Thoughts from the SIA Show
So I confess. I’m from Seattle and there was no way in hell I was going to be on a plane Sunday while the Super Bowl was on. I left Saturday. But in my two days wandering the show, I had some thoughts I wanted to share with you.
There was a bit more of a somber attitude at the show then I’ve ever noticed. Everybody I talked to seemed to feel the same way. I particularly noted that the noise/crowd/enthusiasm difference between snowboarding and the rest of the show wasn’t as I was used to. That doesn’t mean there wasn’t a lot of business being done- my sense is that there was. I’d also note that the “core” (still hate that term) snowboard hard goods brands were interspersed with some large booth from brands I’d label as tangential to snowboarding and the snowboard ghetto, as we’ve come to call it, was more spread out. Perhaps that accounted for it. That’s probably a good thing. It recognizes market realities.
There were also business reasons why the mood was different. The apparent ongoing decline in snowboarding, a recovering, but still weak economy, lack of California and Northwest snow, some negative publicity for snowboarding (deserved or not?) and issues of inventory may have had something to do with it.
Which brings me to distribution. Everything always seems to bring me to distribution in this industry. At the risk of oversimplifying (I get to do that because I don’t have to actually run a winter business any more), to make money in winter sports, you have to plan for what you think is an average winter in your market and produce/buy 10% (or 15% or 20%?) less than that. You make/buy only what you think you can sell at full margin during the season.
You do not wail and gnash your teeth when you run out of inventory and can’t fill reorders when it dumps late in the season. You just calmly remind the buyer to order more in preseason next year (or tell the customer to come in sooner if you’re a retailer) and thank your lucky starts that your inventory is clean.
Because the absolute best way to guarantee you don’t make money in winter sports is to have a bunch of left over inventory you have to close out. Not only do you make little to no money on that inventory, but it might have cost you a full margin sale at some point in the future.
That’s a particularly important point when all product is good and there’s no reason to replace it very often (On the plus side that reduces the cost to participate). There are fewer chances to make a sale than there used to be. I talked to a couple of industry types who had been offered free boards by brands and actually turned them down. They just didn’t need them and didn’t want to break in a new setup. Getting a new board for free was too much trouble, which sounds strange when I say it.
My point of view on distribution and making money in this business seemed to be validated when I talked to three established snowboard brands who manage their production and distribution carefully. They’d all had issues with west coast retailers who couldn’t move product because of lack of snow. But the brand’s inventory was clean. So clean that they had trouble filling reorders from places with snow. Their solution, which worked because their inventory was clean, was to take the product from the first retailer and move it to the second.
Maybe the no snow retailer didn’t really want to give up the inventory even though they couldn’t pay. They just asked for big discounts to keep it. And maybe the product coming back doesn’t exactly match what the retailer with snow wants. Maybe the opportunity happens too late in the season to pull it off. Maybe some other stuff too. There is definitely friction in the process and some cost.
But at least these brands had the potential opportunity to take back some inventory and place it with somebody who could move it at full margin. They weren’t in a fight to be paid with a customer they wanted to keep for next season, and they’d made another customer very happy. Maybe there was some margin given up, but it was a lot less than if you had to close the stuff out.
This opportunity only existed because the brand was deliberate and cautious with inventory in the first place.
I also had occasion to talk with Jono Zacharias who, last time I updated my Outlook, was SVP for Global Sales at Westlife Distribution (686). He told me, speaking of distribution, something interesting. Apparently their best-selling pieces were the same in Europe, Canada and the U.S. this year. And their dogs- uh, I mean styles that didn’t sell quite so well- were the same in all three geographies.
I’m hypothesizing that says something about the internet and social networking. My sense is that wouldn’t have been the case a few years ago. Maybe it’s just a coincidence (it wasn’t true with Japan). If I were Jono, or a sales manager for another brand, I might go back a few years and check that out.
First, of course, you have to have the systems to do that. I’ve noted in my various articles all the companies spending money on systems to accumulate, integrate and analyze sales and inventory data. If there is some growing cohesiveness among styles and trends across geographies, then the implications for production, distribution and the numbers of SKUs you need could be significant. Just something to think about.
You know what? In spite of our industry’s macro problems, snow sliding is still FUN and SIA’s show does a great job reminding us of that. We’ve got something good to sell. The pace of change is disconcerting, but that usually means opportunity. Let me know if there’s a geographic convergence among your successful products. What can you do with that to run your business just a bit better?
Well said Jefferey!
I would add only that your observations pertaining to Jono’s comments points to a larger change in our industry. Our business model is changing. Like the proverbial frog in gradually warming water, that water has come to a boil and its jump or cook time.
I was lucky enough to have the time to partake of some great seminars (sparsley attended I might add) at the show that pointed out and provided solutions to changes in consumer habits, distribution, inventory and price controls that hlep solve a myriad of current and upcoming problems.
The trouble is, most business leaders (not all) are concerned with the day to day of running their bussiness and haven’t been able to look up and realize the water is already boiling.
Cheers,
Glenn
…..looks like should invest in some of that technology…..as in spellcheck.
Oh argh. I read it carefully and use spell check, but it still gets by sometimes. You right as much as I do and see if you have fewer typos.
J.
Hi Glenn,
There’s usually not time to look up from the day to day when you’r running a business. That’s why they hire consultants! God bless chaos!
J.
Hi Jeff,
I recently visited ISPO where the European markets are also struggling with lots of regions of poor snow.
I completely concur with your comments and strategy of buying conservatively. It is one that I applied to ALL my customers, including reps, retailers and distributors.
I would add that this can only really be accomplished if it is adopted by the industry as a whole. Too often there are pressures on reps and distributors to grow their sales numbers and this is transferred on to the distribution channels i.e. retailers. You and I know too well that the publicly traded brands require growth and unless board members and shareholders are aligned with no growth or even reduced sales, then the whole strategy grinds to a halt and is not executed.
Cheers
Micky
Hi Micky,
I don’t think it has to be industry wide, nor do I think we can expect that. I think it’s a workable strategy for a brand if that brand has been cautious about distribution as part of its strategy over some years and has built it’s reputation and market position partly base don that.
Thanks,
J.
Hi Jeff, another great post. I was at SIA on Saturday and would have enjoyed saying hello.
I appreciate your thoughts on distribution and inventory management. It seems to me that the eroding margins resulting from these issues, combined with faster turn around times for products are destined to create a more efficient system. As Brands either improve their inventory controls or get weeded out, what alternatives do you see for them instead of working with the flash sale sites that are eroding margins? What are your thoughts on direct to consumer sales and improvements in linking online shopping experience with retail partners as showrooms and pickup locations?
Thanks for keeping this blog. You consistently put out some of the most insightful posts around.
Cheers
Mike
Hi Mike,
Sorry we didn’t connect at SIA. Quality distribution and inventory management can take some costs out of doing business. They can also help with differentiating a product through some level of managed scarcity. But remember that no matter how well a brand manages distribution and inventory they are generally, in our industry, selling a product that’s at most, no better than the competition. As long as products in an industry are differentiated mostly by marketing, it’s awfully hard to do anything truly strategic in an environment where the consumers has nearly complete information and can drive the selection process with no need for the brand’s marketing.
Thanks for the comment,
J.