Changes at Quiksilver

I’m assuming you’ve all seen the Quiksilver press release. Andy Mooney “…is no longer with the company.” President Pierre Agnes, the President has been promoted to CEO. Bob McKnight has returned as Chairman of the Board and APAC region president Greg Healy is now President of Quik. Former CFO Richard Shields has resigned, but will be around as a consultant to help new CFO Thomas Chambolle, who was formerly Quik’s EMEA region CFO, transition to his new job.

Out with the new, in with the old I guess.

We can, and no doubt will, all have a wonderful timing speculating how this all came down and what’s next. But people, let’s focus! I want to ask the same old question I’ve been asking about Quiksilver for years now, way before we’d ever heard of Andy Mooney.

Where are the sales increases going to come from?

 A couple of days ago, when I wrote about Quik’s January 31 quarter, I said, “At some point, a weak balance sheet doesn’t allow you to continue reporting losses.” I also noted from the 10Q that Quik said, ““Year-over-year net revenue comparisons continuing to be unfavorable due primarily to the impact of licensing and currency exchange rates. Within this trend, we expect the rate of year-over-year net revenue erosion to decrease in the North America and EMEA wholesale channels.”

So it sounds like we’ll continue to see some “as reported” revenue declines in at least the next quarter.

In the press release announcing the changes, Bob McKnight is quoted as saying, “On behalf of the board, I want to thank Andy Mooney for his leadership in driving the organizational changes that were essential to restoring our product design leadership and globalizing many of our key functions.”

I don’t think that’s a throwaway line. Unless everything I’ve read is made up, Quiksilver had a lot of issues and opportunities in those areas and Andy Mooney was driving some critical operating improvements. I hope they continue to be driven.

If those changes were so “essential” why didn’t they happen before Andy Mooney got there? Fair question. Let me remind you what I said back on February 27, 2013.

“Remember when Burton cut The Program? In the press release, or in an interview, Jake said something like, ‘I didn’t want to do this, these people are my friends, I fought it and tried to figure out another solution, but the annoying and persistent finance people on my board wouldn’t leave me alone.’ From time to time, I am one of those annoying and persistent finance people, so I know exactly what he meant.”

“Organizations have momentum. People don’t like to change. Successful entrepreneurs have a high level of self-confidence and capability or they wouldn’t be successful entrepreneurs.”

“A founding entrepreneur or long time CEO is successful partly because of the values she has imbued the organization with and the consensus around what the company is about. There is a sense of “how we do things” that gives comfort not just to the stakeholders (of which the employees are one part) but to the CEO as well. People have an understanding of their place in the company and their responsibilities that goes beyond their box on the org chart. At its best, this can be liberating and create efficiencies.”

“But it only works as long as the competitive business environment it was created to function in doesn’t change too quickly or dramatically.”

A new executive in a turnaround is hired to do hard things the old executive couldn’t or wouldn’t do, and he has to do them with a sense of urgency. Sometimes, that just doesn’t win you friends or supporters. Sorry. Cutting expenses, letting people go or changing their roles, revamping organizations, processes and procedures is usually unpopular no matter how necessary.

I’m not sitting here going, “Poor Andy!” By all accounts (you could hear it in the conference calls) he had some difficulty understanding the market and connecting with it. It felt to me like he was a bit isolated.

But you might consider that if you’re the guy who has to try and jerk an under-capitalized, struggling company back to reality you may not be really popular if you do your job well. Sherman’s March to the Sea may have been necessary to ending the Civil War, but that doesn’t mean they speak fondly of the general in Atlanta.

I’ll go one step further. Just maybe it was his job, or the job of anybody in a similar situation, to do the nasty, dirty, evil stuff that had to be done and then move on. Not that he expected that outcome, and he clearly didn’t get a gold watch and told “job well done” as he rode off into the sunset, but it wouldn’t be the first time a hired gun in a turnaround did the tough stuff and left.

I can hear Bob McKnight saying, “You know, that Andy guy was kind of a lot of trouble and didn’t quite ‘get it,’ but he did some good things. As long as they’re done, we might as well keep them.”

At least I hope he’s saying that. And now back to finding that sales growth.

 

 

 

25 replies
  1. You Know Who
    You Know Who says:

    I guess, I’ll start this off by saying …….. I told you so! Andy is I am sure a very bright guy. The fact is and still is that he never had the DNA to really understand what this assignment really needed. It wasn’t letting all the long time Quik executives go and bring in a bunch of Disney MBA’s who didn’t know the culture. Look you don’t need to be an ex pro to understand the dynamics going on in our world, but you had better understand the challenges that the foundation of your business face everyday. You don’t lop off the heads of the very people you have had a 30 year relationship with. You don’t discount at Xmas direct to the consumer. You don’t sell Costco, you don’t open your own stores across the street from the dealer who pioneered you 30 years ago and you stop building product for Ross and TJ Max. All those things undermine the very foundation your house is built on. Growth is necessary, but not at the expense of the guys who got you where you are today. You can’t survive on selling Macy’s and that’s where they were headed. I know that Bob had been talking to a lot of dealers over the last several months and I am sure he got an ear full. The question is, is it too late? Only time will tell. Guys, this is far from over. Look for a lot of purging over the next couple a weeks as this drama continues. I can only wish Bob the best of luck.
    Sorry for the rant, but this has been going on way to long and has only hastened Quiks own demise. Go get em Bob!

    • jeff
      jeff says:

      Hi YKW,
      Yeah, yeah, you did and I don’t begrudge it. I just wish you didn’t sound so smug. So here we are again- you need to manage distribution to build the brands, but you have to have cash flow because the balance sheet is weak and growth because you’re a public company. You find yourself at cross purposes. You’re right about all the things you say they shouldn’t do. But I wonder what the balance sheet would like right now if they hadn’t done them. They’ve got $800 million in long term debt and $25 million in equity. Did Andy not get it, or did he just recognize the balance sheet situation? Probably some of both. And I’d remind you that Quik was in big trouble before any of us had ever heard of Andy Mooney. Going on way too long indeed.

      Thanks,
      J.

      • Arch Stanton
        Arch Stanton says:

        True that….it’s so easy to criticize but what WOULD the balance sheet look like? Especially when you are dealing with an imploding and disappearing core account base. So many want to criticize but have you ever tried to mange a publicly held surf company? IMHO it’s a no win situation. WHERE WILL THE GROWTH COME FROM? You 2000 sq ft shop that hasn’t been updated in 20 years and can’t pay their bills? Don’t get me wrong….they are an important part of the foundation but again…WHERE WILL THE GROWTH COME FROM? Surf was never meant to be mainstream. It never will be mainstream….its in its very nature not to be mainstream. The biggest mistake these companies made was going public in the first place. They got greedy, lost site of why they got into the business in the first place and now they are dealing with the shit it created. They have two options: go private or sell out….but getting hammered in the shore break of the stock market will only cause them to drown…

        • jeff
          jeff says:

          Hi Arch,

          When you say, “Surf was never meant to be mainstream,” you raise an interesting issue that I think is a bit more complex than how you state it. I’m sure you know that. First, I wonder what mainstream means exactly. Don’t know if I have a good answer to that one. But if you mean that surf companies were never meant to sell to people who don’t surf, or watch contests, or somehow have a close connection with surfing, then that’s a very small market indeed. I think a surf brand can expand into the broader market as long as it is reaching customers who are interested in it’s story as a brand. With those people, it can have a point of differentiation and a way to compete. Past that, it’s screwed. And when you get past that point, you start to damage the brand’s relations with those customers who are interested in the brand story. That’s where Quik is I’m afraid.

          Thanks for the comment,

          J.

          • Arch Stanton
            Arch Stanton says:

            Yes Jeff, much more complex than I stated. Sent from an iPad so didn’t get as deep as I wanted to. Yes, it can be done. Vans is a great example, but in essence, they sold out to do it. The difference being they did a much better job of strengthening the core and segmenting product for volume. Again, it goes deeper but I just reached my max typing limit on an iPad!!!

          • jeff
            jeff says:

            Arch,
            I hate typing on tablets.

            I don’t agree with your characterizing Vans as having sold out on a couple of levels. First, they were in a world of hurt before VF bought them. They were facing survival issues as I recall. Losing money, balance sheet lousy. If the brand was going to survive, they had to do something. “Sold out” sounds so malevolent. They had put themselves in a position where they didn’t a choice. Second, sold out is a value judgment, not a business proposition. As you say, VF helped Vans do a much better job of strengthening the core and segmenting product. If that’s selling out, I wish more companies could do it.

            Thanks,
            J.

  2. Croc Dundee
    Croc Dundee says:

    Hallelujah!!!
    This is a game changer for Quiksilver imho. Andy just didn’t get it and his hired help from Disney etc just didn’t get it.

    Look at the “takes one to know one” marketing campaign, we still have customers piss themselves laughing when they see it…. “You’re a dickhead! …nar, takes one to know one!”

    One minute he’s saying prices need to go up and cites Tommy Bahamas and then next minute he’s saying price points need to come down.?! Huh?

    One minute hes saying no way independents should have segmented product next minute he’s saying yes, they need their own lines to differentiate? Huh?

    What about putting the Quiksilver name on anything and everything? Hotels? Huh? Here in Australia we can’t buy sox from our Quik reps as they have been licensed to a supplier who sells to sports stores. It’s a joke.

    Out of all of it the one thing I disagree with is the return of Bob McKnight. He must take ownership of the downfall of ZQK and the actions of Andy Mooney. It has all been under his watch, he should have stayed retired and let the “new” old hands do what they need to. Yes, the restructuring needed to happen, and if that was Andy Mooneys job then he (or whoever) should have been limited to that scope. Mooney and his imported crew very nearly killed the business and have, in my opinion, set the company back years.

    Surf is fickle and, as you have pointed out many times, branded businesses and public companies need different disciplines. I just hope they have time to turn the ship.

    Cheers

    Croc D

    • jeff
      jeff says:

      Hi Croc,

      The balance sheet tells me there isn’t time, but I really, really, really, want to be wrong about that. See my response to YKW below and his comment. I think you make a good point about Bob coming back. I don’t disagree with a lot of what is being said about Andy Mooney. But I also want everybody to put themselves, just for a moment, in the position of a guy coming into a company that’s a mess at a lot of levels, has financial problems, and he has to walk in and replace the founding entrepreneur. Why do I suspect he might not have been met with open arms and given full cooperation?

      Thanks for the comment,
      J.

  3. Croc Dundee
    Croc Dundee says:

    Jeff,
    I really hope you and the balance sheet are wrong and these guys have time to turn it around. If they can’t what are the possible alternatives? I’d like to hear your thoughts on what the crystal ball may look like if they don’t have time.

    Even with the changes they are caught between a rock and a hard place. As a public company and in the situation they are in they need revenue. To get back their “cool” and the core consumer they need to sack some customers at both consumer and retail distribution levels. That means less revenue… can the public company thing last? Would the brands get carved up and sold off? Is there anything to sell?

    The more I think about it the more Bob McKnight needed to take ownership and really should have stayed away. As you say Quiksilver’s woes were happening a long time before Andy Mooney arrived on the scene. Rossignol was the start of it and if I remember correctly that was under Bob’s watch?

    Love to hear what the Harbaugh crystal ball looks like!

    Thanks

    CD

    • jeff
      jeff says:

      Croc,

      The options are frankly pretty ugly, and I don’t really want to start that conversation right now. I’m sure it’s already going on among the people who own the debt. Yes, like most public companies in this space, they are caught between a rock and a hard place. But they put themselves here with the Rossignol deal. It can be turned around- if you have enough time, management discipline, and a balance sheet that buys you the time. And if the brands have value. Remember what a disaster Vans was as a public, standalone company? But VF bought them and with their balance sheet and management discipline, they turned Vans into a $1 billion company.

      Thanks,
      J.

      • Arch Stanton
        Arch Stanton says:

        VF has already said they are looking for a new toy…..wouldn’t be surprised at all…

        • jeff
          jeff says:

          In pretty much every conference call, VF management gets asked if they are looking for acquisitions. They usually say “yes,” though as I recall last time they said “Yes, but things seems a bit expensive right now.”

          J.

  4. you know who
    you know who says:

    My thoughts are that first they need to go privet. As a niche industry public just don’t work with all the ups and downs.
    Once private, they need to sell of their remaining assets. Restructure the sizable debt scale down and move forward again. Straight out of Steve Jobs play book. The Vans analogy don’t work for one simple reason. The market for shoes is much larger and the inventory risk is much less. Croc has a point about Bob, and yes he did come close to being booted due to the Rossignol disaster. In the end, companies invest in growth. For this reason I just don’t see much hope Quik will be bought by anyone other than a bottom feeding venture group. On all of this I have no further opinions or prediction. Given the current weakness in surf fashion in general maybe its time to just let them die off and make room for some new blood? Regards.

    • jeff
      jeff says:

      YKW,
      My own guess is that the company or the brands will end up private. I’m just not sure of the mechanism. Remember, there’s $800 million in debt on the balance sheet. Any buyer of the equity gets that. Is the whole company worth eight hundred million dollars? What exactly do you mean by “restructure” the debt? The question seems to be who would have to lose how much money on it. I see your point about the shoe market. My point about Vans is that VF’s balance sheet and management discipline made it possible to clean up and turnaround the brand. And in my opinion, the Vans brand did not have the issues Quiksilver’s brands now have.

      Thanks for the comment,
      J.

  5. Scott Marsh
    Scott Marsh says:

    I think I hear some hinting that the trouble with Quik may not have been the changes but the “expectations” for success that Mooney set.

    Bad expectations can undermine progress as easily as bad execution.

    Never mind he started off dead in the water by not applying industry insight.

    • jeff
      jeff says:

      Hi Scott,

      Hmmm. Good insight. I can imagine that his apparent lack of market understanding might have lead him to expect things to be a little easier. But, unlike Hoby Darling when he took over Skullcandy, Quiksilver didn’t have a balance sheet that afforded it the luxury of time. Hoby started out by saying, “Okay, we’ve got issues of distribution and quality that we have to fix so we can build the brand and you’re going to have to give us some time.” And if, for reasons I outlined in my last report on Skull, the jury is still out, the progress has been tremendous.

      Skullcandy earned a profit during it’s last quarter, by the way. That inclines people to be patient.

      I guess I’d say that bad expectation only undermine progress if the results don’t follow, which so far for Quik they haven’t.

      Thanks,
      J.

  6. You Know Who
    You Know Who says:

    Good point Scott. One of the most important things in a CEO’s job description is setting and then managing expectations. In this case I would agree one problem might have been that the expectations did not match the actual situation and Andy could not figure out how to change that fact fast enough. But his lack of industry and the blood letting of the industry brain trust just accelerated his failures.

  7. You Know Who
    You Know Who says:

    Jeff,
    Remember that phone call you and I had last week? You know, the one where I told you that this was just the beginning of more internal changes? Well …… I told you so again.
    Regards,
    YKW

  8. GES
    GES says:

    Croc Dundee hit the nail on the head, the buck should have stopped with Mcknight for the disasterous acquisition of Rossignol, he was more interested in collecting golf club memberships and flying around on the company jet than the future of QS. Lucky for Bob he was able to deflect that purchase and the problems on to the first French global president and I dont buy the way they are framing his return as Steve Jobs coming back to Apple. He has been the one constant thing where the good, the bad and the ugly all happened on his watch. The “new” global French CEO is an undermining, machavillian leader that no Americans will follow in to battle and now their going to bring another Aussie in to the USA to head sales. This is crazy…. What does he know about Sales in the USA??? I think QS is on a one way street headed to Target and Kohls…..

    • jeff
      jeff says:

      Hi GES,
      Well, I’m not going to claim to understand Bob’s motivations, but I was a bit surprised he came back. The issue is still, “Where is the sales growth going to come from?” The company is still sitting on $800 million in long term debt and $25 million in equity. There was nothing in the recent conference call that lead me to expect a profit in the near term. I was also interested to see that Andy Mooney got fired. I have the perception that he did some hard things that needed to be done in terms of structure and operations. It may be that he didn’t “get it” and was therefore the wrong leader for the company, but typically when you really shake things up, you do piss some people off. But that usually leads to you “resigning,” not getting fired. Did he refuse to resign I wonder?

      Thanks for the comment,
      J.

  9. Big Guy
    Big Guy says:

    Long time, Jeff. I’ve set back and watched for six months now,, without comment. Mooney lasted longer than I predicted. What unseen and unknown forces kept him there, I am without a clue. With my background being as a rep, my main source of conversation has been with surf retailers. I know you always say that is just a small chunk of the overall market, but I would contend it is an important chunk, perhaps the lead chunk of this apparel sector. Surf retailers build brands, and surf retailers can take a brand down. The retailers were never happy with Mooneys appointment, and as “fluff” an issue as that is for Wall Street, it nevertheless translated into an overall negative attitude toward Quik from the primary builders of the brand, the surf retailer. The other issue that only once in a while receives it’s due attention is the amazing spending that Quik did over most of its years in the limelight. It costs money to be number one, and Quiksilver certainly didn’t scrimp to achieve it. Huge marketing departments, huge advert budgets, huge surf team, company parties and lots of ’em, I was there to see it as a rep. Some of it was money well spent, like keeping Kelly on board, but there never seemed to be a lid on to what extent they were willing to go to dominate the market. Then 2008 happened. The first thing I saw happen that indicated a pullback in spending was when we pulled out of doing MAGIC in Vegas. That was around 2010. We also cut back our presence at ASR around that time. No more amazing booth every show. Pull in the Quik RV, pour some beer and call it a day. Overall, if Bob could take back one decision, I’m sure it would be the Rossignol purchase. That was the start of the demise, and the first indicator that there were chinks in his armor. Unfortunately, timing was not on his side, as it came too close to the economic decline of ’08. In a fickle, cyclical industry like fashion, where the word “brand” and “trend” can be synonyms, none of the narrative should really surprise us. In some ways, if Quik went the way of the dodo bird, it would still be looked at as an amazing run, maybe even one for the ages. I will have no funeral for Quik if it goes that way, I will just be glad I got to be a very small part of the glory years.

    • jeff
      jeff says:

      Hi Big Guy,
      I’ve never said surf specialty retailers aren’t important. I have said they were a diminishing percentage of total surf sales for Quiksilver. That’s still true, and has become truer as the number of independent specialty retailers has declined.

      I think Quik might have weathered the recession if they hadn’t had the Rossignol disaster. It would have left them with a balance sheet that allowed them to do some of the things they cut out. But once they were in the place where cash flow and public market expectations required them to put DC in Penney, and it was merchandised badly, they were screwed.

      Quik had some operational and organizational problems that I think Mooney at least took the first steps in fixing. I give him credit for that, and suspect part of the reason he’s gone is it made him very unpopular.

      As far as the importance of surf retailers in building brands- yes, but. I have this feeling that omnichannel/mobile/internet/ecommerce is changing brand building in ways I don’t quite understand yet. We’ll see.

      Thanks for the comment,

      J.

  10. Not surf biz
    Not surf biz says:

    The whole quik saga is a fascinating one. I’m not in the surf biz, but I’ve owned a quik product a few times, I’m not a surfer at all, never set foot in the water (born and raised at the beach) but I admire and aspire to have some surf culture in my blood…..anyways, my question is how many independent surf retailers are there in the USA? Like the bobs surf shop, bills surf shop, etc? And of these shops what’s the usual inventory levels for apparel? I’m guessing it’s boards, suits, apparel? 33/33/33??

    • jeff
      jeff says:

      Hi Not,
      Born and raised at the beach, but never set foot in the water!!? Argh. I’m not critical of that- we all find our own way- but I was kind of born and raised at the beach (on the East coast) and I couldn’t be dragged out of the water. Actually, dragging is often what it took. See, on the part of East coast where I was (New Jersey) you were scared that if you were ever out of the water, you might miss the one wave that was going to come along that day……

      Anyway, I have no idea how many actual surf shops there are. Less than there used to be. To me, a surf shop is generally a specialty retailer (maybe more than one store, but certainly not 40 or some number like that) owned and run by people who surf that sells and probably repairs surfboards. But they make their money from apparel, accessories, maybe sandals/shoes/boardshorts. If successful, they are closely aligned with their community.

      What’s Troy Lee Designs interest in surf? And one more question- the handle on your email sounds familiar to me. Have we ever met?

      Thanks for the comment,

      J.

Comments are closed.