Surf Expo; The Report of the Death of Trade Shows is Greatly Exaggerated

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Apparently, if you get a whole bunch of retailers who need to buy stuff together with the brands they want to buy from there’s still every reason to have a big old trade show.   Maybe, in fact, the bigger the better. The more brands and retailers, assuming they are the right brands and retailers, the more can be learned and the more business done in the most efficient manner.

Surf Expo struck just the right balance between a positive, upbeat environment and a focus on business.   Noisy, but not loud. You could talk. Active, but not frantic. Fun, but professional.  

Not that trade shows and the ways they provide value haven’t changed. Technology, the economy, and the way the retail environment is evolving have seen to that.  You don’t compete against other brands for the biggest booth prize any more (though that was sure fun!). Retailers tend to bring fewer people. Shows don’t need to be quite as long. More buying is done outside of the show environment. And brands from one industry don’t fret any more about having other industries at “their” show. We’re all in this together.  In our industry, we think of Surf Expo as surf, skate, and now, SUP.  But the resort and gift people are there too and that, I think, gives Surf Expo the size and resources to do some of the things they do. 
 
Internet at the show was free, which I really appreciated. I’m used to doing without given the simply unbelievable prices that have been charged at other shows. “Unbelievable” is a much kinder word than I first thought about using.
 
In terms of which brands exhibited, the surprise was the absence of Volcom. Still, I’m not certain that Volcom, as what I’ll characterize as an urban/youth culture brand, really fits at Surf Expo, though it’s certainly convenient for their East coast retailers to see them there. I didn’t talk to any brand that was sorry they weren’t next to Volcom’s booth. Maybe that’s a good decision by Volcom.
 
I thought one of the most consistently busy booth was Sanuk, though John Vance is a friend of mine and I probably spent too much time standing around his booth bullshitting with him. I’ve frequently written that the biggest risk for a business is to not take any risks. Sanuk is doing some management things that are not traditional for our industry. Some people might call them risky, but I think they’re responsible for a lot of the brand’s success.       
 
Traffic Thursday was deemed by most people I talked to as a little light, but it picked up nicely on Friday and I’d characterize the show as busy. I have to confess I left on Saturday. Show management tells me that Saturday was stronger than they expected, and that retail attendance exceeded last January’s show by 9.2%. Don’t quite know if that’s 9.2% more stores, more retailers, more days stayed, or more beer consumed.
 
The skate park was very well done. I’m not qualified to discuss its technical attributes but it was big enough to keep things moving, and located where it wasn’t in the way but was still part of the show. There was plenty of room to stand around and watch and you could move past it without getting trapped in the crowd.
 
But the undisputable highlight of the show had to be the Quiksilver sponsored All 80s All Day Vert Challenge with skating by Tony Hawk, Andy MacDonald, Christian Hosoi, and about 15 other skaters. It happened Friday evening after the show closed. They set up the huge ramp in a part of the convention center the size of the trade show, but where the trade show wasn’t. Basically, nothing in it but the concrete floor, ramp, the Quik van, and some crowd control barriers. The industry came in from one side and the public was allowed in from the other. No clue how many thousands of people were there. It felt a little like Quiksilver’s coming out party announcing that their problems were behind them.
 
In the past, there has been talk and some attempts to integrate the public with the trade at a show and it either hasn’t happened or hasn’t worked out. This worked spectacularly well. I managed to get in a little early (thanks Doog!) and could stand right next to the ramp and watch them warm up. If Einstein were alive, I’d let him know that a bunch of people were violating his laws of physics on a skate ramp. I look forward to Surf Expo thinking up new ways to involve our customers in the future.
 
My next challenge at the Vert Challenge, in the best industry tradition, was to figure out a way to get into the Quik VIP area where they had the free beer and food. I was stopped at the entrance for lack of a wrist band but some guy I didn’t know said, “Here Jeff, I’ve got an extra one.” Turned out to be Kevin from the Quik marketing department and am I ever glad I put my picture on my web site. Thanks Kevin.
 
I didn’t know much about the standup paddle market before this show, but I learned a bunch. There were, well, a lot of SUP companies and Surf Expo had installed a shallow pool where you could take a lesson. But the real eye opener was the SUP industry discussion group I went to Friday evening after the show closed.
 
The meeting was past standing room only. Those of you who have been around a while know that in the mid 90s I rained on the snowboarding parade by suggesting that it was possible all 300 or so hard goods companies might not make it and that the industry would go through the usual growth, maturity, consolidation cycle every industry goes through. Around 2004 I told the skate industry that Chinese product was coming, there wasn’t anything they could do about it, that distribution issues weren’t going to go away, and that shop decks and blanks were here to stay.
 
It seems that every eight years or so I piss off some segment of our industry and it must be time again.
 
What the SUP industry has going for it is that it’s a sport for the whole family with an easy learning curve. But that doesn’t make it immune to the usual industry cycle that snow, skate, and surf all went through. When somebody stood up to announce how “the industry” had to keep margins up and various heads nodded in agreement, I had a flashback to the IASC/BRA sponsored breakfast round tables at ASR. Those of you who have been to one of those don’t need me to say any more.
 
Here’s what I’d like to tell the SUP industry. First, the consumer is going to get what they want. If you won’t sell it to them, somebody else will. Ask the skate industry. Second, “the industry” is not going to keep margins up. It’s probably illegal. But more importantly, I guarantee you that every company in the business is going to do what they perceive to be in their own best interest. If there’s no meaningful product differentiation, margins will head to the point where marginal revenue equals marginal cost. There’s only so much advertising and promotion can do to prevent that. Ask the snowboard guys.
 
Like Boardworks’ Bob Rief put it during the meeting, “If you are in a low volume, low margin situation, you really don’t want to be because it’s a lethal combination.”
 
Please don’t kid yourselves SUP people. Make sure that many of the people you talk to aren’t your industry peers so you get some perspective. Run your businesses well and realistically knowing that you can succeed in spite of an inevitable business cycle if you do.
 
Strangely enough, I don’t think anybody complained to me about the show. Oh wait- one complaint about booth location, but they confessed they were late booking. The general attitude of the retailers and brands I talked with was:
 
·         Good show.
·         Things are better than last year but not good.
·         I’m still cautious and running my business that way.
·         We’re not going back to 2007 any time soon.
 
Except for the “Good show!” part we really can’t hold Surf Expo responsible for those sentiments. They’re doing everything they can to make their show easy to attend, functional, and valuable. Wonder what they’ll do next.

 

 

Gross Profit Margins; How to Think About Them for Brands with a Big Retail Presence

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A friend of mine who wants to remain anonymous (I get quite a few of those) sent me an email the other day and had an interesting point to make about gross margin for brands who owned retail stores.

When a brand opens retail stores they do it at least in part because they expect to capture the margin that previously went to the retailers they sold product to. We all understand that. Just to pick some numbers, let’s say that brand earns a 35% gross margin when they sell their product to retailers they don’t own. And let’s say it’s 65% when they are selling the product in their own retail stores.

Of course, they incur all sorts of additional expenses by virtue of having to run and staff stores and some of those may be accounted for as part of the cost of goods sold, reducing gross margin. But let’s just go with my “accounting light” numbers for purposes of my example. The point is just that they get a much better product cost margin at retail then they do at wholesale.
 
Here’s what my friend said. I’ve paraphrased it a bit.
 
“When you see a sales decline with the margin rising, it could be that most of that decline is taking place in the wholesale rather than the owned retail sales. So the increase you see in gross margin would be, to a greater or lesser extent, just the mathematical result of selling a higher percentage of the higher margin retail product. It wouldn’t represent better inventory management, reduced product cost, or price increases or any kind of positive management action.”
 
Let’s say a brand is selling $1,000 of product (it’s a really small company). 30% of those sales are through their retail stores and 70% to other retailers. On the 30% they sell through their owned retail, they earn a gross profit of $195 (using the gross margin percentages I chose above). On the 70% they sell through other retailers, gross profit is $245. That’s a total gross profit of $440 on that $1,000 of sales, or 44%.
 
Let’s assume their total sales fall by $100. Let us further assume that the entire decline is in their wholesale sales. Now they are selling $600 at a gross profit margin of 35%, earning $210 in gross margin dollars. On the sales in their owned retail, they continue to earn $195 in gross margin. That means they earn a gross profit of $405 on sales of $900. Their gross margin percentage has risen from 44% to 45%, but not, as far as I can see, for any reason we should feel good about.
 
An independent retailer can reduce or eliminate the presence of a brand that isn’t selling pretty quickly. If you’re brand X, you’re probably going to be pretty reluctant to stop carrying brand X at your owned stores. This begins to get us into all sorts of interesting discussions about merchandising when you’re both a brand and a retailer. Will weakness in your wholesale accounts eventually translate to weakness in your owned stores? Or can your ability to merchandise your entire line the way you think it should be make a difference?     
Declining sales would typically go hand in hand with declining inventory levels. There are reasons you might not see that- like building inventory for a new brand launch- but overall if you see declining sales, higher margins and no fall in inventory from a brand with significant owned retail, it’s worth exploring.

 

 

A True Christmas Retail Tale

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My youngest son and I went out to get our Christmas a week or so ago. I headed towards our usual lot, expecting to pay something like $60 for a tree when we spotted a sign that read, “Christmas Trees: $29.95.” Never one to turn down a deal, I followed the signs to the lot where, indeed, all the perfectly good looking trees were $29.95.

After picking out a tree (the needles did not all fall off when I shook it), I struck up a conversation with the guy manning the lot. “How come you’re selling trees this cheap?” I asked.

“Well, it’s our first year in this business and we bought too many,” he explained. I asked how many too many and he told me, “Four times too many.”
I suggested that somebody at the company must have been sentenced to life in front of the firing squad for that one and he said it was so. Intrigued, I asked how, exactly, the buying decision had been made.
Now clearly this guy wasn’t an owner of the company that was losing its ass on all these trees because he was already starting to laugh as he told me, “The guy who sold them to us told us how many we needed.”
It got better. I asked him how they were moving and he said, “Okay, but we didn’t get the right size assortment.” I asked why not and he told me- you guessed- it, “The guy who sold them to us told us which sizes to get.”
By this point even my son, who’s only retail experience is as a customer but who has hung around me long enough to pick up a few things, was laughing hysterically.
Trying not to lose it completely, in case this guy actually cared I said, between chortles and guffaws, “So the guy selling you the trees not only told you how many to buy, but managed to sell you the ones that nobody else wanted? Is that about it?”
“Yup,” he said with a smile.
Christmas trees are even worse than snowboards from a retail perspective. The selling season is shorter and the damned things die.
Anyway, happy holidays and, be you a brand or a retailer, may you never buy four times too much of a wrong product who’s only residual value is as mulch or firewood, and have only two weeks to sell it all.

 

 

What’s Up with Quiksilver? The Stock Was up Huge Today

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Quiksilver’s stock jumped 22.7% today (December 9th) from 4.75 to 5.68 on the biggest volume since last March. These kinds of moves don’t happen in a vacuum, so I thought I’d check around a bit. An investment banker I know was kind enough to alert me, and I found the following reported on Bloomberg:

“PPR SA has agreed the sale of its Conforama chain to Steinhoff International Holdings Ltd. for 1.625 billion euros, La Tribune reported, without saying where it got the information.”
“PPR Chief Executive Officer Francois-Henri Pinault is interested in buying Quiksilver Inc., La Tribune said. He has reestablished contact with the company, as well as with Rhone Capital, which holds a 19 percent stake in the California-based maker of clothing for skateboarders and surfers, according to the newspaper.”
The link is here, though I’m quoting the whole thing.
Who’s PPR SA? I didn’t know either, but here’s a blurb on them from Yahoo Finance.
PPR SA Company Profile
PPR has transformed itself from a conglomerate to the world’s third-largest luxury group (behind LVMH and Richemont). PPR’s stable of global luxury brands includes a 99% stake in Italian luxury goods company Gucci Group, and luxury brands Alexander McQueen, Balenciaga, Boucheron, Bottega Veneta, Stella McCartney, and Yves Saint Laurent, among others. The group’s other activities include the multichannel merchant Redcats, Fnac music and book stores, the Conforama chain of household furniture and appliance stores, and the German athletic shoemaker PUMA. More than half of PPR’s sales are generated outside of its home country. PPR is run by Fran�ois-Henri Pinault, the son of its founder Fran�ois Pinault.
Is this actually going to happen? Somebody thinks something is going to happen given the way the stock jumped.   I don’t know what the price might actually turn out to be, but Rhone Capital would sure make a nice return quickly.
Love to do more analysis of this, but the unfortunate fact is I don’t have any information.  Maybe soon!  Or maybe not.

 

 

“Independent” Retailers; Are They Still Independent? And What if They Aren’t?

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Sometimes I do my best work with a glass of wine. The secret is to never post what you’ve written until the next day, after you’ve read it again. I put “independent” in quotes (there, I’ve done it twice) because as I think about retailers and their relationships with brands I kind of wonder what independent means.

Independents have always relied on brands for terms to make their cash flow work. But now we’re into brands investing in or, to some extent controlling what were independent retailers. When that happens, that retailer ain’t independent no more.

But that independence is always what has made the best core (core, independent, specialty- pick your term) retailer successful. They were typically a destination in that community and they carried the brands that community wanted and the brands the store believed in. When people stopped buying, or a brand got over distributed or just when it started putting out ugly stuff that didn’t work, the store dumped it. I mean, they had to. It was their only chance.
 
Glenn Brumage, then of Tum Yeto , and now Director of Business Development for Wabsono International and Vice President of IASC, spewed forth some wisdom at one of those IASC/retailer morning meetings at ASR (guess we won’t be doing that any more) a couple of years ago. As usual, the group was bitching and moaning about distribution. Glenn said something like, “Hey guys, most successful brands grow up and out of specialty store distribution eventually and the store replaces them with new, smaller brands. Get over it- it’s just what happens.”
 
Okay, arguably those aren’t his exact words. But we all know he’s right. Not every brand, and not all the time. But I’d say that no core retailer can differentiate itself if most of what it carries is available at better prices in chains, department stores, and on the internet.
I’ve even said from time to time that not bringing in new, smaller brands is less of a risk than not bringing them in. Especially in current economic circumstances.
 
The action sports industry is really pretty small. It’s composed of those retailers and brands that cater to the participants in the sport and the first level of nonparticipants who are into the lifestyle and watching the sports. We (at least I) used to think we were a whole lot bigger than that. But we were confusing youth culture and fashion with action sports.
 
Selling to the action sports consumer, as I define it, means you better have the product they want. What happens when Large Brand X has a deal with you that requires you to carry their product which, not surprisingly, they’d rather you sell than Brand Y? But you, the independent retailer, are part of a community, which is why you are successful. And the community wants Brand Y. Not brand X.
In times past, the retailer might have ordered less, send some back, exchange it for what was selling, or said, “Shit, we screwed up ordering this crap” and put it on closeout. Now, I wonder if they have quite the flexibility to do that.
 
I did hear a story of a retailer this past summer that could have sold the hell out of hoodies given the cool weather but was stuck with racks of board shorts. How does that retailer keep its credibility with its customers, much less make up for the lost sales?
 
Recently, there was an interview in Transworld Business where Jake Burton outlined his company’s plans to support local snowboarding shops. I think I’ve got a whole other article to write on the questions I would have asked.
 
I’m for Burton’s efforts and am really glad Burton has seen the light. But to the extent that any of these brands (snow, skate, or surf) have a relationship with core retailers that create additional limits on the retailer’s ability to respond to their customer base, they may damage that retailer. At some point, I worry that core retailers begin to look (and act?) too much like the stores big brands are opening in malls.
 
For a long time, there’s been a consensus that core retailers were critical to spotting trends, creating new participants, and building new brands. If we still think that’s true, we need to be a bit cautious about how the retail environment is evolving.

 

 

Requiem for the ASR Show. Now What?

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At the moment you hear about it, it’s kind of a surprise. But when the initial shock passes, it’s not. I thought The Editors over at Boardistan put it best. Back in 2009, referring to ASR, they said;

“We have to wonder what happens to the entire trade show business model when they have to pay retailers to attend. Lord knows retailers need to be treated well these days, but it still seems to bring us back to the question that’s been plaguing the boardsports business for several years: are trade shows even relevant anymore?”

I couldn’t have put it any better. Or at least not so succinctly. In fact, I didn’t put it succinctly. In the summer of 2009, I wrote a long article about trade shows in general for Transworld Business. Much of what I said then is still relevant. On the assumption that you don’t want to hear me re-pontificate it all, I’ll just include the link here. If you don’t read the serious part of the article and haven’t seen it, you might just to go to the section “In the Beginning,” where I wax biblical. There’s always room for a little humor. It’s one of my favorite things I’ve ever written.
 
What Went Wrong for ASR?
 
As I’ve heard it, the straw that broke the camel’s back was the decision of a number of large brands not to participate in the show. But the poor camel had been under stress for quite a while and the recession, exacerbating a number of existing trends, accelerated the process.  What are these trends?
 
  • Fewer retailers. And the ones that were showing up brought fewer people.
  • Brands showing product and getting orders outside of the trade show environment.
  • The internet and everything you can do on it
  • The union/convention center cost structure.
  • Industry consolidation. Big companies don’t have as much need of trade shows. See the second point above.
  • Recognition that competing against your competitors at trade shows with your show presentation is silly.
  • Slower industry growth.
  • More trade shows while demand was falling. Crossroads. Agenda.
  • Declining clarity as to just what the action sports market is. Did starting Class help ASR, or did it cause confusion as to just what the show was about and who should attend?
 
And then there’s that old bugaboo called momentum. As I’ve said, companies, trade show or otherwise, get in trouble due to denial and perseverance in a period of change.
 
In hindsight it’s easy to see what ASR should have done; Blown up the existing format and started over with another ASR show that recognized changing conditions. Specifically, that the show was essentially a regional show for smaller and new brands. And if that sounds a bit like Agenda well, okay. Maybe they should have just bought Agenda.
 
I hasten to admit that’s all easier to say than to do. It’s that momentum thing. I’m pretty certain ASR boss Andy Tompkins was quite aware of all the factors I listed above. I know he was. He lived with them every day. Yet it’s hard to imagine him (or anybody in his position) going to his boss, and his boss’s boss a couple of years ago and saying, “This isn’t working. We need to blow it up and start with a new focus and a smaller show.” Or maybe he did and got overruled by some people further up in the organization who aren’t quite in touch with our market. Big organizations often don’t make difficult, unpleasant changes until forced to.
 
With that short forensic analysis of what happened behind us what happens now?
 
Everybody’s talking
 
Just from the flurry of public discussion after the announcement, we can assume that IASC is talking to Agenda is talking to SIMA is talking to BRA is talking to Crossroads is talking to Surf Expo is talking to IASC. And if there was some talking going on at Outdoor Retailer and SIA I wouldn’t be surprised.
 
It’s public knowledge that certain of these organizations have (had?) deals with ASR that provided them with a certain amount of funding. Nobody much likes it when revenue goes away. I know I don’t. Those who lost income will want to replace it. Where? How? From whom? That will be a lot of the focus right now.
 
Concrete Wave is sponsoring a show by an organization called  Homegrown called the Midwest Skateboard Industry Summit next May.  As they are selling booth space for $200, I guess it also has elements of a trade show.  I suspect there will be more announcements from various players. 
 
There was an immediate reaction from various sources that Agenda had “won” and ASR “lost.” I didn’t see it that way. I don’t expect Agenda to take over the ASR space. I just don’t think the ASR format and structure for a trade show is valid any longer for the reasons I list above. I’ve also written (see the above link to my earlier trade show article) that anybody who tried might find themselves with the same issues that lead ASR to close.
 
Aaron and Seth at Agenda have themselves a small, solid, regional show. Can they grow it? I expect them can. They have. How much? And in which market? Is Agenda fashion or action sports? I’d be really careful saying “both.” ASR, with Class, tried to be both. When they opened Class, it was a symptom of the problems- not part of a solution.
 
The action sports industry is going back to what it used to be; a fairly small industry and its customers consisting of participants in the sports and the immediate circle of people who may not be participants but are committed to the lifestyle and truly interested in the sports. The rest is fashion; a style sold to customers who’ve seen surfing only on TV and have never been near a skate park. Bigger public companies looking to grow are after that market. They have to be to find growth. They may have their roots in action sports, but it’s getting harder, if you just look at their customer base, to call them action sports companies.
 
That has a huge impact on what our trade shows should or shouldn’t be. It’s incumbent on anybody running a trade show to figure out who their market is. Trouble is, I’m not sure either “fashion” or “action sports” really describes it. Youth culture might be closer.
As all this talking among the various industry organizations goes on, I hope it’s not just about replacing ASR. Let’s assume there were no trade shows. What would we want ours to look like?
 
First, it should look however the retailers want it to look. And as I indicated above, it would initially be regional and would be for new and small brands. Maybe it gets combined with the industry boot camp or other conferences. Perhaps it’s not only brands with booths, but venture capitalists, attorneys, bankers, accountants and other organizations that can help new brands and are interested in them as customers.
 
There should be a web site associated with the show that doesn’t just promote the show, but encourages interactions among the participants. Would it be closed to retailers for a day just so the focus could be on how these companies could run their businesses better? I’d like to see us try and charge non-endemic companies a big price to show up and be educated about the industry. I hope whoever runs this new show has authority to decide which companies can exhibit regardless of who belongs to what group.
 
If we’re going to break some new ground, let’s do it quickly. I find myself sitting here wondering if I should go to Agenda, Surf Expo, or Outdoor Retailer instead. Obviously, some companies are going to be looking for a replacement venue.
 
Fundamentally, however, we have to start by asking if we need another trade show. Maybe there will be surfboards at Outdoor Retailer, skateboards at Agenda and brands that tend towards fashion at Magic and some fashion shows I don’t even know about. Remember that skate had more or less pulled out of ASR, so it’s hard to argue that skate and surf have to be together, though one trade show makes it a whole lot easier for retailers.
 
Whatever happens, I hope the discussion among all the people who are talking is more around what the industry needs or doesn’t need rather than the requirements of the organizations they represent.
 
This is great opportunity to do the trade show we want if we’re really sure we want it.

The End of an Era (In a Good Way!) at Quiksilver

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I don’t think anybody else noticed this (or at least I didn’t see anybody else mention it) but on October 27th, Quik got a $20 million term loan from Bank of America. Along with some cash on hand, they used it to pay off the last $24.5 million (including accrued interest) of their original term loan from the Rhone Group.

The new term loan’s interest rate is 5.3%. You may remember that the interest rate on the Rhone money was 15%. The rest of the Rhone loan (it was originally a $150 million five year term loan made in August of 2009) has either been paid off or converted into equity.

Instead of paying $22.5 million a year in interest on the $150 million (some of it was non cash), they are now either paying nothing (to the extent it was converted to equity) or paying at a much lower rate.
Financially, of course, paying off $24.5 million in debt doesn’t fundamentally change anything for Quik. But it makes me feel good to see it happen, so I can only imagine how everybody at Quik must feel. I hope they had a Rhone Credit Agreement Termination Party and burned the note. And I wish I’d been invited.
Nice work!

An Insider’s History of the Surf Industry; Good Reading!

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Part of my weekend was spent reading Phil Jarratt’s excellent book, Salts and Suits; How a bunch of surf bums created a multi-billion dollar industry…and almost lost it. Phil has worked in surf publishing and the surf industry for more than 35 years, including five years as the head of marketing in Europe for Quiksilver. He seems to know and have talked to everybody in the industry over a period of years, but just got around to putting it all together in this book, published in Australia around April of this year.

It’s very Australia centric, though anybody in the industry will know of or have met many of the individuals who figure prominently in it. It has not been released in the U.S. and you can’t, to my amazement, buy it at Amazon. However, it looks like you can order it from Australia and here’s one link where you can get it.

The sense of history and the perspective it gives you on the origins and evolution of the surf industry is very valuable. And the stories of how our most respected industry players got into the business, along with descriptions of some of their antics and foibles is a lot of fun to read.
 
It also reminds you that for all the changes, some things just haven’t changed. Here’s a quote from the author’s 2005 interview with Duke Boyd who, in 1960, was trying to sell some early board shorts.

Most of the surf shops sold boards and wax, and that was about it. I knocked on Dewey Weber’s door twenty times before he’d talk to me, and then he goes, ‘Okay, I’ll take them, but only white and only in my size, in case they don’t sell.’ Then one day I had a coffee with the guy at Hobie’s and I told him my trunks would make him forty percent of the sale price. I asked him how much he made off of a surfboard sale. It was half that, and the boards were taking up all the space! He got that, and soon all the guys started to realize that trunks would pay the rent.

So it seems that the issue of margin on hard goods goes back at least fifty years.
 
The hardest thing for me was not skipping to the end of the book where the Quiksilver’s hiring of Bernard Mariette, the Rossignol deal, and its aftermath are described in, if not as much detail as I would have liked, more than I’ve seen anywhere else.
 
Anyway the book is fun, evocative, entertaining, and educational and I hope Phil Jarratt brings it out in the U.S. soon.
 
Maybe I should offer to be his distributor. 

 

 

Never Summer’s and Mervin Manufacturing’s Little Patent Brouhaha

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I guess I should start by admitting that I’m not an expert on snowboard technology, and I don’t have a strong opinion (any opinion, actually) on which kind of camber is best and I don’t know who made which claim first. I also haven’t read, and don’t intend to read, the patents.   I figure I suffer enough just having to read the public company’s SEC filings.

Having followed some of the discussion on various web sites, it’s clear that you don’t have to know all that much to have an opinion. But I’m going to cleverly stick to history, marketing and industry strategy. Those are subjects which I do know something about in this industry, or at least it’s hard to prove that I don’t.

Let’s start with a little history. Months and months ago, before my new web site was up and running, I posted an article on Facebook that talked about alternative camber and my personal experience with it. It also included some information from an interview with Mervin’s Mike Olson. It might give you some perspective on what’s going on and you can view it here.
 
Meanwhile, I’d like to remind you that I’ve said from time to time, “What’s the Goal? Begin With the End in Mind.” What’s the goal for Mervin and Never Summer in this dispute? It’s not to see who can spend the most in legal fees. It’s not to beat the other one in court and have their patent proclaimed the winner. The goals are to build their respective businesses, earn a return for their shareholders and grow snowboarding by making it easier and more attractive to learn and participate in.
 
How does a business do that? At least in snowboarding, we can say that having the best patented technology first is no guarantee of success (see the above referenced article). I’d argue that’s also true in skateboarding and surfing. Not to mention in software, semiconductors and most any industry you can name. First off, it’s the consumer who decides what’s “best” and they can sometimes have a different perception of our innovations, technologies, and patents than we in the industry do. Second, companies in this industry have spent a lot of time and a truly unbelievable amount of money creating their brands’ market position and image in the hope that the consumer will purchase their branded product based on that image. Even with a patented innovation, a consumer may go with a brand image. Because, let’s face it; there’s no bad snowboard product out there anymore.
 
We all talk to each other too much. This, like all industries, is a bit incestuous. Too much of the discussion, perhaps because a confrontation is so intriguing, seems to be around whose patent is better, who’s got the best lawyers, and who might “win.” I really hope it doesn’t come to that.
 
As two niche brands with long histories and both making product in the U.S., Never Summer and Mervin have a lot in common. Mervin, owned by Quiksilver has done very well the last couple of years. I imagine, given Quik’s situation, that Mervin is under some pressure to grow and I hope that doesn’t impact the resolution of this dispute. Never Summer, because of its reputation for quality and long standing control of distribution is also in good shape. I’m hoping Mervin and Never Summer don’t get caught up in the partially industry generated controversy and forget to ask how this technology can best serve the snowboarders to the benefit of both companies and the industry. There must be a royalty or cross licensing agreement or something somewhere in our future.
 
I know it’s business, and I don’t want to sound naïve. I don’t know who’s “right” and who’s “wrong” but I am pretty sure the interests of both companies and the industry are served by a deal.
 
I read Transworld Business’s excellent interviews with Mervin’s Mike Olson and Never Summer’s Tracey Canaday (you can read them here) and was stunned to hear they’d never met each other. I lived in Ireland for two years and learned that there’s nothing that can’t be settled at the pub. I’d be happy to introduce you two and help you make a deal. I work for beer and I’m hopeful this isn’t more than a four or five pint problem.

 

 

SIA Article on the Rising Costs of Chinese Production

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About a week ago, SIA published a really good article on why production costs in China are rising.  If you haven’t read it you can, and should, here: http://www.snowsports.org/SuppliersServiceProviders/SIANewsletter/NewsletterDetail/Contentid/1272/#top.
The article is pretty tactical in nature, and I thought a little bit of the longer term social and political perspective might be interesting to you.  It should at least convince you that this is probably not a temporary trend.
Chinese governments have always derived their legitimacy from their ability to provide stability and jobs. “Harmony,” if you will.  And when I say “always” I don’t mean a measly couple of hundred years.  The first history of China was written about 1,500 BC.  China’s current export oriented economic system is unsustainable.  The Chinese know this.  But the changes they need to make to improve domestic consumption move up the valued added chain in what they manufacture and resolve some of their significant structural issues are not conducive to that stability.
That’s a very short and very oversimplified explanation of the situation.  But the next time you hear that “everybody” knows that China is going to become the next superpower you might not rush to agree.  Could it happen?  Sure.  But remember in the 1980s when “everybody” knew Japan was going to take over the world?  Didn’t quite work out that way.  The chart below illustrates one of the issues China has.  Note the coming decrease in the working age population.