Quiksilver’s July 31st Quarter: Sales Down, But Profits Up and Balance Sheet Stronger

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Quik is the poster child of a company that’s done what it needed to do following the twin blows of the Rossignol acquisition and the recession. As somebody who’s done a bit of turnaround work, I can tell you it’s no fun, for either management or employees, to be dealing with negative stuff month after month. Quik maybe has a little more work it wants to do on its balance sheet, but it’s largely out from under the reverberations of that deal though, like all of us, not of the recession.

I still have the same question for Quik (and for other brands) that I had before; how do you grow sales? You can’t improve profitability by controlling expenses and improving gross margin forever. I imagine the new Quik women’s brand and DC’s efforts in racing will be part of the answer. They note in the conference call that 95% of Roxy’s customer base doesn’t know that Roxy is related to Quik. Partly as a result of that, they believe there’s room for a Quiksilver Girls brand. It will debut in spring, 2011 and be directed at the 18 to 24 year old market.

While we wait for that to happen, I’d like to start with the balance sheet and discuss the improvement there.
 
Deleveraging
 
Quik raised some rather expensive money from Rhone Capital as you call, and refinanced its bank lines pushing out the maturities. When you look at this year’s July 31 balance sheet and compare it to last year’s at the same date you can see the impact of those actions and of their control of expenses. Trade receivables are down by 19.6%, and average days receivables are outstanding is down by 6 days, which is good for cash flow. Inventories fell by 19% from a year ago to $271 million.   
 
Current liabilities have fallen by 41%, from $658 million to $390 million.  I’d particularly point to the decline in the line of credit outstanding from $221 million to $25 million. The amount of debt that Quik had was an issue, but also important was that way too much of it was coming due in the short term at the same time.
 
 Long term debt is up by around $25 million to $759 million, but total liabilities fell from $1.43 to $1.19 million. The current ratio has improved from 1.65 to 2.26 as has total liabilities to equity from 3.21 to 2.45. I imagine they’d like to reduce that further.
 
Actually, they have. After the quarter ended, they did a debt for equity swap with Rhone Capital that reduced their debt by an additional $140 million in exchange for 31.1 million shares of stock at $4.50 a share. I’m oversimplifying a bit, but if I take the July 31 balance sheet, reduce long term debt by $140 million and increase equity by a similar amount, the total liabilities to equity ratio falls further to 1.68. As a result of this exchange, Quik will have a “non-recurring, non-cash and non-operating” charge in the quarter ending October 31 to write off some costs associated with issuing the debt. 
 
I’m not the only one who sees this as a lot of progress. On August 27th, Quik was able to amend its North American credit agreement with an interest rate reduced to Libor plus 2.5% to 3%. Before the margin over Libor was 4% to 4.5%. Libor stands for London Interbank Offer Rate. The interest savings will be substantial. Wonder if they’ll be able to do the same thing with any of their other bank lines.
Net cash provided by operations rose from $150 million to $193 million. Increasing cash generation from operations is always a good thing.
 
Income Statement
 
Quik’s bottom line for the quarter was a profit of $8.3 million compared to a profit of $1.3 million in the same quarter the prior year. For nine months, it had a profit of $12.4 million compared to a loss of $190.3 million for nine months the previous year. Of that loss, $132.8 million was from discontinued operations- Rossignol. They had a profit from continuing operations for the nine months of $13.9 million compared to a loss of $56.5 million the previous year. For the quarter, the continuing operations profit was $8.4 million compared to $3.4 million the prior year.
 
Reported revenues for the quarter were down 12% from $501 to $441 million. Gross profit fell 1.55% in dollars to $230.7 million, but the gross profit percentage rose to 52.3% from 46.7% in the same quarter the prior year. The gross margin improvement worldwide was largely the result of less discounting and some improvements in sourcing. Quik CFO Joe Scirocco clarified this by saying that “…the vast majority of it [margin improvement] is in fact, a better mix of sales because we have cleaned inventory so well.”
 
In a related comment he noted that “…a lot of the contraction that we’re seeing this year in volume is intentional. It is done as part of our plan to clean up distribution, to get better, higher quality sales and it is coming through very strongly in the gross margin.” I’m guessing that cleaning up distribution and higher quality sales refers to some extent to only selling to accounts who are likely to continue in business and be able to pay you; a good idea.
 
You know what would be really interesting? If they would break out the wholesale gross profit margin from the retail. That way, we could look at the two segment’s performance individually. And it might make for some easier (and probably interesting) comparisons with other brands and retailers.
 
Sales, general and administrative expenses fell by 8.8% to $193 million, but rose as a percentage of sales from 4.2% to 4.4%. There was a noncash asset impairment charge of $3.2 million this quarter related to the Fiscal 2009 Cost Reduction Plan.
Interest expense rose from $15.3 to $20.6 million. The foreign exchange loss was $213,000 compared to $3.5 million last year and the income tax provision rose a bunch from $396,000 $5.1 million.
 
That’s a lot of movement in various stuff. Before all the charged that followed the impairment charge, operating income was up 52% from $22.6 to $33.5 million for the quarter and from $53.5 million to $89.2 million for nine months. Sales fell 6.7% for the nine months.
That’s the summary. Let’s dig in a little.
 
As reported on the financial statements, sales in Quik’s three segments (Americas, Europe and Asia/Pacific) fell by 9%, 20%, and 1% respectively during the quarter. Sales in each of the segments were $234 million, $152 million, and $55 million respectively. In constant currency, the Americas drop stays the same, but the European decline becomes 11% and the Asia/Pacific decline increases to 11%. Overall, the constant currency decline was 10%.
 
The gross profit margin (as reported) in the Americas segment rose from 37.7% to 46.7%. It provided $109.6 million or 47% of total gross profit for the quarter. Europe’s gross profit margin rose from 57.7% to 60.6%. It provided 40% of gross profit for the quarter. The remaining 3% of gross profit dollars came from Asia/Pacific, where gross margin percent fell from 53.7% to 52.7%.
Operating income in the Americas jumped from $4.5 million to $27.7 million. Europe’s fell from $25 million to $15.6 million and Asia/Pacific went from a profit of $2.33 million to a loss of $1.63 million.
 
The revenue decrease in the Americas segment “…was primarily attributable to generally weak economic conditions affecting both our retail and wholesale channels, with particular softness in the junior’s market. The decrease in the Americas came primarily from Roxy…and, to a lesser extent, DC. The decrease in Roxy…came primarily from our apparel product line, but was partially offset by growth in our accessories product line. The decrease in DC…came primarily from our apparel and footwear product lines and, to a lesser extent, our accessories product line. Quiksilver brand revenues remained essentially flat…”
 
“The currency adjusted revenue decrease in Europe was primarily the result of a decline in our Roxy and Quiksilver brand revenues and, to a lesser extent, a decline in our DC brand revenues.”
 
On the retail side, they note that “…retail store comps in the US were again modestly positive overall in Q3.” They saw “…strong in-store gains in the Quiksilver and DC brands…” In Europe, “…retail comps were down in the mid single digits on a percentage basis for the quarter…” Quik has opened 12 new stores in Europe over the last year, but they’ve also closed 12 so the net number has not changed. Twelve underperforming retail stores have been closed in the U.S. since the end of the third quarter of 2009. Two were closed in the quarter just ended.
 
The Future
 
Quik expects fourth quarter revenues to be down 15% after taking into account a weaker translation rate for the Euro and demand softness in Asia/Pacific. Remember that Billabong said its Australian forward orders were down 20%, and they expect a similar decline in sales. Quik isn’t immune to the late arriving economic downturn in Australia.
 
They expect to be able to deliver gross profit margins in the fourth quarter that are 4% to 4.5% higher than in the fourth quarter last year. Remember, that’s not 4% higher than this quarter I’m writing about now, but 4% higher than the same quarter last year. Pro forma operating expenses are expected to be “as much as” 7% lower than in the fourth quarter last year. Wish they’d tell us what they expect to report instead of giving the pro forma number.
 
Diluted earnings per share are expected to be “…in the mid single digit range…” At this time, they aren’t providing any guidance on fiscal 2011.
 
Joe Scirocco has the following really interesting comment that shows their focus on retail and ecommerce; not unlike some other major brands. “Well, I think the key to operating leverage frankly is getting higher sales through the retail channel – through our own retail stores. And those areas of the business in which we have a fixed cost infrastructure. So, it is basically retail stores and eCommerce are going to be the two areas at which we can most drive leverage.”
 
Quik has great brands and has largely finished deleveraging their balance sheet. They’ve taken out a lot of costs and improved their operating efficiency. But sales (especially the wholesale portion) are down. Partly, this is due to their focus on cleaning up distribution as described above. But it’s also due to lower demand and caution in who they sell to. The positive result is the big improvement in gross margin.
 
But lacking an improvement in the economy and in banks’ willingness to lend, a lot of that lost distribution isn’t coming back. Certainly new, innovative products can generate some additional sales, but I’d expect most of their growth will have to come from retail (brick and mortar and ecommerce) and new initiatives like Quik Girls.
 
It’s not just Quiksilver that approach will apply to, and there are interesting implications for competitive strategy in our industry. Maybe that’s worth a Market Watch column.

 

 

Quik’s Quarter Ended April 30, 2010- Sales Down, Profits Up.

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As usual, we’re dealing with the numbers in the June 3 press release and the comments in the conference call rather than the actual quarterly filing with the Security and Exchange Commission that’s full of details. That just drives me crazy, and I want to explain why and what I think the result is in this case.

Quik’s press release headlines the 5% decline in revenue, the increase in pro-forma income from continuing operations from $0.05 to $0.11 cents per share, and the growth in income from continuing operations from four to six center per share.
 
So I read that and thought to myself, “Wow, pretty good pro-forma and continuing operations results. I wonder how much they earned.”
 
You know- earned. Like bottom line. Net profit after taxes. Income. The generally accepted accounting principles earnings number. The number that most people, including me, think has the most to do with stock performance over the long term.
 
I read the rest of the press release text. It’s not there. I listen to the whole conference call. Nope- nobody mentions it there either.   “Must really suck,” I think to myself.
 
It doesn’t sucks. But you have to look to the bottom of the Consolidated Statement of Operations in the press release to find it. And here it is. Net income attributable to Quiksilver, Inc. rose 235% from $2.813 million in the quarter ended April 30, 2009 to $9.424 million. It’s only 2.0% of sales, but it’s up from 0.57% of sales in the same quarter last year.
 
I know that EBITDA, proforma income, one-time items like Kelly Slater’s stock grants ($5.2 million), exchange rates, non cash charges, gains and losses on sales of assets, restructuring charges and the impact of discontinued operations all offer additional information and perspective. But when the “GAAP to Pro-Forma Reconciliation” table is a page long and the “Adjusted EBITDA and Pro-Forma Adjusted EBITDA Reconciliation” table (including a half page “Definition of Adjusted EBITDA” which even I couldn’t stand to read) is another page in a ten page press release, then I have to believe we might be missing the proverbial forest for the trees.
 
Especially when it’s mostly good news, as we’ll discuss below.
 
Press releases, unlike SEC filings, are a chance to put your best foot forward, and certainly I would want to do that. And there are certain legal requirements for what and how you say things. But sometimes these things feel like the priests exploring the mysteries of the temple in a language many of the parishioners can’t understand. To the extent that it’s aimed at Wall Street, the analysts and institutional investors, maybe that’s the way they want it and maybe it’s even appropriate. But when I see media outlets reporting this by basically parroting back what Quik says in the press release (because, I’m afraid, they don’t understand the details and implications themselves) I think there must be a better way.
 
Here’s the link to the whole press release including the financial statements if you want to take a closer look.  www.quiksilverinc.com/pr/0610/ZQK_Q2FY10_earnings_press_release_3jun10_Final.pdf

Sales fell 5.2% from $494.2 million in the quarter ended April 30, 2009 to $468.3 million in the April 30, 2010 quarter. The Americas segment represents 43% of total revenue and, at $200 million, was down 13.2%. Europe, at $209 million was down 1% and Asia/Pacific was up 12.1% to $58.6 million.  In constant currencies (ignoring exchange rate movement), Europe revenues were down 5% and Asia/Pacific down 17%.
 
My last quarterly analysis for Quik was called, “Great Tactics- What’s the Growth Strategy?” Guess I could have used that title again. The conference call talked again, without offering any specifics (which you wouldn’t expect), about great product and technology, and good reception for its product. But it noted that DC and Quik were flat while Roxy was down for the quarter. The juniors market, they said, continues to be a challenge for branded girls surf apparel. Roxy is about a $550 million business.
 
Part of the sales decline was due to their explicit decision to control inventory and we’ll see the positive results below.  But the question I thought screams to be asked at the conference call, but which is never asked (no priest wants to be excommunicated) is, “You’re doing a great job controlling expenses, reducing inventory, paying off debt, collecting your receivables better and sourcing and it’s dramatically improved your profitability. But expenses can’t go to zero and product will never be purchased for free. You may get some more improvements in these areas, but eventually, you’re going to have to grow sales to grow earnings. How and where do you see that happening?”
 
Quik has given a partial answer. They said they are very well positioned to take advantage of an improvement in the economy and a pickup in consumer spending.  I agree that they (and lots of other companies) are, but that improvement is out of our control. Quik also noted that they were upping their inventory purchases where they were confident there were additional sales opportunities.
 
Quik’s inventory fell by 26% from $308 in this quarter to $226 million in the same quarter the previous year. You see the impact of this in their gross margin percentage, which rose from 47.2% to 53.2%, a 12.7% improvement. Quik reported lower levels of discounting and clearance sales then they had expected across the whole company. Selling, general and administrative expense actually rose from $203 to $213 million, and from 40.9% to 45.5% of sales, but in spite of that operating income was up 17.4% from $30.5 to $35.9 million. Improving that gross margin is a powerful thing.
 
Interest expense, as expected due to last year’s new financing, was up compared to the same quarter last year from $13.5 to $21 million ($7 million was noncash). Instead of a $1.926 million foreign exchange loss, they reported a $4.614 million gain. The tax provision didn’t change much, and you already know what the bottom line was.
 
Over on the balance sheet, you can see a lot of improvement in addition to the inventory numbers already discussed. Overall, their total liabilities to equity fell from 3.44 times to 2.36 times, a big improvement. And current ratio (a measure of short term liquidity) doubled from 1.42 to 2.86 at least partly because of the restructuring that happened last year. Receivables were down 19% as reported (21% in constant currency) and the number of days it took them to collect those receivables fell from 70 to 60 days. The increase in the reserve for doubtful accounts from $36.7 to $52.2 million had something to do with that.
 
Accounts payable were down 19%. The line of credit outstanding fell from $224 million to $15 million and current portion of long term debt was down from $226 million to $45 million. Some of this was just transferring current liabilities to long term liabilities, but total liabilities were down $201 million reflecting debt repayment and good cash management.
 
Some years ago, I started telling people that a focus on gross margin dollars was a good idea. Two to three years ago, I began to suggest we needed to plan for lower sales increases and operate better to grow those gross margin dollars. I would guess that Quik’s management would agree with me. They are doing great work in balance sheet improvement. But the sales decline is troubling- especially if you look at the European and Asia/Pacific sales numbers in constant currency and consider the economic prognosis for those areas. Let’s hope their product development efforts support some sales increases in the near future.
 
The Press Release I Would Have Written    
“Quiksilver’s net income for the quarter ended April 30, 2010 rose 235% to $9.4 million compared to $2.8 million in the same quarter the previous year. This was achieved in conjunction with a 5.3% decline in net revenue that was accompanied by an increase in gross margin percentage from 47.2% to 53.2% and a managed reduction in total inventories of 26.4% from $308 million to $226 million. A $200 million reduction in total liabilities resulted in a total liabilities to equity ratio that improved from 3.44 to 2.36 times over the year. Receivables were reduced by 19% and were collected an average of 10 days faster than in the same quarter last year. The company is very well positioned to benefit from a continuing recovery in consumer spending.”
 
They can and should go ahead and here and add all the other stuff. It’s important for a complete understanding. But couldn’t they start with a short, simple, fairly easy to understand paragraph that doesn’t take the temple priests to interpret and tells everybody the good news?      

 

 

Quik’s Quarter Ended Jan. 31, 2010; Great Tactics- What’s the Growth Strategy?

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A sales decline of 2.4% for the quarter ended Jan. 31, 2010 compared to the same quarter the prior year, from $443.7 to $432.7 million isn’t what you’d like to see.  Then you notice that their gross margin percentage rose from 46.7% to 51.3% and that their gross profit was up by 7.2% even with the sales decline and things look better.  Quik attributes this to a better economic environment, improved sourcing, reduced discounting and good inventory management.

 A year ago, on Jan. 31 2009, their inventory was $380.5 million.  At January 31st this year, it was down to $301.2 million, a decline of almost 21%.  Very impressive.  They have also reduced their receivables by 13.5% over the year and days sales outstanding (how long it takes them to collect their receivables) fell from 72 to 64 days.  Cash is up from $42 to $150 million.  Their current ratio has improved over the year from 1.63 to 2.24, indicative of the capital raised and the restructuring of their bank lines to improve liquidity.  Their total debt to equity has also improved from 3.81 to 2.91, also largely due to the equity raised.

But their long term debt and lines of credit still total $977 million.  While that’s down from $1.013 billion a year ago, it’s still a lot and they’ll have to work to reduce it if they want to improve their operating flexibility and maybe refinance their expensive (15% plus warrants) debt that they got from Rhone capital.  They expect to reduce that debt by about $100 million a year over the next three years.  In the conference call, they increased their estimate of free cash flow from $50 million to $75 million for the year.

I don’t typically lead with a balance sheet discussion, but it’s so pivotal to Quik’s future that it seemed to make sense.  Back to the income statement.

Selling, general and administrative expenses fell 1.8% to $203 million.  They expect their marketing expenses to be around $100 million in the current fiscal year, down from $120 million last year.  Operating income grew from $345,000 to $19 million.

Interest expense, to nobody’s surprise, was up from $14 to $21 million.  They expect total interest expense this year to be around $92 million $26 million of which, Quik reminds us, is noncash.  The loss from continuing operations was $65.2 million in this quarter last year, compared to $4.6 million this year.  The net loss fell from $194.4 million last year ($128 million of that was Rossignol related) to $5.4 million in the quarter ended January 31, 2010.

During the quarter, sales decreased by 8% in the Americas.  They fell by 2% in Europe and rose 16% in Asia/Pacific.  In constant currency terms they were down 12% in Europe and 15% in Asia/Pacific.  That translates into a decline in sales overall in constant currency terms of 11%.  As reported (that is, ignoring currency fluctuation), revenues were $187 million in the Americas, $178 million in Europe, and $67 million in Asia/Pacific.

They commented that the juniors market was difficult.  The Americas decrease was in Roxy and Quiksilver, offset by an increase in DC.  However, they note that increase “was partially related to the timing of shipments,” which means some of the increase was not organic growth, and will reduce next quarter’s sales.  In constant currency in Europe, the story was about the same, with declines in Roxy and Quiksilver offset by some growth in DC.

As with any company, there’s a limit to how much improvement you can see from inventory management, expense control, and sourcing improvements.  There is, I suppose, always room to do better, and I’ve been urging companies for maybe two years now to focus on gross profit dollars.  But at some point, to improve profits, you have to sell more.  What Bob McKnight said in the conference call was that Quik is “… in a prime position to benefit from future improvements in the world’s economies and in particular in consumer spending.”

I believe that, but what I also hear him saying is that they really need that improvement to get growth and profitability back on track.  For the second quarter, they expect to “…generate earnings per share on a diluted basis in the low single digit range.”  CFO Joe Scirocco believes they can still achieve the full year revenue objectives they outlined last quarter (he didn’t say profit projections), “…although some definite challenges remain, including a challenging juniors market, foreign currency headwinds, and uncertainty at retail.”

We didn’t get (and probably shouldn’t expect in a conference call) a lot of specificity as to where growth can come from.  CEO McKnight highlighted the core shop strategy that has been rolled out for all three brands where they have developed and are selling product only in their own stores and the best independent retailers.  I think that’s a great, and necessary, thing for them to do.  As I’ve argued before, however, I’m not sure that will be the source of enough additional revenue to make a big financial difference.  Hope to be wrong about that.

So I’m impressed by the steps Quik has taken to improve their liquidity, control expenses, manage their inventory and restructure their businesses for improved efficiency.  The last step will be reducing their leverage.  That’s just going to take some time and some cash flow.

The source of their future revenue growth (which they need if only because of their increased interest expense) is not clear to me.  I’ve said that a couple of times before in comments on their filings and it’s still true.  Like all of us, they are dependent on and hoping for a recovery in consumer spending.  They’ll get- are getting- some.  Like all of us, it won’t be as much as we’d like or have gotten use to.  But what they really need are some new places to sell their products.  At least in the U.S., I don’t know where else they can go with their distribution.  Maybe there are some opportunities in the rest of the world.

 

 

Quiksilver’s Annual Report

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In the middle of December, when Quik came out with its quarterly and fiscal year results and held aconference call, I pretty much ignored it.  I glanced at the release and read the conference call transcript, but I had no idea how to evaluate the results of a company that was highly leveraged without a complete balance sheet and the associated notes even though they included some summary balance sheet information in the release.

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Quiksilver’s Quarter and Nine Months Ended July 31, 2009

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I’ve read the press release and listened to the conference call, and here’s what I found out.

Quik’s total revenue for the quarter fell 11.2% to $501.4 million from $569.9 million for the same quarter the previous year. Their gross profit margin fell from 50.4% to 46.7%. Selling, general and administrative expense was down 9.1% to $211.8 million. Interest expense rose 30% to $15.3 million. Instead of a foreign currency gain of $1.2 million, they had a loss of $3.5 million.

After taxes, they had income from continuing operations of $3.4 million compared to $33.1 million in the same quarter the previous year. Those numbers exclude Rossignol.
 
The loss from discontinued operations (Rossignol) was $2.1 million this quarter compared with $30.2 million last year. Net income this quarter was $1.35 million compared to $2.85 million last year. That’s $0.01 per share compared to $0.02 last year. Income per share from continuing operations was $0.03 compared to $0.26 in the same quarter last year.
 
The numbers for the nine months ended July 31 show a decline in revenue of 13.2% to $1.44 billion compared to the nine months the previous year. Gross profit margin fell from 50.0% to 46.9%. There was a net loss from continuing operations of $57.5 million compared to a profit of $79.4 million for nine months the previous year. Net income, including the impact of Rossignol, was a loss of $190.3 million this year and $225.3 million last year for nine months.
 
We learned in the conference call that footwear sales have finally softened, and that weakness in the junior’s market is having some impact on Roxy. They are in the process of implementing structural changes and expense reductions that should improve profitability by $40 to $60 million over a full year once implemented. About half of this amount will come from margin improvement, and the restructuring has been extended to include DC Shoes once it was clear that the brand was not going to be sold.
 
They are using what Chairman and CEO Bob McKnight characterized as “More measured and creative approaches to marketing and advertising.” He cited as an example a reduction of 75% in trade show expense achieved by utilizing buses outfitted as booths that are driven into the show and then surrounded by pop up tents. I like it and look forward to seeing it.
      
Over on the balance sheet, total assets fell from $2.34 billion at July 31, 2008 to $1.88 billion at July 31, 2009. That includes a $67 million reduction in trade receivables and a $25 million decline in inventory, both of which you’d expect as part of managing through a recession. Most of the reduction came from current assets held for sale falling from $358 million to $2 million with the sale of Rossignol. There was also a decline of $96 million in goodwill.
 
Total liabilities fell $204 million to $1.435 billion. This was almost exclusively due to the reduction in current liabilities. Long term debt fell only $10 million to $734 million. That’s not a surprise as the debt restructuring Quik has been working on (the last piece will close this month) was meant to spread out maturities, not reduce debt. 
 
The current ratio, at 1.65 has declined only marginally from 1.71 last year. Total liabilities to equity has grown from 2.34 times to 3.26 times, largely as a result of stockholders’ equity falling from $700 million to $441 million. To me, this highlights the fact that Quik still has some work to do in improving its balance sheet, but with Rossignol and the restructuring behind them, they can do it by running their business well. 
 
Quik expects its fourth quarter revenues to be down in the mid teens on a percentage basis compared to the same quarter a year ago. It anticipates a loss per share, on a fully diluted basis, in the mid-single digit range. Earnings will be impacted by the higher interest expense they will incur as a result of the restructuring. They reduced their projection of that expense by $10 million to $100 million and pointed out that $30 million is non cash. Interest expense in their last complete fiscal year was $45 million. They expect interest expense of $21 million in the fourth quarter, and further gross margin contraction of 150 basis points (1.5%) 
     
Quik’s profitability improvement plan should just about make up for their increased interest expense. After all this good work in restructuring and managing expenses, the question is where do sales increases come from? In that regard they have the same issue as every other brand; “The company indicated that longer term visibility into revenues and earnings remains limited due to global economic conditions.” 

 

 

Boardshorts from a Vending Machine

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If you read this http://www.nbcnewyork.com/blogs/the-thread/Swimsuit-Vending-Machines-to-be-Stocked-in-Hotel-52089002.html you’ll see that Quik has partnered with Standard Hotels to sell cobranded swim suits at boutiques and poolside vending machines for $75 a pair.

I’m not writing this to express an opinion (though I’m usually not loathe to do that) but just to let you know it’s happening and to talk about the general implications.

Just when you think there are no new distribution channels, up pops another one. I don’t know where the next one will come from, but I know it will appear. Is it at the expense of some other distribution channel? Sure. To some extent. But might it also create some new customers? Sure. To some extent.
 
Sales at resorts or hotel shops and pools are often to people who need something they need right now. I’d say you fit into that category if you want to swim and don’t have a suit.
 
Every time you choose a new way to distribute your product- each time it can be found somewhere different-, you change your customer base and the market’s perception of your brand. To some extent. Can you manage that so you get more customers than you lose? How many different distribution channels, partners, products and price tiers can you have before your brand evolves from what it started as to what it needs to be to attract those new customers you need for growth? Can you keep the old customers? To some extent. Figuring this kind of stuff out is what the best executives do.
 
I lied. I do have an opinion. I might not go as far as the writer of the linked article and say its “brilliant,” but I think it’s a good idea which might grow and is consistent with how Quik has evolved their brand. Even if it grows, it doesn’t feel like it will have much downside for other parts of their distribution. I imagine there are some specialty retailers already shell shocked by the recession and distribution issues that might disagree. But Quik, like all brands and all retailers, has to do what it perceives to be in its own best interest. I think they made a good decision.