My Dinner With Jim and Dave
Two CEOs share their insights about the market.
by Sean O’Brien

Jim Weber, CEO of Sims, and Dave Calapp, CEO of Morrow, might be relatively new to the snowboarding industry (both have been at their current positions for less than a year), but that doesn’t mean they aren’t in tune with what’s happening in the marketplace.

With years of experience at managing fast-growing sporting goods companies under their belts, both of them have provided the needed business backbone to their respective companies. But have they been surprised at how the snowboard industry operates?

At the Industry Conference in Vail, SNOWboarding Business sat down to a dinner of elk chops, pesto rolls, Caesar salads, and too much wine to see what they’ve learned since entering the snowboarding industry.

The Appetizer

SNOWboarding Business: Both your companies have a "keeper of the flame"—Tom Sims and Rob Morrow—and also a person with business experience. Is this the recipe for success?

Dave Calapp: Absolutely. I think that’s the key. It has to be a combination of that kind of enthusiasm for the sport combined with professional management. For companies to survive today, they have to be professional.

You’re painting a pretty dim picture for a lot of manufacturers out there.

DC: I don’t want to do that, because I think there are entrepreneurs who have good business sense and a very bright future. To have the focus that comes from having that keeper of the vision is a huge advantage. It’s difficult to succeed in any business without someone who brings that focus—no matter how big you are.

Jim Weber: You can’t succeed without the keeper of the flame. Not if you’re trying to do something for the enthusiast. Subtle nuances really make the product perform. For the enthusiast on the hill, that’s critical. And Jim Weber isn’t going to bring that to Sims, and I don’t think that I was recruited to Sims to focus in that area.

That doesn’t mean it’s a dim future, because there’s no substitute for innovation. A little company can do some things more effectively than a big company. A big company has to challenge itself to keep the creativity flowing and keep the structure open for weird ideas—like super-modified shovel racing.

What drives the industry is great product, but to be successful you have to develop a business model. Once you get to a certain size, you’re not going to satisfy retailers unless you’re executing well on the business side. That’s not easy when you consider the complexity of a seasonal business. That what we’re focusing on at Sims—it’s really managing the cycle.

The Salad

Does overcapacity affect large companies more than small companies?

DC: Overcapacity is really not the problem, but what created the overcapacity and its final result. That’s the problems. The enthusiasm and the zealous attitude that "you can sell it no matter how much you make" just isn’t true.

A small company that made 5,000 boards because they thought could move through them with ease are finding themselves sitting on 4,000 boards. That company has a serious problem. Four-thousand boards isn’t the same kind of problem for a bigger company.

But the end result of overcapacity is excess product on retailer’s shelves. That has the potential to place price pressure on everyone’s products.

So, if you have a balance sheet that supports the ability to focus on your brand, rather than on your need to sell product, you’re more likely to be successful?

DC: That’s exactly right. Frankly, this market is a mess in some places—like Japan. But by having gone public, we’re able to look at that differently than some of those companies that are struggling. We can make a conscious decision to not dump inventory.

Now, I say that in context. We’re a public company with share holders who would like to see a profit. But we’re taking a longer-term view. We can decide not to make the same kind of push that a company might need to make if it was desperate for cash.

JW: I would answer it a little bit differently. I think overcapacity affects every company in a different way, because it depends on how each of them set up their business formula for this marketplace. The bottom line is, this market is a healthy category in the action-sports world. We’ve got a great sport that has the fantastic potential to continue to grow and attract people.

You’re going to see successful small companies and successful big companies. There’s clearly room for a lot of healthy brands in this category. However, probably not 200.

But you know what? If you know what your niche is, and you know where you stand financially, there’s room for you.

If you’re going to compete on cost, then you’ve immediately told your marketplace who you are. You’re going to have trouble if you base your success of volume and cost. I’m stating the obvious, but it’s true.

How have you figured out who your customers are and what your position in the market is?

JW: Great brands are enthusiast brands. We’re focusing on enthusiasts. That doesn’t mean we’re not going to be selling products to new snowboarders and crossover snowboarders—we also want products that work for those people. But the heart and soul of our company is gonna be firmly placed on the enthusiast. We’ve now also have a focus on the Sims brand that’s going to be more American-influenced than European-influenced. We’ve made a big effort to talk a lot about that internally, do some focus groups, and write it down as much as possible so that everyone’s on the same page. Because, depending on when you came in to the organization, you have a different spin on it.

DC: From the very beginning, we have the foundation of the Rob and Neal Morrow, so we have the ability to focus on a performance product, and how the individual enjoys the sport. They are the foundation of Morrow.

The Main Course

Are chain stores a significant part of your business? How is that going to be changing in the next five years?

DC: One of the things that’s special about this sport is the specialty shop base that’s driving it. The percentage of the market that’s controlled by specialty shops is very high, and that’s a huge positive. Those are the people who are satisfying the enthusiast—the person who’s intimately involved in the sport. That’s part of the strength of this whole sport and this whole industry.

Having said that, the chains have clearly figured out that snowboarding is a hot business, and they’re clearly going to become a factor in the business. However, I absolutely believe that the core of this market will always be served by the specialty shop. So that’s always going to be the key, critical focus of our business.

If you look down the road five years, there’s going to be fallout. The shops that aren’t executing well and aren’t servicing their customers won’t survive. Clearly the amount of product out in the marketplace and the number of companies addressing this category are going to put a lot of product in a lot of stores. They will not all succeed.

JW: I don’t have a crystal ball, but I gotta tell ya, it’s not WalMart and Kmart in this category. Absolutely never-ever is that going to happen. It’s not like Variflex and in-line skates.

Even at the lowest possible pricepoint, you’re dealing with a 150 to 200 dollar retail item that has to be sized and set up for people. I don’t believe the true mass merchants are ever gonna be serious in this category. Look at skis—it’s just not going to happen. This is not a Rollerblade product where you can buy a size 6, put it on your kid, and toddle around in the backyard.

The market has changed dramatically over the last year. How have your strategies for the coming year changed, and what are your feelings about market share versus margin? Are you prepared to give up one for the other?

DC: Unless we’re making some money, we won’t continue to be in business. So margin is very important. We’ve also realized that it doesn’t make sense for the industry or for the long-term goals of the company to jam retailers with product in an effort to make a target number.

We’re fortunate. We had a public offering last year and so we’re in a capital position to allow us to do that. That doesn’t mean we’re going to dissatisfy our shareholders. We have an obligation to those shareholders to do what’s right for our company and the industry in the long term.

JW: We’re in a very unique position in that it’s the first time in over a decade that Tom Sims has held one company that has no other focus than to build the Sims brand. That is our total focus.

We have goals to do a better job and grow, but in essence, defining ourselves is our main mission. We’d like to gain some market share and all that but that will only happen if we define ourselves well for our customers and do a good job in delivering in the season. Margins are an outcome of getting value to the customer. That’s the bottom line.

Would you have any advice for smaller companies in this industry? What should they be doing?

DC: Recognize who your customer is. Try to serve that part of the market, and realize if you’re very small, you’re not going to serve all of it. Again, it’s not necessarily about volume, but it’s how you approach the whole process that’s important.

JW: I don’t think it’s magic. When you’re not leveraging the big things, you must clearly define how your company is different. Your positioning based on this uniqueness also needs to be as sharp as possible so that everybody you interact with knows who you are. Once you blend into the background, the only way to get in the door is if you’re twenty dollars cheaper, which means you’re gonna struggle to survive.

Look at Rock Shox. I mean holy shit! Who would have ever thought you could build a multi-million dollar industry based on the front fork of a bicycle?

Can we avoid the types of problems of the ski industry, or is that what happens to every industry?

DC: Every single sport that starts out as an enthusiastic small idea tends to go through these stages of tremendous growth, with overzealous manufacturing, marketing, and distribution that ends up in some eventual leveling of the business.

Since we’re aware of what the ski companies went through, we have a chance to learn from them. Their situation was a little different; they were standing there not watching somebody who’d come just before them.

JW: I would agree with Dave. There’s almost a couple levels to that question. Look at what happened to the ski industry, and what will you see? A lot of happy skiers! The fact that the industry had its problems and the fact that there were certain manufacturers that weren’t meaningful enough to a consumer base to survive tough times is a big part about what we talk about. But look at it from a consumer perspective, and the whole conversation becomes surreal.

Snowboarding might be viewed as incredibly healthy, positive, and growing, while two thirds of the industry could be sicker than a dog. You gotta be careful on the doom and gloom. Skiing is still a very popular sport—despite it’s problems. When it comes to snowboarding, the companies that are meaningful to consumers will have their ups and downs—but they’ll always be around.

Dessert

I would assume that both of your companies for the first time will be on the main floor of the SIA trade show in Las Vegas.

JW: Can’t you see the David Ingemie whip marks? DC: Thank God it’s not political. JW: I gotta tell ya, that was wild. It was a wild process. And I just watched it happen, ’cause I thought that it was bad for the industry. I really did. I didn’t think it was good for the snowboard industry to have that happen at this point in time.

Why?

JW: I think the major beneficiaries are going to be the ski companies. And how many ski companies are not orchestrating a strategy to enter the snowboard business?

They’re all in it.

JW: Well, that’s my point. It’s great for Rossignol, Salomon, and K2. I don’t know that it’s good for us. I really don’t. And I asked that question, as a newcomer, and the bottom line of what I heard on the phone was that Burton obviously was very engaged in the whole issue and they made a decision that it was time and a good thing and everyone pretty much followed their lead.

There were significant issues that David had to deal with, and I was familiar with those issues. But I felt that instead of having the snowboard industry in a strip-mall approach next to the ski business, that we ought to be our own mall—or at least a square or rectangle. Everybody we now do business with is going to be filtered through the ski industry. My point is that on a relative basis, this is very good for them. And that’s all.

I think David Ingemie did a great job in making it happen as an effectively as he possibly could, but he should do everything we can to keep snowboarding’s identity. Now we’re a strip along the back wall and I think it’s going to be very challenging to keep this industry’s identity intact.

Coffee

What have you been most surprised about, coming into the snowboard industry?

DC: The surprise was not that this rapidly growing sport might have some problems in terms of consolidation, oversupply in some markets, and everything else. The surprise was that this industry is much more than just putting two skis together riding sideways. I mean there seems to be this almost profound caring about the sport. Robbie Morrow is amazingly concerned about the little things in the sport and the business and making it work. That was a surprise. I thought that perhaps he would be way too young.

I think the same passion exists in Tom and Jake, and a lot of other individuals in the industry. I hope it’s something that we can hold onto and focus. That will enable us to do something a little bit different than some of the other sports in the past.

JW: I’m not the type of person who allows himself to be surprised. I think, as Dave said, there are things that are incredibly exciting and fun about the snowboard business and being a part of it. That’s why I’m here—it’s not nuts and bolts. It’s about putting a personality behind a product. And there’s nothing more fun than that. There’s also a lot of really neat people in the business and in the industry who are just exciting and inspiring to be around, because it’s more than just a business to them.

On the business side, clearly there are a lot of challenges in the industry, and like Dave, I expected them. But the industry is maturing more rapidly than anyone thought it would. And so there’s a lot of challenges that are being created by that. Again, it’s something you’ve got to take into account when you’re structuring your business to make sure you come through successfully and in a healthy fashion. That’s what makes it an exciting place to be. You will not get bored in the snowboard business.