Wherever You Go, There You’ll Be. I Can’t Think of a Subtitle

It’s 2002 and I think the five biggest snowboard companies, in alphabetical order, are Burton, Gen X, K2, Rossignol, and Salomon.

Gen X is owned by Huffy and Salomon is part of Adidas, so maybe I should change the alphabetical listing. But the point, and I hope this helps me think of a subtitle, is that through normal industry evolution we’ve arrived at a place where the companies that have the biggest impact on snowboarding aren’t just about snowboarding anymore. Increasingly, they have other products and product lines to consider as they build business plans and allocate resources.
Let’s look at just how wide spread this is, and then think about who it might be good and bad for in the continuing saga of snowboarding.
Who Does What?
Continuing with the alphabetical order thing, Burton is and I expect will continue to be the closest thing to a snowboard company among the five contestants. But Gravis shoes, and the delayed but imminent launch of the Korda street wear line, means that even Burton isn’t only about snowboarding anymore. Assuming you’re concerned about return on investment, and margins and growth opportunities are perceived to be better in street wear than in snowboarding, where would you choose to invest?
I can imagine the conversation, because I’ve been in it in other companies. There’s the marketing guys going, “We’re about snowboarding. No need to discuss it further.” Then growth slows and some troublesome financial guy says, “Well, okay, but there’s not much room for us to grow in snowboarding, and the margins aren’t as good as they use to be, but over in this street wear/shoe part of the world they are and we could grow and, you know, we’ve got certain financial obligations and there’s a limit to just how far we can push snowboarding distribution and we could utilize our distribution strength and leverage our overhead….”
I’ve oversimplified, and I don’t know the specifics of the process by which Burton chose to expand, but you can see the inevitable dynamic.
Burton at least started out as only, and is still mainly, a snowboard company. They’re the only one who can say that. Gen X, we know from public information, has revenues of around $150 million. Huffy, its new owner, is around $500 million including Gen X. Gen X sells, in addition to snowboards, golf, hockey and ski equipment. Not to mention scooters and whatever other sporting goods equipment they can work the distribution channels for.
In addition to Gen X’s products, Huffy sells bikes, basketball equipment, and retailer services that include in-store and in-home product assembly and repair and merchandising services. My estimate is that snowboard equipment makes up only around 10% of Huffy’s total sales.
Do you think Gen X senior management treats snowboarding as anything besides another product line that has to meet its business goals?
K2’s product line is pretty broad as well. It’s sporting goods products, of which it sold $445 million in its last complete fiscal year, includes skis, snowboards and accessories, in-line skates, fishing rods, reels and kits, active water sport outdoor products, bikes and backpacks.
Sales of other recreational products of $39.8 million in 2001 included imprinted corporate casual clothing under the Hilton brand, skate and snowboard apparel under the Planet Earth name, and Adio and Hawk skateboard shoes.  Sales of industrial products were $110.5 million in 2001 and included monofilament line, light poles and radio antennas under the Shakespeare brand.
They don’t show dollar sales by product or brand, but do you think K2 senior management treats snowboarding as anything besides another product line that has to meet its business goals?
In the year ended May 14, 2002, Rossignol had consolidated sales of 473.1 million Euros. These days, a Euro is more or less one US dollar. Of that total 50.1 million was from snowboarding, down 11.3% from the previous year. Alpine skiing, at 288 million Euros is the dominant activity. They also did 94 million Euros in golf and 25 million in textiles. Golf revenues grew 17.7% during the year and textiles 29.6%. Assuming equivalent gross margins do you think Rossignol senior management would prefer to invest in a business that’s shrinking, or one that’s growing?
You can probably see where I’m going with this, but just to make it complete, let’s finish going through the list.
Adidas-Salomon did 6.1 billion Euros in sales during its last complete fiscal year. Of that total, 79% was represented by Adidas and 9% was Taylor Made. The remaining 12% was Salomon. Of that 12%, or 730 million Euros, 8% was from snowboarding. That’s about 58 million Euros, or 1% of Adidas-Taylor-Salomon consolidated revenues.
Alpine ski products represented about 49% of Salomon’s revenues. Outdoor footwear is 14%. Skating products are 9% and cycling, 8%- the same as snowboarding.
You probably know that I have the same question here I’ve had about the other companies. As snowboarding represents less of a percentage of total revenues, and if margins and growth opportunities are perceived to be less than in other product groups, especially where it’s a very small piece of the total, what’s the incentive to invest and support it if you can’t see the best return on investment? At least, that’s the financial argument.
And if I were running any of these large, multi-product companies, I imagine I’d be making that argument too even if I didn’t completely like it.
Ying and Yang
Good news or bad news, or both? Certainly, you’ve got to run a business like a business. If there’s no money made, you won’t be around to fight another day. On the other hand, it’s passion and commitment that got snowboarding going and if it isn’t quite as important in keeping it going, it’s certainly critical in keeping it growing. Hopefully, there’s room for some long term perspective even when you’re worried about quarterly performance.
The winners in this corporate dilution of the snowboarding ethos are, in the first place, snowboarders. Okay, maybe there’s not quite as much hype and excitement in the air, but they can sure get a better product for less money than they use to be able to. We owe that to some of these large “corporate” snowboard companies who, in the process of competing and trying to take over the market, had to figure out how to be efficient and make product that worked. God knows it’s easier and cheaper to become a snowboarder than it use to be. You don’t even have to sneak onto the mountain any more.
Second, as I discussed in my last Market Watch, the new and existing smaller companies are winners. Almost by definition, the larger corporations abandon a chunk of the market to them. As long as they don’t harbor illusions of becoming like the big guys, and there is a significant minority of committed snowboarders who still see snowboarding as something more than a sport, there’s a market for them that the big guys mostly can’t hope to capture. And in the process, these small players might be able to keep the vibe going, to use a phrase that passed out of popular usage some time ago.
The losers? If there is one, I guess it’s kind of the snowboard industry, or maybe I mean the snowboard culture. With the diffusion of snowboarding I’ve described above, we’ve lost “good” competitors (Eureka! That the subtitle. “Where are the Good Competitors?) “Good” isn’t a moral judgment. A good competitor is a company that challenges your company not to be satisfied with the status quo while, at the same time, you are able to operate in a stable and profitable equilibrium without mutually destructive warfare. When these circumstances exist, there’s enough success and cash flow to go around so that the industry can be supported and nurtured. Okay, maybe the consumer doesn’t get the cheapest deck that can possibly be made, but snowboarding is more likely to be something people want to be part of and don’t just see as another activity.
We lose a lot of that to the extent that snowboarding becomes “just another product line.”   To those of you who are fighting that trend, thanks.