Changes in Market Focus; The New Snowboarding Reality

Most of us are in a different business than we were a few years ago. Retailer, brand, manufacturer, or even consultant, our customers have changed. There are only a handful of companies out there that can say they are snowboard companies. Others have adjusted their strategies, or aren’t around anymore.

 Remember the “C” word? Consolidation wasn’t just about a bunch of brands going away. It was about companies pausing, taking a deep breath, and recognizing that the opportunity represented by snowboarding went beyond selling boards, boots and bindings.
What is the snowboard market now? Who’s succeeding in it and why?
It’s the Culture, Dude
We’ve been over this before, so let’s keep it short. Hard goods have tended to become a commodity with lower margins. This has been especially true with boards but increasingly applies to boots and bindings as well. The days of rapid advances in quality and technology are nearly over.   
Young people represent a big demographic bulge everybody wants/needs a piece of. The lifestyle is what a lot of people are into whether they participate in the sport or not. There are more similarities than differences among the snow/surf/skate/BMX cultures. That’s hardly a surprise given the number of people who participate in more than one.
The term “participant” has to be viewed differently by hard and soft goods companies. Somebody who snowboards three days a year is a participant just like somebody who snowboards a hundred days a year. The hundred dayer probably spends more on equipment than the three dayer, but both need shoes and clothing for all one hundred days and probably want to look good wearing them.
Someone who perceives himself as a member of the culture is always a candidate to buy soft goods. But they may not buy any hard goods.
The sports have become the foundation of the lifestyle market. Nautica, ESPN, Mountain Dew and Tommy Hilfiger can make their money and grow their businesses as long as snowboarding ET. Al. is cool. Growth in the sport of snowboarding would be nice for them, but cool is more important than big.
It would actually be to their detriment if they were thought of as snowboard companies.   They wouldn’t be able to go after the broader market. Their potential wouldn’t be nearly what it is if they had a sport, rather than a lifestyle, focus.
Limits on Growth
Existing snowboard brands pretty much have their market niches. Those who are still standing and have been around a while are probably secure in those niches, but have a hard time figuring out what to do next. Let’s take Burton as an example just because they are far and away the most successful snowboard company.
Burton’s sitting there with, say, forty percent of the market. No doubt they’d like to grow. Their percentage share of the market is unlikely to grow much. They will get their share of general snowboard market growth, but that’s not what it use to be.
Real growth, if it’s going to happen, has to come from some new directions.    Skateboarding? Surf? Bikes? Bet they’ve looked at every action sport category there is to look at. But they haven’t done much.   Why?
Because of the danger of diffusing the strength of the brand and confusing people about what Burton stands for.
Think of a skateboard with the Burton name on it. “Why are they doing that?” you would wonder. It’s confusing and somehow disturbing. It’s a gratuitous new product with no meaning.
Apparel is different from hard goods. Burton has announced an initiative in brown shoes. They already sell a lot of apparel. We aren’t offended or confused if somebody who doesn’t snowboard wears some Burton clothing, but has chosen it because it’s stylish and functional.
But a Burton skateboard might get some strange looks from other skaters and, more importantly, from snowboarders.
Apparel, then, opens up a bigger market, and can be managed so as not to damage a brand’s credibility.
Moment of Clarity
It’s not a new thought that differentiation among hard goods is tough to achieve, and that margins are better in soft goods. But it was last March, from my perspective, that the market officially changed and the link between hard and soft goods largely severed.
It was the day Nike announced that they would not introduce a snowboard line. Their thinking, I imagine, had three basic components.
First, that they couldn’t introduce a snowboard that was any better than what everybody else was already making. Second, given that fact, selling snowboards wouldn’t help them sell soft goods. Indeed, if the board was received with a yawn or worse, it might even damage soft goods sales.
Finally, like all the other big players, Nike wants to capture some of the energy and legitimacy of the action sports culture, but they don’t want to be too closely associated with any one sport, less it restrict their broader sales prospects.
I didn’t think of it this way at the time, but that was the day the new market officially arrived in snowboarding.
And the Winner Is……
There isn’t one winner. But there does appear to be a single characteristic of companies likely to succeed in the lifestyle/action sports/youth culture market. Come with me now while we visit the Securities and Exchange Commission’s Edgar web site to see if we can distinguish that characteristic of success.
Listen to how Vans, Pacific Sunwear, and Quiksilver talk about their customers in the first paragraph or two of their most recent 10Ks (annual reports). By most measures, these are three successful companies. PacSun is a retailer that doesn’t sell any hard goods, possibly excluding some accessories. Van owns Switch and Quiksilver owns Mervyn, but neither Switch nor Mervyn contributes dollar sales, which, as a percentage of total revenue, are critical to their respective companies.
Vans characterizes itself as
….a leading lifestyle, retail and entertainment-based company which targets 10-24 year-old consumers through the sponsorship of Core Sports,(TM) which consist of alternative and enthusiast sports such as skateboarding, snowboarding, surfing and wakeboarding, and through major entertainment events and venues….
The retailer Pacific Sunwear says it is
selling everyday casual apparel, accessories and footwear designed to meet the lifestyle needs of active teens and young adults. The Company’s customers are primarily young men aged 12 to 24, as well as young women of the same age, who generally prefer a casual look.
….designs, arranges for the manufacture of, and distributes casual
sportswear, swimwear, activewear, snowboardwear and related accessories
primarily for young men, boys, young women and girls….
All three are focused on the lifestyle market. All three are focused on the same age groups. None is associated with only one sport. All, if you read further in their annual reports, are concerned with staying close to trends and their markets.
They all start out by telling us not who they are as companies, but who they think their customers are.
There is, then, a new model for companies that want to grow quickly in the youth lifestyle market, as opposed to the snowboard market. Be compulsive about staying close to trends and be prepared to turn on a dime. Don’t be too closely associated with only one segment of the market. Focus on products that permit you to make a margin that’s high enough to fund the required advertising and promotional expenses. And finally, be big.
What To Do
If you’re a snowboard retailer……wait a minute. I guess what I’m suggesting is that there aren’t many snowboard retailers in the sense there use to be. There are retailers who sell snowboards. A growing percentage of their sales profit are coming from soft goods, and they probably sell skateboards, or wakeboards, or surf boards in addition to snowboards. Are you limiting your growth by focusing too much on only the snowboard market? Maybe you are, and maybe it’s what you should be doing. But please make sure it’s a conscious decision.
Choose the brands you carry with an eye towards the company’s ability to stay on top of the trends. Welcome customers who aren’t necessarily snowboarders. Maybe you can convince them to try the sport.
With the consolidation largely completed, growth for most brands is more or less limited to the market’s rate of growth. Unless you have a lot of capital to work with, and even if you do, you try and change your existing market position at your peril.
K2’s recent acquisition of Morrow and Ride seems to suggest they believe, given the prices they paid, that they can get a better return on investment through new brands than by investing similar resources in further building the K2 snowboard franchise. I think they are probably right.
If fast growth is no longer an option, and you not longer have sky rocketing capital requirements it imposes, then maybe it’s time to settle down and just run the business. Make incremental improvements in how you operate that improve you return on investment.
Control your distribution to encourage sell through. If you do that, you have the opportunity to raise prices a little and reduce end of the season discounts. Resist at all costs the urge to accept the 3,000-board order from Bulgaria. You know they will show up in either Japan or the U.S.
Negotiate with your supplier for better prices. With continued excess production capacity that should be possible.
Take a hard look at who your customers are. Do all your advertising and promotional activities really reach them? Can you cut back or redirect any of those expenses?
The pace of market change has been phenomenal. Not long ago, it seemed that demographic changes and endless snowboarding growth made the sky the limit. Now retailers have to be cautious about being too closely associated with one sport, and brands need to operate efficiently rather than prepare for fast growth. Large soft goods brands not closely associated with one sport seem to be the beneficiaries of our hard work.
Looks like resistance was somewhat futile, and we’ve been partly assimilated, maybe changing the assimilators in the process. Oh, the hell with it. I hope it snows soon.