Billabong Holds Its Annual Meeting; Progress and Headwinds

At Billabong’s annual meeting a couple of days ago, CEO Neil Fiske and Global Billabong Brand Manager Shannan North made presentations describing the company’s progress and challenges since the results for the year ended June 30 were announced in July. Let’s see what they said.

It’s only been four months since the year’s results were presented so, as CEO Fiske put it in his opening remarks, “The themes of our presentation today are not new.”

He reemphasized that the turnaround, while taking hold, was a long term effort. “We said a couple years ago that this was a complex difficult turnaround. That it is going to take time to build the foundation necessary to sustain growth and margin expansion.” Below is the list of areas, taken directly from the presentation, where the turnaround continues to be focused.

  1. Brand
  2. Product
  3. Marketing
  4. Omni-Channel
  5. Supply Chain
  6. Organization
  7. Financial Discipline

If you’re looking for more detail on these, you can see Billabong’s earlier discussions in documents on their investor web site, and I’ve reviewed them in previous articles on my web site. I’m sure we agree that all seven are important. But in which areas can Billabong do something better than other industry companies? Where can it build a sustainable competitive advantage?

Overall, I believe that size is now an advantage in this industry, if only because of the investment in systems and in the omnichannel that’s required. Billabong, compared to most industry companies (depending on how we define the industry) has that going for it. I’ll also say I think Quiksilver’s problems have given Billabong an opportunity in some markets.

Starting from the bottom of the list, financial discipline gets easier as your balance sheet gets stronger. Billabong’s has certainly strengthened and I note that they are funding marketing programs through reduced expenses in other areas. Sounds like financial discipline to me.

I’ve no doubt there is money to be saved through revamping both the organization and the supply chain. But these are things other companies can and are doing as well. If you see these as a long term competitive advantage, it’s because you believe Billabong’s revamped management team can do it better than competitors.

Neil thinks that “over the next several years” they can get to the point where they are spending $30 million less annually on sourcing and logistics. He thinks they can cut their product lead times by 30%.

Making good product seems like the price of entry. Not something you can do better than others in the long run- you just have to do it to have the chance to compete. You can come up with some product innovations from time to time, but I doubt you can keep your competitors from doing the same.

Branding is a place where Billabong has an opportunity. This has a lot to do with their organizational changes. As Neil Fiske put it, “We are moving from a fragmented and regional business to a brand led, global company focused on building big powerful brands and maximizing their reach.”

The focus on what they decided are their three strongest brands with the greatest potential- Billabong, Element and RVCA- allows for certain efficiencies in all areas of the business. Remember, none of the seven strategies stand in isolation from each other.

Billabong is 52% of the company’s wholesale business, with each of Element and RVCA representing 16%. I suspect RVCA has the most growth potential. It’s not closely tied to a single activity like the Billabong and Element brands. In this regard, I thought Shannan North’s comment, talking about the Billabong brand, that “The brand’s turnaround is as much based on gross margin expansion as it is on revenue growth…” was interesting and appropriate.

For now, the Billabong brand (and I suspect Element as well) will be focused on its core (I still hate that term) market. At some point, with that further solidified, it will be interesting to see if they have the ability to break out of their core positioning without damaging that positioning. That’s pretty much the challenge for any brand in this industry as it grows, isn’t it?

Okay, omnichannel. Yes it’s important. As Neil puts it, “…probably the biggest game changer. Being able to connect all our channels – retail, wholesale, and ecommerce – to give the customer a seamless brand experience. Anytime, anywhere. Bricks and clicks. Content and Commerce. Social, mobile, local. Knowing our consumer like the back of our hand and being able to engage them on their terms, the way they want to interact. Omni is about unlocking the full value of the multi-channel shopper from one global unified platform.”

If Billabong was doing it badly, they need to do it well. Again, I’ll ask if that’s a source of competitive advantage or something you have to do well to compete.

2016, we learn, “…will be a year of heavy implementation on our big initiatives,” as CEO Fiske puts it. But, he points out, “…we have a set of external market challenges that must be met and overcome. Here’s what he says they are.

Billabong Holds Annual Meeting 11-15








He says, “Last year at this time, the Australian Dollar was 87 cents to the US dollar and the Euro was 1.25 to the US dollar. Today the Australian Dollar is closer to 71 cent and the Euro closer to 1.07 Euros.” The problem, he says, isn’t so much the level as it is adjusting to the new level when currency values change quickly. I agree.

“Our second challenge,” he continues, “is the sector weakness we are seeing in the last several months in North America. This includes the big action sports chains, department stores, teen retail, and tourist retail. Specialty retail, where we hold the number one position, is better but still relatively flat and cautious. The hardgoods market in skate has been particularly slow in the first few months of our fiscal year and this has hurt sales of both Sector 9 and Element skateboards.”

Finally, he notes that “…price discounting and promotion online and in the mall remain high and the consumer is waiting for deals. We don’t intend to enter the fray. We will stay focused on quality products, quality distribution, and price integrity… on strengthening our brands with the core consumer.”

I like that decision. If you’re focused on building big brands, how else can you approach it?

The overall financial result is that EBITDA for the first four month of this fiscal year is $2.5 million Australian dollars less than what it was last year.

Billabong is working to pull off a complex turnaround in market conditions that are not improving quickly if at all. Though their balance sheet is restructured, they are not without financial constraints on what they can do and how quickly. I like their plan and focus. Anybody who expected to see faster, stronger results in this economy was kidding themselves.

The thing I wish I understood better is where they are going to be able to consistently do better, not just as well, as their competition. I’m also wondering if Billabong and Element can find ways to eventually expand beyond their surf and skate franchises with the brand positioning they are working so hard to manage intact. If there is some constraint on revenues growth by these two brands (perhaps offset by improved margins and profitability even with lower revenue growth), maybe some of their other brands, in addition to RVCA, will step up and surprise us.

Marketing and Positioning Matter. So Do Other Things. Skullcandy’s September 30 Quarter

The thing is, I really like Skullcandy’s marketing.  There is some commonality of message and attitude among their sponsored people (notice I don’t just say team riders) even when those people come from very different places and perspectives.

I like it is because while they have, for example, sponsored surfers the message isn’t just about surfing. It’s about life and living it- the experience, if you will. With that approach, they can be aspirational to a broader group of potential customers. You may never ride a 30 foot wave, but there’s no reason you can’t be positive, innovative and willing to take a risk as you live your life.

The issue isn’t getting a lot these ambassadors, to use Skull’s word. It’s getting the right ones. Those would be the ones who are not only in sync with Skull’s corporate culture and market position, but who can, maybe, be attractive to an additional customer segment , allowing revenue to grow, without Skull losing credibility and causing customer confusion as it gets further from its “core.”

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This Should Get Your Attention: Amazon Opens Its First Brick and Mortar Store

Unfortunately, I didn’t write that just to get your attention. It’s true. You can read all about it in this article.

As you read it, please focus on what it says about Amazon’s goal in having the store. It’s all about gathering and using data, says the author.

Retail today is about getting the right product to the right people at the right place at the right time. There seems to be a consensus around that. It’s also about the omnichannel- letting your customer shop whenever and wherever they want.

Those two aren’t exactly the same thing, though there’s some significant overlap. It’s always been a good idea to get the right product to the right people at the right place and time. In some ways, that’s easier now. In some ways, harder. I guess mostly harder, as what’s “right” changes so much more quickly.

Omnichannel didn’t exist not very long ago- at least not as the sophisticated concept it is now. There was pretty much only brick and mortar.

Taking this approach to the market requires data, the systems to analyze it, flexibility, and logistics. It also takes recognition that customer groups are amorphous, coming and going and changing size and composition very, very quickly. It’s hard to keep up with them.

When you hear brick and mortar focused retailers talk about these issues, they put them in the context of better serving the customer. As the article describes Amazon’s collection and use of data, it feels manipulative. I don’t sense any respect for the customer. To be fair, Amazon didn’t write the article and I imagine they would have phrased it differently. Still, would that attitude be completely surprising in a retailer that wants to sell everything to everybody?

When your target market is everybody, do you have a reason or a need to focus or to know your customer group? I’d say no, and maybe that’s hopeful for retailers who have a more defined market in mind.

Sell the Experience, Not the Product: The Wavestorm Board

I knew about this article on the Wavestorm $100 surfboard before it ever came out. In some ways, it’s old news. Less expensive surf boards of various constructions and materials have been popping up for years now, and the Wavestorm isn’t new. I guess the genie was out of the bottle around the time Clark Foam went bell y up.

So on the one hand it’s old news. It was highlighted on Boardistan, and I kind of decided there was nothing to discuss. But it kept popping back into my consciousness, and I couldn’t bring myself to delete the link to it. I even wrote 500 words at one point and trashed it.

But here I am. It’s Sunday morning and I think I’ve figured out what’s bothering me. That is, I finally know, from a business point of view, why I care.

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More of the Same: Spy’s September 30 Quarter

I’m going to try and keep this pretty short. Nothing has really changed strategically. Spy is still in business only because its major shareholder has lent the company around $20 million. In terms of operations and expense management, they’ve done everything that I can see they can do. They tried to stake out a differentiable market position with their “happy” campaign. I thought that was pretty creative.

But they are in a market (sunglasses) dominated by big players and luxury brands. It’s an oversupplied market and to many of the brands, it’s just an accessory rather than the place where they have to make their money.

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The Challenge Hasn’t Changed: GoPro’s September 30 Quarter

On the face of it, GoPro had a pretty good quarter and, as usual, we’ll take a look at the numbers. The stock closed at $30.21 on October 28th. They released their earnings after the market closed. The next day, the stock closed at $25.62, down 15.2% on by far the biggest trading volume since July of 2014. What’s everybody worried about?

CEO Nick Woodman notes in the conference call that, “…this quarter marks the first time as a publically traded company that we delivered results below the expectations that we outlined in our guidance.”

That never makes Wall Street happy, but I hate knee jerk reactions to quarterly results. Still, the stock’s been in a downtrend since October 2014. What are people seeing from a longer term, strategic perspective?

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Camp Chairs as a Game Changer; Supporting Your Customer’s Experiences

So, in a market where your customer may value the experience more than the product, how do you know that your product improves their experience? How do they find out it will? Why should they associate your product with the experience? What, exactly, is the experience you are improving?

Let me tell you a story

Every summer, a local winery (Chateau St. Michelle) holds a series of concerts.   Various combinations of my friends and family go to see, typically, one to three concerts there.

You can reserve some really uncomfortable plastic chairs a little closer to the stage, but we always buy cheaper tickets for the festival seating. Below is a picture of what it looks like at a typical concert.  The picture below is taken from the back of the festival seating area. You can see the stage and the uncomfortable, white plastic chairs in front.

Camp Chairs as a Game Changer 10-15


Now, it might be that you don’t want to be this far from the stage. If that’s the case it’s either the higher priced, uncomfortable plastic chairs or getting there early. The gates open at 5PM for a 7PM show start. But people start lining up at, well, I don’t know, noon. They bring their chairs, food and drink, blankets, and various other picnicking accouterments, some of which are profoundly clever. The closer to the front of the line you are, the better your space can be when you’re let in. I think the correct strategy is to give a blanket to mark out your spot to whoever is youngest and quickest and send them sprinting as soon as their ticket is taken.

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Kering Reports on Volcom and Electric, Kind Of

Kering’s report for the quarter ended September 30 included almost no information on Volcom and Electric. No analysts asked questions about either brand, but that’s pretty standard.

Historically, there’s been enough in the slides and prepared remarks that I can use some simple math to figure out things are going, but not this time. Here’s all they tell us.

“Volcom and Electric: softer Q3. Volcom nearly stable with strong resilience in wholesale, against still adverse action sports market in the US.”

That’s it. They note in the prepared remarks that Electric also suffered from some higher costs, but don’t tell us which costs or why and they confirm what they say in the above quote.

Growth, as reported, in the Sport & Lifestyle segment which includes Volcom and Electric, but is dominated by Puma, grew 8.4% to a billion Euros.

Shortest report ever I think.

Kohl’s New Retail Experiment

My family has a beach house on Long Beach Island, New Jersey.   I’ve been going there since I was a kid and still try to get back most summers. It’s where I learned to surf (I know- New Jersey surf? We work with what we’ve got).

Anyway, I was back there in September and as my wife and I headed back to the airport, Diane said, “Pull in there.” So I did. It was something called “Off Aisle” by Kohl’s and I gather this is their first store using this concept.

The store is a 30,000 square foot box with a cement floor. It’s filled mostly with racks on which apparel hangs, though they also offered some shoes, kitchen ware and bedding. Kind of like a Ross store.

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Not Much Happened But That’s Not So Bad; The Buckle’s Quarter

In the retail and economic environment we’ve got right now and given the results of some of its competitors it’s kind of hard to complain about a company that put 10% of revenue to the net income line in the quarter that ended August 1st.

Revenues were pretty much the same as in last year’s quarter at $236 million. The cost of sales was more or less constant at $141 million. Gross profit stayed at $95 million as did selling expense at $46 million. Okay, here’s a dramatic change! General and administrative expenses actually rose from $10 to $11 million. That took income from operations down $1.5 million to $37.2 million and net income was down a million from $24.5 to $23.5 million.

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