Speaking of Consolidation- Boardriders’ Acquisition of Billabong

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Back in September of 2013, when Centerbridge and Oaktree invested in Billabong, there was some discussion/consternation about the possibility of Oaktree combining Quiksilver, which it already controlled with Billabong.  Quiksilver’s name, as you know, was changed to Boardriders.  It owns the Quiksilver, Roxy and DC brands.  Billabong’s three largest brands are Billabong, RVCA, and Element.  It also owns some smaller brands which I continue to expect will be sold.  Probably easier to do that once Billabong is not a public company.

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Sell the Experience, Not the Product: The Wavestorm Board

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I knew about this article on the Wavestorm $100 surfboard before it ever came out. In some ways, it’s old news. Less expensive surf boards of various constructions and materials have been popping up for years now, and the Wavestorm isn’t new. I guess the genie was out of the bottle around the time Clark Foam went bell y up.

So on the one hand it’s old news. It was highlighted on Boardistan, and I kind of decided there was nothing to discuss. But it kept popping back into my consciousness, and I couldn’t bring myself to delete the link to it. I even wrote 500 words at one point and trashed it.

But here I am. It’s Sunday morning and I think I’ve figured out what’s bothering me. That is, I finally know, from a business point of view, why I care.

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The Surf Industry and Bob McKnight’s Conference Speech: Points of Contact

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Most of you are probably aware that the Surf Industry Summit took place in Cabo starting about 10 days ago. The keynote speaker on the first night was Quiksilver founder and Chairman Bob McKnight. His speech was somewhat controversial. The text is available on Shop Eat, Surf, but only if you’re an Executive Member. I’m not, but some people sent me a PDF. I’ve read it a few times and listened it to, but was not at the conference. You should find a way to get yourselves a copy.

My goal is for this to be useful and professional. That doesn’t mean I won’t disagree with Bob on some points. I do and I will. But as always, my goal is a discussion that makes us think differently, and do better business. A quality disagreement is the best way to learn new things.

I’m going to use Bob as a bit of a stalking horse, responding to some of the issues he raises but doesn’t fully address if only because of the limited time available. But these, I think, are precisely the issues that future conferences should focus on. When it does, I might start coming to the conference again.

If they’ll have me.

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Thoughts on a Longboard Trade Show

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Concrete Wave sent out a press release February 21 announcing the first longboard tradeshow in New York City on March 11. I didn’t think about it much at first, but as some time passed, a few questions occurred to me.

The first was, “Why does longboarding need its own trade show?” Maybe it doesn’t need it, but apparently the longboarding part of the skateboard industry wants it. Given the growth of longboarding, I can’t see any reason why they shouldn’t have it. I’ve heard estimates that longboarding represents up to 50% of the skateboard hard goods market (personally, I think that’s a little high).   It also seems logical to me that these longboarding companies, many of which are pretty small, can’t really afford, and maybe don’t need (yet?) a big, longer show like Surf Expo.

The second question was, “What, exactly, is a trade show?” This one will last only from noon to 8PM on March 11, will be streamed live over the internet (at www.pushculture.com), and is being held at the new and second location of The Longboard Loft, a retailer in New York City. The reason they are doing it there, I gather, is because the place isn’t quite completely open yet and there’s room. The show will be followed by the presentation of the Second Annual Concrete Wave/AXS Gear Reader’s Choice Awards.
 
Following the demise of ASR, there was a lot of ringing of hands, meetings and phone calls as organizations dependent on ASR scurried around to figure out how to replace their lost revenue. There was talk that those organizations might decide to combine forces and put on their own trade show. Honestly, I don’t expect it to happen if only because of the significant cash that would have to be committed and the fact that putting on an ASR type trade show is a complicated management undertaking- a fact that may not be appreciated until you start to think about doing it yourself. Done on a large scale it requires a long lead time and experienced trade show management.
 
This longboard show is called a trade show, but I think another term might be appropriate. How about “organic industry gathering?” All I know is that about 32 longboard brands decided to get together for day, show product, talk to their customers (consumers as well as retailers), exchange information, and probably have a good time.
 
Actually, there’s a waiting list of another 13 brands. They’ve been invited to come anyway, hang out with their product and, if necessary, display it at the bar next door. Brands that are attending include Sector 9, Globe, Earthwing, Triple 8, and Bustin.0   I’m guessing the people putting this on aren’t even certain how it will all work out.
 
If there was still an ASR, would this show even be happening? Yes. Longboard brands aren’t participating in this show instead of going to ASR. They needed something that met their needs, and they needed it on the East coast. Longboard is a distinct and growing industry segment. That’s not my opinion- it’s what the consumer has decided.   Action sports is no longer quite so distinctive and is not growing very quickly unless you include new sports in it, and then one wonders if it’s still action sports.
 
Organic industry gatherings work when there are common interests and rationales for participating. Part of ASR’s problem was that it lost that as the definition of action sports changed.
 
My third and last question was, “How come long and short skateboard companies aren’t in this together putting on a single skate industry show?” Different cultures and customers? Partly. Because they are competitors? That’s an interesting question I don’t know
the answer to. 

I expect to watch this show on the internet for at least a little while. Maybe what makes an organic industry gathering successful isn’t the location, the size, how long it lasts, how many people come or how much business is done there, but the common interests of the participants. Just a thought.        

 

Accidental Encounters with Two Magazines and Market Evolution

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The other day I was reading Vanity Fair. That’s a little weird. But my wife gets it, and one of the highlighted cover stories was “Surfing the World’s Giant Waves.” I enjoyed it and learned a little more about surfing history. Still, I was a bit surprised to find the story there. The mag was full of high end fashion ads. Those ads weren’t a surprise.

Then, on another other day, I picked up Complex magazine while getting my oil changed. Actually, it was my car’s oil. Mine should be okay through trade show season.

There were five pages of Vans ads and Volcom had a two page spread. They were right there with the Smirnoff’s ad, the Puma ad, the video game ad, and the various car ads.   DC had an ad for the Rob Dyrdek collection.
None of the ads I notice in either of these magazines (I might have missed one) mentioned skateboarding, snowboarding, surfing, or any of the other sports that might be considered to be “action sports.” Not even the Vans, Volcom or DC ads.
Vanity Fair obviously believes that big wave surfing is of interest to its readers. That’s good news for surf companies. I’m guessing that most of Vanity Fair’s readers don’t surf. But all but the smallest surf companies sell a chunk to most of their product to non-surfers, and they are certainly pleased to see upper income non-surfers be exposed to surfing.
Complex represents a culture, attitude, lifestyle that I’d characterize as young, urban, sarcastic, and a bit in your face. It suggests a certain level of indifference to convention and norms and implies that if you adopt its standards you’ll somehow be self-confident and respected. Cool, if you will.
It is what and how the cores of skate, snow and surf began. Except that you actually had to skate, snowboard or surf to achieve this differentiation back then, and that was a simple distinction.
If our industry was all about, and only about, supporting people who surf, skate or snowboard, I doubt there would be any successful public companies. The participant market and its growth prospects are not large enough to interest Wall Street.
Vans, Volcom, and DC, public or owned by public companies, know this. So we find them running what I think I can fairly characterize as fashion ads (hell, maybe all ads in our industry are fashion ads) making no mention of their roots and the sports they are/were closely associated with. You and I, of course, know what those associations are and our perception of those three brands are influenced by that knowledge. And the people who read Complex? Some of them know, but I imagine a lot don’t. And apparently that’s fine or these brands would feature that association in their ads.
No ads in Vanity Fair yet, and maybe we’ll never see that day. The Vanity Fair sensibility (high style?) is a lot different from Complex (urban/trendy?). Still, though I don’t expect to see it, wouldn’t it be interesting if some brand decided to take a flier just for fun? I can see the Mervin Manufacturing ad now. “Some fool in the marketing department put an ad in Vanity Fair.  They’ve been fired but you can buy our snowboards anyway if you want to. They work good and besides, the ad’s already paid for.”
Yes, it’s easy for me to be cavalier with somebody else’s money.
But you can see a divide happening in the industry, whatever industry we’re in. On the one side are companies that service participants. On the other side are the ones who are more and more fashion based and have to decide how to position themselves with respect to their roots. Is it about trendy, stylish, comfortable product or about making the trick? Can it be both? Depends on your market and how you segment it.
It isn’t that black and white, and the discussion would be different for every brand. But if you make the fashion decision, then you are choosing to compete in a market that dwarfs the traditional action sports industry in resources and sophistication. And you probably need help. This is, and will continue to be, the rationale (a valid rationale) for consolidation and the acquisition of brands that want to “take it to the next level.” In fact, I think it will be the unusual company that gets to that next level without being acquired.

 

 

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. 

 

 

A Tale of Two Surf Shops. Kind Of.

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I grew up spending all my summers on Long Beach Island, New Jersey. That’s where I learned to surf. And just before anybody makes the comment yes, the surf is generally lousy and for anything really good we have to pray for hurricanes and a change in the prevailing south winds.

We still have a family beach house there, and I was back last week on vacation. We left, naturally, on Friday, the day before Hurricane Bill hit. So instead of getting surf, I got stuck with a five hour weather delay in the airport. Life is not fair.

Enough bitching and moaning and explaining. Naturally, since I was on vacation, I took the best part of a day and visited surf shops and I wanted to contrast two of them.
 
The first is Farias, which has been on the island for 35 years and has three locations. I was in the largest location in Ship Bottom. It’s open all year. It was attractive, well merchandised and well lit. The large selection of boards was upstairs.
 
It’s a big store and they carry, well, all the soft goods brands you would expect them to carry. Go look at the list on their web site here. http://www.fariassurf.com/products/surf-gear/ Even though Farias was large and carried all the requisite stuff you have to carry when you’re on the main street of a summer vacation town, it did a good job feeling surf focused- because it is.
 
The second shop was the Brighton Beach Surf Shop. According to Michael Lisiewski (who’s business card says, “Owner/ Surf Instructor,” the shop was opened in 1962, giving them 47 years under their belt. I’m assuming it was his father who started it- either that or Michael is the best preserved guy I’ve ever seen. They also started Matador Surf Boards around the same time.
 
Here’s the link to their web site. http://brightonbeachsurfshop.com/   Check out the list of soft good brands they carry- oh wait, they don’t have one. That’s because they don’t carry any of the usual soft goods brands. Not one of the 22 industry standards that Farias carries are sold at Brighton Beach. Of course they have some soft goods- sweat and hats and t-shirts. Many of them say Long Beach Island on them. There are probably some store t-shirts as well, but I don’t specifically remember them. Hey, I was supposed to be on vacation.
Why don’t they carry them? First, because merchandising just one of these brands the way Farias can do it might come close to filling the whole Brighton Beach store. If I’m exaggerating, it’s not by much. The place is a bit small.
 
Second, that’s not what their focus is. As I stood there, the kids came in and went out asking about surf boards and surfing. According to Mike, these are his key customers.
 
At Brighton you can get “Everything you need for a day at the beach.” You can get that at Farias too. Like Farias Ship Bottom store, Brighton Beach Surf Shop is open all year around. Unless Mike is out surfing or isn’t there for some other excellent reason. 
So we’ve got two surf shops, both focused on surfing, but very different in terms of how they do business and where they make money. Is one better than the other one? Nope. At 35 and 47 years, it’s pretty clear that they both have strong business models.
But what fell on me like a sack of hammers after my tour was that you can’t be Brighton Beach Surf Shop if you try and carry even one or two of the brands that Farias carries. And you can’t be Farias if you carry only one or two of those brands either.
 
Maybe I just don’t get out often enough, but it suddenly occurred to me that there might no longer be room for shops caught in the middle. You either carry a large assortment of brands (or you’ve got to figure out which ones to carry and that’s a crap shoot) or you carry few to none of the broadly distributed brands (because you can’t merchandise them well or compete on price).
Perhaps that’s already been obvious to everybody but me. Who says you don’t learn anything on vacation?

 

 

Here’s a Chart Worth Seeing

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After my post on SIMA’s 2008 retail study yesterday, I got curious about the percentage changes quarter over quarter it implied. The Media Highlights gave me total core sales for the year and the percentage of sales in each quarter. SIMA gave me the same information for 2006. The rest of the calculations are mine and I used them to create the table below. The numbers don’t exactly add because of rounding, but that doesn’t really matter.

 

 

 

 

 

 

 

 

Fourth quarter skate/surf core sales were 17.5% lower in 2008 than in 2006. We don’t have 2007 numbers because SIMA only does the survey every other year, but I’m guessing the 2007/2008 comparison would look worse. SIMA has now told me that this information is in their full report, but I don’t have that and I’m guessing a lot of you don’t either.

I don’t think that number will surprise anybody who’s actually running a business, and I don’t believe it’s worse than other consumer related businesses. I look forward to improvement from this point on.

 

 

Hard Truths about the Action Sports Business; Use Them to Make Lemonade from Lemons

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As I said in the last issue of Boardsport Source, the way companies choose to compete in the action sports industry and, I suppose, in most industries, is largely responsible for the maturing and consolidation of fast growth industries. Ask the skate and snow people. People way smarter than I have acknowledged that surf’s time will come.

It wouldn’t hurt to read that last article before this one.  So if you’re one of the few people who doesn’t seal their copy of this mag in an air tight case of bullet proof glass filled with argon gas to prevent the paper from deteriorating, let me know and I’ll email it to you.
 
I have the privilege of looking at things at my leisure from the 10,000 foot level without the distraction of having to make a budget, ship a product, or figure out which brands to go how deep on. I guess what I want to tell you is just how much this industry has changed. Perhaps that seems obvious, though if we take it as a given it’s amazing how little we seem to try to manage our businesses differently to compensate. What can we do, anyway? Let’s think about some old habits we should consider breaking.
 
Hardgoods
 
Congratulations. Surfboards, skateboards, and snowboards are all well made, quality products that the consumer can rely on.   The brands have done an outstanding job of designing, sourcing, and manufacturing. So much so that the prices keep going down. In the industry’s incestuous world, we bemoan this, point fingers in various directions (usually not in the mirror, which is where we ought to be pointing at least some of the time), and discuss endlessly what we can do to increase margins to what we “need.”
 
Maybe, instead of wringing our hands over lower prices and margins, we should all be congratulating ourselves for making it easier and cheaper for the consumer to skateboard, snowboard, or surf. I’m not suggesting that cost is the only, or even the most important, determinant of participation. But as long as we, as an industry, seem determined to drive down costs and prices, don’t you think we should celebrate that service we’ve performed for our customers and figure out how to turn it into a good thing rather than complaining endlessly about something that doesn’t seem like it’s going to change?
 
Why haven’t I heard of a surf retailer giving a free surfboard ($95 ex-factory out of China) to a customer who buys a wet suit, baggies, wax, sun glasses and a surf trip from the retailer? “But we’re not a travel agent!” bemoans the retailer. Well, maybe you better consider becoming one. That’s how scuba diving retailers, in the US at least, make a lot of their money. Is there any reason a snow retailer couldn’t do more or less the same thing? Maybe skate retailers should be selling a deck at cost to a kid who buys wheels, trucks, grip tape and a pair of shoes at regular prices.
 
Brands, resorts (or skatepark owners) and retailers should be sitting and talking about how you can help the consumer rather than about who’s fault it is that it’s harder to make money. Ignoring the Japanese snowboard phenomenon of the early to mid 90s, consumers don’t want a surfboard, skateboard, or snowboard for its intrinsic value or artistic design- they want to skate, snow, or surf.
 
Rather than bitching about what’s happened in hard goods, why don’t you embrace it (since you’re stuck with it!) and do something positive with it? Don’t sell skateboards, surfboards, and snowboards. Sell skateboarding, surfing, and snowboarding. That’s what your consumer is interested in. 
 
And those margins you “need?” Zumiez, the very successful US action sports retailer with around 130 stores just launched its stock in an initial public offering and so far, the stock has performed pretty well. Zumiez gross margin in its last complete year was 31%. I guess that’s all they “need.” I know- they’ve got all those stores, and they’re a mall shop, and they get better prices from suppliers, and we’re way cooler than they are, and, and, and, and….. Guess what? It appears that quite a few of the industry’s consumers don’t care about that. They think Zumiez does a great job. So do I. If you’re interested, here’s a link to their public offering prospectus. http://www.sec.gov/Archives/edgar/data/1318008/000104746905013143/a2153924zs-1a.htm
 
Distribution
 
I don’t have the words to describe how tired I am of hearing people argue over whose “fault” our distribution problems are. Whenever you get a group of brands and retailers together, the issue is bound to come up. But no new information is ever exchanged, and nobody has any useful suggestions. Why don’t we just get over it?  Whether you’re a retailer or a brand, assume that most product, hard good or soft good, is going to be available all over the place. It mostly already is. Am I overstating that maybe a little? Maybe. But we can all agree that every brand of any size is available in many different size and quality retailers in many locations.
 
Retailers have three choices. First, if your margins are going to drop, then you have to sell more to make the same level of gross profit. Maybe you’re a brilliant retailer and can do it by increasing sales per square meter in your existing space. More likely, you’ll have to increase your floor space or open new locations or add products. Or all of those. That, of course, requires you to increase the working capital investment in the business.
 
Choice two is to carry more new, lesser known brands. Risky? Yes, but no more risky than doing nothing as your margin drops and your operating expenses stay the same or rise. Besides it fits right in with choice three, which is to do what smaller retailers are suppose to do to compete- differentiate themselves by brands carried, customer service, and expertise. At the end of the day, the best specialty retailers can sell whatever quality brands they choose to carry, because the credibility of the retailers is so high that it rubs off on whatever brands the shop has. The ability to give credibility to any brand it carries may be the best definition of the specialty retailer I’ve ever heard.
 
Actually, I suppose these three things aren’t really choices, but tactics that should be pursued simultaneously.
 
If I were a brand, I think I’d sharpen by pencil and ask what would happen to my gross margin, marketing expenses, and bottom line if I were to get a bit more cautious on my distribution and was satisfied with lower top line growth. The UK brand Animal is taking something like this approach. By being cautious about their distribution, they keep retailers happy by promoting sell through at higher margins. That exclusivity increases demand and next year’s preseason orders. It also means they can be more judicious in their marketing expenses because limited availability drives demand better than a whole bunch of paid ads. The bottom line is, well, a bigger bottom line than if they focused exclusively on driving sales.
 
Marketing
 
I keep turning back to the two page Globe ad in this mag’s spring issue. It’s an artistic rendition of a single wave breaking in a big ocean. There’s nothing else in the picture. Not a product or a team rider in sight. Nobody doing a trick that 99% of the people looking at the ad can’t do. It reminded me of what I really value about surfing- the peace of just being out there even if the surf sucked. Anyway, there was always the hope that the occasional, elusive good wave that comes through even when the surf was bad would be the next one.
 
Was it a good ad or a bad ad? I loved it, but that’s up to you to decide. At least it was different and I noticed it. And of course this was a trade, rather than a consumer, publication. Obviously if you can make your ads different so that they get noticed in a positive way that’s good. If in fact more of the consumers who buy your product are non participants interested in the lifestyle rather than the technical specifics of the newest trick maybe more of these ads are particularly appropriate.
 
The caveat is it depends where you are advertising. In core consumer publications, read mostly by core participants, (I think- that’s an interesting question! Who does read them?) I suppose tricks and pros will also be the staple of advertising, though it tends to leave everybody’s ads looking the same. But if you’re reaching to the mainstream and becoming more and more part of the fashion industry, your advertising placement may change, or at least expand, and a different kind of ad become appropriate.
 
Don’t find yourself directing too much of your advertising to the industry. Deliver an image and a message that your consumers- not your retailers or your competitors- think is cool.
 
In this article, I’m asking you to do three things. First, focus like a laser on your consumer and what they want. Don’t confuse your team riders, the industry, or the retailers for the people who buy your stuff. They overlap for sure, but they are increasingly not the same for most companies. I can guarantee you that the companies that do that will be the most successful.
 
Second, rather than bemoaning the trends in hardgoods and distribution laid out above, recognize that they are normal industry evolution stuff and figure out how to operate your business given that they are here to stay.
 
Third, do some things differently keeping the focus on the consumer in mind. Yes, they feel risky but I hope I’ve made it clear that not trying some new business approaches is even riskier. If you agree that the industry has changed, how can you possibly make the argument that you should be using the same old tactics to build your business?

 

 

Self Help for Core Retailers; The Coastline Model

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Hi, I’m back. This was just too interesting not to inflict myself on. And I imagine O’Brien couldn’t find anybody else willing to touch it. 

From the last issue of TransWorld Biz, you may remember that our hero, Sean Kennedy of New Zealand, had started a company called Coastline owned by, so far, 42 core surf shops in New Zealand. The purpose of Coastline, as reported earlier, was to provide small retailers with the scale and collective resources to allow them to create and sell, just like the larger chains, their own store brand (Coastline) which they could control and earn a higher margin on. Seems simple, but I imagine that organizing a group of independent retailers and getting them to cooperate is a lot like herding black cats in the dark. But you know what? I like it.
 
I like it because it’s retailers taking the bull by the horns and helping themselves to deal with the issues we know exist for specialty retailers. I like it because it represents a realistic evaluation of how the retail market is evolving. I like it because it may be the difference between success and failure for some of the specialty surf retailers we all seem to believe are critical to the industry.  I like it because it can evolve to be much more than it is right now. I like it because after talking with Sean, I’m convinced it’s being done in a professional and businesslike way.
 
And I like it, truth be told, because I love anything that stirs up the pot like this. This is not “more of the same” to quote me.
 
Why Now?
 
This ought to be a really short section. Being a specialty shop in surf, or in any action sport has become a really tough business. People who aren’t either growing, or increasing their gross margins, or both, are going out of business. Growth happens, and if the market is growing I guess you can expect to get your share if you do things right. If it’s not, or if you want to grow faster then it’s hard work and costs money.
 
It would sure be easier to make money if fifteen or even a higher percentage of your sales were from a product that made you a 60% gross margin instead of 38%. It would be even nicer if some of those sales were incremental because this product represented a great value for your customers.
 
Let’s see, 15% of sales of one million is one hundred fifty thousand. Twenty points on that is $30,000. But if, let’s say, $50,000 of those sales are new, then you get $20,000 on the incremental gross margin plus 60 percent of those $50K in new sales, so the bottom improvement, more or less, is a total of $50,000 in additional gross margin. Granted, I just pulled those numbers out of my posterior parts (or “arse” as they call it in Dublin). But it’s kind of an interesting calculation, don’t you agree? 
 
So that pretty much deals with “Why Now?”. Hey look, I did keep it short.
 
How Do They Do This?
 
A few years ago, I had car insurance with what was called a mutual insurance company. That meant I paid my premiums, based on how much insurance I wanted and how many little old ladies I’d run over while intoxicated, and at the end of the year, depending on how the company did, I got some money back. It could be more or less depending, for the company as a whole, how many of those little old ladies were unhappy about being crushed.
 
Sean wasn’t all that forthcoming about details, but said my insurance analogy wasn’t too bad. Basically, the stores that are owners put up capital each year based on how much product they want. The company designs, gets made, and delivers the product. Coastllines also has to pay its people and own expenses. But it isn’t trying to show a big profit- it’s goal is to help its owners/members make more money. 
 
Coastlines is a bit cautious about what kinds of shops they allow to join the company. For now, they have to be surf shops, but equally important, they have to have a certain level of financial strength. Coastlines is no more interested than any brands in customers, even if they are owners, who can’t pay their bills. Makes sense to me.
 
Of course, that means that the shops who most need this kind of help are less likely to get it, but I’d hate to see the whole concept endangered because of the problems of a few owners, so I guess that comes under the heading of “oh well.”
 
The design work is all done by Coastlines, but they aren’t looking, in Sean’s words, “To create the image for 16 year olds. That’s Quiksilver’s and Billabong’s job. We just want to make an attractive product that sells well and gives the retailer a good margin.”
 
So they are going to be a bit behind the curve and look for what they consider to be the best and safest ideas they see. I suppose that might annoy some people but I can’t say that I see that as being different from what major retail chains do when they do private lable.
 
Sean was, as I would have been, tight with his numbers. That is, he didn’t give me any. But let’s generously assume that his 42 stores average $1,000,000 each annually in sales. Let’s say 20% of their business so far is Coastlines. If those numbers were anywhere near accurate, total retail sales of Coastlines would be (42 x 1,000,000) x 0.20 or $8.4 million New Zealand dollars. I want to emphasize again that I have no idea what the real numbers are, but I’m working towards making a point here.
 
Of course, Coastlines is selling the product to its owner shops at its cost plus some mark up. You pick the markup you think is appropriate and decide for yourself what Coastlines’ sales as a company are.
 
My point is that Coastlines needs to get bigger before it can really take advantage of economies of scale and have buying power with factories. Still, it’s way beyond what a single shop could hope to do already, and that’s why Sean thought it was so necessary.  How might they get bigger?
 
Future Plans
 
This is the intriguing part isn’t it? Sean was closed mouth about how Coastlines might evolve, but that was fine with me. I’ll have a lot more fun envisioning possible futures for Coastline without being encumbered by facts. He did let a few things slip. He allowed as he’d had some calls from different people in different part of the world and in different sports. And when I asked about having other action sports shops as owners, he said, “Not yet.” So he’s thinking about it and, I’m expecting, will be pulled toward growth and other avenues of expansion besides surf. It will be fun to watch.
 
One thought I had was that there wasn’t any reason that Coastlines couldn’t easily function as a trade association as well and offer benefits and services similar to the Board Retailers Association in the US (Join BRA if you haven’t already). And many months before I ever talked to Sean or heard of Coastlines, I had heard rumblings of some form of retailer cooperation from some pretty solid US retailers. If it works in New Zealand, I can’t see any reason it shouldn’t also work in the States. 
 
Right now, Coastlines’ product line consists of wet suits, some simple mens’ and women’s apparel, and a couple of pairs of shoes and sandals. The point is that it’s soft goods and, with the exception of wet suits and maybe sandals, the design and sourcing translates from surf to skate and maybe to some other places with little difficulty. Most retailer, even core surf shops, are selling lifestyle street wear to non participants. I can’t see any reason why Coastlines couldn’t move in that direction and find an attractive source of growth that would be consistent with its core mission. If surf shops, in the midst of unprecedented growth in surfing, need this kind of support, how much more must other kinds of sports specialty shops need it?
 
And the Brands?
 
Well, hell, I assume they would prefer that everybody buy their stuff and that there was no private label business from anybody. And they are probably still watching BRA out of the corner of their eye to see if Roy Turner is going to turn it into a buying group, which he keeps saying is not his goal. They’d also like it if all shops always paid their bills before their due dates and never returned any warranty product. And myself, I’d like to win the lottery, but I’m not holding my breath.
 
Sean and I, and maybe even most of you, agree that it’s too bad that distribution has become as wide as it has. And we wish the specialty retail environment hadn’t gotten quite so tough and competitive. And we’re not quite sure we’re thrilled with all the company stores being opened.
 
And then we shrug our shoulders and go, “If I was a brand, I’d be doing the same things.” We hope it turns out to be good for the industry. We know it’s the nature of competition and will be good for the brands who do it best.
 
But unlike some other people, Sean isn’t hoping brands won’t open stores. He isn’t bitching and moaning to his supplier when it open a shop down the street from him. He’s said, “Okay, this is how it is. How can we respond in a positive way that supports the shops that everybody in the industry thinks are critical to our industry’s future?”
 
If the shops aren’t incubators for new ideas and brands, if they aren’t aware of trends, if they and the brands don’t keep the lifestyle alive, then it’s just a sport and is less of a priority to the participants. And then it’s price that matters.  Let’s hope Coastlines continues to succeed.