Most of you are probably aware that the Surf Industry Summit took place in Cabo starting about 10 days ago. The keynote speaker on the first night was Quiksilver founder and Chairman Bob McKnight. His speech was somewhat controversial. The text is available on Shop Eat, Surf, but only if you’re an Executive Member. I’m not, but some people sent me a PDF. I’ve read it a few times and listened it to, but was not at the conference. You should find a way to get yourselves a copy.
My goal is for this to be useful and professional. That doesn’t mean I won’t disagree with Bob on some points. I do and I will. But as always, my goal is a discussion that makes us think differently, and do better business. A quality disagreement is the best way to learn new things.
I’m going to use Bob as a bit of a stalking horse, responding to some of the issues he raises but doesn’t fully address if only because of the limited time available. But these, I think, are precisely the issues that future conferences should focus on. When it does, I might start coming to the conference again.
If they’ll have me.
Bob started out saying he hadn’t wanted to make the speech, but the board of SIMA wouldn’t take no for an answer. I believe him. As the Chairman of a public company in a difficult financial situation, he is constrained in what he can say or wants to say. I would love to hear the speech Bob would have made if he had absolutely, positively known that none of the wall street crowd would see it. I hope it would have been different.
After a bit of history and some reminiscing, he talked about the good, the bad, and the ugly in the surf industry. Let’s take a look at each in turn.
He talks about how big the market has gotten since he made his conference speech 10 years ago on “Growing the Pond.” He notes that “…everybody loves the beach,” and describes what he saw at Surf Expo.
“…what I was amazed most by is what I call Water World – it’s getting huge. This is wakeboarding, waterskiing, surfing behind the boat, SUP, all the oceans and rivers of America. Kite surfing, windsurfing, all these things – it’s amazing. So, we have that definitely on the good list.”
“Also, all things surfing, and all the variations. There’s obviously free surfing, contest surfing, there’s hippie, feral, adventure travel surfing. All the boards – long board, short board, weirdo boards, boogie boards, body surfing – I mean, even diving, fishing, boating is all part of our deal, now. And we have fitness training, even MMA. And there’s some new wholesale opportunities.”
Same thing I saw. But it made me ask, “What market are we in?” rather than say “See how big our market is.” Maybe we’re in the “Things you do in water using a board” market. And that’s okay, but each company has to make a decision about that. “We” aren’t in any market. Each company has a market position that probably overlaps to a greater or lesser extent with other companies and different activities. That’s not a new idea.
The actual surf market, as we’ve traditionally thought about surf, is a pretty small market. The same is true for what we call the action sports market. It’s made up of the people who actually participate and the first line of people who don’t but who maybe watch contests and are firmly into the lifestyle.
Most of the product most surf companies sell isn’t sold to surfers. That’s not news. And the further you get from selling to people who surf if you’re a company with its roots in surf, the harder it is to differentiate yourself. As I’ve said before, they may know your brand, but not your story.
So I agree with Bob that the pond has grown. But I don’t think that because your roots are in surfing you should or can be in all those markets, and Bob doesn’t say you should be. As some brands have found out, that can be a dangerous way to think. Growing the pond has the downside of attracting tough, or at least persistent, competitors as Bob notes in the next section of his speech. Bob talks about what’s good for the industry. You have to think about what’s good for your company. Never assume they are necessarily the same.
Bob notes later that figuring out your marketing segmentation is important. He’s right. Who can be at the next conference explaining to industry companies how they figure out which parts of this admittedly bigger market a company belongs in?
Here’s what Bob says about what he characterizes as the surf market, “Everybody’s in on it. All levels of distribution, with or without a legitimate brand, all levels of price, ecommerce – and not only do we have us in the room who do legit stuff, but we have Hollister, Gap, Old Navy, Tommy Hilfiger, PacSun private label, Target, Under Armour, Abercrombie– I mean, it just goes on and on and on. And the women’s side – Forever 21, Lululemon, Zara, H&M.”
He points to the continuing global recession and to pricing pressures coming from Amazon, Costco, Sam’s, and kids spending their money on electronics and entertainment rather than shorts, t-shirts and sandals.
The pond’s grown, and that’s good. But everybody’s in on it, and that’s bad. We’d all prefer that it had grown without attracting other competitors, but that was never likely. Ask the snowboard and skateboard guys. Seems to me there’s been a pretty standard business cycle here made worse by a tough economy. “The Industry” can’t “fix” this. Each company can determine which of these companies are in fact their competitors and act accordingly.
He notes that “…we’ve had about a 30 percent reduction in hardcore accounts because their rents were raised, they went out of business, hurricanes, you name it.”
That’s not an adequate description of why so many specialty retailers went belly up. There’s the “no longer the best economy we could ever have hoped to live through” issue, and that this country is way over retailed. And there’s the fact that some of those retailers weren’t good business people, but cash flow in the go-go years covered that up.
Retailers have become brands and brands have become retailers. On the internet and in their own stores, brands (not just Quiksilver) started competing directly with retailers. They also impacted retailers in how and where they distributed product.
Specialty retailers can’t compete by carrying brands that are distributed indiscriminately and priced below what core account needs to make a survivable margin. The best specialty retailers make the brands they carry special- not the other way around. But there’s limit to that. I’ve been encouraging specialty retailers to take risks on new brands with more limited distribution because, bluntly, I thought it was their best chance to succeed.
I’m not here to say the decisions made by brands and retailers were “good” or “bad” decisions. Each does what it perceives to be in its own best interest- not the industry’s. That’s what they should have done. Would a little longer term perspective have benefited them and the industry? I think so. But it can be hard to think that way when you have to run a business every day.
For the next conference, let’s get the ubiquitous retail panel, but have it consist of core retailers who went out of business, or who almost did and saved themselves. What happened? What would they have done differently? How could the brands have helped? Yes, it might be uncomfortable and I don’t know if we could find retailers prepared to describe the mistakes they made. But the discussion could take us outside our comfort zone. That would be valuable.
My brother in law once commented, “Wherever you go, there you’ll be.” It didn’t seem quite so insightful at the time, and there may have been a cocktail involved. But here we are. Bob’s litany of who’s involved in the industry (depending what we mean by that term) is accurate. It’s where our journey has taken us. Here we are. Now what?
“The ugly is really that we’ve lost our specialness and specialty retail – except for core accounts. But I think that we were once known to be really special, and people had to go to the beach, had to go to the cathedral accounts and buy something because it was one of our brands, and it was really special. And now, everybody’s in. So, there’s just too much stuff. Race to the bottom for price. We grew the pond, and now it’s time to really protect the perimeter.”
“I think we all just need to change. I think we need to do better and better product. I think we need to have less SKUs, more curated products where everything has a story, it’s special. I think we need to, as best we can, start raising prices, guys, because otherwise, the race to the bottom – we will not win that battle. “
The race Bob is describing is over at various levels. The consumer has won. We’ve got customers with perfect information, lower disposable income, a disinclination to be brand loyal, and that are influenced more by what their peers say than what we tell them and that want the new thing when they want it and how they want it. I don’t mean for that to sound quite so black and white. There are shades of grey for every retailer and brand. What do those fundamental and evolving changes mean for how we do business?
Better products, fewer SKUs, curated products, higher prices and better story telling are all things I’m for, though a discussion of the details would be in order. What, for example, do these way less compliant customers of ours think makes a product “better?” Damned if I know.
As far as protecting the perimeter goes, I think the industry can do that. But it’s the perimeter of the smaller surf market as I describe it- not the much larger market Bob describes. “What do we mean by ‘the market’?” is worthy of a debate.
I also think Bob is onto something when he says, “I just almost feel like we need to be more like luxury brands as best we can. Not the high price, but just the way that their attitude is. Less is more, every product is important, has a story, higher price, hard to get, and more exclusive.”
I’ve been making the argument for years now that brands need to be focused on improving gross margin and controlling operating expenses to improve the bottom line rather than relying on big sales increases. But I think of luxury brands as having high prices almost by definition and I certainly believe they have limited distribution and a more targeted market. The distribution issue is particularly significant where there is no other fundamental difference between two brand’s products.
I’ve also been saying- regular readers know it’s been coming- wait for it- that there’s a conflict between the revenue growth a public company needs and making a brand special along the lines Bob describes. I think brands can and should take Bob’s advice in this area, but I’m unclear if it’s viable for public companies after they get to a certain size.
The rest of Bob’s speech I’d characterize as rallying the troops. He criticized the email Bob Hurley sent to the conference right before the his speech, tried to use “Je Suis Charlie” as a rallying cry for the surf industry, called for supporting core retailers, positive media coverage, and suggested some new directions for SIMA. I got comments.
First, 12 people were murdered in January, 2015 for standing up for what they believed in, and “Je Suis Charlie” emerged as a symbol of support and outrage. Nothing going on in the surf industry rises to that level of significance and I’m pretty sure there are no lives in danger from bad distribution.
Bob Hurley’s email ended up sounding like a commercial for the Hurley brand, and I have no idea why. The point is he didn’t come and I’m guessing he didn’t see the business value in showing up- or he would have been there.
I’m about 25 years into going to industry conferences and trade shows. There has been a remarkable sameness to them over the years. We spend way too much time talking to each other and validating each other’s preconceptions. Confirmation bias (look it up) reigns supreme at these functions. It was ten years ago at the conference when Bob made his first speech that I stood up during a retail panel and asked, “What happens when the brands have 5,000 retail stores?” One retailer responded, “We can compete against anybody!” They took the microphone from me and moved on to a less uncomfortable issue.
Bob’s right that we need positive publicity and to tell good stories. That’s among the jobs of good trade associations. I’ve occasionally run afoul of trade associations because I don’t always toe that line. Maybe I’m doing it again right now. I was almost disappointed not to be on Bob’s list of people who don’t always “…write good stuff.”
So I was surprised when Bob went after Tiffany Montgomery of Shop, Eat, Surf during his speech for publishing former Quik CEO Andy Mooney’s severance arrangements. I was surprised first because Shop, Eat, Surf has been overwhelmingly positive in its reporting. Perhaps Bob was caught a bit off guard when suddenly she wrote something that wasn’t.
More importantly, what Tiffany wrote about was public information available in an SEC filing. When you go public, you give up a certain expectation of privacy. A better way to put that is that you have an obligation to disclose.
What is the role of “core” accounts? We all (including me) take almost as an article of faith that they are important. Hell, I love going into a good core retailer and seeing what they are doing. But what does being “important” mean exactly? And to what market? Isn’t there a place for a serious and detailed conversation around that issue? Bob calls on SIMA to do some quality research and this is certainly a place they might start.
Time after time, I’ve seen companies exhibiting a behavior I characterize as denial and perseverance during a period of change. The result is an attempt to fix the problem by doing “more of the same.” It rarely works.
Bob highlights most of the issues the industry faces. In broad brush, I found myself agreeing with the business issues he identified, though not with his interpretation. To be fair, he didn’t have much time, was speaking as the Chairmanof a public company, and doesn’t necessarily want to highlight for his competitors any creative, original thinking on specific issues that he thinks might give Quiksilver an edge. Maybe surf companies are friendly competitors but as Bob points out, they are competitors.
The insidious problem is that we may have the same questions around pricing, product, and distribution but the environment in which we have to address them is completely different from anything we’ve ever operated in before and changing fast.
Let’s not start by identifying, for example, “We need higher prices” as the problem. Let’s ask, rather, what kinds of product commands higher products and why (Bob focused on luxury goods). Don’t start with the platitude “Core shops are important.” Ask how their role has changed.
We might be surprised at just how creative we can be.