Market Watch Column | Jeff Harbaugh & Associates

Quiksilver’s Decision to License Children’s Apparel

December 5, 2013/33 Comments/in Distribution, Quiksilver/by jeff

On November 26, when Quik announced that LF USA (a subsidiary of Hong Kong headquartered Li & Fung, a multinational consumer goods sourcing, logistics and distribution group) would “…design, manufacture and market children’s apparel bearing the Quiksilver and DC brand trademarks in the Americas…” I tried to ignore it. It was a short press release and, on the surface, consistent with Quik’s announced strategy of focusing “…our energies and resources on our core apparel business and significantly reduce product styles and SKUs in our supply chain,” as CEO Andy Mooney put it in the press release.

Then one of my readers inconveniently messed with my comfortable mind set and asked, more or less, “Hey Jeff, if kids aren’t part of Quik’s core business, what is?” I thought that was a good enough question to require some discussion.

I’ve talked before about brands aging out. That is, the customers who grew up with them (and with whom the brand grew up) get older and decidedly less cool. The brand may retain those customers. They may even sell them new products.

I’d like to pause for a moment and tell you just how hard it is to move on here without stopping to have some fun imagining what those products might be. Send me your ideas. I’ll put them on my web site (anonymously of course).

But the future of a business can’t be only with those existing customers because they are going to start buying less and eventually buy nothing at all. New demographic groups have to discover the brand as they grow up and, with luck, make it their own.

Quik’s management team knows that kids matter. My reader is implying that Quik is somehow making a mistake by licensing the kid products because of its critical importance to the company’s future. Maybe, but maybe not.

Let’s recall that Quiksilver has been losing money. They’re working hard to turn that around by reducing expenses, improving operational efficiency, and focusing their limited resources where they think they can get the most bang for the buck. Remember in recent years they’ve tried selling bathing suits in vending machines at resorts, board shorts with NFL logos, etc. I sense perhaps they’ve learned a lesson.

A royalty revenue stream, no operating expenses and, as CEO Mooney points out, fewer SKUs, may be the right way to go operationally and financially given their resource constraints. I’m guessing this is as much a financial as a marketing decision.

More important is what’s in the license agreement and how LF USA will handle this. We know nothing about that. What products, exactly, will they sell? Through what distribution in what quantities? At what prices? How will product quality be? Does Quik have any input into design or any of these other issues?

The devil is always in the details in any licensing agreement I’ve seen. Obviously, poorly made products only tangentially related to Quiksilver’s market showing up in schlocky distribution would bad no matter how much royalty income it generated. Quik knows this and I am sure it’s managed in the agreement.

Do I wish Quik was doing and completely controlling its own kid’s products? Sure. They probably wish that too. Do they recognize the importance of the kid’s market to their future? Of course. Is it a mistake to license the product? Not if they know they need to be in the kid’s market and don’t’ have the resources to do it the right way themselves.

The product will hit retail in 2014, and I guess we’ll start to find out then what kind of deal they made with LF USA.

Rip Curl Financial Results

November 5, 2013/0 Comments/in Market Watch Column/by jeff

Thanks to an alert from a reader, and a follow-up with a journalist who wrote about their results, I was able to come up with a copy of Rip Curl’s financial statements for the year ended June 30. There’s no discussion of operations or breakdown of what’s selling and where like we’d have if they were a public company. But I’ll take what I can get and I thought you’d be interested in their year over year improvement.

You may remember that the company was for sale earlier this year but was pulled from the market when management decided there was no prospect of getting an offer they considered acceptable.

The numbers, of course, are in Australian dollars.

Total revenue for the year fell 3.4% from $412.5 to $398.3 million. Revenue from the sale of goods was down 3.7% from $406.8 to $391.6 million. Some may ask how I can characterize that as part of an “improvement.” Obviously, it can’t go on forever or there will be no company left. But long term readers know that I think there are a lot of competitive and financial advantages in being focused on managing your distribution and generating operating margin dollars rather than just sales growth. To be clear, I’m not against sales growth, but it should not be your only engine of profit improvement.

Below is a table from their report that shows some of their expenses during the past two years ended June 30 (in thousands of Australian dollars). The first column is 2013 and the second 2012.

You can see that they reduced their employee, rental, and selling and marketing expenses in 2013 compared to 2012. They had to take a restructuring charge of $4.5 million last year to do it, but the result is an EBITDA that rose 42% from $26.2 to $37.2 million. Rip Curl’s pretax profit increased from $938,000 in 2012 to about $14 million in 2013.

Now, anybody can slash expenses and do better at the bottom line. For a while. I guess we won’t know until next year how this looks as a more cohesive strategy and whether there’s further pay off.

That’s partly because the restructuring is still going on. Of the $4.5 million provision they took in 2012, they used only $195,000 in that year. $2.7 million was utilized in 2013 and the rest is expected to be used in 2014 as they complete the restructuring. No further charges are anticipated. The restructuring costs were for “…employee termination benefits, exit costs in closing retail stores, write down of assets no longer required and consulting fees.” None paid to me unfortunately.

The balance sheet showed some improvement. The current ratio rose from 1.03 (way, way too low) to 1.93. There was a rise in cash from $10.7 to $14.9 million and a decline in receivables from $85.5 to $77.7 million, which you like to see when sales fall. Inventory went up just a bit from $85.4 to $86.7 million. Overall current assets were down about $3 million to $185 million.

The improvement in the current ratio is largely the result of some reclassification of debt. Loans and borrowings classified as current liabilities fell from $111.2 to $32.1 million. But non-current loans and borrowings rose from $3.2 to $32.1 million. So basically it looks like they pushed their payment schedule out, though total loans and borrowings did decline from $114.3 to $94.8 million.

Total liabilities fell by 12.9% from $198.8 to $173.2 million. The balance sheet improvement plus profit growth means that equity rose from $66.9 million to $86 million. Total debt to equity improved from 2.97 times to 2.01 times.

Rip Curl improved during the year, but it’s still a work in progress. We’ll see what happens next year. I’m getting tired of saying that about industry companies.

Market Evolution; Things to Think About from Quik CEO Mooney and My Spin on Them

October 8, 2013/31 Comments/in Quiksilver, Sales and Marketing/by jeff

I wrote about Quiksilver’s quarter maybe a month ago. In the conference call, CEO Andy Mooney had some really interesting things to say about how the market is changing. I set them aside to think about. I felt they were comments that were appropriate to a general discussion of market evolution, rather than the particulars of Quik’s situation, though obviously they apply there as well.

The first thing he says, talking about Europe, is that we’re seeing “…a transition from smaller independent operators to larger big-box formats.” He went on to explain that their management team in Europe saw the decline in the number of independent specialty retailers as normal during a down economy, and that they expected a recovery in their numbers as the economy improves.

But CEO Mooney doesn’t share that expectation. “I’m a little less optimistic than they are because of the impact of – largely of e-comm because I think e-comm in some ways is creating systemic pressure on those smaller independent retailers, which for us is actually somewhat of a blessing because it’s actually less expensive for us to service e-comm retailers – pure play e-comm retailers – than it is to service remote onesie, twosies sub-specialty shops, particularly ones that by definition are kind of undercapitalized, have problems paying their bills, et cetera, et cetera.”

He expects some rebound in the number of specialty shops, but not as much as in past cycles. I also think his analysis for Europe is relevant in much of the rest of the world as well and certainly in the U.S.

However, I don’t think pressure on specialty shops has come only from ecommerce, though certainly that’s a big issue. I’d remind you all of the (apparent) strength of the economy up to 2007 and of the length and depth of the (continuing) recession that followed. Because the good times were as good as we’ve ever seen them, a lot of independent specialty retailers opened that would probably never have gotten off the ground in less favorable economic conditions. That they’ve closed in historically bad economic times and won’t reopen unless things get fabulous again is hardly a surprise and isn’t only about the internet.

One analyst asks if he thinks the action sports market is shrinking globally. Mooney responds, “…It’s not necessarily a contracting market; it’s a transitioning market.” He talks about the impact of ecommerce again, and then goes on to discuss another piece of the transition.

“You’re seeing,” he says, “…fewer more professional players who are allocating their open-to-buy to fewer more professional brands…my viewpoint is that there will be consolidation both in the retail theater, but I think there’ll also be consolidation in the branded theater. It’s that the stronger, more professionally-run companies will continue to gain share in what has historically been a very fragmented industry…what occurs when you’re going through this type of phase is you’ll end up with 4 to 5 major players who will have significant footprints in the specialty channel, and we absolutely intend to be one of those players.”

I assume if he thought it was a contracting market and that Quik wasn’t capable of being one of those four or five major players, he wouldn’t have taken the job in the first place. And, of course, what else is he going to say?

Still, I find his answer incomplete as it ignores a couple of elephant in the room issues that impact all the larger brands in our industry.

First, as I’ve written, the real action sports market is a pretty small market and has always been a pretty small market. Right now, judging from the evidence I have in terms of participation, it is shrinking. So Quiksilver, and any other brand with its roots in action sports of any size, is already competing way outside of action sports in fashion, youth culture, urban or whatever we want to label it as.

The second is that I don’t know what he means by specialty channel. Can‘t believe some analyst didn’t ask that. My assumption is that it includes not just independent specialty shops, but chains up to and including Intersport, Zumiez, Journeys, Tilly’s, etc. It used to be so clear and now it’s not. Is Intersport really “specialty?” I am not sure PacSun is with its new positioning. Maybe it’s correct to say it’s specialty, but in a much broader market. How broad does a market have to get before retailers who serve it are no longer “specialty” retailers?

Andy doesn’t seem to be that concerned about the independent specialty retailers and I don’t entirely blame him from a strict operating and revenue point of view. But some of those shops would say, “Right back at you, Andy.” Quik’s brands are widely enough distributed that I’m not sure shops can really compete with them and certainly they won’t help differentiate shops.

But Quiksilver is certainly a surf based brand. Can you be a “surf based brand” and not be in core surf shops? Can DC not be in core skate shops? Maybe they need to have product in those channels even if they aren’t the fastest growing, most profitable, easiest to work with accounts in the world. It’s not, of course, that Quiksilver isn’t in those shops, but it doesn’t feel like an area of emphasis and it’s fewer than it used to be.

Meanwhile, even if a big action sports brand kills it in the specialty market up to and including the chains I’ve mentioned and their ilk, it’s not going to be enough- especially as a public company. Macy’s, Nordstrom’s, Dick’s, Sports Authority- you can’t decide not to be in them. You can only decide when, with what product, and try to make sure they present you well.

I think Quiksilver, Billabong, and Skullcandy, just to name three, would be much better off if they were private. They’d be able to be more discriminating in their distribution in ways that would benefit their brands and, as a result, I think they’d be more profitable.

From their public discussions, we already know that these three companies are taking steps to improve their operations and become more efficient. Good for them. I have no doubt it will improve their bottom lines. But that doesn’t impact brand positioning (unless it changes distribution?) and leads us to the next elephant in the room.

Who’s the customer? It wasn’t discussed in the conference call. Brands, we all know, have life cycles. As they grow and succeed, they resonate with a group of customers. If they are lucky enough to be around long enough – not an easy thing to accomplish – they age right along with that customer group. The customers’ lifestyle, shopping habits, priorities and lifestyle evolves. The company evolves with them.

As those customers shop differently, the brand distributes differently. I won’t bore you with specifics you already know, but distribution tends to become broader as brands age. And broader. And broader.

How do you accommodate those customers but be relevant and “cool” enough to attract new ones? Look at the winter resort business. They’ve built facilities and created experiences that appeal to their older, aging customers. But that customer group is only one who can afford that experience. Given the economy and existing resort cost/price structure, who do they replace current customers with as they age out?

When Andy Mooney says it’s “something of a blessing” that they don’t have to deal with so many small shops, I knows what he means. But if a brand doesn’t have product that those stores want to carry and can sell for margin, what does that say about its ability to attract new customers as the old ones “age out?” How, in short, do you follow your customers along their lifestyle curve while still attracting new ones?

CEO Mooney also talks about the product review the company is undergoing and how they are trying to focus on those products where they can differentiate and be a leader. We won’t see the results until 2014, which I’d say is about as fast as we could see the results. I’d expect that is part of their answer to my question.

At some level Vans is the poster child for a brand that seems to be accomplishing this transition. They’ve made their heritage a foundation of growth with new customer groups without, as far as I can tell, alienating the old ones.

It’s important to remember, however, that Vans didn’t manage that without some bumps in the road. They were a $400 million public company in trouble before they were acquired by VF in 2004.

Having the kind of success Vans is now having requires a steady hand, objectivity, and money. The “who’s the customer?” issue has to be addressed early and realistically before pressures from the inevitable market evolution lead to product and distribution decisions that compound the difficulty of making the required changes. This is particularly difficult in public companies, where the correct decisions don’t typically contribute to immediately improving quarterly results. This is why I’m such a fan of what Skullcandy is doing. I think they are doing the right things in spite of the short term impact on quarterly results.

Then there’s the whole ecommerce thing which is changing the playing field in ways we don’t understand yet. At least I don’t. I’ll just say here that I wonder if ecommerce accelerates the traditional brand life cycle- or, alternatively, maybe makes it irrelevant? Can it be that distribution will become less important, replaced by how you connect with your customers at all your touch points with them? Will it still matter if you’re in “specialty” distribution? We’ll all be finding out.

Finally, and still on the issue of who the customer is, Andy Mooney talked, as I noted above, about consolidation in the brands and ending up “with 4 to 5 major players who will have significant footprints in the specialty channel, and we absolutely intend to be one of those players.”

We’ve had a few conversations about consolidation over the years and the path he describes is certainly a familiar one. Snowboarding comes to mind when you think about consolidation. How’s that worked out as far as keeping customers and attracting new ones goes?

Operationally, I understand why CEO Mooney would expect the kind of consolidation he describes. But for me the strategic issue is how a company like Quiksilver, if it becomes one of four or five major players with broad and broadening distribution, positions its brands so that many of the specialty retailers want and need to carry them.

I don’t perceive that has been accomplished very often in the past. I hope in future conference calls (Not just Quiksilver’s) companies explain how they are going to do it with particular attention to who their customer is.

A Tale of Two Retailers

September 25, 2013/3 Comments/in Retail/by jeff

A recent trip to the East coast found me in a mid-sized, somewhat economically depressed city that’s undergoing quite a revival in its downtown core. I had the chance to walk the downtown with one of the people intimately involved in that development as he explained the vision and showed me the construction.

Part of what he does is talk with local retailers to explain to them what’s happening and how it impacts them. One of those retailers has what I’ll characterize as an urban clothing store, and I got a chance to meet and talk with him. He’s doing a major upgrade in expectation of the impact of the development.

The shoes were all Nike and Vans (maybe there were a couple of pairs of Adidas). The clothing brands were mostly ones I hadn’t heard of. The prices and, I’d say, the quality tended to be towards the lower side. He had hats and belts, but really nothing else I’d call accessories. No watches, sunglasses, wallets, etc. He seemed trend sensitive, made full use of his point of sale register in managing his inventory, and knew who his customers were. Here’s how he described them. He hit me with this out of the blue, and I didn’t have a way to write it down, so I’m paraphrasing.

“I’ve got the best customers in the world,” he said. “Every dollar they have is available to be spent. Nobody has a mortgage, and nobody is saving for college.”

“I make most of my money the first five days of the month when the government checks come in. When the income tax refunds are received, it’s like Christmas. Nobody pays me with checks or credit cards.”

I can be a little slow sometimes, but when somebody hits me in the head with a two by four I usually notice it. What forms my retail perception? The stores in the mall and the specialty shops I visit that have an internet presence? I am afraid, in this economy, those places may not be completely in touch with reality and the result is that I am not either. Perhaps you have the same problem.

With something like 14% of households getting food stamps, the average wage having gone nowhere to down for at least a decade, and with participation in the labor force at a three decade low (making the reported unemployment rate decline even when things aren’t really improving much) is it any wonder that many of our prominent brands have had to close stores?

This guy has good customers. But they don’t take snowboard trips, buy $200 sunglasses or spend $300 on a pair of jeans.

Are you in touch with this very large customer group with income that is all disposable? Lord knows I’m not, but I’m going to change that. And I expect that I’m going to discover new trends and new brands as a result. There’s a whole new kind of store to be opened here but it’s often not going to fit your image of your brand and customer. Not quite as cool as you once were? This might actually be a chance to change that. I hope you’ve already figured that out even as I’ve remained comfortably clueless in my bubble.

The second retailer was a core skate shop, and I hope those of you with core skate shops have paid attention to what I described above because I think you might do well carrying some of the brands that guy carried.

This shop had recently been opened by a guy (let’s call him Ralph) because it’s what he had always wanted to do. I stumbled into it because we had some time on the way back to the airport and had pulled into a small town with some interesting stores. My wife said, “I’m going to shop.” Those of you who have been married a while understand the sub text there and know that Diane had dismissed me, which was fine.

He was all branded skate product; hard goods (longboards, popsicles, plastic decks, trucks, wheels, bearings) plus shoes and a few t-shirts and stuff. Small shop. He wants to carry Nike and Vans shoes, but isn’t yet. He’s also not doing a shop deck, but expects to. In talking to him, I found there was not another skate shop in the town, which was good.

I just kind of hung out and watched Ralph work with customers. Kids were coming and going and one came back in to introduce Ralph to his friends. A good sign I thought. He spent a while putting grip tape on a deck for a kid who, I think, had just bought the setup.

But then a father who was a skater came in with his young son (9 years old maybe?) to buy him his first deck. That was just great to watch. What was no so great was when the father got concerned about price. Ultimately, Ralph went down to the basement and got a couple of completes he doesn’t display that retailed for $60 to show the guy. The good news is that the kid chose, and his father bought him, a more expensive setup ($80 I think). I probably watched Ralph spend 20 minutes with them after which he sold an $80 product on which he made how much margin?

It felt like Ralph was doing it right in terms of location, product selection, and building community connection. But if he’s got to work that hard to make $80 in revenue, there may not be enough hours in the day.

He needs to take the cred that skate has in the urban market and carry some of the products the first retailer has, but he’ll need a few more square feet to do it in.

A Quart of Paint

August 22, 2013/10 Comments/in Branding, Market Watch Column/by jeff

If you’re a homeowner, you know that you can never complete your project list. All you can do is try to keep it from getting longer. At our house, outside projects are my job and in the Northwest, that means get them done in the summer.

In the spirit of shortening the list, I stopped by a Sears yesterday to pick up a quart of exterior primer paint for one such job.

And found that Sears no longer sells paint. HOW IS THAT POSSIBLE!?

When we first moved up here from the Los Angeles area north of 20 years ago (Yes, I do appreciate the irony of my having found my way into action sports by moving from SoCal to Seattle), there was a chain of home stores called Ernst. It was obvious they were struggling, but when they started to carry furniture and all kinds of other stuff basically, in my view, desperately putting on the floor whatever they thought might possibly sell, I knew they were toast. Shortly thereafter, they were out of business.

It’s no secret Sears has been struggling. But when I saw they were no longer carrying paint I said, “Okay, that’s it.”

Tactically, I’m sure their carefully conducted analysis showed that paint was a money loser for Sears. So they got out of it.

But it’s way more than a financial decision. It’s a decision about who their customers are and what they expect from Sears. Truth is, I mostly go to Home Depot and Lowes now because I know that whatever I want for home repair, maintenance, or remodeling they are likely to have it. But Sears was convenient, and I had a residual affinity for it as a home store. But somehow their not having paint flipped a switch in my fontal lobe and what was clearly a delusion on my part is gone.

Sears used to be the place where you could get everything. If not in the stores then through the catalog. For certain items, it could be the only choice for people in parts of the country, and they were happy with Sears even if it took weeks to get the product. It’s way easier to be a retailer when your customers have no choices and love you anyway.

Sears has a hangover from the party it threw while selling almost everything to everybody. Now, why would you choose Sears? It sells hardware, home improvement, clothing, shoes, appliances, electronics, towels and bedding and probably some categories I’m forgetting. Oh yeah- auto repair. Is it your first choice for any of those? Can you think of anybody else that tries to compete in all those categories? To make it worse, we can all think of places with better selection, prices, and/or service in any of those categories.

Sears competes with everybody. Which is impossible and maybe means they are not very relevant as a competitor. I’d also note that the chains I consider the closest overall competitors to Sears (Walmart, Fred Meyers, Target, etc.) are also carrying food; the one thing Sears seems to have stayed away from.

Sears is a hodge podge of unrelated categories no longer connected by a defined consumer need and I don’t think they do any of the categories particularly well. It’s a bad place to be. And, as we all know, it’s made worse by an economy where sales increases are harder to come by.

I’m not writing about Sears because I’m worried about them leaping into the youth culture business (though, hell, everybody else has). They are a poster child for two business conditions. The first is owning a market niche (a damnably big one in Sear’s case) and having the market evolve away from you. Markets, of course, always change, so you have to expect that. I also expect you aren’t going to be able to predict how they change.

The second, said before but worth saying again, is that when you try to be meaningful to everybody, you can end up being meaningful to nobody.

It’s certainly an old story to us. Credible, successful brand tries to leap beyond its customer franchise alienating existing customers, never really distinguishing itself with the new target customers, and finding the competition from the whales in the new ocean overwhelming. Or credible, successful, brand just continues to do what it’s always done and ends up screwed as the market changes and it doesn’t.

It has, I think, always been true that you couldn’t just sit in your niche. Neither could you infinitely extend your brand. But cash flow, I’ve said, covers up a host of problems and it was easier to do nothing, or do the wrong thing, in the old economy and get away with it for a while.

In our competitive thinking, we used to be over focused on what our competitors were doing. It was way easier than really figuring out who your customers were and why they were buying from you- that’s hard work. That really didn’t work and certainly doesn’t now.

To over simplify, you probably have to grow, but not too much. “Not too much” is different for every brand or retailer. Every product you decide to carry, every distribution decision you make has to be based on what your customer is doing and what they want from you.

Create a process to help you make those decisions. If you don’t, they will be overwhelming and you’ll find yourself wallowing around like Sears. Don’t stop carrying paint if your customers expect you to have it.

Relaxed Fit

August 2, 2013/16 Comments/in Kering (Volcom), Sales and Marketing/by jeff

Maybe a month ago, I was walking through a local mall visiting all the usual retailers to see how things looked. I stopped at a PacSun store and was attracted to a table with some Volcom shorts on it in colors I really liked. There was a sticker on the shorts that said, “Relaxed Fit.”

I paused for a moment, looked around the store to clear my head, and then read the sticker again. Yup, it said “Relaxed Fit.”

There was a moment of mental paralysis, then the thoughts all poured out at once. “This must be some sort of cool marketing trick I just don’t understand, the stickers are there by accident- some clerk is screwing around with my brain (and it’s working), is this really where our market is going, there’s some kind of new trend I don’t know about, yes, that must be it, maybe it means to be fit and relaxed, Kering (Volcom’s owner) is making them do this, no, wait, somebody slipped something in my soda…”

I walked out of the store determined to pretend this had never happened. But three weeks later, in another mall in another city I made the mistake of checking again and there the shorts were with that same diabolical sticker. My attempt at denial was foiled.

But happily I was saved by my ever vigilant research department that sent me this New York Times article called “Three’s a Trend | Men’s Shorts That Are Loose, but Refined.”

“Loose, but Refined” is conceivably a perfect (and hopeful) description of Volcom owned by mostly high end fashion company Kering. Grabbing at straws as I am, I’ve decided to believe that Volcom’s “Relaxed Fit” sticker is just a bow to this fashion trend shaped by their large corporate owner. See, I don’t know a lot of surfers, skaters and snow sliders that need relaxed fit clothing.

Okay, I’ve had a little fun with this, and I’m sure Volcom isn’t the only one doing it. I suppose I need to recognize that all our customers can’t be teenagers and that body shapes change with age (not mine of course). Yet in our push for growth, we get further and further from our roots. The ASC conference the day before the Agenda Show celebrated the importance of authenticity, but I wonder just what kinds of customers we can make product for before we begin to lose it.

I hope Volcom can stay loose.

Brand Extensions, Market Niches, Internships and Other Notes from the Agenda Show

July 30, 2013/8 Comments/in Trade Shows/by jeff

Agenda did its usual good job of putting on what I’ll call its youth culture show in Long Beach last Thursday and Friday. I don’t really like that term, but I like “action sports” less at this point in our industry’s evolution and I really hate “fashion.” And not everything is “urban” or “street” wear so it’s youth culture until somebody comes up with something better. I’m waiting for your suggestions.

My request to Agenda is that they keep the booths small and low, the food trucks coming, the signage easy to follow, that they never move out of Long Beach (because the airport is easy for me) and that they flee into the night whenever somebody tells them they are “the new ASR.” They’ve replaced ASR, but they need to fight not to become it. I know they are.

Beware Product Extensions and Know Your Niche

Nikita contacted me a couple of weeks ago and asked me to stop by their booth at Agenda. I told them I wasn’t so much interested in reviewing their product line (in spite of all that I obviously know about women’s fashion) as in talking about their business history and strategy. Strangely enough, they wanted to talk to me anyway.

Nikita, you may recall, came out of Iceland about ten years ago with the tag line, “for girls who ride.” As I wrote at the time, it was simply the best, most succinct definition of a market niche I’d ever heard. It gave the company direction and focus and it was a niche nobody else was focused on.

Things, I guess, went well for a couple of years. And then they extended, trying to come out with a line of clothing for guys and I went, “Oh shit.” Brand extensions are hard enough, but when you’re defined as “for girls who ride” and then try to make clothing for guys, well, I was concerned.

Seems I was right to be. To make a long story short, about a year ago they were acquired by Amer Sports. Under the tutelage of the group at Bonfire (owned by Salomon, which is owned by Amer) they’ve spent a year revamping, rethinking, restructuring and now relaunching the brand. They’ve done something I think is really smart; they’ve hired somebody from outside the industry to help them evaluate the brand and it’s positioning. We all talk to each other way too much. Having somebody without a bundle of preconceptions and no fear of stupid questions should produce some interesting results.

Of course street clothing for girls who ride was a pretty small niche and Amer is a public company interested in growth. That’s the danger of niches. You can own yours, but it doesn’t leave you with any place to go if you’re a smaller, thinly capitalized company. Happily, Amer isn’t.

The group at Nikita is trying to figure out where they can take the brand. I think I can say with certainty it won’t include a guy’s line, but there’s some street wear as well as their snow line in their current offering. “Girls who ride” do more than snowboard and if pursued cautiously and consistently, there should be an opportunity.

Meanwhile, over at what apparently continues to be the very well received Stance sock brand that is now, what, four years old there are definitely no brand extensions on the horizon. I was sitting chatting with somebody when I saw Stance CEO John Wilson walk by and, fresh from Nikita and having noticed that it was easier to list the brands that weren’t making shoes than those that were, I yelled out, “Wilson! No brand extensions!” I got a smile, a thumbs up, and a high five. The trouble is when you’re sitting down and high five the not exactly short Wilson, you can damage your shoulder. Mine should be fine in a couple of days.

I didn’t ask him, but I’ll bet anything he’s been asked when he’s going to move into shoes. I mean, shoes to go with socks- what could be more natural (note extreme sarcasm). I’m sure there will come a time- someday- when there will be another Stance product. But I predict it won’t be shoes and it won’t be for a while. Four years is not a long time to build and position a brand that can support product extensions.

Meanwhile, I walked by Wolfgang Man and Beast and found a new market niche for upscale dog collars and leashes (think of an $80 collar). I also found industry veteran Luke Edgar who, along with four other dog lovers, started the brand. This is what Luke does when he’s on vacation from Skullcandy. I kind of smiled, but then I reminded myself of just how much money people are now willing to spend on their pets, so maybe there’s a market there. I’m told the initial reception is positive.

If you’re in the private equity business, you go around collecting cards from new brands that might have found a market to exploit. Then in a year or two you check back to see if they’re still around and are succeeding. I ran into one private equity guy I know and, sure enough, he already had a card from that business. So we’ll all check back in a year or so.

Consumers seem to trust new brands a lot faster these days. Maybe it’s more accurate to say they don’t distrust them. Anyway, finding a niche that’s derivative of the whole youth culture market is a good thing. You know, I’m wondering if first movers are at the same disadvantage they often were in the past.

Child Labor

A conversation with somebody in the core skate industry lead to the usual bemoaning about how there were fewer skaters, the old business model didn’t work anymore, there was nothing new product wise, and it was getting harder and harder to figure out what was relevant to young skaters.

The last point led to an offhand comment about skate brands needing to hire 12 year olds. When somebody made a point that it would violate child labor laws, we were immediately off and laughing, imagining the head of some skate company explaining to a judge that they only had a bunch of kids working at their company because they were trying to find out what was cool again. I can see the prosecutor holding up a deck with the graphics the 12 year old created, and “contributing to the delinquency of a minor” being added to the charges.

Skate companies will say with some justification that they already do that with team riders (find out what’s cool- not the illegal part). But team riders are the top 2% or so of skaters and besides, they get free product. I have never been quite sure just how relevant their input was to the broader skate market.

Well, maybe 12 is too young, but I’m wondering if anybody has ever hired some kids as interns (paid or unpaid) in the marketing and/or design departments. They should be kids who skate, but are not necessarily great skaters. Maybe some of them should even be long boarders.

Have a contest with some retailers to select a couple of kids who’ll be paid to work for you during the summer or a few afternoons a week after school. Have them occasionally bring in a few of their friends. Pay them a few bucks, teach them something about business, and get them to create and react to new product ideas. Then take a chance with what they come up with. Put whatever graphics they come up with on a deck and let that deck be sold at the shop they hang out at.

Maybe this is already happening, but as business risks go it’s pretty low and who knows what might come out of it.

And kind of related, I found out about the Next Up Foundation. It “…provides after-school and summer mentoring programs that teach today’s youth life skills through skateboarding.” I heard good things. I have a kid who was sort of drifting and unhappy until he found something he loved that gave him some focus, self-respect and friends. In his case, it was music. But if it had been skateboarding, that would have been just fine too, and that seems to be at least part of what Next Up does.

I don’t have the list, but obviously some brands are involved in and contributing to Next Up. I’m wondering if any of those brands are using that involvement to get a sense of new cool stuff while at the same time helping the foundation meet its goals.

See you at the next show.