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The 2010 SIMA Retail Distribution Study

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The first thing to say is thanks to SIMA for making this study happen and to Leisure Trends Group for doing the research. We don’t get access to near enough industry and market data.

As I’m not a member of SIMA, I don’t have access to the complete study. I’m working with the “Media Highlights” package that came out after the press release on the study.     

Two years ago, when the previous study came out, I did the same kind of analysis I’m going to do now. You can see that analysis here.
 
As usual, I’m doing this to try and identify trends and information that will help you run your business better and make you think about important issues. But the Media Highlights weren’t constructed with my needs in mind. SIMA’s goal in producing the highlights is to promote the industry to the broader market and to make it look good. I do not, by the way, fault them for a moment for doing that. It’s part of their job.
 
Anyway, keep that in mind here as we proceed.
 
The Headline Numbers
 
I’m sure most of you all saw these numbers in the press release. The “core channel” sales at retail (all these numbers are at retail) fell 13.5% between 2008 and 2010 from $5.32 billion to $4.6 billion. Sales at skate focused stores were down 11.6% from $2.85 billion to $2.52 billion. At surf focused stores, they fell 15.8% from $2.47 billion to $2.08 billion.
 
Footwear in core channels rose 8.2% to $1.5 billion and represents one third of total sales. Hard goods sales over two years were up 35.3% to $1.46 billion and represent another third. Well, if footwear and hard goods were up, but total core sales fell 13.5%, then apparel must be, well, not specifically too good. Down 41.1% actually to $1.0 billion. Interestingly, men’s/boy’s apparel accounted for 57% of overall apparel sales. Even with the weakness in juniors, that surprised me.
 
So if you’re like me you looked at these numbers and went, “Huh?!” On the face of it the hard goods increase and apparel decline seem just impossible even though it’s over two years. Then there’s the “other” category of sales which fell from $498.8 million to $18.4 million in two years. I hypothesize that there are some changes in classification and what’s included or not included going on here.
 
Core stores do not include military exchanges, company stores, and national department stores. I know what a military exchange and a national department store are. But when it excludes company stores does that mean, for example, that the Billabong store in my local mall is excluded?
 
That’s just what it means and, having discussed it with SIMA, I can see their point of view. If you called a company owned store, SIMA said, and asked them what their best-selling board short was, what might you guess the answer would be? The weighting towards company owned brands in company owned stores, SIMA argues, would skew the data.
 
You can see the difficulty SIMA and Leisure Trends have in decided who to survey or not to survey. The other side of the argument, of course, is that those board shorts sold in a company owned stores are real board shorts sold to real customers. Surveying them might skew the results, but all the brands who have company owned stores are working every day just as hard as they can to do just that.
 
Then there’s the issue of company owned stores that carry brands in addition to those brands owned by the company. What would SIMA do with Billabong owned West 49 and its 125 or so stores if it was a U.S., rather than Canadian, retailer? On the one hand, it carries other brands. On the other hand, Billabong is working to increase the owned brands component of those stores to as high as 60%. Would that skew the sample in such a way that West 49 stores shouldn’t be included in the survey?
 
I don’t know.  I’ve got an opinion, but I don’t know in a definitive way. You don’t know either. Neither do SIMA or Leisure Trends. They make the best decisions they can make given the information they have.
 
Internet and catalog sales contributed 16% of the total, compared to 14% in 2004. 55% of retailers are now selling on the internet. That’s double the 2008 percentage of 24%. I’m surprised it’s only 55%.
 
SIMA also estimates that surf and skate sales in all channels (including company stores, military exchanges and national department stores) fell 13.6% from $7.22 billion to $6.24 billion.
 
There’s a chart on page 5 called “Putting Things into Perspective-Retail Size of Other Sports/Recreational Industries that I didn’t agree with.” It lists that all channel estimate for surf/skate and shows 2010 retail sales for Outdoor (core), including paddle sales at $5.70 billion. Bicycle comes in at $3.2 billion, snow sports at $2.92 billion, scuba at $658 million, snowboard at $481 million and paddle by itself at $360 million. Next to the chart it says the following:
 
“Based on other work completed by Leisure Trends Group, surf/skate is impressively positioned among other retail industries.”
I don’t know what “impressively positioned” means. And I would dispute the idea that an industry’s size is determinate of its competitive positioning against other industries. I wish that could have been stated a little differently.
 
Definitions and Methodology
 
Just what is “core,” we’ve all wondered. In doing the research for this study SIMA says, “The CORE channel includes retail operations that classify themselves as specialty, lifestyle or sporting goods stores. Core stores do not include military exchanges, company stores, and national department stores.”
 
I asked SIMA if surveyed stores really did classify themselves and if that meant that Sports Authority could be “core.” They clarified that sporting goods stores are, in fact, included in the core numbers but couldn’t tell me about specific retailers because of confidentiality reasons. I can understand that. You aren’t likely to get much cooperation if the retailers submitting data don’t think it will be confidential.
During January and February of 2011, Leisure Trends did 446 telephone interviews with surf and skate retailers in the U.S. This sample was taken from a list of retailers reviewed and provided to Leisure Trends by SIMA. “The list of core shops that are surveyed is a list that has been compiled by brands’ accounts.” The brands provided the list.
 
“By being on the list, and qualifying for the study by having at least 10% or higher of their operation’s overall sales coming from surf and/or skate products they are considered within the Core Surf/Skate Channel,” SIMA told me.
 
That 10% bar seems kind of low for me. Especially as that’s for surf and skate combined. I wonder to what extent setting the bar that low expands the size of the total market?
 
I also wonder how they measure which retailer makes it to the 10% bar and what products are included in the calculation. It sounds like the retailers decide if they are 10% skate/surf. If a sporting goods store thinks they sell 10% skate/surf by including boogie boards, beach umbrellas, various brands of apparel, cheap complete skate decks, every swimsuit in the place and sun tan lotion, can they end up classified as being in what SIMA calls the core channel? Okay, kind of an extreme example but you can see my point.
 
SIMA clarified for me that they weren’t trying to define what a “core shop” means by the study and use the word only to define the shops that were surveyed. They suggested that something like “surveyed stores” might be a better term. I think it might be and hope they consider using it in two years.
 
Just to say it again, every study like this one has methodological and statistical challenges to deal with. There are tradeoffs and choices you make as you do your best to collect good data. But my readers know I think the core market is a lot smaller than this study suggests and I suspect many of you agree with me. If so, do me a favor and put a comment to that effect on my web site please.
 
Some Interesting Trends
 
The most interesting thing I found was that chain stores represented 35% of the total list of stores compared to only 9% in 2008.  The report notes that “Independent stores closed many doors in the past two years. Most of these were replaced by specialty chain stores causing a less than expected drop (-1.7%) in total surf and skate doors to 4,826 in 2010.”  That speaks more eloquently than I can to the way the industry is changing; or maybe it’s better to say the way larger brands are evolving out of the core action sports space.
Consistent with this, 81% of all surveyed retailers use a point of sale system, up from 60% in 2008. I conjecture that’s because a lot of the smaller, unsophisticated stores are gone, replaced by chains with good systems. SIMA points to two other trends that are probably driven by the growth of chain stores in their sample.
 
The first is the increase in the average number of store employees from 6.5 to 7.7. I’m guessing this could also reflect some recovery from the depth of the recession.
 
They also note more stores carrying snowboarding, wakeboarding, motocross, BMX and other sporting goods and suggest this is because more chains are in the sample. Probably true.
 
I’ve spent more timing writing and rewriting this than you would believe. It’s kind of old news, I’m working with incomplete data, and while SIMA was as cooperative as they could be, there was just some data they aren’t allowed to give me and questions confidentiality prevented them from answering. Why am I doing it?
 
As usual, because I think there’s a business lesson to learn. You just can’t look at the headline numbers and say, “Oh, this represents how the industry has changed.” 
 
The dramatic changes in certain categories (hard goods up so much, apparel down so much, the “other” category) gives me pause. They are indicative of huge changes in our competitive environment. They reflect vertical integration, the rise of chains, specialty shops going out of business, a broader definition of what our industry is, the use of systems by the survivors (and probably some different classification of product as a result), a lousy economy, and some others as well.   
 
You shouldn’t be depressed because the industry is smaller than it was two years ago. There’s good news for some segments, and for some companies, in there.    At the same time, you shouldn’t be giddy with joy as a hard goods company just because hard goods were reported to be up 35%.
 
What we can learn, as a reader of the press release and even the media highlights or the whole study if you have it available to you, is that you have to be cautious in drawing conclusions from summary data lacking a thorough understanding of how the study (or any study for that matter) was conducted. 

 

 

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.

 

 

Blowback From the 4th Quarter; The SIMA Study and Snowboard Retailers

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I received The 2008 SIMA Retail Distribution Study (highlights only) about the same time I got yet another phone call from another snowboard focused, core retailer that had been around a long time and was in trouble. I hate those calls because these are shops that I would like to see do well.

My little accidental, informal, snowboard shop survey can’t hold a candle to SIMA’s study. But I thought there was some value in talking about them together.

 
SIMA does its study every two years. 2004 was the first year and the current one is for 2008. It’s great information. We all need more of this kind of stuff to run our businesses better.
 
The retailers surveyed “…carry either surf product alone or a combination of both surf and skate product.” No snowboard focused shops included. It focuses on stores that have been labeled as “core.” “The CORE channel includes retail operations that classify themselves as specialty, lifestyle or sporting goods stores. Core stores do not include military exchanges, company stores, and national department stores.”
 
 Total core channel retail sales are reported to have fallen 3.45% to $5.32 billion in 2008 compared to 2006. We don’t have 2007 numbers because, obviously, they only do the survey every other year. Nor do we have a quarterly breakdown of sales changes in 2008, at least not in the summary I received.
 
If we did have a quarterly breakdown, I’m guessing we might see sales increases in the first three quarters of 2008 compared to 2006, and probably to 2007, and then a big decline in the 4th quarter. Which brings me to the calls I’ve been fielding from snowboard focused core retailers.
 
Last fall represented the convergence of trends that put a lot of pressure on snowboard retailers. First, they were operating in a market that wasn’t growing (There- I said that tactfully). A lot of brands, especially larger ones, in an attempt to move inventory and make money, expanded their distribution.   Awareness of the recession hit full force and consumers stopped spending. Meanwhile, discounted product was all over the internet and finding that product got easier and easier.
 
Snowboard retailers found they couldn’t hold prices almost from the day their preseason orders arrived. In a one season business, where most of the product (even a lot of the apparel) is useful mostly when actually participating in the sport, and participation is expensive at a time when consumers are cutting back, it was a perfect storm.
 
The SIMA report says that core skate and snow retailers didn’t have near as hard a time as core snow shops did, though I think maybe the press release headline, “Surf Industry Riding Out the Economic Storm” overstates the case a bit. I suppose that’s SIMA’s job. Certainly skate and surf retailers are better off than snow. Their categories are in better overall shape, they aren’t as dramatically seasonal, and lots more people need an attractive, comfortable shoe than need an attractive, comfortable snowboard boot.
 
But I wish we had some comparative fourth quarter numbers. Certainly there were over inventoried issue for skate and surf just like for snow. I wouldn’t call those issues easy to manage, but they are easier than in snow where if you don’t sell it, you have to practically give it away or keep it until next year.
 
SIMA includes a table that shows product mix contribution to retail sales for the three years the study has been done- 2004, 2006, and 2008. The two largest categories, each about $1.1 billion in core retail sales out of a total of $5.32 billion, are Surf/Skate Shoes and Surf/Skate Men’s Apparel. Third at about $1 billion was Surf/Skate Equipment, down 4.5% since 2006. There are a total of 13 categories, of which only five were up between 2006 and 2008.
 
 My point is that the 4th quarter of 2008 wasn’t just the worst quarter most of us have ever seen. It was the fulcrum of change from the old to the new economy. I’ve been writing that for a while, so I don’t suppose I need to go into detail again.
 
The one good thing that may come out of all this is that I can imagine some product shortages this fall and during the holiday season. Doing what they “perceive to be in their own best interest in the short term” retailers have cut orders and manufacturers have cut production. I know that doesn’t sound good, but read on.
 
Most everybody in this industry who sells stuff has suffered from over distribution. It turns products into commodities and reduces gross profits. It occurs because all companies, in their competitive zeal for more sales, do what they “perceive to be in their own best interest in the short term.” But at this stage in our industry’s development, it turns out not to be in anybody’s best interest.
So for a change, everybody dong what they “perceive to be in their own best interest in the short term” may turn out to work for the industry though obviously not for individual companies. Unless of course, they are managed very, very well.
 
The consumer may find that the product they want isn’t 20% off and isn’t available everywhere. They may find that if they don’t buy it now, they won’t see it. They might actually start to see more of our products as special again, and worth having even at a higher price. Retailers and brands alike will of course tear their hair out when they find they have a hot product they can’t get any more of. But as they’ve adjusted to this new economy, they’ve probably started to manage for gross margin dollars and not just for sales. They might find that the adjustments to their operating structure they’ve made leaves them with more net income even with lower sales. 

Or maybe I’m just dreaming. I guess we’ll find out.  

 

Death By Purple Wrist Band; Reflections on The Surf Industry Conference

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I’m glad, I guess, that I’ve gotten to the age where I don’t feel completely compelled to take too much advantage of these “all inclusive, drink at much as you want of anything for free” conference packages. Because if I were so inclined, I suspect all the worrying going on at the conference might have driven me to strong drink.

I mean, here’s all these people who have been lucky enough to create a career and a life out of something they love and that’s fun. They have their industry conferences in Cabo San Lucas for god’s sake. Most people end up in Chicago in February.
But the surf industry is worried about skateboarding. And they’re worried about Hollister. And selling out (or not selling out). And being core (or not being core).    Having to change would be really inconvenient. Being worried makes it harder.
I just got back from the National Ski Areas Association convention in New Orleans. They’re worried too. About, oh, lots of shit. You know what I finally figured out? The problem is the worrying.
When industries succeed and get a little bigger, they become targets. When you’re in the fashion business, like surfing, trends change. Recessions happen. This recent recession wasn’t officially a recession as I understand it, but after ten or so years of growth, we’re perhaps a bit spoiled, and softening sales, which occasionally and inevitably happen, caused to us worry even more. There’s not much in the way of barriers to entry. Companies come and go. That’s life. Don’t like all these challenges that come with success? Go find a job in another industry.
But you know what? That industry is going to have challenges too. There will be lots of things to worry about over there as well. Guaranteed.
Where at the conference, by the way, was the discussion of actual surfboards and wet suits? You may remember them. I seem to recall that surfing can be a lot easier, and a lot more comfortable, if you have them. We talked about selling board shorts and shoes and t-shirts and which kinds of stores we should sell them in. Maybe if the surf industry was just the slightest bit hard goods driven, like the skateboard industry, we wouldn’t have so many worries. I don’t think we grow the surf industry when we sell more shoes and shirts and shorts. We have to sell surfboards to surfers.
Still, I mostly see those worries are just snares and delusions. Look, we’re in business. Business is a risk. It’s a risk whether you sit on your ass and do nothing or go out and attack your market, taking some risks along the way. If you sit on your ass, you’ll get fat and you may get steamrollered out of the way anyway. We can all make up a list of companies and brands that have come and gone.
It will be great if the surf industry can find its Tony Hawk. It will be great if there’s suddenly an easy way to create surf parks in Kansas. But in the meantime, I hope nobody is waiting for all our problems, real and perceived, to be miraculously solved.
It’s up to you. Go out and take some well thought out risks. Some of them will blow up in your face. So what!? At least when you fail you’ll learn something and people will notice. You’ll be in control and you’ll be leading.  You won’t be sitting on your ass waiting for the steamroller to skinny you up.
And some of your risks, if based on a good plan and knowledge of your customers, will succeed, and your company will be a leader instead of an ass sitter.
I just made this speech to the National Ski Areas Association. I just said the same thing to the skateboard industry for an upcoming Skateboarding Business article. You see, the skateboard industry has some issues and they’re worried, though not about the surf industry. Anybody catch the irony here?
I’d make the same speech to the snowboard industry, but it’s too late- it’s basically turned into the ski industry already.
Next year, when we all gather again with purple armbands in place, I hope we find some time to talk about good ways in which each individual company can support surfing to their own benefit. Let’s go out of our way to avoid speeches and panels focused on things we’re worried about.