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Agenda Show: The New Skate Business Model

I’m somewhere in the middle of the country between the Agenda and Surf Expo trade shows at 30,000 feet. Before I talk about the sea change in skateboarding I saw at Agenda, I have a request. Will the powers that be at both shows please figure out how to not have the shows overlap? 

Please, no explanations and finger pointing. Not interested. Yeah, yeah, I know. I don’t understand. I’m just a customer (kind of) that thinks it sucks and is inconvenienced by it. And I’m not even the customer you should care about.
 
There, I feel a whole lot better.
 
Okay, skateboarding. An English magazine product guide I picked up at Agenda listed 55 brands of skate decks. Some I knew, many I’d never heard of. And those are only the ones who have enough presence (and money?) to be in that publication. Lots and lots of small skate brands around. At the show, there were a bunch of small deck brands that were new or had only been around a year or two. My perception over two days (shared by others in the industry I asked) was that the newer brands were busier and full of kids while the older brands (guess what – I’m not going to call them the “core” brands) were slower and full of older guys.
 
Many of those older guys will remember a time when they were just kids skating who thought it would be cool to get a few decks made for their friends because they kind of had an idea for a graphic. So somewhere they got 50 decks made and, after selling them to their friends, found they had made a couple of hundred bucks.
 
Of course, it had taken them at least 100 hours of work to get them made and sold (maybe a lot more) so in fact they’d earned about fourteen cents an hour. But who cared. They had a few bucks in their pocket, had a lot fun, and sensed a new found respect from their friends. They were on to something. Next time they’d make a hundred.
 
And the guys who turned out to be pretty good at that (and committed, and worked hard, and had a vision, and managed to raise a few bucks, and were a little lucky) are the guys I spend time talking to at Agenda. I like them, I’ve known them ten or fifteen years, it’s interesting to hear what they think, and they’re my age (okay, not that old, but getting there).
 
As they built their brands, they created a business model based on a high retail priced product carefully distributed (initially) with differentiation based mostly on team riders. High gross margins and big marketing budgets.
 
That business model started to go to hell about ten years ago as skateboarding got big enough to attract outside attention and lacking any kind of product improvement or differentiation not based on marketing. As the skateboard deck became a commodity to more and more skaters, there was no way to sell enough of them at a high price to fund the marketing program. The leading brands in the industry lost their ability to control pricing.
 
But they were stuck with their business model in terms of how they thought about it and because of a corporate structure with committed overhead. And they were getting older- every day, week, month, year- in an industry where the fourteen year old if the arbiter of cool. Maybe the 12 year old. Attitude and reality was (is?) working against them.
 
Meanwhile, the kids with the new brands have discovered what the owners of the core brands once discovered. It’s cool to make 50 boards and sell them to your friends. But they aren’t trapped by an increasingly obsolete business model and overhead structure.
 
Who’s on their team? The kid who did the coolest trick caught on video at the local skate park yesterday. It was up on YouTube, Twitter, etc. and the brand’s web site before his session was over. Hmmm. Maybe web sites don’t even matter like they used to. Tomorrow it will be somebody else. Or it will be the same skater. But there’s no need to create and run a series of ads to build a single skater’s credibility.
 
Marketing budget? Practically zero. Maybe you end up with a “team” of 6,000 composed of a couple of skaters at various skate parks and neighborhoods around the country. Or maybe you don’t. And your “team” will change and you won’t know it or control it. Maybe you cobrand with local shops or skate parks. Some brands and some skaters will rise to the top just like they always have. But there’s not an initial and expensive structure and process required. It will be informal, inexpensive, and inexact. In a word, it will be surprising and the skaters, not the brand, will have a lot of control. I wonder, in fact, if you don’t try and control it at your peril.
 
But how different is this really? The heritage skate brands (Oh god, what an awful thing to call them) aren’t strangers to creating new brands. But the communications process and the cost structure are dramatically different from what they are used to.
 
The heritage brands can’t do a damned thing about this as long as they have to exist within their old cost structure. Maybe one of these brands should rename itself Phoenix and rise from the ashes by severing all ties with the parent and putting a few kids with computers and a travel budget into a small old house somewhere and start over with the same brand name. Don’t you wish you’d done that with longboarding ten years ago? Or maybe you approach half a dozen of the new brands that are thought to be the coolest and you offer each of them $10,000 for an equity stake in the business (actually convertible debt would be better).
 
I keep being told that, according to the numbers we have, skating is declining. But damn, I see a lot of people skating (Of course, that’s what I want to see). And I was reminded at the show that the industry is about due for the next demographic boost. The numbers I’ve seen bear that out.
 
So anyway, when I get to Surf Expo, to the extent they are there, I’m going to spend all my time talking to skate companies I’ve never heard of. Won’t be as much fun, but I have a sense I’ll learn more about where the industry is going.
 
Meanwhile, at Agenda, the coolest thing I saw was the tagged police cruiser with the skateboard through the front windshield and the product displayed in the trunk. That’s the kind of thinking we need. I also saw a really busy show, though not quite as busy on the second day partly, I think, because people had left for Surf Expo.
 
I visited RAEN (because they asked me to) and saw a business model I liked. They’ve got some actual product differentiation, a story to tell, and a price structure that makes sense. I was scared to death I’d break their material when I twisted the frame, but when I worked up the nerve to try, I couldn’t. I also liked the product look, but for all I know, that’s the kiss of death for them.
 
Speaking of old school, I went to Bud Smith’s retirement party thrown by NHS. I’ll miss Mr. Griptape.  Next day, retired or not, Bud was still in the NHS booth. I didn’t stay long enough to see if Denike had to have him removed by security when the show closed.   Hey Bob, maybe you can get him to sell some grip tape for free?

   

It’s Tradeshow’s Season. I Started with Agenda, But I’m also Thinking About SIA.

Among the things I liked at Agenda, the one I liked the most was Shmooza Palooza, the jobs fair jointly sponsored by Agenda and Malakye.com. 500 people preregistered for it and it was busy every time I looked in. It’s great to sell a few more T-shirts or another snowboard, but it’s even better to help somebody put food on the table. The guy who probably didn’t get a job at this job fair is the one who told one of the recruiters he had gotten a college scholarship and taken the money to use for a surf trip. It’s somehow troubling he apparently thought that would make him sound credible.

On a personal note, I have a kid who graduated from college last spring and has an actual job with benefits and 401(k) plan. Most of his peers are not so fortunate and I think he knows how lucky he is. My wife and I feel like we won the lottery.

The other things I liked at Agenda included flying into a small airport, $100 hotels, and the food trucks. It was a pleasure to get good food at a fair price instead of bad food at an expensive price. I also liked having the booth numbers at the top of the booths where they were easy to see, though I understand this isn’t new. And as always, I liked seeing some new brands, or at least brands I haven’t seen before. I hope they do well.
 
I didn’t like it when people referred to Agenda as the "new ASR," because I remember what happened to the old ASR. I had written before, when ASR first closed, about the pressure Agenda, or any other trade show, might come under as it succeeded and grew. That analysis, I think, is still valid. But Agenda has done at least two things that should mitigate those pressures to some extent. First, they got the hell out of San Diego to the more attractive cost structure of Long Beach. Second, they are keeping the feel of the show more or less the same as it grows by keeping most booth sizes the same. Or at least keeping them from getting too big.
 
Yes, I know a few brands had larger booths. I noticed it too. But I don’t think that’s different from how it was in San Diego. It’s just that a new location makes you see perceive things differently even if they ain’t.
 
The new location makes it difficult to compare last year’s Agenda this with year’s. But then I’ve always been cautious about reaching conclusions based on how busy a given booth was at the moment I walked by or how crowded the aisles felt. The question is do brands and retailers feel like the show is a good place to get business done, and nobody at Agenda complained to me about that.
 
Next, I’m off to the SIA snow show in Denver. Nothing could improve that show more than a lot of snow during the next 10 days. Last year, as you know, was an epic snow year.  I never expect two great years in a row, but I was really hoping that this year would at least be okay.  Last year’s great show, coupled with the residual fear from the recession, meant that retailers have been cautious on their inventory and most of the old stuff was gone. There wasn’t much left over product at deep discounts, and customers learned they had to buy quickly and at full price to get what they wanted. The result was a great year not just for sales but for profits as well.
 
Though it hasn’t always been the snow industry’s mindset, you really can sell less and earn more, and I was hoping for another year to cement that kind of thinking.
 
What I’ve heard so far is that brands, in general, didn’t over produce and retailers didn’t over order due to over enthusiasm from last year. That’s good. We should never let ourselves be deluded into believing we’re great managers and sales people just because it snows.
 
Still, it appears likely that we’re going to get to Denver with some of the dreaded inventory overhang in the one season snow business. Hmmm. Maybe an overhang is a non-alcohol induced hangover.
 
My guess it won’t be as bad as it has been in past years because there won’t be as much product to deal with, and discounting didn’t start in August. Yet, inevitably, brands will want to get paid on time, won’t want to offer discounts, and won’t want to take product back. Retailers will want to delay payment, get discounts, and send back product.
 
I’d note that retailers, generally, haven’t panicked. From what I can tell, there’s been more resistance to discounting early and often than in prior years. No doubt it’s partly because there’s less inventory, but I also trust it’s because we’ve learned a few things. 
 
There have been some instances recently where brands (not just in snow) didn’t necessarily replace their whole product line every year. Certain pieces got carried over. I guess it’s mostly in apparel, but I’m wondering if it might not work with select hard goods.
 
Let’s start by acknowledging that there are no bad hard goods out there anymore. Everything’s durable, functional, and more or less good looking. And hopefully, you’ll also agree with the following:
 
·         Though the economy appears to be improving a bit, sales increases are still not easy to come by and generating additional gross margin is important in increasing profits.
 
·         Inventory scarcity improves product perception and makes consumers less price sensitive. It also reduces working capital investment, which we finance oriented people like.
 
What I’m asking/hoping is that the tension between brands and retailers not be allowed to turn back into the zero sum kind of game it’s been in some past years. Can some product that sold well this year and is maybe in short supply be kept in the line for next year?  Can retailers and brands share the burden of a poor snow season such that product doesn’t turns up at the wrong time, in the wrong place, and at the wrong price? At least not too much.
 
I get to look at this from the 10,000 foot level and don’t have to worry about keeping a factory busy or generating enough cash to pay the bills (though I have had to do that with snowboard brands. I mostly didn’t enjoy it). Except in the very short run, we are all better served by holding prices where reasonably possible and keeping product scarce. Please remember that when all those meetings start in Denver.  Let’s build on what we’ve started.