The Wallons and Skate Longboards

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I want to talk about taking a long term perspective, unforeseen consequences, not learning from history and maybe confirmation bias.  A couple of things have serendipitously come across my desk as the same time that made me renew by thinking on these issues.  I seem to find my best business lessons everywhere but in business books.

As you may have read, the European Community has just spent 7 years negotiating a trade pact with Canada.  But it collapsed because the Wallons voted against it.  The Wallons represent the French speaking part of Belgium.  The other part speaks Dutch and each part has its own parliament.

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IASC Skateboarding Summit – Have We Found a More Valuable Way to Talk With Each Other?

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So there I was sitting in the conference room of the Embassy Suites for day one of the IASC Skateboarding Summit waiting for the dreaded retailer panel to start.

You all know the panel I mean.  They have one at every industry trade show and conference I’ve ever been to.  Three or four retailers sit up on stage, a moderator feeds them questions they often have in advance (well, that’s what I always did) and they give cautious answers that aren’t that useful, typically aren’t a reflection of actual business conditions, and make unrealistic requests of the industry and the brands to “fix” skateboarding, or snowboarding, or whatever.

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Just When You Least Expect It- The Onewheel

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I just saw what I guess passes for a hover board in action. But it had a single wheel, rather than the two I’ve seen before. It seemed like more of a kind of skateboard, but let’s not call it that. Let’s call it a rideable, which is the term the company uses in this video. It happens I’m on Maui up in Hana and I’d just walked out my front door to see what the waves looked like as this woman came by riding down the hill on her Onewheel. If you look at the video or web site, you’ll see why it caught my attention.

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My Wife’s Cosmetics and Skateboarding

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My wife uses Bobbi Brown cosmetics and I doubt most of you really care. Like me (and I’m guessing all the guys who read this), until right now, you’ve probably never heard of Bobbi Brown. Maybe some of my women readers know it. 

I care that my wife looks great but not what brand she chooses.
 
Hmmm. That sentence is probably worth some discussion, but first I’d like you to check out Bobbi Brown’s foray into skate. It’s seems they made some pink skateboards “…to empower women to try something that isn’t typically thought of as a woman’s sport.” They got pro skater Eli Reed “To teach a bunch of fashionable newbies how to skate in two hours’ time.” It doesn’t look like too bad a job.
 
Anyway, go take a look at the brand’s blog post on the subject. If you don’t hit your mute button, you’ll have to listen to “I Feel Pretty” from West Side Story as the background music. Oh what the hell- don’t mute it. You ought to get the whole effect (The music on the actual video of the session is better).
 
First I laughed. I mean, it’s not like this is the first time any of us have seen skateboarding used in a way that’s not precisely consistent with its roots as most of us think about it. Then I got a little morose and thought about how much I missed skateboarding being kind of dark, underground, urban, mysterious, exclusive. Maybe that’s a long way to say core.
 
Finally, I got around to thoughtful and thought, “Hell, if something is getting new people to skate, do I really care what it is?”
 
Now it gets complicated. I guess if I’m a core skate brand, I do care. Because “getting people to skate” doesn’t mean they are going to go out and buy a branded deck. A skateboard won’t be a statement to most of these people. It will be a tool they use to do something they enjoy. Like, I suppose, a snowboard has become. Or a basketball? Or golf clubs? Pick an activity.
 
It is the duty of every brand manager to convince her customers and potential customers that her brand is “better” than the competitors’ brand even, or maybe especially, when meaningful differences are hard to discern. But as quality improves (plateaus?) and distribution broadens it gets harder and harder to convince people that product differences, even if real, matter.
 
The skate industry spent many years and a whole lot of money explaining to people that a “real” skateboard was made of seven plies of laminated Canadian maple and nothing else. They succeeded. Then two things happened.
 
A lot of people said, “Well, we can laminate those seven plies of Canadian maple too, and we’re willing and able to sell it for less.” And they did.
 
And some skaters, especially those just discovering the sport (and they did think of it as a sport- not a lifestyle) said to the industry, “You’re right- a skateboard is made of seven plies of laminated Canadian maple just like you said and just like these cheaper decks.” Excuse me if I don’t go through the entire industry lifestyle cycle, product becoming a commodity argument again here.
 
That brings me back to my earlier comment about caring how my wife looks, but not what brand of cosmetics she uses. The only thing I experience with cosmetics is the result. I don’t care about Bobbi Brown, its secret sauce, or the fraternity of users. My wife, on the other hand, could tell me in so much detail that I’ll never ask (though maybe I will now just to see what answer I get) why she uses the product. Part of the answer may be that she got a good price on it, but that won’t be the whole answer.
 
There is, of course, and will always be, a “core” skate market. That market, I expect, will come and go with demographics, because it usually has. And it won’t include just people who buy branded decks.
 
But now that product quality is high and distribution broad, a lot of, new skaters will experience skating like I experience cosmetics. As long as it works, I just don’t care about the details.
 
Bobbi Brown, I assume, is interested in selling cosmetics- not skateboards. They just decided, “Oh this might be fun. Look what we’re doing.” It could have been something besides skateboarding. I’m sure it will be in future blog postings. Was there a business calculation there? Of course.
 
Bobbi Brown’s skateboarding experiment felt inclusive and nonjudgmental. They were just having fun which I think is what you’re supposed to do when you skate.
 
Remember when we all (including me) mocked scooters when they came out? I thought they’d be a flash in the pan. They went through an amazingly accelerated business cycle and became a commodity. But it seems that some kids don’t care about that and just think scooters are fun. Somebody is making those things and selling them for, I’m guessing, a profit.
 
What if some core action sports company, skate or otherwise, had branded those things and started to sell them with a longer term perspective? Big risk? For sure. Leads to being mocked by your peers? Probably. Alienates some of your existing customers? Almost certainly. But who knows what might have happened. Business is a risk.
 
The core skate market has always had a sort of insular arrogance to it that was part of its marketing positioning and, for a long while, served it well. But the whole action sports industry, if that’s what we still are, has evolved to a point where being inclusive and nonjudgmental makes a whole lot more sense.
 
Longboards come to mind. They came out of nowhere, were kind of ignored in a “You’re not cool wish you’d disappear” sort of way by the core skate market and are now a big, big chunk of the skateboard market. Half? Part of that is because of demographics. But part is because they are inclusive and nonjudgmental. However you want to ride down a hill and whatever strange looking contraption you can design is fine with them. In fact, they will probably want to know more about why, exactly, your  contraption is strange looking. This does something to advance the technology and keep the product fresh. As I’ve written before, it feels a bit like the bike market.
 
Cosmetics is a cut throat industry with, as far as I know- and that’s not very far, most product differentiation created by marketing. And they have the advantage of every woman in the world wanting makeup. I gained great insight into this when my mother, fresh out of hip surgery and still groggy from anesthetic, asked for her makeup kit. I don’t understand it, but I acknowledge it.
 
Maybe inclusive and nonjudgmental has become more important than “cool.”

 

 

The IASC Skate Industry Conference

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The International Association of Skateboard Company’s conference week was, as usual, well attended by the people you want to see there. That’s a lot of what makes it worth attending for me. I enjoyed the Hall of Fame awards. It was great to see and hear some of these people I’ve only read about. I left before the bitter end, but heard that there was no hotel bowling or arrests this year. Oh well.

There wasn’t a presentation I didn’t learn something from, but I’ve highlighted some below where something they said struck a particular chord with me.

Transworld Business’ Mike Lewis started the conference with a review of data Transworld had collected on skating. Two things stood out for me. The first was the graph that showed the decline in skate participation in recent years in spite of the growth of longboarding. While the data is a bit controversial, the trend is clear. Partly, it’s the result of demographics, and the good news is that those demographics are starting to turn around. There’s a group of kids moving into the age at which kids take up skating. 
 
The success of long boards was highlighted by the presence at the conference of Concrete Wave publisher Michael Brooke, and by the appointment to the IASC Board of Directors of Sector 9 cofounder Steve Lake. Seems to me that long board representation at IASC is overdue.
 
Longboarding has succeeded not only because it appeals to a broader demographic, but because it’s been nonjudgmental about how you should have fun on a skateboard and its participants are very interested in new technology. I wrote about this after I visited the Interbike show and compared the bike industry to longboarding.
 
The second thing that stood out in Mike’s presentation was one of the answers to the question, “What’s selling?” One comment was “Anything longboarding!!”
 
From what I hear, that’s probably true. But there’s always a market top.  For any industry. The sheer exuberance of that statement reminded me a bit of the projections of the DOW going to 30,000 or the attitude of the 300 or so snowboard hard goods companies at the SIA show in 1995.
 
It’s not time to cut back on longboards as either a retailer or brand. But there will be a time when growth will at least slow and I doubt its five years away. So watch your inventory, control your distribution, maintain a strong balance sheet and keep innovating. That way, when the downturn does come, whenever that is, your company will be in a position to benefit from your competitors’ troubles.
 
SIA President David Ingemie discussed how SIA helps its members with a particular emphasis on quality research. An important part of David’s message was not to ignore the research because you don’t like what it concludes. Research, for all its flaws, is always better than anecdotal evidence. Just because you don’t believe it doesn’t mean it’s wrong.
 
University of Utah Economist Dr. Peter Philips kept us entertained and focused even while he gave us some sobering economic news. I’d seen it before, but the highlight of his presentation for me was the chart that shows employment decline and recovery in all recessions since the Great Depression. The message was that employment in the Great Recession has declined further and is taking longer to recover than any recession since World War II. Not news we want, but something we need to be aware of.
 
That, by the way, is how it’s always been in recessions caused by too much debt.
 
He also reminded everybody of the inevitability of the business cycle, and urged us to keep innovating as a way to push that cycle out as much as it can be.
 
The last speaker at the conference was Oliver Percovich, the founder of Skateistan in Afghanistan. The story of the five years he’s spent so far (he’s committed to ten) using skateboarding to give kids in Kabul, Afghanistan some fun, hope, education, and opportunity kind of makes whatever problems we in the skateboard industry think we have pale in significance. The industry has supported his program and I am sure it will continue to do so as he expands into other countries.  

 

 

Notes from the Skateboard Industry Conference and Hotel Lobby Bowling Event

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IASC and BRA did a great job putting on the annual skateboard industry conference this week at the Doubletree in Orange, CA. The attendance was good, the subjects all worthy of attention, and the beer sponsor much better than last year. Credit also has to go to Steve Van Doren and Vans for providing some food, some goodies, and use of their skate park which, happily, was within walking distance of the hotel.

There was also a floor show Tuesday night at the hotel (technically, it was Wednesday morning).   I’m told it involved some conference participants, four cop cars, and a red bowling ball that was prominently displayed the next day in the conference room. My only real complaint about the conference is that if there’s going to be entertainment, could you try and schedule it before I go to sleep?

Oh- and it would have been nice to have more than five or six retailers at the conference.
 
I wrote last week about distribution in anticipation of running the distribution panel at the show. But we spend north of an hour on distribution in the round tables and the conference was running an hour late, so the actual panel was cancelled by acclimation. As that panel was all that was standing between the participants and food, drink, and skating and it was the last panel of the last day, I won’t be surprised if it was the favorite panel of the whole conference. Thanks to Frank Messman from Blackbox, Timothy Nickloff from Sole Technology and Darin O’Brien from Nike Skate for being ready to participate. Maybe next year.
 
Now, I want to get the slightest bit serious. And probably way, way too direct for some of you. Please don’t shoot the messenger. Or shoot him- but do it in a cogent and thoughtful way from which we all learn something.
 
These are the assumptions on which my argument is based:
 
1.       There is way too much skate hard goods product out there and with the availability of blank skateboards and deck printing machinery, there are essentially no barriers to entry.
 
2.       The “core’ brands continue to pursue much the same business model they have always pursued where pro riders (of which there are also too many) form the basis for differentiating the brand.
 
3.       There’s less margin and margin dollars to go around and not enough to split between distributors and brands if the brands are going to continue to follow the same team based business model. The brands can’t afford to carry out their traditional marketing models at the level they used to.
 
4.       Long boards are taking a certain percentage of the traditional skate market to the extent that skaters who just want to cruise are choosing longs over short. They may be less influenced by the pros.
 
5.       Distributors allow some brands that would otherwise not be in business survive- at least for a while. This creates a cash flow dependence on the distributor.
 
6.       Companies who had confidence that their brand was competitively distinctive in the market and who had the balance sheet to survive the transition might tend not to sell through distributors.
 
7.       If the hard goods market isn’t healthy, the skate shoe and apparel market will suffer.
 
No brand has shared with me their financial statements, and no doubt there are exceptions to what I’ve described above. Each brand is different. But in general this model of doing essentially what’s been done before and hoping things get better can’t continue. How might it change in a positive way?
 
Demographics might start favoring skateboarding again. Angel Ponzi from Board-Trac told us that the drought of new kids of skating age is ending and that we’d see a surge in skate age kids. That’s good news, but it’s obviously a very gradual, multi-year process.
 
Technology may be increasingly accepted. As it was explained to me, pros who want nothing to do with new technology are finally retiring and are being replaced by riders who have grown up with it. This is also not a short term process, but I’d say we’re a couple of years anyway into it and it might start getting some traction. It’s not a panacea. It won’t work for every brand and it’s going to require some retailer rethinking and retraining by the brands. Let’s call it clinicing, like they do in the snowboard industry. That came up at one of the round tables.
 
Most sports (don’t mean to offend anybody by calling skate a sport) have something new every year that, even if it isn’t a major breakthrough, is at least a talking point that allows some differentiation and, hopefully, improves performance. In a lot of industries, it means higher prices and margins due to increased consumer interest and limited availability. It also increases barriers to entry. I heard one suggestion that skate boards were already so refined over many years that it was hard to improve on them. I hope that proves to be wrong.
 
There could also, theoretically, be some mergers among brands. That’s financially efficient because it allows you to spread your overhead, but it doesn’t solve the problems of no barriers to entry and lack of product differentiation. Along those lines, there was awareness at the conference of what Mike West, owner of the 686 brand of snow outerwear was doing. He’s recently announced that he’s going in to the fulfillment business in partnership with a Canadian company he has a long term working relationship with to help small industry brands operate more efficiently. He expects to spread his overhead and make a few bucks.
 
I suspect mergers are unlikely due to the long term personal relationships among brand executives. Oh hell, let’s just say egos. I am not quite certain that the owner of one brand would step aside to let his long term competitor run it, and I suspect that there is inadequate liquidity for buy outs.
 
My personal belief, and I’ve been saying this for some years, is that product differentiation via technology is the answer. Or at least, I don’t know another viable choice.
 
I do know that a small business with no barriers to entry and limited product differentiation and a business model that needs big advertising and promotion expenditures and shares its revenue with distributors over whom it has no control is unlikely to prosper in the current and foreseeable business environment- no matter how healthy skating is as an activity.  I’ve been known to say that not taking a risk is the biggest risk of all.  I think that might be relevant here.

The Skateboard Distribution Model- It Never Was Broken

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I just found out I’d volunteered to facilitate the panel on distribution at next week’s IASC and BRA sponsored Skateboard Industry Summit. I had to spend some time getting my thoughts about distribution in order, and I know of no better way than to write them down.

Distribution has always been a bit of a contentious issue in the skateboard industry. I’d regularly go to the IASC sponsored breakfasts at ASR and listen to the participants agree that the industry should “do something” about distribution. Then came the implied blame and pointing of fingers as the brands, retailers and distributors all looked at each other. Needless to say, nothing much was accomplished.

“The industry,” of course, is never going to “fix” distribution. Every company, if I can recite for the umpteenth time what seems to be becoming my mantra, is going to do what it perceives to be in its own best interest- as it should.  And, by the way, distribution isn’t and was never “broken” and doesn’t need fixing. As it does in every industry, it just evolved based on consumer requirements and competitive actions by companies. Distribution may be inconvenient and not the way we’d like it to be, but it’s not broken.
 
When concern about distribution is expressed, I usually translate it into “Where and how the other guy is selling his product is pushing my gross margins down and I need higher gross margins so they should change what they’re doing.” Another translation might be, “I need to run my business a little differently in the existing competitive environment, but I’d rather not.”
 
But of course eventually you will or you won’t be here. Let’s take a short look at how distribution evolved and what the drivers have been and are.
 
A Little History
 
Maybe ten years ago, skate hard goods distribution was pretty closely controlled. When it was still a smaller, underground activity the smaller number of skaters were content, or committed enough, to pay a high price for branded decks. Also, they had few options.  This gave the companies enough margin dollars to support their team and marketing programs.
 
Then a handful of things happened. The Chinese learned to make quality decks. The internet market place blossomed. Skateboarding went mainstream. The industry was slow to innovate. Big companies with way, way more money than a skate company could even imagine got interested in skating. Skaters figured out that what the skate companies had been telling them for years was true- a skate board was seven or eight plies of laminated Canadian maple and anything not made like that wasn’t a skateboard. But they took it a step further then we in the industry might have wanted them to. Many of them decided that since all the decks were the same (as they perceived it), it would be nice to have an extra $25 in their pocket for a product that was going to wear out anyway.
 
My belief is that the number of skaters grew dramatically for a while. But of course somebody who identifies themself as a skater isn’t necessarily skating every day, or even every week in our new broader market, so how much product they buy is unclear. As with any activity, you can identify closely with it, but not do it regularly yourself. Maybe you buy shoes and clothes instead of hard goods.
 
 In spite of the increase in the number of skaters, the market for branded, full price decks fell. There will always be a market for branded decks, but the overall number of skaters that feel it’s necessary to pay that price has fallen even as the number of skaters has increased. Please remember here I’m talking about the industry here- not specific brands.
 
We can’t talk about distribution without mentioning blanks and shop decks. Blanks are still out there, and those who want them can get them. But the shops, correctly I think, have decided that carrying blanks isn’t in their interest, and they’ve turned to shop decks. The margins are good, and those shop branded decks go a long way towards helping them connect with their customers and build the local skate community. And quite a few skaters, I gather, like belonging to the more tangible community revolving around their local shop than to the one represented by a pro skater they’ve only seen in videos. 
 
Cary Allington at Action Watch reports that in 2010 “shop deck” was the leading brand at the stores in his panel, accounting for something like 25% of short deck revenues. The second brand was about 6%. He further reports that the average price paid for a branded short deck (under 34 inches) was $47.34 in 2007 and $47.31 in 2010- essentially unchanged. Wonder what the cost of a deck did over that period. The average gross margin over the same period rose from 34.1% to 36. 2%.
 
The Distributors
 
Brands have two choices. They can sell in smaller quantities directly to retailers. They have to carry and manage the inventory to cover those orders, cover the associated overhead and, to the extent they extend terms, collect from the retailers. This ties up working capital. Or they can sell in larger quantities to distributors. If they take that approach they don’t have to collect, they get paid quickly, they don’t have to stock as much inventory and they save some operating expenses. It is, to put it succinctly, less balance sheet intensive.
 
In practice brands do both, selling to distributors and directly to retailers as well. I guess it’s pretty much up to the retailer to decide who they buy from. We could have a long and interesting conversation about the role of distributors in marketing brands. But let’s keep to the numbers part of things right now.
 
Distributors require discounts off the brand’s usual wholesale price- typically around 25% I’m told. At a time when margins for brands are already squeezed one wonders why brands haven’t stopped selling to distributors and gone direct. Nobody has shared their rationale for continuing to use distributors with me, but I suspect it’s at least partly a cash flow issue. Here’s why.
 
Let’s say a brand pulls out of a distributor. Immediately, the brand’s sales will fall to the extent of its sales to the distributor and assuming that all the distributor’s customers for that brand don’t turn right away to that brand to buy their product direct. And the distributor would continue to sell its existing stock of the brand’s product unless, maybe, the brand bought that stock back.
 
Over some amount of time, depending on the brands market strength, some of those sales would migrate from the distributor back to the brand giving the brand a higher overall margin. The question is how much and how fast? Once again, it depends on the brand. Would retailers that had been buying from a distributor just shrug their shoulders and say, “Oh well, I’ll buy a different brand” or would they say, “We’ve got to have that brand in our store.”
 
There would, then, be some initial decline in cash flow (hopefully temporary) and some permanent increase in expenses as a brand made the transition from the distributor to selling direct. My hypothesis is that business conditions have evolved for some brands to the point where they just don’t have the balance sheet to consider making that kind of change even if their analysis shows it would make business sense.
   
A Different Point of View
 
Snowsports Industries of America recently reported that February industry sales were down 1.5% for the month compared to the previous year. A bad thing? Nope, a great thing because gross margins had risen 8%. I wrote about it on my web site and basically said, “You made more money by selling less.” Now, a great snow year didn’t hurt, but basically most of the snow brands were scared shitless by the recession into ordering and producing less product and the consumer, finding shortages, was willing to pay more and valued the brands more. And if the snow guys are lucky and not too many brands and retailers get too greedy, and if it snows some, the industry can expect customers who won’t have any closeouts available to them this fall and who will be anxious to buy at full margin to get what they want.
 
I also wrote recently about Orange 21’s (Spy Optic) financial results for the year and recent management changes. I looked at their strategies, market position and competitive environment and suggested that maybe a $34 million company just didn’t have the resources to do all the things it needed to do to compete successfully in the sunglass and goggle market given the competitors and their resources.
 
I think both these ideas are worthy of consideration by the skate industry. Selling more doesn’t necessarily make you more money if everybody else is trying to do the same thing. And, like Orange 21, some of the industry companies may simply not have the resources to effectively pursue the skate team pro rider strategy that’s been the anointed foundation of this industry forever.
 
That’s not to say that isn’t a great strategy for certain brands, but I suspect that with the growth of skateboarding it’s become less important to more skaters. And that’s before we even talk about long boarding.
 
Shops are becoming brands. Quality decks are available from a variety of sources and can be found in a broader retail environment. Price matters more than it used to. Some brands have become dependent, to a greater or lesser extent, on distributors who could easily become their competitors if they choose to. Large companies with massive resources want a piece of the pie.
 
As much as we might want to, we’re not going back to the skate brand and retailer friendly distribution and pricing scenario of some years ago. Let’s stop talking about “fixing” distribution and focus on competing in the environment we’ve been handed.
 
I’m hoping, by the way, that some of what I’ve written is just the slightest bit controversial and that some of you will take the opportunity at the conference next week to explain to me how it is that my head found its way into such a warm, dark place. The goal isn’t to be right or wrong but to exchange information and maybe get a new perspective that will help us run our businesses better and build the industry. I always learn a lot when people tell me why I’m wrong.   

 

 

Notes from the Skateboard Industry Conference

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It was, by any measure, a successful conference and IASC did a great job putting it on. Attendance, at around 95, was up over last year, which was also up over the first year of the conference the previous year. The attendees were the senior people from the right companies. The food continues to improve (breakfast still needs work) and the skating at Woodward West is outstanding. Getting there from Seattle is a bit of an effort and I made the drive from Burbank this time without getting lost (the first year, the sign that said “Paved road ends in two miles” sort of threw me.

IASC kept us busy for two full days on interesting topics that included a key note address by George Powell, social media and action sports, why athletes go broke (I’m still sorry I missed the chance to invest in the rafts that inflate under furniture to protect them from flood waters), ethical sourcing, Shop- Eat- Surf’s Tiffany Montgomery’s interview with former DC Shoes CEO Nick Adcock, and a retail discussion.

Angelo Ponzi from Board Trac was given the thankless task of making the last presentation that summed up everything that had been discussed during the whole conference. Word is he pulled it off and people wanted more time with him, but I had to leave for the airport and didn’t see it. That’s representative of why it can suck to be the last presenter.
 
I talked before Angelo, focusing on the action of some major brands (see my most recent articles on Billabong, Zumiez and Genesco on my web site) with regards to their efforts in retail and relationships with core shops.   I suggested that the decline in the number of core shops, the financial model that needs to be pursued given the economic conditions (lower sales growth, focus on gross margin dollars), and the evolving retail environment suggested some pretty obvious steps that skate companies needed to take to be competitive. I spent a few minutes discussing those steps.
 
I guess if I’d been planning the agenda I would have scheduled discussions that focused more on those steps. They include effective use of your management information systems, focusing on inventory turns- not just gross margin percentages, distribution (“The Industry” is not going to “fix” distribution, but most companies can manage their distribution better if they have better information), and the role of the existing skate distributors. Those topics are clearly not as much fun, but they might be more important to the long term health of the industry.
 
Skateboarding as a sport/activity/lifestyle- whatever you want to call it- seems to be doing just fine, though the individual companies have challenges. I thought skate’s problems and strengths were best framed by a brief exchange between an executive from a major retailer and a hard goods brand owner. The retailer bemoaned team riders showing up drunk,  showing up late or not at all, and not interacting with the kids. The owner said, more or less, “That’s the way it is. If you don’t like it, don’t invite them back.”
 
I’ve never managed skateboard team riders, but I have had some dealing with snowboard team riders. What I’ve always said is that I’d rather have the kid who was personable, professional, and showed up on time (sober) even if he wasn’t quite as good as some other rider so I probably tend to come down on the retailer’s side on this one. Yet the brand owner (a former pro skater like most of them) was defending something that is important about skateboarding and that has allowed it to maintain its edge and underground image even as it has mainstreamed.
 
That edge and image were also handily maintained by something called “hall bowling” the first night and by a report of somebody riding a rollaway bed down the driveway the second. That the bed was ridden was denied in the morning (but there was a mattress under a tree). But as I was printing out my boarding pass I did hear the lodge staff discussing how much to charge for a rollaway and wondering why anybody would allow this group an open bar. I of course, being the sober serious fellow I am, had nothing to do with any of this. Except for the part where I woke up at 4:30 to find that somebody had turned off the power to my room (and to others) and it was about 45 degrees. It’s cold at this camp at 4,000 feet elevation.
 
I can’t wait for next year!

 

 

What Does the Skate Industry Want From Trade Shows? I Think I Know.

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Transworld is trying to get an on line discussion of this topic going, and that’s a good idea. So far, it hasn’t generated much discussion and that’s too bad. Maybe the problem is that they’ve asked the wrong question by focusing on the skate industry. If they’d just asked, “What does a company- any company in any industry- want from trade shows?” they might have gotten some better answers.

 At the risk of oversimplifying, what any company wants from a trade show is to know that the benefit to their business, in terms of sales generated, or market positioning, or whatever, justifies the cost. If you ask any executive of any brand, you’ll find it really is conceptually that simple, though measuring the benefits can be hard.
Obviously, right now a lot of skate brands, and other action sports industry brands as well, feel the cost exceeds the benefits. Between tough economic decisions and changes in how we do business that isn’t surprising. 
I wrote in my recent article on trade shows that the role of trade shows was to make things easy for retailers, and that we weren’t doing that by creating more shows. I said that the internet, free communications, changes in order cycles, selling to non participants through expanded distribution channels and other things were changing the role of the trade show. And not just for skate.
How do we make trade shows most effective? Well, aside from having fewer of them, I’m not sure. To find out, I’d want very specific answers to the following questions:
·         What role do shows play in generating orders compared to ten years ago?
·         How has the cost of attending or exhibiting at a trade show changed?
·         Is there any relationship between size of booth and measureable success at a trade show?
·         To what extent is brand attendance and presentation driven by competitor behavior?
·         What are the measures of a successful trade show for a brand and for a retailer?
·         How long does a retailer need to be at a show?
I’m sure this list should be longer.   I assume that ASR, SIA and Surf Expo have asked these questions and others.  Trouble is, in this environment it’s no longer possible (or at least it’s a lot harder) to reconcile the needs of brands and retailers to the show formats the trade show companies need to make a buck and I imagine the answers to some of the questions above might demonstrate that.
Vested interests will, understandably and inevitably, make it tough to reach a consensus on what an appropriate trade show format is in the current environment where there’s no longer the cash flow to permit an easy compromise.
What industry companies want from trade shows is something that the trade show providers are having a harder time providing at a cost that makes sense to the companies. This cognitive dissonance is likely to continue to exist and leave us with our current, somewhat dysfunctional, trade show situation.            

Can We All Please Just Calm Down? A Business Perspective on Blanks

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I can’t believe I’m doing this. Oh lord, how many people am I going to piss off this time? I mean, I could just lay low and let the slings and arrows fly back and forth but no, I just don’t have the intestinal fortitude to keep my mouth shut. Instead, there’s this almost pathological need to try and reduce a highly controversial and frankly emotional issue to a series of business bullet points. I guess I’ll console myself by remembering that I’m not going to say anything here I didn’t say some years ago in Market Watch.

I might as well get it over with. Maybe it will help me sleep at night.
For those of you who live at the United States Air Force weather station three miles from the South Pole (and don’t have an internet connection), IASC and the leading skate hard goods companies created and wrote the 32 page insert called “Under Fire” that you all received in the recent issue of Transworld Business.
My hats off to them for achieving a level of efficiency and cooperation that, honestly, I wasn’t sure they could pull off. And they succeeded in highlighting what I think most of us would agree are the major issues confronting the skateboard hard goods industry today and identifying some action items. What I’m going to do is review those issues and then go a little deeper into the business implications of what they are saying and advocating.
Remember that “Under Fire” is a consensus document. That is, not everybody who was represented in it would agree with everything everybody else said. Still, I thought there was remarkable consistency across a number of key points.
And the Key Points Are……
The bedrock of the whole argument is that pros are the foundation on which skateboarding is built and that their influence is key to getting kids excited about and continually committed to skating. Okay, I agree that pros have big influence on the core of skating. How much? As much as they use to? Don’t know.
The next point is that the brands’ marketing activities, including their support of pros, is critical to the health of skateboarding. If skaters are buying blanks and shop decks (I consider those separate categories, and will discuss why later) rather than the more expensive branded decks, the brands can’t afford the same marketing programs. That’s simply a financial equation. Can’t argue with it.
And, the argument continues, if professional skateboarding and the associated promotional activities aren’t strong and can’t be continued at the same level skating, as an activity, a lifestyle, an attitude, and as a business is fated to decline.
Well that would suck if it actually happened. What do the brands want to do about it?
First, they acknowledge that it’s time to introduce some technology and innovation into skate hard goods to give skaters a reason to buy the more expensive branded decks. We’re already seeing some of that start to happen and you’ll see more. But of course it’s not an instant solution. The industry has spent a lot of time, effort and marketing dollars to convince skaters that a skateboard is a seven to nine ply laminated product made of hard rock Canadian maple. Skaters seem to believe it. Getting some of them to pay more for something that ain’t quite that, even when the benefits seem obvious, will take some persuasion and some time.
I guess where we’d like to be in where, for example, golf is. You know- they come out with “new and improved” models every year and people buy them even though there’s nothing wrong with their old stuff and the new stuff is expensive and doesn’t necessarily make a difference in their game. Or like in automobiles- where the newest technology appears in the top of the line product and works its way down year by year.
This will require, however, that the pros be in lock step with their sponsors.
Second, they recognize the shop’s need for a better margin on branded hard goods. What are they going to do about it? Somewhere between lots and nothing. There are brands already offering better margins and some that just don’t want to compete at the lower price point. There is, by the way, nothing wrong with a business decision to not offer a less expensive product if that’s what your market position and targeted customers require.
“Under Fire” is only “the first step in IASC’s plan to continue educating and informing the industry about this issue.” There will be additional steps in the program. The supplement ends with a call to action suggesting some tactics that all the industry’s stakeholders should consider.
So, Where Are We Exactly?
You remember all this from a few years ago. Skating takes off, skate parks start to sprout like mushrooms, brands can’t keep up with demand. Everybody’s happy. Then the market gets big enough for the foreign, low cost manufacturers to notice it. “Hey, we can make this cheap,” they say. They’re right. The usual startup problems. Problems resolved. Eight bucks landed cost for a blank skateboard if you’re buying in quantity. Maybe less. Consumers get the idea that the quality of blanks and shop decks are the same as the branded deck. Big price difference. Product wears out. No fundamental change in the product in 20 years or so. Percentage margins decline. Worse, total margin dollars earned on a deck decline. Fifty to seventy percent of deck sales world wide (you pick the number you believe) are blanks and shop decks.
So after a period of rapid growth, the industry matured a bit and started to consolidate. Product becomes a bit of a commodity, price and margin pressures, volume matters, etc. Look, I’m not going to go through this for the 14th time. All the usual things happen that happen to any industry in its life cycle. Big surprise. It’s so predictable it’s boring.
Anyway, wherever you go, there you’ll be. And here we are. There are some business issues implicit in Under Fire that it didn’t specifically discuss. Well, you can’t blame them- if they had, you’d be confusing this thing with the telephone book. But me, I always wanted to write a phone book.
Why People Buy
As far as I know, there are three things that motivate people to purchase a product. They are advertising and promotion, product features, and price. It appears, right at the moment, that advertising and promotion isn’t working too well for branded skate decks. If it was, there would be no Under Fire and I wouldn’t be writing this. Which, frankly, would be fine with me. There must be a better use for a Saturday morning. I mean, I could be doing yard work. Never mind. I’ll write and send the two teenagers out. Same to you kids. No, you can’t play with the chain saw.
New product features? Well, uhh, there really haven’t been any that have caught on, though hopefully that’s starting to change.
That, I am afraid, leaves us where we really, really didn’t want to be. At price. Let us then discuss the elasticity of demand with regards to price. If the blank/shop deck is, say $20.00 and the branded deck is $50.00 and you’re a fourteen year old without a lot of money or the a parent of a fourteen year old who knows you’re going to be back in this shop in a month, that’s a big difference. Apparently, too big a difference for a lot of people.
How big a difference wouldn’t be too much? Judging from the discussion of the demand for the $35 branded deck in the sacred supplement, the retailers seem to think that’s a price point at which they can sell branded product. But would $40 also work? Or does it need to be $30? What kind of and how much advertising and promotion and product innovation can change that?
We don’t really know. Or at least I don’t know. Actually, I guess I do know the answer. The answer is, “It depends.” Isn’t that helpful? It depends on the brand. It depends on the shop. It depends on buyer motivation. Has anybody out there rigorously asked 500 skaters, or even 100, why they bought the skate board they bought?
Right at the moment, if we asked a bunch of skaters, we know quite a few of them (fifty to seventy percent I suppose) would say that price was a big factor, as is their belief in a lack of meaningful product differentiation. More troubling, I suspect that if we asked our questions just right, we’d find that many are indeed influenced by the pros- but that doesn’t translate into buying a branded deck.  Finally I’d expect to hear, “I support my local skate scene.” And that brings us to our next topic.
Blanks and Shop Decks
Let’s define a blank as a skate board either with no graphics at all or with graphics with absolutely no legitimate connection to skateboarding. There will always be a market for both. Some percentage of the market, especially lacking any real or perceived product differentiation, will always want to buy the cheapest thing they can. It’s true in any market. And somebody will always supply it.
I’d like to say that again- If the customer wants it, somebody will always supply it. Lacking a change in skater perception and motivation, every store and shop that stops selling blanks creates an opportunity for somebody who does sell them.
The non branded board with graphics has been the province of the larger chains and sporting goods stores, often as completes. There’s no possible reason for a “real” skate retailer to carry them, if only because they’d make more money on their shop decks as well as promoting their shop. They are going to be around, and I imagine the quality has improved.
Shop decks, though, are a different story. What I hear, and what I suspect is often true, is that a shop deck, in a good shop’s neighborhood, is essentially a lower priced substitute for the traditional branded product. It offers a certain customer the same sense of legitimacy, belonging, and connection to skating and the skate culture that they use to get from the branded pro deck. And it’s cheaper. And shops make good money on them. I wonder how many shops put out their own pro models. Shop decks are not going to disappear. In fact, they may get stronger. And as I said, I don’t think the success of shop decks is just a price issue.
Maybe, with the right technology and promotion by the brands, shop decks can become the entry level boards.
It would be interesting to collect some good information on sales of shop versus blank decks as I’ve defined them. They really are separate categories, but they’ve been lumped together.
The Role of the Pro
I suspect there are some people who feel no need to collect any data on buyer motivation. They believe they already know the answer they’ll get back. In Under Fire, most of the brands say their companies are rider driven, or words to that affect. Always have been, always will be. That’s a valid statement of principal, but it may not be an adequate basis for a business, judging from the decline in the sale of full price branded decks.
I would not try to push a comparison between snowboarding and skateboarding too far. But I will point out that snowboarding use to have a pile of pros and sell lots of pro decks. Once the industry matured, that started to decline until today, the number of pro snowboards sold is vanishingly small.
That doesn’t mean that the pros don’t still influence snowboarders. But what the snow board brands finally figured out was that the best pros were worth whatever you had to pay them. The ones that you just flowed product to and maybe offered contest and photo incentives were influential at their local scene. All the riders in the middle? Not worth what they cost was the decision, and they are gone.
By the way, my definition of the best pro is not just the one who’s the best skater. It’s also the one who’s personable, responsible, professional, and shows up on time.
The other things that happened, in surf especially, is that the apparel and footwear companies picked up most of the team/pro sponsorship and other marketing expenses.
Is this how skateboarding will evolve? I don’t know. Skate hard goods companies have historically been the bedrock of skate boarding.   Certainly shoe and apparel companies are spending plenty of money supporting skateboarding.
So here’s the marketing matrix. Some skaters are influenced by the pros and buy pro decks. Some are influenced and buy the pro’s brand. Some are influenced, but still buy what’s cheap, maybe spending their money on shoes and clothing again. Some are influenced and would like to buy the pro deck but can’t afford it. Some don’t give a shit and buy whatever is cheapest as long as they perceive the quality is equivalent.
Well, we’re back to buyer motivation. Let’s talk to those few hundred skaters and figure out just where the industry (and individual companies) should be spending its advertising and promotional dollars.
Distribution
Everybody gets together to discuss distribution, tries to blame the other guy for the so called mess, and nothing changes. I’ve seen it too often, and I’m not talking just about skateboarding. Anybody who runs a company in the action sports business sits at their desk and ponders distribution every day. They know who they can absolutely sell to. They know who they should definitely not sell to right now. They try and figure out when and what and how much they can sell to all the accounts that don’t fit neatly in the “sell” or “don’t sell” categories. They ask themselves, “What will other accounts think? How will it impact the brand? How much money can I make? What’s the potential for growth? Is it consistent with my brand’s market position and brand strategy?”
So distribution evolves as companies grow and brands change. It just does. There is no mess. There’s just normal industry/brand/retailer evolution. Do what’s right for your business given this inevitable fact. Don’t look for somebody to blame, and don’t wait for it to be fixed.
Industry Evolution
Industries change. They just do. Companies adapt or die.  The customer always gets what they want. You can influence them, but not always as much as you’d like. An industry succeeds when the companies that make it up compete. Part of that competition is always innovation. Some do well, some don’t. But the industry itself progresses; sometimes kicking and screaming, but it progresses. I guarantee that every company will do what it perceives to be in its own best interest.
I went to the Park and Recreation Convention here in Seattle last October. Basically this is the convention of people who sell stuff to playgrounds, and I can only say that I wish I was a kid again. Lots of cool stuff that’s beyond what I could have imagined when I was of an age to use it.
I saw Per Welinder from Blitz there, manning the IASC booth and promoting skate parks. I walked around a corner and came face to face with Beau Brown, formerly of Sole Tech and now COO of Radius 8, a seller of portable skate ramps. His face was all aglow from the huge number of business opportunities he thought he had at the show. As we talked, a guy from some municipality came up and, apparently amazed to learn that portable ramps existed, asked how quickly he could get some. He guessed at the price, kind of suggesting that one might cost $3,000 as I recall. Beau, who seems to have a nasty ethical streak he needs to get over, told him that no, the one he was looking at was only $300. The guy scurried away to get his boss.