Specialty Snowboard Shops and the Industry Consolidation; Who Are They and What’s Happening to Them?

Over the last month, I’ve stopped by eight or ten snowboard retailers in the Northwest. I talked to the owner, manager, or whoever was around and not too busy to talk with me. The number of stores I went in probably isn’t large enough to be statistically significant, the stores were picked based on my personal biases, and I didn’t ask the same questions every where. I told them I wrote for Transworld Biz, so they probably thought they had to humor me rather than throwing me out when they found out I wanted to waste their time and not buy anything.

I had three goals:
·         To try and reach a definition of a specialty snowboard shop.
·         To find out what the snowboard business has been like for retailers so far this season (I’m writing this in early December).
·         To hear from retailers how the industry consolidation was affecting them.
Here’s what I think I learned and some conjecture on what it means for the industry.
An Attempted Definition
We all know one when we see it, but defining the specialty snowboard shop isn’t easy. The word “shop” is important. REI is a specialty store, but it’s not a shop. The consumer also looks at a retailer differently than we who are in the business do. Zumiez’s may look like a specialty shop to some consumers, but with 143 stores, it’s business issues and competitive strategies are a lot different from the sole proprietor with one storefront.
Okay, now we’re getting somewhere. A specialty snowboard shop typically has one location, though I guess it could still qualify with a couple. I’d say it occupies something like 2, 000 square feet, though there’s a wide variation in that number. Fifty to seventy five percent of its total annual sales are snowboard related. It usually also sells skate boards and related products. Shoes and surf products are other common lines that are used to round out its offerings and improve summer cash flow.
Street Shoes
Everybody is carrying them and everybody is making them. New brands seem to pop up all the time. Distribution is starting to get screwed up and discounts are becoming more and more prevalent. There are no barriers to entry, and no fundamental differences among many shoes except for cosmetics. Differentiating a brand is getting harder. Does this sound familiar to anybody besides me? 
It’s highly seasonal (I bet you’re all stunned to learn that) and there’s a greater or lesser dependence on supplier financing to manage inventory and seasonality. It’s not located in high rent retail space at the mall. It depends on customer service and a carefully calculated reputation among its clientele to make it a shop people trust and are willing to go out of their way to get to.
The owner is running the place or, at the very least, is around an awful lot. Snowboarding is important to their life style. Their customer base, and what they have to do to succeed, is changing as snowboarding gets mainstreamed. If you’re a traditional “core” shop, you may be missing out on growth opportunities that result from the homogenization of the market, because a declining percentage of the total market is the traditional core.
So Far This Season
At least one thing hasn’t changed in this business- product still arrives late. Nobody told me about boards being late (maybe nobody cares?) but I heard stories about boots, bindings and outerwear. But there’s a difference from previous years. It use to be that if it came in, the specialty shops got it first. I’m getting the impression that the specialty chains with their large orders and resulting leverage with the suppliers are being given some priority. This is another confirmation of how the market is changing.
When asked what boards were selling, Burton was named everywhere it was carried and nobody else got consistent mention. The racks were stocked with the usual brands. Literally nowhere, except occasionally on the closeout racks, did I see any boards from any really small brands. At least in the Northwest, literally none (zero, zip, nada) of the small brands that appeared in the feeding frenzy seem to have survived. 
The closeout racks weren’t as stocked as I had expected. The smallest number of closeout boards I saw was six. I’d estimate the largest was around thirty. I didn’t get to peek in the back rooms, but it seems like old product (not just boards) was more or less under control in the shops I visited.
Boots and bindings are selling well, and clothing seems to be doing better than anything else is. Retailer enthusiasm is directly proportional to gross profit margins. With boards it’s, well, lousy coming in at around thirty to thirty five percent. Boots and bindings are better, and outerwear is king both in terms of sales and margins. The demise of certain clothing companies coupled with selected late delivery by others seems to have balanced supply and demand pretty well, and clothing is moving at keystone.
 Retailers are getting fewer calls than they were at this time last year offering them this year’s product at closeout. I heard a number of comments about certain brands already being sold out of product, especially the high-end stuff.
More than ever, the shops have to be inviting to boarders’ parents, and prepared to deal with ignorance of the sport and the whole culture. One owner had to stop talking with me to help somebody’s mother pick out a beanie. She wanted to know if it was a snowboarding or skateboarding beanie. He explained it could be used for either, sold it to her with a smile, and continued our conversation.  
Calculating Gross Margin
Let’s say you bought a board for $225 and sold it for $346. You’ve earned a thirty five percent margin. Not great but what do you expect for a board? You’re happier if you remembered to take into account your discount and terms when figuring your per item profitability. Reduce your item cost by your volume discount. That’s easy. Now figure out how much money your supplier is lending you at zero interest and what your bank would charge you if you had to borrow that money. This isn’t strictly part of your margin calculation, but it’s an “avoided cost” you should calculate and consider in figuring out what an acceptable margin is.
Impact of Consolidation
There are no surprises here. Retailer leverage with suppliers has grown as witnessed by increased terms, better discounts and lower prices. However, as noted above some of that leverage has migrated from the specialty shops to the specialty retail chains because of the sheer size of their orders.
Many fewer brands are being carried. There are fewer to carry, and a retailer doesn’t have to be patient with any brand that doesn’t offer product, prices and programs that he doesn’t like. One retailer told me about dropping a brand because they didn’t feel like they saw the rep often enough. 
Especially in boards, margins are tougher to hold. This is the result of over supply, and a more sophisticated consumer who has a lot more information and choices and, because she has been overwhelmed by brand claims and counter claims, is less likely to be swayed by advertising.
One retailer who also sells skis and other sporting goods equipment but has a separate snowboard shop also pointed out how the relatively small size of the snowboard industry impacts his margins. “Look,” he said, I sell 700 pair of Rossignol skis a year. I sell 400 snowboards total from five brands. Which supplier do you think gives me the best prices and where do you think I earn the higher margin?”
A specialty snowboard retailer, then, if they are facing declining margins, has to sell more product and invest more working capital in the business to make the same profit. The implication is that maybe they need to expand their customer base.
Which they can probably do. My perception is that the mainstreaming of the snowboard business also means the mainstreaming of the snowboard specialty store. The hard core part of the market is declining as a percent of total business and the retailer can’t ignore that. The fact is that a grungy store with lousy customer service and stuff lying around isn’t going to appeal to what will be, if it isn’t already, the largest part of the market.
Successful snowboard specialty shops seem to be entering the mainstream right along with the rest of the industry. No surprise- they’re going where the customers are. If they’ve lost some margin to a more discriminating, less excitable consumer, they’ve gained terms, service, and predictability from a stabilizing, though far from stable, supplier base. Now if only they could have an accurate weather forecast.