Don’t Worry, Be Happy, Part II

It was three or four months ago that I stopped getting the nearly weekly calls and e-mails from somebody who wanted to open a new skate shop. As weeks dragged on without the sound of enthusiastic voices eager to make their mark in skateboard retailing, I wondered if that wasn’t a sign of a market top.

Now, as you all mostly know, sales are a bit soft. As usual, there’s not a heck of a lot of hard data, but it feels like the luckiest ones are just seeing slow growth (single digit) while the less fortunate are down from last year. Various youth-oriented retailers (Hot Topic, Gadzooks, Children’s Place Retail) have reported some weaker-than-expected results. Vans reported that their comparable retail-store sales for the quarter ended May 31 declined 7.4 percent from the same quarter the previous year.

Recent government economic statistics have confirmed what we who have to deal with reality already knew–the recession last year was a little worse than advertised. There’s some talk now that we could have a double-dip recession. After the decade of prosperity it wouldn?t surprise me if we had a bit more of a counter trend.

Screw all that. Anybody in the skate industry who truly thought skateboarding was going to grow like a well-fertilized weed forever was not in touch with reality, to use the polite term. But our demographics are still favorable, the major brands haven’t screwed up their distribution, skateparks are popping up like mushrooms, and skating seems to have gone mainstream without, so far, losing its coolness. The people selling skate apparel to the lifestyle crowd should be sending royalty checks to the skate-hardgoods companies.

So maybe we aren’t quite gushing cash like we were. Maybe we don’t need to make skateboards 24/7 right now. That doesn’t mean you can’t have a good business, enjoy the industry, and make some bucks.

A Lesson From The Ski Business

Yesterday I talked to a ski-industry veteran who told me about brand-name shaped skis on sale for 49 and 59 dollars a pair. Shaped skis are the skis that pretty much took over the market a few years ago. Being easier to learn on and turn, I’m told, they relegated most straight skis to the dump. If they’re so hot, how come they’re selling for less than cost at retail? For less than a complete skateboard, come to think of it.Oh, for the usual reasons. Desperation to stay alive. Willingness to exploit a formerly hot brand. Lack of product differentiation. Fighting for market share rather than focusing on brand positioning.

As an industry, skateboarding isn’t and won’t be immune to these kinds of shenanigans. The best thing we have going for us is that the major hardgoods companies know they have to control their distribution or they’re screwed. Unlike skiing, or snowboarding for that matter, the skate companies seem to know it and are actually acting on it. In its heart of hearts, each ‘core skate company seems to know that if one of its competitors tries to blow open its distribution, it’ll clobber that brand, not leave the others in the dust. The snow/ski companies knew the dangers of pushing distribution too hard, but couldn’t resist the urge to fight for market share by expanding that distribution. That’s why there are 49-dollar shaped skis, and the Vision snowboards are right next to the Burtons in Garts.

How can we avoid this fate?

Being A Successful Retailer

Well, apparently you read SKATE Biz. Every issue, SKATE Biz highlights one or more skate shops that have been successful. Get all your back issues (you do keep them in a safe and secure place, don’t you?) and open them to the pages talking about these shops. Read the articles on the shops from each issue. Now make a short list of what pretty much all these shops do. In no particular order, your list will look something like this:

1. They’ve all been around a while.

2. The owner is actively involved in management and is in touch with the customers.

3. They have somkind of budget and cash-flow awareness. They watch inventory and expenses.

4. They can tell you, in a general sense, who their customers are. There is customer loyalty.

5. They are involved with the community and the sport.

You’ll note that these five points don’t just apply to skate retailers, which is fine as most shops sell something besides skate.

There’s one more thing I think more and more of them should be doing. Rather than running ads and doing various other kinds of non-focused advertising, they should be using e-mail and the Internet to not just reach their customers, but to have a relationship with them. I didn’t say sell online. But most skate-shop customers are e-mail and Internet users, I suspect, and that’s a huge opportunity to reach exactly the right people with information they actually want at a low cost.

“Good” Competitors

I was afraid this article was going to end up as another boring discussion of things to do when business is a little soft. You know–control expenses and inventory, protect your brand, stay focused on your core customer, and stuff like that. Each business needs to do those tactical things. But instead, let’s talk a little more strategically about something I’ve touched on from time to time–industry structure and what makes good competitors.

We all know that the ‘core skate companies do and have done a lot to grow and promote skateboarding. It’s almost an article of faith that that’s a good thing, and it is. What does it really mean though?

It means, up to this point at least, we’ve had a group of largely “good” competitors. Though they were for sure competing with each other, they largely did it in a way that’s been good for the industry.

They have stayed committed to the technology that goes into making skateboards, trucks, wheels, and bearings. By legitimizing this technology, entry barriers have been created by defining what a skateboard is and is not. They have made it difficult for new brands and products, even from much larger companies, to come into the market and succeed.

They have shared the cost of developing the market. There is no single dominant company in this industry that could have done it alone. Their common focus and direction is, in a word, remarkable. As a result, they’ve increased industry demand to the benefit of all. Generally, they’ve been pretty risk averse. They haven’t gone out looking for growth and market share at all costs. They’ve been very conservative in adopting any new technologies. Mostly, they haven’t tried to expand outside of skateboarding, and they’ve been cautious about their distribution. In fact, it’s tough for new entrants to gain access to distribution channels. Being risk adverse means they haven’t had to react to each other in ways that are detrimental to industry structure.

Because the companies have been risk averse, the consumer’s risk when buying a skate product has been reduced. Basically, the products are pretty much the same and work pretty well. Maybe more importantly, no skater ever has to risk being laughed at by his friends because he bought “the wrong” product. He can always find something that functions well that meets the social requirements of his circle of friends.

To put it simply, the strategy of the leading brands helps to perpetuate industry structure. How did it happen that everybody has been so cooperative? I don’t exactly know. I guess I could speculate that it has to do with the fact that most of the company principals grew up in skating, know each other well, and share a common perspective on the industry. It’s also because they’ve got a good thing going and because the industry is pretty small. Maybe this is one of those times when “why?” doesn’t matter. It exists, and it’s great.

But while we’re still a small industry, we’re not quite so small anymore. Or at least we’re not quite so unnoticed. The customer base has expanded and maybe isn’t composed of mostly “‘core” skaters in quite the way it use to be. People with less interest in keeping things the same are becoming involved in skating. Skate brands and companies will, I believe, find their way into the hands of organizations with less perceived interest in being “good” competitors.

As I’ve discussed in my last article, there may be some pressures emerging that will make it tough for the skateboard industry to continue along as it has. At the same time, I’ve never known an industry where the interests of all the leading companies were so aligned and consistently pursued for the ultimate benefit of the industry. Maybe they’ll surprise me and keep doing it.

Jeff Harbaugh is president of Jeff Harbaugh & Associates. The firm consults with action-sports companies looking to find market advantages in changing conditions. Reach Jeff at: (206) 232-3138, or at jharbaugh@msn.com.ers in quite the way it use to be. People with less interest in keeping things the same are becoming involved in skating. Skate brands and companies will, I believe, find their way into the hands of organizations with less perceived interest in being “good” competitors.

As I’ve discussed in my last article, there may be some pressures emerging that will make it tough for the skateboard industry to continue along as it has. At the same time, I’ve never known an industry where the interests of all the leading companies were so aligned and consistently pursued for the ultimate benefit of the industry. Maybe they’ll surprise me and keep doing it.

Jeff Harbaugh is president of Jeff Harbaugh & Associates. The firm consults with action-sports companies looking to find market advantages in changing conditions. Reach Jeff at: (206) 232-3138, or at jharbaugh@msn.com.