The Management Changes at Billabong

Let’s review what’s happened. Over a few years, Billabong transformed itself from a wholesaler with a group of strong brands with some retail to a 600 store retailer that owns brands. The retail growth, I’ve written, probably took place a little faster than they had planned, but if what you think is the right opportunity appears, sometimes you just have to take a leap.

For the brand and retail strategy to work together, they have to get as much of their owned brand product as possible into owned retailers. That maximizes the gross margin dollars they earn.

Accomplishing that is tricky. Here’s how I framed the issue.
“How much of your owned brands can you put in a retailer before it’s perceived as a Billabong store regardless of the name on the front? How do you handle the other brands those owned stores carry when you’re trying to make room for your own higher margins brands?   How do they feel, as one of those non-owned brands, about being in those stores and the way their brand may be merchandised? I am sure Billabong management spent, and is spending, time on those issues every day.”
How are they doing on this core issue? All we know are their overall financial results. It hasn’t been a good three years. Mostly recently, they raised capital by selling off half of Nixon and announced a program to close stores and cut expenses. I wrote about that in detail.
As you know, the plot thickened on May 9 when former Target Australia executive Launa Inman was appointed Managing Director and CEO of Billabong effective May 14. Former CEO Derek O’Neill left the company on the day of the announcement. North American head Paul Naude was promoted to President of the Americas.
The company held a conference call that day to discuss the transition, and I’ve read the transcript. Ms. Inman had been consulting with the board for two months, but had only been focusing on the Australian operations. Throughout the call, both she and Chairman Ted Kunkel declined to discuss her long term plans for Billabong, as she hadn’t had the time to do a complete review.
The conversation was framed around Ted Kunkel’s statement that “…we need new leadership and we need new skill sets.” Ms. Inman’s appointment is meant to give the company the retail experience it needs given how important retail has become to Billabong. Though Ms. Inman talked about her previous experience with brands, it sounds like Billabong will rely on Paul Naude for his knowledge of brands, branding and the surf industry. Ms. Inman says Paul is going to be working very closely with her. Makes sense.
Ms. Inman said, “My real priority is going to have to be focusing on the greater value that we need to extract from the retail network and the strengthening supply chain. “ That’s consistent with how I framed the issue (see the quote above) in my earlier article.
We also learned on the call that Derek O’Neill left the company without a consulting arrangement. One analyst noted his strong connections with suppliers, customers and athletes and asked if there were any risks for Billabong in that area. Part of Chairman Kunkel’s response was to say he was “…absolutely convinced that he [Derek O’Neill] will act appropriately.”
Another analyst asked, “Has the Board got the necessary leadership, talent and skills to execute this future successfully?” A third, referring to Ted Kunkel, said “…a lot of your very large shareholders are telling me that you’re the guy that should be held accountable and resign,…” Mr. Kunkel didn’t think so. There’s a shocker.
One thing that didn’t come up in the call was that Billabong has pinned a chunk of its problems on the poor economy worldwide, the recession in Australia and the strong Australian dollar. No matter how good Launa Inman is, I doubt she can do any more about those factors than Derek O’Neill could.
There’s a lot of uncertainty here, and it was reflected in the conference call. Ms. Inman hasn’t had enough time to really figure out what she really wants to do. But, as came up in the call, her choices may be limited as Chairman Kunkel makes it clear that the board believes in the integrated brand and retail strategy. And, he points out they’ve got 600 stores they can’t just ignore.
 The issue, I guess, goes back to the ability to maximize gross profit dollars by putting owned brands into owned retail. It will be interesting to watch and see how she approaches that and whether she can do it better. 



2 replies
    • jeff
      jeff says:

      Hi John,
      I don’t know what they might become. It’s all in that black box where they figure out how much of their own brands they can put in stores. Complicated, I imagine, by the fact that the answer isn’t going to be one size fits all.

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