I Feel A Whole Lot More Like I Do Now Than I Did A Little While Ago
I’m not entirely sure what the title of this article means, but I’m pretty certain it applies to the skateboard industry. Conditioned as I am by the snowboard-industry consolidation, I went to ASR in February expecting to observe a similar process. Subjectively, it seemed like the show wasn’t quite so crowded and things were more businesslike, but there weren’t dozens of companies missing and multiple unused booths. And there were some small companies saying and doing the kind of things that made me think they might be around a while.
Don’t get too excited. Not for a moment am I going to suggest that skateboarding is in any way immune to typical business cycles. But there may be some forces at work that will allow the process of industry maturation to be a little less painful, or at least draw out the agony over a longer period of time. I’m not sure if that’s good or bad.
So here’s the plan: let’s decide what we mean by “the skateboarding industry,” review how consolidating industries change, look at a couple of industry trends that may make it easier to deal with, and then, to conclude with a happy feeling, look at some of the positive things I spotted at ASR.
Who Are We?
This used to be easy to answer. A company in the skateboard industry was any brand or retailer that sold skateboards and/or any other skateboard hardgoods. They probably also sold some softgoods, but at least in the case of the brands, those tended to be promotional, and if they happened to make money on them, great. Now you’ve got skate-shoe companies and skate-clothing companies, and shoes and clothing are an important component of any retailer’s sales. Are these still skate companies?
When you sell a skateboard, you can reliably assume it is to somebody who is going to actually go skateboarding. That’s not so clear when you sell a pair of skate shoes or some skate clothing. I’m going to guess that an increasing percentage of non-hardgoods sales are going to people who don’t skateboard. Are companies that don’t sell hardgoods and sell a bunch of product to non-skaters part of the skateboard industry?
Have a great time arguing over that. Since I seem to have a 5,000-word story I have to squeeze into 1,500 words, I’d better move on. The point I’d like to make is that the industry has evolved so that, for better or worse, it’s no longer just defined by people who skate, but by people interested in the image, attitude, and lifestyle of skating. And by companies with a lot of money that have a hard time understanding the sport. I’ll get back to this when I talk about industry trends.
Trends in Consolidating Industries
I’ve said this all before. Just check out the sidebar to refresh your memories, think about it for a minute or two, and we can move on.
Industry Trends and Circumstances
Not all the changes in consolidating industries happen at the same time to all companies. Nor do they all occur with equal strength. In skateboarding, there are a number of reasons consolidation doesn’t seem to be occurring in a textbook way.
The industry is not extremely seasonal. Retailers aren’t being offered 120-day terms by manufacturers. There are no long lead times on making and delivering product. Inventory turns, let’s say, four to six times a year (my guess). Manufacturing technology is simple enough, or well enough established at least, that no huge investments are required and yield is high.
All those things mean that the working capital investment required in skateboarding is comparatively easier to manage than in some other industries. So the financial pressures on marginal players is less. It also means that it’s easier to get in and out of this industry. Due to extreme seasonality and the timing of the product cycle, there was never a good time for a company to exit snowboarding.
I’m not suggesting that things are easy financially. Low hardods margins, blank decks, and difficulty differentiating one company’s product from another’s means you have to spend more on advertising ad promotion exactly when margins are declining. That creates a bias in favor of larger companies that move more volume because it gives them more gross margin dollars to work with.
But maybe financial pressures will be increasing. I talked to a representative of one large skate-shoe company at the show that mentioned the company is starting to offer 60-day terms to select retail accounts. And so it begins.
There is no leading, clearly dominant company in the industry. My guess is that the single largest hardgoods company sells no more than fifteen-million dollars annually in decks, wheels, and trucks. In snowboarding, Burton, with a market share in excess of 50 percent a few years ago, had the market leverage to set the bar for successful competitors. An awful lot of companies couldn’t get over it. Nobody can set that bar in skateboarding at this time. It’s interesting to note that some of the larger shoe and softgoods companies appear to be at least double the size of the hardgoods leaders based on revenue.
Skateboarding is operating in a roaring economy, with income and spending growing, interest rates low, lots of wealth created in the stock market, and jobs for anybody who wants one. Now add to that 60-million young people between the ages of five and twenty born between 1979 and 1994. Levi’s, Converse, and Nike aren’t cool anymore, but the long-term success of such companies requires that they make an impression on this group, whose spending habits aren’t formed yet, and the largest chunk of whom are barely hitting adolescence. So they are interested in skateboarding and other activities that are part of this group’s culture, not because they want to sell skateboards¿they could take the whole skateboard-hardgoods business and it wouldn’t have a material impact on their bottom lines¿but because they want their involvement with the sport/lifestyle/attitude to give them credibility with this group.
The (Probably) Good News
So we’ve got a strong economy, favorable demographics for the next ten years or so, and big money interested in the sport. For the reasons I mentioned above, the financial environment could be a lot more difficult than it is right now. That’s especially true if you define the skateboarding industry to include clothing and shoes¿which, to answer the question I raised earlier, I think you have to do.
Some smaller companies seem to be making good decisions. At ASR I heard people talk about cutting teams to get costs in line with measurable financial benefits. There were comments like, “I’m not going to run an advertising campaign that drives me into the hole financially.” People were acknowledging the similarity of products from company to company and being thoughtful about how to differentiate themselves from their competitors.
I suppose you’re only surprised by such commonsense ideas and comments if you were around at the peak of the snowboard feeding frenzy, when it was “grow at any cost, take market share, find money for just one more ad.” The perception was that if you didn’t “establish your position,” you were dead meat. That was true. But the cost of establishing your position was as likely to kill you as not establishing it. Turned out it didn’t matter how you died¿only that you were dead.
Pay attention to the trends in consolidating industries, but recognize that the rapid growth, maturity, and consolidation cycle is more typical of emerging industries. Skateboarding has been around a while. Hardgoods, clothing, and shoes are all part of skateboarding, but each seems to be at a different point in the cycle. I’d look at them separately. The lack of a dominant company in the industry and the fact that the business isn’t extremely seasonal suggests that more players can survive.
In the past, the attention of large companies caused a severe decline in skateboarding. Given the demographics we’ve got, and assuming that skateboarding doesn’t become “uncool,” who’s to say that the industry can’t continue to grow at a rate that lets it at least keep its existing percentage share of adolescent males. That doesn’t mean a hundred new hardgoods companies; that could only happen if some product innovation lifted margins on hardgoods to the point where new, smaller players could compete. I don’t see that happening, and expect the lion’s share of any growth in skateboarding to accrue¿at least in hardgoods¿for the existing, larger companies.
Interesting stuff. Let’s talk about it at the Industry Conference in April.ge companies caused a severe decline in skateboarding. Given the demographics we’ve got, and assuming that skateboarding doesn’t become “uncool,” who’s to say that the industry can’t continue to grow at a rate that lets it at least keep its existing percentage share of adolescent males. That doesn’t mean a hundred new hardgoods companies; that could only happen if some product innovation lifted margins on hardgoods to the point where new, smaller players could compete. I don’t see that happening, and expect the lion’s share of any growth in skateboarding to accrue¿at least in hardgoods¿for the existing, larger companies.
Interesting stuff. Let’s talk about it at the Industry Conference in April.