Some Interesting Numbers

I was lucky enough last week to be at IASC’s Skateboard Industry Conference. I was sorry to have to leave early, but among the things I enjoyed doing while there was making a presentation. As part of that presentation I showed some numbers provided by Snowsports Industries of America and I wanted to share them with you. Here they are for five complete snow seasons.

2007/2008
2008/2009
2009/2010
2010/2011
2011/1012
Units Sold
31,370,674
26,960,496
26,633,131
28,157,156
23,900,283
Dollars Sold
$1,980,551,677
$1,730,590,053
$1,798,552,214
$2,001,686,760
$1,854,581,370
Inventory Dollars
$487,541,750
$505,431,179
$441,593,937
$450,570,953
$571,271,999
Gross Margin
44.40%
42.30%
43.80%
46.50%
44.70%
GM Dollars Earned
$879,364,945
$732,039,592
$787,765,870
$930,784,343
$828,997,872
Remember when the economy went off the cliff in 2008 and the snow was none too good? Look what happened between the 2007/2008 and 2008/2009 seasons. Pretty much everything went south, except unsold inventory which went north. Not a pretty picture.
Then, in a completely expected and quite reasonable fear induced panic, the entire industry got rid of all that inventory. And to say they were cautious in ordering for next season is a bit of an understatement.
A funny thing happened. In the fall of 2009, when snow sliders walked into their favorite retailer to take advantage of the anticipated fall sales they found, well, nothing. It became very apparent that if they wanted the product, they needed to buy it now at full price. And that’s what they did.
Look at the numbers in the 2009/2010 column. Unit sales were down, but dollars sold, gross margin, and gross margin dollars earned all rose. That happened while year-end inventory fell 13%.
With product not quite so widely distributed and in short supply, and with limited left over product from the previous season, customers were willing to pay more and buy sooner.
Let me just say it once more. More gross margins dollars were earned on lower unit sales. With any luck at all, customers learned not to expect discounts all the time, to value the brand a bit more, and that they couldn’t wait until the last minute and expect to get what they wanted.
What I conclude from these kinds of numbers, and what I said at the conference, was that as long as the economy was weak and sales increases harder to come by, maybe you could strengthen your brand and bottom line by taking a different approach than you had in the past.
I’m all for sales increases, but don’t focus on getting them exclusively. Looks carefully at your distribution and who you are selling too. Distribution is no longer “core” or “not core.” Each new account needs to be reviewed separately for its fit with your customer base and brand positioning. You want to avoid the broad fashion industry, where you’re a small fish in a huge pond and where the customers, even if they know your brand, won’t know your story and what makes you legitimate. They may not even care.
Change your thinking a bit so you feel it’s okay for a retailer to sell out of your product and you have to tell him there’s no more right now. There’s nothing a retailer wants more than a product that sold well at full margin that he can’t get any more of. Let the consumers discover that your product is kind of exclusive and communicate that at the speed of light to their friends. Bet you won’t have to spend quite so much on advertising and promotion, your brand will be stronger, your gross margin higher, and disputes between brand and retailer fewer. There are other benefits as well.
This isn’t as easy as I make it sound in a couple of paragraphs, but I’m pretty certain it’s worth your consideration in a week economy and highly competitive market where most of your competitive advantage comes from a brand story and positioning rather than product differentiation.
I’m suggesting you could make more money with less risk. That has to be at least worth thinking about.
If you want a copy of the power point I presented at the IASC conference, let me know.

 

 

14 replies
  1. Rogerio Almeida
    Rogerio Almeida says:

    Please send me a copy of your power point presentation, at IASC conference.
    Thank you !
    Rogerio de Almeida , Sao Paulo, Brasil
    phone : + 55 11 3534 7757

  2. Bud Stratford
    Bud Stratford says:

    While this holds true for the snow industry, I doubt that it would work with the skate industry very well. Reasons being:

    – The barriers to entry are higher for snow companies (lots of capital required= high barriers of entry), whereas the barriers to entry for skate brands are much, much lower, and as such-
    – Snow has fewer brands, whereas skate has literally thousands of brands, and-
    – Those players in snow sports have strategic foresight, whereas skate brands have virtually none, and-
    – I would have to guess that there are no independent distributors in snow sports, and fewer overall retailers in the retail base, whereas skate has dozens of distributors, and zillions of retailers.

    I would also guess that the snow sports brands can work together on some basic level, for the overall benefit of their industry, whereas skate has attempted this (with IASC), but to virtually no avail.

    So while snow can recognize long-term trends, react decisively to those trends, and adjust their business models accordingly (to get those numbers that you posted above), I doubt that skate will ever see those kinds of numbers. Although it would be great for everyone if they could…! But still, I doubt they will.

    • jeff
      jeff says:

      Hi Bud,
      It only worked for snow as a group because they all did the same thing at the same time because they were all equally concerned. That is unlikely to happen again, though you can see the positive result. What I’m suggesting is that individual brands and maybe some retailers can do it. Not all, and not exactly what I say, and not necessarily everything I say. I’d like them to try and think the way I suggest and see what improvements might result. And while we’re on the subject of business models Bud, what do you think the role of distributors should be?

      Thanks for the comment,

      J.

      • Bud Stratford
        Bud Stratford says:

        Thanks for clarifying, Jeff.

        Truth is, there are some emerging skate brands- smaller, upstart, and upscale brands- that are doing exactly what you’re saying (ie, working directly with retailers, and bypassing the distribution model entirely). But, the difference is that these new brands don’t subscribe to the “way it’s always been done” approach that you might find amongst skate’s “legacy” brands (ie, most of IASC’s membership). New brands can easily step “out of line”, because they were never “in line” in the first place.

        Put another way: They’re not constrained by history, because they don’t have any history to be constrained by.

        As for your question regarding distributors… I think that we’ll soon see a day where the skate industry performs much like the snow industry currently does: a paradigm where there are no independent distributors, where retailers will be booking their orders directly with the vendors. But, I also think that “the vendors” will look quite different than they do today. Instead of having 10,000 stand-alone skate brands, I can foresee them increasingly coming under “distributorship umbrellas”… which has been trending for years, but as yet, has not quite followed completely through.

        Example: The relationship that a Foundation has with a Tum Yeto, which might move product to an Eastern Skate Supply, which might then sell a product to a retailer… this is redundant, and unnecessary. In the future, Tum Yeto might house 20, 30, maybe even 40 brands… and will sell directly to the retailers. This would obviously grant Tum Yeto higher margins, while also allowing them much more control over which retailers, get which brands (and, why certain retailers would be allowed certain brands). I’d like to clarify that I’m not picking on Swank, or telling him how to run Tum Yeto… I could have easily used Black Box, Deluxe, Blitz, or anyone else as examples… but the point is, in the future, I can see these “brand warehouses” becoming much larger through brand consolidation, and as a result, seeing better margins on a more selective distribution system.

        Does that answer your question, Jeff…? -B.

        • jeff
          jeff says:

          Hi Bud,
          Sorry for the delayed out response. I was out for a couple of days with old friends and you know how that can go.

          I know some brands are doing it. Actually, what choice do they have if they want to differentiate themselves? Basically, I think it’s more or less what any new brand has to do in our industry when they start. With regards to distributors, I suspect some brands have gotten too dependent on cash flow from existing distributors to dump them and, at least in skate, I’m not quite sure they always should. Kind of requires a company by company analysis. How much business do you expect to lose by not working through a distributor compared to how much extra margin you think you can make? It really is that simple financially

          Maybe more important, any brand needs to control the flow and presentation of its products to consumers, and that’s hard to do through distributors.

          Thanks for the comment!

          J.

  3. Chuck
    Chuck says:

    Jeff, you can be an accountant. A lot going on here, but you can look at this and say the industry reacted correctly, but they did not learn the lesson and are now repeating the cycle is a period where core participation may we weakening. One great data point that should be more discussed is what each company orders verses pre-books. Over the past 5 years, I do not know any private company, where reducing the buy verses book did not prove to be the right call.

    I think a lot of what you said does apply in skate. The fact that skate has shorter production lead times, should allow them to react faster to demand changes.

    Great advice on really thinking about who you sell and what it does for your brand.

    • jeff
      jeff says:

      Hi Chuck,
      I know they are doing it again, though it’s hard to adjust for snow fall. It was inevitable I guess. I wish I could get the data on orders versus prebooks. You could for sure see who was shooting themselves with that data.

      I think the issue of brand positioning is more important than ever. It was so easy when it was either core or not core. Now, you have to think individually about every retailer you sell to.

      Hope to see you at Agenda.

      J.

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