity will probably suck. You can do it with debt and pay it down in the off season but lenders, especially now, want to see a strong balance sheet (implying lots of equity) before they will lend you the money. It’s a bit of a conundrum.
 
I’ve been responsible for the financial management of a couple of snowboard companies and the only solution I see is increasing off season revenue.
 
Inventory Management
 
I would always prefer to bemoan a sale I didn’t make than inventory I had to liquidate. It was years ago I suggested that a focus on the gross margin dollars you generated rather than the gross margin percentage was a good idea, and it’s only gotten more important as the economy has become and remained soft. Sales growth is harder to come by, but maybe you can improve your bottom line anyway by growing your gross profit.
 
In a more formal sense, this method of looking at your inventory is referred to as gross margin return on inventory investment. To over simplify, it makes you confront the fact that you’d rather sell an item with a 35% gross margin that sells for $175.00 than three items with a 50% gross margin that sell for $12.00. 
 
That’s worth thinking about in any business, but especially in the seasonal snow business. To put it as directly as I can, if you’re stuck with much inventory at the end of the snow season, the chances of your making an overall profit in snow that season are slim to none.
 
And there are other advantages to managing inventory a bit more tightly and in a more sophisticated manner, as if making more money shouldn’t be enough to convince you. You tie up less working capital. You create a perception of value through scarcity. I think “Sorry it’s all sold!” does more to create value in the eyes of the consumer than all the advertising in the world. What exactly is wrong with selling a bit less, but paying the bank less interest, generating more gross margin dollars, and perhaps being able to spend a few less bucks on advertising and promotion?

I thought this was going to be a way longer article.  I know, I know.  Conceptually simple sounding, but not all that easy to do.  But much of what I’m describing just represents good business practices that these days you can’t ignore.

 

 

Notes From the SIA Show in Vegas, Uh, I Mean Denver

The beer is a lot cheaper in Denver, assuming you don’t actually consider the beers they handed you at the gambling tables in Vegas to be free. The hotels are more expensive and getting to said hotels from the airport takes longer.   Most of the people I talked with (by no means a scientific sample) would have preferred the show was still in Vegas but I’m sure we’ll all adjust. I have never had so many friendly people ask me if I needed help finding anything and tell me they hoped I had a nice day. If that happened in Vegas I’d probably think I’d done something wrong. They were certainly glad to see us in Denver.

But was it a “good” show? You know, I have certainly gotten old enough, and maybe wise enough to know that you can’t judge a show just by walking around it, though we are all guilty of that to some extent. It was a good show for me, and snowboard industry booths seemed busy enough. I have to confess I didn’t spend much time in the ski part.
So I’ll leave the show analysis to others who have more and better data than I have. At the end of the day, the question is was it a good show for your company? But I do have a few observations we might have some fun with.
Happiest Company
Had to be Never Summer. Not only is their factory in Denver (they were offering tours) but economic conditions have suddenly made their long term business model of high quality, good margins, and limited distribution that leads to strong sell through something that absolutely everybody understands. They swear they won’t screw it up and I believe them.
Best Show Favor
Betty Rides party panties. Owner Janet Freeman gave me a couple of pair, but they were a little snug so I had to give them away.
Interesting Business Model
I ran into Cec Annett, formerly with Adidas, who’s now the CEO of The Clymb (www.theclymb.com).   It’s a membership site where they sell, for only a couple of days for each item, quality overstocks of product at big discounts from industry brands. There’s no charge to be a member, but an existing member has to recommend you. The brand doesn’t have to worry about the product showing up on Ebay, and the presentation is very professional- the brand image is supported. The financial model is also intriguing. Cec, please remember this nice plug when you’re rich and famous and, in the meantime, can you get me signed up as a member?
Small Booths
A number of major brands had much smaller booths than last year and I say good for them. A trade show booth should be exactly the size you need to do whatever business you do and not influenced by the size of your competitor’s booth. I guarantee that if you have a product that sells well at retail with good margins your customer will buy it even if you don’t have a two story booth the size of a house with a helicopter on top (who besides me remembers that?)
Large Booth
Burton and its associated brands took up around 10% of the total floor space in the snowboard area. The Burton brand by itself had the largest footprint of any company there. Things must be going really well at Burton for them to have paid SIA’s standard rate of $11 per square foot for premium members for all that space.
Guy with the Best New Job
It has to be Ryan Hollis who, after 12 years with Quiksilver, is now the General Manager of Mervin Manufacturing. Guess this means Mike Olson can give up doing the accounting.

Alternative Camber; An Idea Who’s Time has Come- Again

A couple of weeks ago, I was paging through Transworld Snowboarding’s Gear Guide, and I came upon the page on alternative camber. I read it with interest to try and keep with the latest technological trends, but paused when I saw the illustration of the cambered medley snowboard.

Something about the cross section of the board, showing camber at both ends, jogged my memory. I went down to my garage, ventured into the storage space under the house, and came out with my dust covered Inca snowboard, circa, I want to say, 2000.
It’s a 157 and was called a dual camber but you know, it looks identical to the cambered medley profile pictured in the gear guide. Back when I actually rode the board (because I thought the technology worked for me which seemed like a pretty good reason), the reaction of people, at best, was tolerance and sometimes it ran to ridicule. Granted, the graphics were ugly. And entrepreneur Jerry Stubblefield, the founder of Avia, didn’t come with a lot of snowboard credibility or cool factor. But damn it, I thought the thing worked.
So I was a bit perplexed to read that in three years the gear guide had gone from 0 to 170 snowboards having some kind of alternative camber and that “…their sweeping popularity can be attributed to one thing: it can make snowboarding easier.”
To my untrained eye, it looked like the dual camber of 2000 was essentially the same as the cambered medley of 2009, but what did I know. I mean, obviously they must be different because everybody who knew anything about snowboarding seemed to hate it in 2000 and love it in 2009.
I thought I’d better call in an expert, so I reached Mike Olson at Mervin Manufacturing. Mike has been designing and building snowboards for multiple decades, and it was the Mervin designs that lead and are leading the alternative camber charge.
I love talking with Mike and need to find more reasons to call him. Our nearly hour long conversation ranged all over the snowboard and action sports business. It was part history lesson, part standup comic routine, part “how to” guide for entrepreneurs and from time to time we actually got around to talking about the technology of camber, some of which went right over my head. Subtleties of materials and manufacturing that Mike takes for granted kind of escaped me as I tried to absorb it all. And of course the conversation tended to remind each of us of other topics, so we sort of careened from issue to issue.
Anyway, the bottom line is that Mike knows Jerry and has spoken with him on a number of occasions. If Lib Tech’s C2 Banana isn’t exactly the same as the Inca due to improvements in technology and materials, it’s certainly conceptually similar. According to Mike, “Inca has 2 huge cambers centered under each foot (which is what Gnu tried for a season in 1986) while we now have a giant rocker (Banana) between the feet with minute cambers out on the ends of the snowboard.”
But the clincher was when I described to Mike the complaints I got from people when I showed them the Inca and they (you know who you are) universally complained that it was too flexible. “Like a noodle,” as one industry insider put it as he trashed the concept.
“Of course it’s flexible,” says Mike. “That’s part of the cambered medley concept and without the flexibility, the construction wouldn’t work.”
Mike reports that Mervin’s sales have doubled from three years ago. 
I guess this is a cautionary tale about the dangers of stereotypes and preconceptions. If Mike Olson, who has been experimenting with alternative cambers for decades, had come out with as cambered medley snowboard in 2000, would it have been a big hit? Don’t know. But I’ll bet that no matter when Jerry Stubblefield came out with one (even without bad graphics) it wouldn’t have taken off no matter how good the technology.  Anybody want to claim we’re not in the fashion business? 
Just something to think about.        

The Impact of Consolidation; Wasn’t That Over Years Ago?

Yes. And no. The snowboard industry consolidation that started around 1995 or 96 could probably have better been called extermination. Literally hundreds of brands went away either because their founders got tired of losing money or because the Japanese stopped paying cash in advance for snowboards. Though there were exceptions, these brands didn’t get subsumed under the multi-brand umbrella of a large corporation. They just ceased to exist.

A Business Week article in September talked about the fact that prices on recent acquisitions of apparel makers have been at cash flow multiples 20% higher than what companies were purchased for just a few years ago. Some of the recent, richest deals have closed at multiples of cash flow that are twice what public apparel makers trade for. A graph in the article shows the value of mergers and acquisitions in the apparel sector were around US$ 6.5 billion in 2000 and are projected to be nearly US$ 40 billion in 2005.
 
Quiksilver has announced that it’s earning for the year ending October 31, 2006 are expected to be US$ 0.87 to US$ 0.88 cents a share. Analysts had been expecting US$ 0.98 per share. Earnings are expected to be US$ 0.86 to US$ 0.87 for the year ended October 31, 2005.    They said the integration of Rossignol, acquired in March, the strengthening of the dollar and higher interest expense were responsible for their projection of essentially no earnings per share growth in the coming year.
 
These two things got me thinking. Sometimes that leads to an article.
 
The 90s snowboard consolidation was largely confined to the small world of the snowboard industry itself. And as I said above, consolidation maybe wasn’t the right word for it. This consolidation is different. It’s not confined to snowboarding, or even to what we have called action sports. It’s taking place in the context of the much, much larger lifestyle/fashion/apparel (pick your favorite term) market. It’s big companies buying companies that we in action sports use to think of as big, but that are turning out to be small compared to the companies buying them and the markets the acquirers are in. Hurley bought by Nike, Quik bought DC and Rossignol, VF Corporation bought Vans, Addidas bought Salomon (and has now sold it to The Amer Group). I’ve forgotten all the brands K2 has bought. I don’t mean to suggest this is new, but I expect it to continue. It has ramification for brands and retailers.
 
Let’s see what they might be.
 
Stuck in the Middle
 
The conventional wisdom is that you either need to be a niche brand, or a big company with a low cost structure. If you’re stuck in the middle, you’re screwed. We could talk, I think, about how that may have changed or be changing due to the role of brands, how marketing has evolved, and the internet and the leveling of the information playing field, but that’s a topic for another day. For the moment, let’s go with the conventional wisdom.
 
We continue, thank god, to see the regular emergence of new action sports brands. Some of them get some traction in the market. We all know why. Committed snowboarders, for example, who think of snowboarding not just as a sport but a lifestyle are interested in buying brands different from the ones anybody could buy pretty much everywhere. I’d argue that this group of committed snowboarders, as a percentage of total snowboarders has shrunk, but it’s still a basis for a new brand to get a toehold.
 
I look at these companies as niche brands who, due to their small size, flexibility, limited availability, coolness factor, and cost structure control, have a way to compete. Remember when one of these brands ran the ad telling kids how to fake lift tickets or something like that? Boy were the resorts pissed off and you couldn’t hardly blame them. But it generated a lot of talk. Can you imagine a large snowboard brand with close ties to resorts using that kind of marketing?
 
At the other extreme are the big players. But if I try and list the big snowboard only companies (or the big surf only companies, or the big skate only companies) I end up with a damn short list. Not even Burton, even with the leading position in the snowboard market, is a snowboarding only company any more. Quik’s’ certainly not just surf with acquisition of Rossignol.
 
The big players are increasingly multisport, year around businesses with a significant and growing presence in the apparel/lifestyle market. K2 Corporation, Amer Sports, VF, Nike, Quiksilver come to mind. There are others you might name. I think the companies stuck in the middle are those with revenue of, oh, let’s say under $1 billion who don’t have defendable and competitive lifestyle/fashion/apparel brands.
 
Got your attention with that number did I? Good. That was the idea. Want to say $800 million? Okay with me. But whatever the number it’s at least one order of magnitude bigger than what we usually think about when we say “big” action sports companies.
 
The idea I want you to come away with is that many of the companies with the potential to be “stuck in the middle” are now much larger and the revenue range of such companies much wider. In this much larger market, you can be stuck in the middle at $25 million. Or at $400 million.
 
Remember action sports- especially in hard goods- is an industry where you have to do everything right just to be in the game. And, in contrast to how it use to be, doing everything right doesn’t give you a long term competitive advantage (I’m not sure there are any of those anymore unless they are related to brand)- it just gives you a chance to compete and make it to another season.
 
A further factor in catching companies in the middle is the squeeze on hard goods prices and margins that has resulted from wide distribution, lack of product differentiation, and the availability of cheaper, quality, manufacturing. Downward pressure on prices can mean less margin dollars even if the margin percentage remains the same. Nobody is immune to this.
 
So What?
 
Because of the encroachment on action sports of the lifestyle/fashion industry, and the fact that there seems to be more money to be made in soft rather than hard goods, companies in the middle face a tough competitive challenge. Much (most?) of their growth potential is in selling soft goods to the lifestyle market. But their competitors in that much larger market have resources and advantages that the pure action sports companies can’t even come close to matching. What can they do?
 
Well, they can sell. For many, that will be by far the best financial decision they can make. So we will see this continuing wave of consolidation. As usual, there will be those companies who will have been mismanaged and need to find a deal. But even solid companies, looking at their market position and circumstances, will rationally decide it’s time to sell.
 
They’ve grown steadily, are profitable, and respected in the core market. They are a trend leader with a serious cool factor. The next step in growth requires them to begin to expand their distribution into the broader market. Potentially, they may begin to erode their image. They will begin to run right into the much larger competitors who have them out resourced by ten to one. Even if they are successful, they may not have the working capital they need to follow through.
 
Typically it’s right at this point where the company’s value will never be higher. The Business Week article suggests that might be right now. It’s not easy to recognize, and there are damn few successful entrepreneurs who don’t think next year will be better than this year. But making a deal right then, with your market aura in tact and your financial statements pristine and before you start to run head long into the 500 pound gorillas who will be your competitors is where the deal needs to be made. And that’s why I think we’re going to see more deals.
 
But who to buy? If, as I’ve suggested, the core market of actual participants who define themselves and their lifestyle by their participation is shrinking then the niche brands, while they may be successful, don’t have the room to grow they use to. So why would they be attractive to a larger company if they can’t contribute substantially to growth and profitability? They probably aren’t. So the number of attractive acquisition candidates shrinks, and the price, as seen above, gets bid up.
 
And the Retailers?
 
Four things. First, we seem to have been through, and maybe we are still going through, the extermination phase with retailers. I have no numbers, but I think we all share the perception that a lot of individual retailers have gone away and comparatively few have opened.
 
Second, I expect the “stuck in the middle” analysis above for brands to apply to retailers as well. We’re already seeing some consolidation and I’d expect more. As I’ve written, the only financially attractive exit strategy for a core shop run by the founder/owner seems to be to open enough additional stores to create a size, management structure, and ”proof of concept” that makes the mini-chain attractive to buyers. This is consistent with the discussion above of why a brand would sell.
 
Third, I can imagine that purchasing inventory is going to get interesting for shops as the companies they buy from have more and more things to sell them. Remember that the days of the single sport/activity shop are long gone. I wonder if K2 will want you to buy both your snowboards and your football equipment from them. Okay, granted I don’t know of a snowboard shop that sells football equipment in the summer, (and I don’t know if K2 sells it) but there must be one. What kind of incentives might they offer you to consolidate your buying for various activities with them? Hmm. Maybe I should ask them.
 
Fourth, are you sure you’re still an action sports retailer? I mean, a lot of you are selling an awful lot of soft goods that aren’t really sports functional to people who don’t participate. Maybe, for some retailers at least, it’s time for you to reconsider how to redefine yourself to take better advantage of the whole lifestyle/fashion/nonparticipant thing. Could be there are some opportunities you’ve been scared to look at that make sense? 

 

 

New Stuff to Do More; New Strategies are Critical as the Snowboard Industry Evolution Continues

I remember when this was a simple business. Or at least I thought it was a simple business. You had a pro team, ran some ads, built relationships with core shops, sold C.O.D. or on 30-day terms, and were thrilled if you could get enough product to fill orders.

With supply shortages, the fact that quality wasn’t always very good was less crucial. Margins were better anyway.
 
Your team is still valuable, but successful team riders have to do more than rip up the hill. Apparently, they also have to look good in their underwear. Riders have agents now, for god’s sake.
 
Your choice of where to run ads has expanded dramatically. We used to laugh at people who ran an ad anywhere but the usual places. Now we wonder if we’re missing an opportunity.
 
Thirty-day terms are pleasant memories and selling some product at a decent margin is tougher than climbing out of a tree well after a ten-day dump. You can’t just focus on ‘core shops any more. Hell, it’s getting hard to even find one if you define it the way we used to.
 
Not only does a snowboard company have to do the same old things better, but my contention is that it has to do a whole bunch of new things as well.
 
Endless Product Lines
 
 SKUs are getting out of control. Product lines have gotten enormous- largely as a competitive response to what other companies are doing. I’m not against responding to your competition, but recognize that such a response is strictly defensive in nature. Rather than differentiating you, it makes you look like you’re simply copying your competitor. 
 
This is yet another example of our talking and listening to ourselves, rather than focusing on the customer. It also costs money. Making and managing more SKUs is expensive. In some cases, it may even drive up costs of other products by shortening production runs.
 
The situation requires a little zero-based product planning. Don’t start by looking at your competitor’s product lines. Begin by looking at what your customers are buying and what you think the market trends are. Design your product line in response. Figure out all the hard costs of an extra product- molds, samples, employee time, short production runs, etc.
 
Now, what are the specific benefits of another length of one style of board or an extra color in a jacket? Will you actually increase sales or will you just cannibalize another part of your line? Are you making it even more difficult for the store to carry and merchandise your products? Will your reps really understand the whole line and will they be able to make a cogent and complete presentation to the poor retailer before that retailer keels over in confusion and exhaustion?
 
The hard costs are real. The soft benefits are tougher to quantify.
 
Public Relations and Co-Branding In Advertising
 
Snowboarding has been turned into the poster child of the cool, young generation every advertiser wants to reach. Snowboards and snowboard products are turning up everywhere. Are any of them your products? If not, you’re missing an opportunity.
 
Does a particular board’s base graphic turn up on a resort’s promotional brochure by accident? Did K2 team members just happen to be standing around in their Jockey underwear, boards in hand, when a photographer happened by, took a picture, and sold it to Jockey?
 
Most of this exposure is not accidental: taking advantage of all these opportunities is a full-time job for somebody. And the work that’s done now probably won’t have an impact until next year due to the lead times involved. So get started sooner rather than later. Prepare and distribute a press kit. Include photos anyone can use. Make contacts with companies that are interested in your customers and make it easy for them to get the images or the product they need. 
 
One note of caution: it’s easy to believe that free or inexpensive exposure is good, no matter where it occurs or in what association. Not true. Make sure the opportunity is appropriate to your brand and its market position. To use an extreme example, how many snowboard brands rushed out to have snowboarding’s furry Olympic mascot Animal seen on their boards?
 
Resorts Are Our Friends
 
I think we’re to the point where the director of resort relations is probably a full-time position for a snowboard company.
 
Ignoring rental possibilities for a minute (because they’re a whole separate issue), there are an almost endless number of things you can do to help resorts focus on snowboarding and the kids they want to attract and retain.
 
Are you maintaining a database of key resort employees and contacting them from time to time? Do you have a program to flow a little product to the right people?
 
Are you having a couple of team members spend a day at the resort and then sending an unsolicited letter to the appropriate resort executive telling them what a good time they had and maybe suggesting a few things they could do to improve the snowboarding experience?
 
Have you sat down and thought specifically about how the needs of resort shops are different from city shows and, besides giving different terms, how you can meet them?
 
I don’t think I’m even scratching the surface here. I’ll bet your new director of resort relations, a snowboarder who’s spent some years in resort management, would have a whole lot of ideas.
 
Rentals
 
The trouble with rentals is we don’t know why we’re doing them. Are they a loss leader that gets people on our product and ultimately selecting our brand when they buy? That is, are they justifiably part of marketing and promotion budgets? Or are rentals supposed to be moneymakers?
 
As long as I’m restructuring the sales and marketing organizations of snowboard companies, may I suggest a sales manager of rentals?
 
I know rentals are growing dramatically. I suspect they’re no longer just for people trying snowboarding for the first time. They have become a convenience, like takeout food. Done well, as it increasingly is, the equipment is always new and tuned and the boots are dry. All you have to do is show up.
 
Why buy if you’re a typical participant who’s only on the slopes for a few days each year?
 
I think the rental trend is going to catch us by surprise, at least partly because we in the industry spend too much time talking to each other instead of to our customers. This is an interesting problem. We sell rentals cheap, or offer ridiculous terms, or agree to take the product back next year. We do it because we believe that ultimately it helps sales. But by providing cheap, new product each year to rental shops we make it increasingly easy and economical for participants to rent. Aren’t we helping the rental shops to build their businesses and killing ourselves? Yet another example of irrational competition in a maturing market.
 
I wonder if any snowboard company really makes money in rentals. By embracing snowboarding, the resorts have given themselves tremendous leverage over the industry. I suspect your new sales manager of rentals and director of resort relations will be working closely together.
 
Wherever You Go, There You’ll Be
 
In a maturing industry, you either find a defendable niche, or become a low-cost producer. Considering the trends discussed above, it’s obvious this is true for snowboarding.
 
Margins have declined, but the cost of doing business has increased. There are too many things you have to do to succeed. Which means your break-even point has gone through the stratosphere. And the working capital investment required in this highly seasonal business has grown even more.
 
My perception is the entire business model is changing. Snowboard companies have to do things they haven’t done before. There is a new group of stakeholders who aren’t just the people who snowboard. The snowboard industry has lost a lot of the control it had over snowboarding. Getting that control back, if it’s possible, requires new organization and a new way of thinking.

 

 

The Dilemma of Being “Core;” Identifying and Managing the Conflict.

A few years ago I wrote a column called “Are there Any Core Snowboard Shops Left?” It generated a good discussion, though I got burned at the stake by quite a few people. Happily, I was wearing my asbestos underwear.

The question, however, is still valid because of some of the problems core shops are having and how important they are to the industry. I want to talk today about why the snowboard business for a core shop is either easier or harder than other action sports businesses and why it may be a tougher business proposition to be “core” in snow than in other businesses.
I also think, much to my amazement, that I’ve come up with a working definition of what a core shop is and I’ll present that to you later. Only took me fourteen years.
Having a definition is important if we want to say anything meaningful about what core shops do, why it is meaningful, and how they might do it better. Like the resorts and the suppliers, they have a role to play in resisting the snowboarding business degenerating into a more and more price driven game and in continually finding new participants. In the long term all three groups have the same interests. In the shorter term, these issues are most important to the shops.
Easier and Harder
Extreme seasonality defines snowboard retailing. You get just one chance. So, if you’re a flinty eyed business person, you order cautiously, thinking that you’d rather be pissed that you didn’t order enough than if you had to pay for it and carry it over until next season. You buy mostly mainstream stuff that you think is likely to sell best, and your selection is heavily influenced by prices, terms, discounts, and other similar goodies. If it doesn’t snow, or doesn’t sell, you discount it ruthlessly and early. It’s got to be gone by the end of the season. Once the season is over, say the early part of February, that snowboard stuff disappears and the floor space is largely filled with whatever season is next.
That was easy, and as low a risk as you could make it. But it was hardly core. We’ll get to the official definition. Among other things being core requires that you carry enough stock in enough brands to really serve serious snowboarders even if they aren’t most of your customers and that you take some chances on brands that maybe aren’t mainstream or haven’t been around long. probably means some other things that increase risk and cost. Like having employees with enthusiasm for snowboarding and its lifestyle. And supporting the local community.
At the end of the season, even a good season, at least some of that snowboard stuff probably still sits there, gobbling up floor space and working capital. It generates some occasional sales, though not near what you could get with different product. But you’re core so you do it and it costs you money. That’s harder.
I’ve illustrated two extremes. The magic of successful retailing, of course, is finding the sweet spot in between those extremes that works for the customers and doesn’t blow your bank account.
Still it’s obvious that being a core retailer in snow is a lot harder than in a retail business where participation doesn’t stop dead for eight months of the year even if it slows down. Like skate or surf. But it’s not only harder because of the seasonality. People who don’t skate or surf still buy skate or surf brands to wear. Certainly some of that goes on in snow, but I suspect that most snow soft goods (or at least a higher percentage than in surf or skate) are sold to people who want to use them snowboarding. That makes for a much smaller possible market.
Which, we can probably all agree, is why shops don’t just do snowboarding anymore. There’s no business model that makes sense. Looking at a single season, it probably doesn’t make financial sense to try to be “core” in snow. It just costs too damn much.
The Definition
A core retailer is one that has a primary focus on customers who are drawn to the lifestyle and keyed intothe trends associated with the activity they participate in. This focus is shared by the shop owners and employees. Many of its customers tend to purchase more often and be less price sensitive than others. Though it is not necessarily true that core retailers are small in size, it is reasonable to say that being a core shop becomes more difficult as your size and number of storefronts increases.
What I’ve suggested above is that, due to being a one season business, and for other reasons, there are some risks and costs to being a core snowboard shop that don’t exist in the same way or to the extent they exist for skate or surf. That’s bad because we need the core shops, we all say. Just to refresh our memories, we say that because they are the first ones to spot trends, have a role in incubating brands, and in creating and maintaining a bedrock of excitement that supports the industry through good times and bad.
Where Do Enthusiasts Come From?
From the womb I suppose. Which is my way of saying that these lifestyle participants we, as business people, depend on tend to be younger. And as they get older, they begin to develop other priorities. What was a passion and a lifestyle becomes a sport. It competes with other uses of time and money and may no longer be the thing they find a way to do no matter what. We can market our asses off, but we’re seriously drinking the kool aid if we believe that any amount of clever marketing will change this inevitable evolution as people get older.
So that’s going to happen? We will lose participants, or at least frequency of participation and people will be less inclined to buy new stuff more often.    And they will have less propensity to buy soft goods if they are participating less. As I said above, I think surf and skate sell more broadly defined soft goods to more former or non participants than snow does. Participation is more important to snow than to skate or surf. Look at the percentage of total surf revenues represented by surf boards.
Well, okay, if snowboarders are inconveniently going to get old in spite of all our outstanding advertising and promotion, where are the new participants we need going to come from?
Like I said, from the womb. Well, this is hardly a surprise. SIA spent a whole lot of money having studies done that, in part, showed the importance of getting participants started young. Resorts and brands both have their parts to play in keeping new, young participants coming into and staying in snowboarding. But so do the core retailers. What should they do?
Action Items
First, it would be good if you stayed in business. That, by itself, would help a lot and is by no means an easy thing to do.
Second, stop agonizing over broader distribution and company stores. It’s here to stay and it’s unlikely you can do much about it, except of course take it into account as you consider how you run your store.
Third, get bigger. The numbers show that smaller shops have higher leverage (risk) and lower returns on net worth.
Fourth, even if your roots are in snowboarding, and you see yourself as a core snow shop, don’t use that as a reason to exclude other products that make sense. Try to limit your financial dependency on snow. You can be a “core” snow shop even when a lot of your total sales are from other products.
Fifth, have a cash flow that makes sense and build it with special consideration for your (I think) less predictable snowboard business. And in that cash flow, plan to pay your suppliers on time. I don’t know why, but they seem to like that. It’s also a big step in accomplishing point number one.
Sixth, though your roots may be in snow, I think retail business conditions require that you think of yourself as an action sports shop. It’s the financial model that works. Treasure the crossover customer.
Seventh, build relationships with winter resorts that help get new participants to the slopes. That’s worth another article. I can tell you from sending a few emails that some of the best stores are already all over that.
What writing this article has made me realize is that there is, in some sense, a conflict between being, thinking, and acting as a core snowboard shop and having a solid business model. Maybe that’s too strong, and I know there are some notable exceptions. Still if success requires, and I think it does, that you are active in areas besides snowboarding, can it be dangerous to think of yourself as a snowboard shop even if that is your focus? To put it in fancy business school-like strategic planning terms, if your mission statement isn’t aligned with your business model, you’re screwed.
Sorry, not allowed. We can’t have the core snowboard shops screwed if they are going to fulfill their role in developing new participants. Think about this possible conflict—we really need core snow shops, but being too core in snow alone may hurt a shop’s chances to grow, succeed, and influence new participants. Where’s the balance for your shop?

 

 

Hard Truths about the Action Sports Business; Use Them to Make Lemonade from Lemons

As I said in the last issue of Boardsport Source, the way companies choose to compete in the action sports industry and, I suppose, in most industries, is largely responsible for the maturing and consolidation of fast growth industries. Ask the skate and snow people. People way smarter than I have acknowledged that surf’s time will come.

It wouldn’t hurt to read that last article before this one.  So if you’re one of the few people who doesn’t seal their copy of this mag in an air tight case of bullet proof glass filled with argon gas to prevent the paper from deteriorating, let me know and I’ll email it to you.
 
I have the privilege of looking at things at my leisure from the 10,000 foot level without the distraction of having to make a budget, ship a product, or figure out which brands to go how deep on. I guess what I want to tell you is just how much this industry has changed. Perhaps that seems obvious, though if we take it as a given it’s amazing how little we seem to try to manage our businesses differently to compensate. What can we do, anyway? Let’s think about some old habits we should consider breaking.
 
Hardgoods
 
Congratulations. Surfboards, skateboards, and snowboards are all well made, quality products that the consumer can rely on.   The brands have done an outstanding job of designing, sourcing, and manufacturing. So much so that the prices keep going down. In the industry’s incestuous world, we bemoan this, point fingers in various directions (usually not in the mirror, which is where we ought to be pointing at least some of the time), and discuss endlessly what we can do to increase margins to what we “need.”
 
Maybe, instead of wringing our hands over lower prices and margins, we should all be congratulating ourselves for making it easier and cheaper for the consumer to skateboard, snowboard, or surf. I’m not suggesting that cost is the only, or even the most important, determinant of participation. But as long as we, as an industry, seem determined to drive down costs and prices, don’t you think we should celebrate that service we’ve performed for our customers and figure out how to turn it into a good thing rather than complaining endlessly about something that doesn’t seem like it’s going to change?
 
Why haven’t I heard of a surf retailer giving a free surfboard ($95 ex-factory out of China) to a customer who buys a wet suit, baggies, wax, sun glasses and a surf trip from the retailer? “But we’re not a travel agent!” bemoans the retailer. Well, maybe you better consider becoming one. That’s how scuba diving retailers, in the US at least, make a lot of their money. Is there any reason a snow retailer couldn’t do more or less the same thing? Maybe skate retailers should be selling a deck at cost to a kid who buys wheels, trucks, grip tape and a pair of shoes at regular prices.
 
Brands, resorts (or skatepark owners) and retailers should be sitting and talking about how you can help the consumer rather than about who’s fault it is that it’s harder to make money. Ignoring the Japanese snowboard phenomenon of the early to mid 90s, consumers don’t want a surfboard, skateboard, or snowboard for its intrinsic value or artistic design- they want to skate, snow, or surf.
 
Rather than bitching about what’s happened in hard goods, why don’t you embrace it (since you’re stuck with it!) and do something positive with it? Don’t sell skateboards, surfboards, and snowboards. Sell skateboarding, surfing, and snowboarding. That’s what your consumer is interested in. 
 
And those margins you “need?” Zumiez, the very successful US action sports retailer with around 130 stores just launched its stock in an initial public offering and so far, the stock has performed pretty well. Zumiez gross margin in its last complete year was 31%. I guess that’s all they “need.” I know- they’ve got all those stores, and they’re a mall shop, and they get better prices from suppliers, and we’re way cooler than they are, and, and, and, and….. Guess what? It appears that quite a few of the industry’s consumers don’t care about that. They think Zumiez does a great job. So do I. If you’re interested, here’s a link to their public offering prospectus. http://www.sec.gov/Archives/edgar/data/1318008/000104746905013143/a2153924zs-1a.htm
 
Distribution
 
I don’t have the words to describe how tired I am of hearing people argue over whose “fault” our distribution problems are. Whenever you get a group of brands and retailers together, the issue is bound to come up. But no new information is ever exchanged, and nobody has any useful suggestions. Why don’t we just get over it?  Whether you’re a retailer or a brand, assume that most product, hard good or soft good, is going to be available all over the place. It mostly already is. Am I overstating that maybe a little? Maybe. But we can all agree that every brand of any size is available in many different size and quality retailers in many locations.
 
Retailers have three choices. First, if your margins are going to drop, then you have to sell more to make the same level of gross profit. Maybe you’re a brilliant retailer and can do it by increasing sales per square meter in your existing space. More likely, you’ll have to increase your floor space or open new locations or add products. Or all of those. That, of course, requires you to increase the working capital investment in the business.
 
Choice two is to carry more new, lesser known brands. Risky? Yes, but no more risky than doing nothing as your margin drops and your operating expenses stay the same or rise. Besides it fits right in with choice three, which is to do what smaller retailers are suppose to do to compete- differentiate themselves by brands carried, customer service, and expertise. At the end of the day, the best specialty retailers can sell whatever quality brands they choose to carry, because the credibility of the retailers is so high that it rubs off on whatever brands the shop has. The ability to give credibility to any brand it carries may be the best definition of the specialty retailer I’ve ever heard.
 
Actually, I suppose these three things aren’t really choices, but tactics that should be pursued simultaneously.
 
If I were a brand, I think I’d sharpen by pencil and ask what would happen to my gross margin, marketing expenses, and bottom line if I were to get a bit more cautious on my distribution and was satisfied with lower top line growth. The UK brand Animal is taking something like this approach. By being cautious about their distribution, they keep retailers happy by promoting sell through at higher margins. That exclusivity increases demand and next year’s preseason orders. It also means they can be more judicious in their marketing expenses because limited availability drives demand better than a whole bunch of paid ads. The bottom line is, well, a bigger bottom line than if they focused exclusively on driving sales.
 
Marketing
 
I keep turning back to the two page Globe ad in this mag’s spring issue. It’s an artistic rendition of a single wave breaking in a big ocean. There’s nothing else in the picture. Not a product or a team rider in sight. Nobody doing a trick that 99% of the people looking at the ad can’t do. It reminded me of what I really value about surfing- the peace of just being out there even if the surf sucked. Anyway, there was always the hope that the occasional, elusive good wave that comes through even when the surf was bad would be the next one.
 
Was it a good ad or a bad ad? I loved it, but that’s up to you to decide. At least it was different and I noticed it. And of course this was a trade, rather than a consumer, publication. Obviously if you can make your ads different so that they get noticed in a positive way that’s good. If in fact more of the consumers who buy your product are non participants interested in the lifestyle rather than the technical specifics of the newest trick maybe more of these ads are particularly appropriate.
 
The caveat is it depends where you are advertising. In core consumer publications, read mostly by core participants, (I think- that’s an interesting question! Who does read them?) I suppose tricks and pros will also be the staple of advertising, though it tends to leave everybody’s ads looking the same. But if you’re reaching to the mainstream and becoming more and more part of the fashion industry, your advertising placement may change, or at least expand, and a different kind of ad become appropriate.
 
Don’t find yourself directing too much of your advertising to the industry. Deliver an image and a message that your consumers- not your retailers or your competitors- think is cool.
 
In this article, I’m asking you to do three things. First, focus like a laser on your consumer and what they want. Don’t confuse your team riders, the industry, or the retailers for the people who buy your stuff. They overlap for sure, but they are increasingly not the same for most companies. I can guarantee you that the companies that do that will be the most successful.
 
Second, rather than bemoaning the trends in hardgoods and distribution laid out above, recognize that they are normal industry evolution stuff and figure out how to operate your business given that they are here to stay.
 
Third, do some things differently keeping the focus on the consumer in mind. Yes, they feel risky but I hope I’ve made it clear that not trying some new business approaches is even riskier. If you agree that the industry has changed, how can you possibly make the argument that you should be using the same old tactics to build your business?

 

 

“Jeff, This is a Hard Business!” Why Is That and What Can You Do About It?

That unsolicited quote is from the President of a snowboard brand that you all know and that’s been around for a while. It would generally be considered successful. I consider it successful.

It’s not the first time I’ve heard the comment. I’ve responded by agreeing and by explaining why it was true. Over the years I’ve had some suggestions as to how you could work to counter, it but I’ve never really had a strategic answer about how to deal with it.
Now, as a result of some thinking, consulting, and reading I’ve done, I’ve got some new ideas on the subject. This article does not end with a Deus Ex Machina like an ancient Greek drama that resolves everything, so don’t rush to the end to read THE SOLUTION. It’s not there. But I think I’ve maybe figured out how some of our old assumptions about snowboarding, and marketing in general are no longer valid, and how and why they have changed. Maybe when we know that, we’re a step closer to running our businesses better.
Ancient History
Somewhere around 1995 I started the process of making myself the messenger that everybody wanted to shoot by writing that there wasn’t room for 300 snowboard companies and that most of them were going to go away. I talked about what happened when a fast growing industry matures and consolidates.
Any of you who may have followed what I had to say about consolidation back then can relax. I’m not going to say it all again, though lord knows I’ve gotten a lot of mileage out of my list of changes in consolidating industries over the years.
I use to write about how you could find a competitive advantage in the snowboard industry. Maybe you could get your product faster, or cheaper, or have a better pricing structure, or make it better with more features, or have a business that was less seasonal. Then I talked about controlling distribution to have a market niche. Some of those things worked well when snowboarding was younger- for a while. A little while. A very little while.
Snowboarding, because of changes in information technology, the sheer speed of market evolution during our growth and consolidation phase, the impossibility of maintaining a real product advantage, etc. was experiencing what other industries were already experiencing.  Access to and control of information has moved down the food chain from the manufacturers, to the distributors and now, via the internet, etc. to the consumer. Nothing stays the same very long. And nothing stays exclusive. What one company has done, another can duplicate sometimes literally over night.
Though it took us all (in snowboarding and lots of other industries) a long time to figure it out, it turns out there was no longer a sustainable competitive advantage as traditionally defined resulting from anything you do operationally. The price of entry was making a good product, pricing it right, delivering it on time, supporting your dealers, having good information systems, hot team riders and, uh, well, a whole lot of other stuff.
Let’s say that again for emphasis. Doing everything right doesn’t give you a competitive advantage. It just let you play in the game. It was the entry ticket.
A few years ago I even wrote that. I said, “Hey, you got to do everything well just to be here!” I was right, but I didn’t make the leap I needed to make.
The Focus on Branding
Well, if everybody can do what you can do, and pretty much do it at least as quickly and as well, and if the consumer can compare prices and product features with hardly any work, what exactly can you do besides price it lower, give the dealers longer terms, sell it to anybody who will carry it, and spend more money on marketing? No wonder this is such a hard business.
Back in 1997 I wrote, “Realize that all you have is your brand name and do everything you can to build and protect it.” Perhaps that wasn’t quite as obvious back in1997 as it is now. But it quickly became obvious and companies did the usual things to try and build and protect their brand names to give them that alleged Holy Grail of business, the sustainable competitive advantage.
They boosted the marketing and promotional budget, hired more team riders, made films, did deals with resorts, sponsored contests, expanded product lines, put stores in stores. Fighting for market share was the mantra, and it killed a lot of brands who couldn’t afford it.
Nobody would deny that some of these companies did great marketing- and it worked. They grew and their brands became better known and established. But no amount of good marketing changed the fact that product was the same, consumers had lots of information, what one company could do another could duplicate, and the demand for growth caused sprawling distribution.
Advantage to the big diversified players with the year around business. But even they weren’t getting rich in snowboarding.
So I was right- we were all right. Your brand was all you had and you had to do the right things with it. But I still didn’t make the leap. Maybe some of you did.
What is Marketing?
Well, it sure isn’t The Four Ps anymore- product, price, place, promotion- like they taught in the 60s and 70s. Your only advantage may lie in your brand. That’s what everybody apparently thought as they spent buckets of money on marketing.
But the marketing they spent, and are still spending, all that money on was developed back when the conditions of rapid change, perfect consumer information, etc. that I describe above didn’t exist. It was done not for the benefit of the customer but for the benefit of the company to tell the consumer, what to buy, where, and why. The consumer, having many fewer choices of product and purchase location and no easily available product comparisons tended to do what they were told.
It must have been wonderful.
Now the consumer doesn’t need you, or anybody else thank you very much, to tell them what to buy, where to get it, how much it should cost and whether it’s good or bad. Just what the hell, exactly, do they need you for?
Just make it good and sell it cheap and they’ll figure out the rest. Not much of a business model from our point of view is it. Might it imply that a goodly chunk of your marketing spending, as currently configured, is wasted?
Marketing is no longer about telling your customer what they want and where they can get it. They don’t need you for that because of their ease of access to information. But you have the same access to information, and you can make your company one big marketing machine.
But it isn’t up to the marketing department. It’s the job of the whole company. Oh god, how’s that for an overused cliché? Let me be more specific.
First, marketing happens, and you are probably gathering information on your customer, every time they are in contact with you. When they call customer service. When you send them an invoice.   When you try and collect that overdue bill. When you ride up with a kid on the lift. Every point of contact creates an impression with the customer. What impression? How can you make those points of contact, to the extent they are predictable, into a positive experience that reinforces the customer’s relationship with your brand?
You can’t- unless you identify them and analyze how you can make them better in a coordinated way. The best example I can think of in winter sports is the way some resorts have evaluated, torn apart, and completely reconstructed the process of renting equipment and taking lessons to make it more pleasant for the customer. That’s what I think marketing means now. And obviously it wasn’t done by the marketing department.
Second, your customers may have all this information that makes them less dependent on you, but you know a lot more about them now as well. Who are your best customers? What are they worth to you over a period of time? Why do they identify with your brand? Easy questions for me to ask. Damn hard to answer. See, I warned you at the beginning you would not find THE SOLUTION at the end.
At least some of this information is already available in your existing data bases. But often the various systems aren’t compatible and they haven’t been structured to provide the data you need. If you think the accounting department designed it’s systems to make it easy to extract information on customer behavior, you’re dreaming. But the accounting department has a lot of contact with and information on your customers. Get your hands on it
Use your information to find out why your customers are loyal to you. Or why they aren’t. Take just a bit of the money you’re throwing at advertising and promotion and use it to extract this information where available from your existing data. I’ll bet you do a better job of spending that advertising and promotional budget when you know more about your customer.
We don’t sell products any more. We sell a customer brand experience. Certainly your traditional marketing influences that, but it doesn’t get to the heart of customer motivations. Please stop telling me how “rider influenced” your product line is unless you can prove to me that your best customers have the same motivations as your team riders.
Marketing means something different than it use to. This new marketing may be the only way to create a competitive advantage that lasts longer than twenty minutes.