What To Do in a Recession? Hint: “Nothing” is the Wrong Answer

I’m sure that everybody who was in the snowboard business during the 1990-91 recession liked that one better than we’re going to like this one. Assuming, of course, that you even noticed the one in 1990-91. Ah, those were the good old days- when suppliers and retailers could sell whatever decks they could manage to get their hands on at high prices and good margins and consumers were so grateful to get anything at all that they’d cheerfully pay what look today like impossible prices and barely complain if it fell apart after the second run.

Okay, perhaps I’m romanticizing it just a bit.
 
So let’s get back down to earth and take a look at this recession. I’m writing this at the end of October. It’s not officially a recession until we’ve had two quarters of negative gross domestic product growth, but I’m pretty certain we’re going to get there. This recession also has the potential to be a longer and deeper than the 1990-91 one. It looks like we may have the U. S., Japan and Europe in a recession at the same time. The last time that happened was in 973-75. That recession lasted sixteen months.
 
The good news, if you want to call it that, is that suppliers and retailers with solid competitive positions and strong balance sheets will be in a position to gain business. The bad news is that they are likely to gain it on the back of weaker companies that may not be around when the recession ends.
 
Snowboard suppliers have largely been through most of their consolidation and, as you probably recall, it wasn’t pretty. Retailers, on the other hand, have enjoyed high levels of retail sales growth, averaging 6.55% annually between 1994 and 2000 for the U. S. economy as a whole. But as every retailer who has ever complained when a supplier opened his competitor right down the street knows, there are a lot of retailers. My concern is that a decline in the growth of retail sales, or even falling sales, will be something weaker retailers may have difficulty surviving.
 
What are people doing about it? Are they concerned about the potential impact of an economic downturn on their businesses? I’ve talked to snowboard retailers and suppliers to see how they are working to cope with recessionary pressures.
 
A Little Perspective
 
This is the snowboard business (Don’t say you never learned anything from me). Suppliers ordered or started to make product last winter. Much of it (hopefully) had been shipped and received by retailers long before you read this, though of course there have been the usual delays and screwups on some product by most companies.
 
That’s practically a part of the industry’s tradition. If suppliers weren’t late on something and didn’t handle it badly with at least some of their retailers, often because they have to allocate scarce product, then those retailers wouldn’t get a chance to grind the suppliers for a bigger discount, better terms, or some free product and what would we do all in September and October?
 
Gregg Keeling, National Sales Manager for Salomon hard goods, says his product was eighty-five percent shipped by mid September. Dave Schmidt, Director of Sales and Vice President of Burton, says his number was 75% by the end of September.
 
The irresistible momentum of the industry business cycle means that a lot of business at the supplier level was already done before September 11th and before a recession looked certain. Well, there’s the minor matter of collecting the money, but let’s ignore that for the moment.
 
For retailers, the jury is obviously still out, though early signs look promising. A generally good snow season last year (unless you have the misfortune to live in the Northwest that is), coupled with growth in snowboarding and hard learned inventory control means that retailers seem generally optimistic, though praying for snow as usual.
 
If this was just the apparel business, or the surf business, or we had a major trade show now, there’d be a lot more public industry knowledge about general business conditions. In the apparel business, and to a lesser extent in the surf business, there are public companies. When public companies notice that their business has hit a rough spot, they have to put out a press release that says, in affect, “We’re screwed! This is why.”
 
There are few public companies in snowboarding, and those that are public don’t make most of their revenue from snowboarding. September’s ASR show, coming a week before the attack, gave the surf and skate industries a real chance to take their own pulse, and the word was that spring orders for soft goods especially were down substantially. This was consistent with what the public companies announced.
 
We’ll get a chance to take our pulse at the end of January in Vegas and in the selling season that follows. It’s then that we’ll really know what impact the recession may have on snowboarding.
 
In the Trenches
 
Jeff France, at Board of Missoula in Montana, says he saw the economic slowdown coming late last year. His part of the world suffered from a drought last year, with a result that he was left “a little heavy” on inventory when the season ended. That, and concern about the economy, led him to cut his preseason orders by twenty five percent for this season. His suppliers were “not real happy,” but understood the impact of drought. The larger suppliers, he said were content as long as they saw that their relative market share had stayed the same.
 
There are no resorts in his territory, which he characterized as a bit insulated from the national economy and “always in a recession” anyway. When he ordered, he was a little more price sensitive about really high-end board, but didn’t change his overall mix. He hasn’t had any calls from brands trying to get bigger orders, but he did get a little the other day from one snowboard company offering a five percent discount for early payment.
 
Maybe the consolidation isn’t over.
 
Jeff usually spends one percent of snowboard revenue on advertising during the season. He’s eliminated that completely. He’s comfortable doing that because of his shop’s market position. He says that, especially if they know anything about snowboarding, he’s really the only choice for his customers.
 
He’s got a defined market niche and has taken steps to safeguard and strengthen his balance sheet.
 
Adam Valedaserra is the snowboard buyer for Ski Market in the Boston area. They currently have twenty-five stores with a separate Underground snowboard department in most of them. They’ve been around a long while.
 
Business is good for Adam- up slightly from last year.
 
Overall, and not just in snowboarding, action sports seems stronger in the East and then in the West, which has caught some people by surprise. In snowboarding, the speculation is that people are still going to make it to the mountain, but they aren’t going to be as likely to get on a plane and come out West to do it.
 
Adam has kept his budgets a lot tighter. He’s not jumping so quickly into new opportunities. He’s watching his inventory a lot closer, and has made some alterations in his deliveries, delaying some and reducing the size of others just a bit. He’s seen some improvement in terms and discounts from suppliers.
 
Business is up, budgets and inventory are under control, and he’s getting some better deals. “All things considered, I’m pretty content,” he says. I guess so.
 
He’s got a defined market niche and has taken steps to safeguard and strengthen his balance sheet.
 
Dave Pascoe is the Manager of Boarderline in Bellevue, Washington. The store has been around for twenty-five years. He’s cancelled some late order, which he might have cancelled regardless of September 11th and general economic conditions. He’s also reordered some product. He characterizes deliveries as “pretty good” and has already reordered some product. His sales at the local consumer show were up twenty percent this year.
 
He got lots of good deal from various companies for the product he sold at that show. “I think this year is going to be good for that [good deals] too. If I can exercise some cancellation clauses, maybe I’ll just take half now and a month from now I can call up and it’s on sale at thirty off.”
 
His staffing promotional budgets remain the same.
 
He’s got a defined market niche and has taken steps to safeguard and strengthen his balance sheet.
 
The Supplier Side of the Story
 
GenX Sports sells a lot of snowboard product, know the distribution better than anybody, and have helped an awful lot of companies out of inventory quandaries, if I may put it tactfully.  You don’t much like them? Too bad. They have a big impact on the industry, help give the consumer what they want, and are going to be around.
 
Mark Brazier is the VP and Director of the Snowboard and Action Sports Divisions.   Their preseason orders were up slightly. After September 11th, they saw some initial calls to modify orders, but there were hardly any cancellations. They’ve already had some reorders. They haven’t changed their promotional and advertising budget in response to economic concerns.
 
However, they are not being as aggressive as they have been in the past about placing product in the market place. This goes to the heart of their relationship with their retail customers and how they compete. Mark estimates that they get eighty percent of their snowboard sales from thirty snowboard buyers. Those buyers, with whom they are in touch daily, generally see snowboard product as just another thing to sell “It’s SKUs to them,” says Mark.
 
GenX’s job is to know the snowboard market intimately and, to the extent possible, to make sure their customers have the right product at the right time. As things change over the season, it’s their job to make sure the retailer has the right product mix, in the right amounts, at the right prices. It’s a hell of a way to tie the customer to you as long as you don’t abuse the dependence. That’s where not being too aggressive in placing product comes in this year for GenX.
 
On the other side of the snowboard world, at Burton, Dave Schmidt says there’s an “Air of caution over our forecasting going into next season.” They saw a “blip” of cancellations following September 11th, but retailer confidence seems strong.
 
Burton has accelerated shipments to some big players so that Burton’s product would be on the floor. There have been no changes in their advertising and promotional budgets, and they haven’t modified their credit process as of this date. He reiterated their caution going into next year’s budget process.
 
Salomon’s Greg Keeling, just back from a tour of seventy-five shops, reports that sales on the East Coast are great, California is hurting, and Colorado is killing it because of the lift ticket price wars (Thanks resorts! Sure hope you don’t put yourselves out of business). That’s pretty consistent with what I heard from various other sources.
 
He saw the same sort of cancellation blip that Dave Schmidt at Burton saw after September 11th. Greg thinks people are going to reorder, and he’s helping them out with some incentives. There’s ten percent off standard wholesale (not on top of existing discounts), free freight, and payment on the reorders won’t be due until March 15.
 
Well, I guess by the time you read this it will be too late to cancel your orders and them make them reorders latter.
 
Salomon has reforecast down a bit for next year, but still have pretty aggressive growth plans. They have tightened their belt on credit, and didn’t ship some accounts. Greg says Salomon has a reputation of being the last to be paid, so he sees that as a positive thing.
 
It will be interesting to see how they reconcile their tighter credit policy with their aggressive growth plans.
 
So What?
 
Pay attention to your market niche and balance sheet. Expect soft goods to be hit harder than harder goods by an economic slowdown. Look for weak retailers and suppliers to disappear. Hope for a short recession, but plan for a longer one. You might want to check out the paper I wrote for SIA to see why I think that. Use Vegas and the weeks right after it to get a firm fix on the 2002-2003 season.
 
If you’re a supplier, watch your credit and collections closely. If you’re a retailer, work your suppliers for better terms and discounts.
 
Some things never change. Pray for snow and the continued growth of snowboarding- our best antidote for economic hard times.