By Jeff Harbaugh

February 29, 2000

Most of us are in a different business than we were a few years ago. Retailer, brand, or manufacturer, our customers have changed. There are only a handful of companies out there that can say they are snowboard companies. Others have adjusted their strategies, or aren’t around anymore.

Remember the "C" word? Consolidation wasn’t just about a bunch of brands going away. It was about companies, both inside and outside the snowboarding industry, taking a deep breath and recognizing that the opportunity represented by snowboarding went beyond selling boards, boots, and bindings. What is the snowboard market now? Who’s succeeding in it and why?

It’s The Lifestyle We’ve been over this before, so let’s keep it short. Hardgoods have for the most part become a commodity with lower margins. This has been especially true with boards but increasingly applies to boots and bindings as well. The days of rapid advances in quality and technology are nearly over.

Young people represent a big demographic bulge everybody wants and/or needs a piece of. The lifestyle is what a lot of people are into whether they participate in the sport or not. There are more similarities than differences among the snow/surf/skate/BMX cultures. That’s hardly a surprise given the number of people who participate in more than one of these activities.

These sports have become the foundation of the lifestyle market. For Nautica, ESPN, Mountain Dew, and Tommy Hilfiger, growth in the sport of snowboarding is nice, but cool is more important than big. In fact, if they were thought of as "just" snowboard-related brands, they wouldn’t be able to go after the broader market. With a sport focus, rather than a lifestyle focus, their potential wouldn’t be nearly as big.

Limits On Growth Existing snowboard brands pretty much have their market niches. Those that are still standing and have been around a while are probably secure in those niches but are likely having a hard time figuring out what to do next.

Burton is a good example of that. It’s sitting there with, say, 40 percent of the snowboard market. Hell of a niche. Clearly the most successful snowboard company in the world. No doubt they’d like to grow, but how? Their market share percentage is unlikely to show any astounding gains. While Burton will get its share of general snowboard market growth, that’s not as explosive as it used to be.

Real company growth, if it’s likely to happen, will come from some new direction. I bet the Burton brass have looked at every action-sport category there is to look at. Up to this point, however, none of its product-line extensions bear the Burton brand name. In shoes it’s Gravis; accessories, Red; and children’s technical apparel market is handled by Backhill.

Why have they chosen this strategy? Probably because it minimizes the danger of diffusing the strength of the Burton brand and confusing people about what it stands for. Burton, for all it market power, has been justifiably cautious about who they managed and try to extend their brand. You should be, too.

The Nike Example The largest seller of athletic footwear and athletic apparel in the world isn’t immune to these challenges. Nike with total revenues of 8.7-billion dollars, also grappled with this very issue.

Just prior to the Vegas show last March, Nike made the decision to pull the plug on its board program, focusing instead on areas where they already had some expertise, namely, footwear and apparel.

The thinking of Nike management, I imagine, had three basic components. First, Nike couldn’t introduce a snowboard that was any better than what everybody else was already making. Second, given that fact, selling snowboards wouldn’t help them sell softgoods. Indeed, if the board was received with a yawn or worse, it might even damage softgoods sales.

Finally, like all the other big players, I think Nike wants to capture some of the energy and legitimacy of the action-sports culture–without being too closely associated with any one sport, lest it restrict its broader sales prospects.

And The Winner Is ... There isn’t one winner. But there does appear to be a single characteristic of companies likely to grow quickly in the lifestyle/action sports/youth culture market. Let’s visit the Securities and Exchange Commission’s Edgar Web site to see if we can distinguish that characteristic of success.

By most measures, Vans, Pacific Sunwear, and Quiksilver are three successful companies. PacSun is a retailer that doesn’t sell much hardgoods. Vans owns Switch and Quiksilver owns Mervin Manufacturing, but neither of those brands contributes critical dollar sales, as a percentage of total revenue, to their respective companies.

Listen to how each company explains their business in the first paragraph or two of their most recent annual reports:

Vans characterizes itself as "a leading lifestyle, retail and entertainment-based company which targets ten- to 24-year-old consumers through the sponsorship of Core Sports™, which consist of alternative and enthusiast sports such as skateboarding, snowboarding, surfing and wakeboarding, and through major entertainment events and venues."

Pacific Sunwear says it’s "selling everyday casual apparel, accessories, and footwear designed to meet the lifestyle needs of active teens and young adults. The Company’s customers are primarily young men aged twelve to 24, as well as young women of the same age, who generally prefer a casual look."

Quiksilver "designs, arranges for the manufacture of, and distributes casual sportswear, swimwear, activewear, snowboardwear, and related accessories primarily for young men, boys, young women, and girls."

All three are focused on the lifestyle market. All three are focused on the same age groups. None is associated with only one sport. All, if you read further in their annual reports, are concerned with staying close to trends and their markets. They all start out by telling us not who they are as companies, but who they think their customers are.

There is, then, a new model for companies that want to grow quickly in the youth lifestyle market, as opposed to the snowboard market. Be compulsive about staying close to trends and be prepared to turn on a dime. Don’t be too closely associated with only one segment of the market. Focus on products that permit you to make a margin that’s high enough to fund the required advertising and promotional expenses. And finally, be big.

What To Do If you’re a snowboard retailer–err, wait a minute. I guess there aren’t many snowboard retailers as there use to be. There are retailers who sell snowboards. A growing percentage of their sales and profit are coming from softgoods, and they probably sell skateboards, wakeboards, or surfboards in addition to snowboards.

Are you limiting your growth by focusing too much on only the snowboard market? Maybe you are, and maybe it’s what you should be doing. But please make sure it’s a conscious decision.

Choose the brands you carry with an eye toward the company’s ability to stay on top of the trends. Welcome customers who aren’t necessarily snowboarders. Maybe you can convince them to try the sport. As a brand, your market position is probably pretty much established. Even with a lot of capital to work with, attempting to change your market position involves significant risk.

K2’s recent acquisition of Morrow and Ride seems to suggest that management believes, given the prices they paid, they can get a better return on investment through new brands than by investing similar resources in further building the K2 snowboard franchise. I think they’re probably right.

If fast growth is no longer an option, and you no longer have the skyrocketing capital requirements it imposes, then maybe it’s time to settle down and just run the business. Make incremental improvements in how you operate to improve your return on investment.

Control your distribution to encourage sell through. If you do that, you have the opportunity to raise prices a little and reduce end-of-the-season discounts. Resist the urge to accept the 3,000-board order from Bulgaria. They’ll show up in either Japan or the U.S. Negotiate with your suppliers for better prices. With continued excess production capacity, that should be possible.

Take a hard look at who your customers are. Do all your advertising and promotional activities really reach them? Can you cut back or redirect any of those expenses?

The pace of market change has been phenomenal. Not long ago, it seemed that demographic changes and endless snowboarding growth made the sky the limit. Now retailers have to be cautious about being too closely associated with one sport, and snowboard brands need to operate efficiently rather than prepare for fast growth.

So, what should we do: be proud of what snowboarding has become and our part in creating it, or bummed that a lot of our friends aren’t in it any more and that corporate America has taken our ball and is running with it, albeit maybe in the wrong direction?

Probably both.

I hope it snows soon.

–––––––––––––––––– Jeff Harbaugh works with action-sports companies in transition. As always, his views do not necessarily reflect those of SNOWboarding Business. Reach him at: (206) 232-3138. His new e-mail address is [email protected].