What the Dutch is he talking about?

I walked out of ASR feeling positive about skateboarding and its market, and will discuss why below. Still, when things look too good to be true, it’s been my experience that they usually are, and I’m as susceptible to the hype as the next person. Let’s start, then, with this cautionary tale from Edward Chancellor’s book Devil Take The Hindmost¿A History Of Financial Speculation.

Tulip Mania

“Conditions in the Dutch Republic in the 1630s were propitious for an outburst of speculative euphoria. It was a period of rising commercial optimism, owing partly to the final extinction of the Spanish military threat and partly to the booming Dutch textile trade, which profited from the turmoil in Central Europe at the beginning of the Thirty Years’ War. The Amsterdam bourse stock market had moved into a new building in 1631. The East India Company was profitably developing its settlement in Batavia, and its shares rose faster than at any time during the century. House prices were also climbing sharply, producing a boom in the construction of suburban mansions. The Dutch Republic lost some of its Calvinist austerity as its people, who enjoyed the highest incomes in Europe, became a nation of consumers. In the tulip, they found an object which enabled them to mix their love of display with the avid pursuit of wealth.”

Tulip bulbs were classified according to the flower colors. They were given military titles that reflected their position in the bulb hierarchy. Unknown at the time, tulip colors and patterns are affected by a virus that attacks the bulb. You never knew what pattern or colors might result. This led itself to a speculation that was essentially gambling.

In late 1636 and early 1637, at the height of the market, no actual deliveries of tulip bulbs took place. A tulip-futures market known as the windhandel (the wind trade¿say no more) appeared. According to Chancellor, at the peak, the combination of the windhandel and paper credit “created a perfect symmetry of insubstantiality: Most transactions were for tulip bulbs that could never be delivered because they didn’t exist and were paid for with credit notes that could never be honored because the money wasn’t there.”

Average annual wages in Holland were from 200 to 400 guilders. A small townhouse cost 300 guilders. Bulbs at the top of the tulip hierarchy sold for thousands of guilders. There were examples of prices for a pound of bulbs going from the equivalent of one month’s pay to five years’ in a week.

On February 3, 1637, the market crashed. There were no more buyers, and existing contracts were rejected. Perhaps it had something to do with the fact that spring was coming, and most of the bulbs promised for delivery didn’t exist. The litigation dragged on until the following year, when it was decreed by the government that contracts could be settled for 3.5 percent of their value.

We Are Not In The Tulip Business¿Not Exactly

I’m not claiming that tulips are like skateboards and skate shoes. People are delivering real products in return for real money. Obviously, there are more differences among skate decks and shoes than just color, though I can’t think of many right off the top of my head. Oh yeah¿who the teamriders are. See, there’s a difference.

Nobody will ever pay a year’s wages for a pair of skate shoes, though it seemed like some prices were tending to go up at the show in spite of the fact that 60 companies were offering footwear (not all skate shoes) up from 42 at the last show. Eighty-two companies were selling what was classified as “skateboard hardgoods.”

And no company will sell future delivery to a retailer if they think they can’t pay, although the use of terms to retailers appears to be growing.

This seemed like the busiest ASR I’ve been to in years, and the most businesslike. Lots of order writing going on. People with things to do&nsh;not just hanging around. It was, in a word, purposeful.

That’s one of the things that makes me optimistic. I remember the 1995/96 Snow Industries America trade shows in Las Vegas, where snowboarding ruled and would never die. But that show had the feeling of people energized by hope and expecting to find the deal that would save them. Snowboarding’s imminent consolidation was a big shared secret, and nobody wanted to tell Emperor Snowboard to go put some clothes on.

This ASR was about doing business, not looking for a deal to save your butt. Most of the time when the people in booths told me the show was going great, I believed them. This was a show where just moving through the aisles was a challenge if you were in a hurry.

While all the shoe-brand offerings looked the same at the last ASR, this time I saw some visual differences among brands that offered the possibility of their establishing distinct personalities¿call it different signature looks. Easy to copy, of course.

This isn’t to say that there won’t be a period of consolidation in the skateboard industry at some point in time. There are too many companies trying to sell “me too” products. If you don’t have an established brand name or a product that can be seriously differentiated, this is the wrong time to offer a new brand in the skateboard industry.

But here we are with a seriously strong economy, very favorable demographics, wood shops unable to meet demand, skateparks popping up like mushrooms, skate styles influencing shoes and clothing in a way that has expanded the market to non-skating people, and skateboarding being exposed to and accepted by a much larger group of people than ever before. What can go wrong?

Sector Rotation

In the stock market, they call it sector rotation. The industry groups leading the market change. Not too long ago, it was the Internet stocks. A year or so ago, the health-maintenance-organization stocks were dead last. Now they are among the leading sectors. The issue is never if a sector is going to crash, or leap to the top, it’s when and how long it stays down¿or up.

Action sports as a group is powerful right now for a variety of reasons we all know. It’s a strong market and seems likely to stay that way. But what sectors will lead it?

In-line skates had their day. So did snowboarding. So did surf. So did ski. Now it’s skate. For how long? Normally, I’d say until the consumer figures that all the companies are making quality, nearly identical products, reducing the basis of competition to price and marketing, which in turn causes the hype to get massive. But we’re already there. And it’s possible that by next ASR I’ll be hoping nobody remembers I wrote an article suggesting that skateboarding might have some legs.

Skateboarding has broken out. It’s becoming legitimate without losing too much of its edge. Compared to most other sports (with apologies to those who object to that word), it’s inexpensive and convenient to participate in. The related shoes and clothing can be and are worn by nonparticipants, unlike¿for example¿snowboard boots. The hardgoods companies continue to support, promote, and maintain the core of skateboarding, even though this may prevent them from participating in the growth of the larger market.

Somehow, skateboarding has made a meta-change. It has repositioned itself and become legitimate to a much larger market without letting itself be changed too much. I wish we could claim it had been a conscious act on the part of the industry¿a strategy we chose to implement.

But it wasn’t. We were lucky, or maybe deserving after a long period in the wilderness. If any single event was indicative of this change (I hesitate to say responsible for, although I’m tempted), it was the changing of the liability laws that unleashed the skatepark building boom. So if you aren’t a member of IASC (skateboardiasc.org), join now¿if only to say thanks to Jim.

Strategies

Retailers have already figured it out. Their hearts may be in skate, but when it’s some other action sport the customer asks for, they will offer the goods related to that sport. Much of their sales are higher-margin shoes and apparel to nonparticipants. The clothing manufacturers, by and large, aren’t tied to a single activity/sport. Their customers are the action-sports crowd¿participants or not¿who are tied into the lifestyle, music, and attitude. The shoe brands are actively expanding their product lines to include footwear in addition to ‘core skate shoes.

The skate-hardgoods brands have a tougher road to follow. Their focus is on the core of skateboarding, and that focus has a lot of responsibility for skateboarding’s continued strength. Yet even in this record year, I suspect (can’t prove it) that a large hardgoods manufacturer is doing, say, 25-million dollars in sales. Compare that to the sales and growth of clothing companies. Even the leading skate-shoe companies are several times that size.

To really take advantage of market conditions, skate-hardgoods brands need to figure out how to move beyond their traditional market. But it may be that their movement beyond the ‘core hardgoods market, if it occurs, will signal a market top in skateboarding. That’s a bit of a conundrum.

Schizophrenia

Is skateboarding going to crash or continue? Obviously, I feel strongly both ways. I think we’ve got a bit of a run ahead of us, but being bigger and having an established brand is going to be critical for success. Right now, fast growth and cash flow can paper over a whole host of competitive shortcomings. And no industry is immune from business cycles.

Jeff Harbaugh works with action-sports companies to position them to continue to succeed as the market changes. Reach him at: (206) 232-3138, or at: jharbaugh@email.msn.com.ly to say thanks to Jim.

Strategies

Retailers have already figured it out. Their hearts may be in skate, but when it’s some other action sport the customer asks for, they will offer the goods related to that sport. Much of their sales are higher-margin shoes and apparel to nonparticipants. The clothing manufacturers, by and large, aren’t tied to a single activity/sport. Their customers are the action-sports crowd¿participants or not¿who are tied into the lifestyle, music, and attitude. The shoe brands are actively expanding their product lines to include footwear in addition to ‘core skate shoes.

The skate-hardgoods brands have a tougher road to follow. Their focus is on the core of skateboarding, and that focus has a lot of responsibility for skateboarding’s continued strength. Yet even in this record year, I suspect (can’t prove it) that a large hardgoods manufacturer is doing, say, 25-million dollars in sales. Compare that to the sales and growth of clothing companies. Even the leading skate-shoe companies are several times that size.

To really take advantage of market conditions, skate-hardgoods brands need to figure out how to move beyond their traditional market. But it may be that their movement beyond the ‘core hardgoods market, if it occurs, will signal a market top in skateboarding. That’s a bit of a conundrum.

Schizophrenia

Is skateboarding going to crash or continue? Obviously, I feel strongly both ways. I think we’ve got a bit of a run ahead of us, but being bigger and having an established brand is going to be critical for success. Right now, fast growth and cash flow can paper over a whole host of competitive shortcomings. And no industry is immune from business cycles.

Jeff Harbaugh works with action-sports companies to position them to continue to succeed as the market changes. Reach him at: (206) 232-3138, or at: jharbaugh@email.msn.com.