What I Learned at ASR

Products, movies, cooperation, culture, and hype.

I spent three days walking and talking. I suffered through the usual distraction and traffic jam at the Reef booth (why is it that no matter which way you try to go, you end up there?).At virtually all booths, and in no particular order, I noted the following things:

*No major new products

*Snowboarders trying to do skate tricks in the new movies

*A focus on culture that goes beyond individual sports

*The industry’s continued inability to cooperate in its own best interest

*Some hype from companies that look big but probably aren’t

*Shoes¿lots of shoes

*My favorite company name

Is there some common theme here? I hope so, or this is going to turn out to be a really lousy article.

New Products

There was the Expedition Inerlock technology, the new Powell Hardcore bushings, and a few incremental improvements or at least attempts to differentiate product like there are every show. Brands should strive to create these points every chance they get, but they won’t provide a significant strategic advantage.

Aircraft had its aluminum skateboard that now really looks like a skateboard with its replaceable wooden tips. How will it be accepted? I don’t know, but I do know that its success is likely to depend only partly on its functionality and durability.

Look, I’ve heard the board works fine (makes a cool sound, I’m told) and is durable. But skaters are¿at heart¿a conservative crowd. Trying something new brings with it certain social risks. I seem to vaguely remember being willing to do almost anything to prevent any such risks when I was a teenager.

Aircraft’s success will depend on its ability to make the product cool. If the right opinion leaders give it the thumbs up, others will adopt it. If not, no amount of technical superiority will make it take off. I almost think I’d rather start a new skateboard brand with a traditionally constructed board, the right team, and marketing budget than with a product that’s too different from what’s already out there.

I’m reminded of Forum snowboards in its first year. The boards had the reputation of breaking easily, but the kids didn’t care because the team was so cool. I’ve characterized Forum as a skateboard brand that happens to sell snowboards because of how it’s positioned itself in the market. Hopefully, Forum takes that as a compliment.

Skate Tricks on Snow

A few years ago, jibbing was hot in snowboarding. Then it kind of went away. Last season, it was back. At the premieres of the snowboard movies at ASR, I saw not only more jibbing, but also kids trying to do skate tricks on snowboards without their feet in the bindings. It would be easier if there weren’t bindings in the way.

Focus on Culture

This kind of crossover seems consistent with a market that’s becoming much broader. And much more confusing. People (a lot of people) who don’t participate in the sports belong¿or think they belong, or want to belong¿to the culture. In shoes and apparel, I wonder what percentage of purchasers are regular skateboarders? Not the majority, I’ll bet. Hey, I love my skate shoes and their teched-out look, but while I’m still willing to take a tumble on snow, I’m too old to ll on concrete.

I’ve had occasion, recently, to read the public Security and Exchange filings of Vans, Pacific Sunwear, and Quiksilver. When they talk about why they are successful, and about risks associated with their businesses, they talk about understanding the lifestyle, spotting the trends, and being part of the culture. These are three companies that are successful by most measures. Their success is almost completely outside of hardgoods, though of course, they support the sports.

No hardgoods company has the chance to grow as fast as these companies have grown, or to the size they have grown. The hardgoods market just isn’t big enough to allow it.

Industry (Non) Cooperation

But hardgoods are the engine that drives the growth of the culture and sales of apparel and shoes. They are what drives Mountain Dew and the U.S. Marines, etc., to pay lots of money to promote their products at the X-Games. Everybody needs apparel and shoes. Not everybody needs a skateboard. Apparel and shoes typically offer higher gross margins along the whole food chain.

Various mainstream softgoods companies have figured this out. They are thrilled to allow the core hardgoods skate companies (and some softgoods companies) to support the sport and the riders while they try to reap the benefits.

We, as an industry, feel just the smallest bit used. That’s only because we are. I trust none of us are surprised.

We think that our support of the sport and longevity in the industry entitles us to a piece of action. “Entitles” is a pretty lofty word¿and it gets us nothing. Anybody who thinks that ESPN is going to just hand the industry a piece of their action or promote IASC (International Association of Skateboard Companies) at the risk of pissing off an advertiser who’s paying them millions of dollars is unrealistic.

Getting that piece of the action requires, as strange as it sounds, that we work with the big organizations we are concerned will destroy our sport. Because they aren’t going to go away.

In the first place, the industry has to speak with a somewhat unified voice. I don’t know if that’s possible. It doesn’t seem to have been so far.

The rest of the process is conceptually simple. It’s basically the same process that lots of groups have used to encourage or create leverage with organizations they want to influence.

First, reach an internal consensus as to what we want the target of our efforts to do. Second, present these requests/suggestions/demands in a way that tells the target why we want these things to happen: what exactly has to be done; what the benefits to the target organization are; and how we can help them. Finally, let them know the cost of not seeing things at least partly our way. Do all this in such a way that the “person of influence” we are working with at the target organization looks like a hero to their boss. Make that target organization dependent on our input and support to accomplish their goals.

I left myself an out by saying this was “conceptually simple.” It’s a lot of work under conditions of uncertainty. The end result will never be exactly what we want. But I’m certain that unfocused complaints about tactical issues won’t win us the respect of the people we want to influence.

Hype and Glory

I remember the year at the snowboard show when Morrow had a helicopter on top of its two-story booth, and the average square footage of a snowboard booth was just south of a football field. Okay, maybe a tennis court. Advertising and promotional expenses, as a percent of revenue, were completely out of control. Companies that were smaller than they wanted anybody to know struggled to get enough market share to be players.

I saw a bit of that at ASR.

Shoes

I especially saw it with the shoe and apparel companies. When somebody tells you their revenues are growing hundreds and hundreds of percent over last year and refuses to tell you what percentage of revenues their advertising and promotional expenditures represent, you know they are smaller than they want you to know. Why?

The smaller you are, the easier it is to get big percentage revenue increases. If you’ve only sold one ten-dollar T-shirt, selling two the next year doubles your revenue. Big deal. If on the other hand you sold 100-million dollars in T-shirts (or whatever), and double it the next year to 200-million dollars, it’s the same percentage increase, but it’s a huge accomplishment. Percentage-sales increases decline precipitously with revenue growth.

Spending a bunch of money and incurring big losses to get market share isn’t necessarily a bad idea¿you just have to have the balance sheet to finance it and a strategy to eventually become profitable. In other words, it can’t just be a fear-driven, defensive response to your competitors.

Favorite Company Name

And the winner is … Red Ink. I started laughing so hard when I saw the name that I don’t remember what they do¿some kind of apparel, I think. My money is on those guys to be survivors, because I have a hunch they understand how their financial model has to work.

Which brings me back to shoes. There were a lot of beautiful shoes: new materials, cool features, broader selections, more colors. And prices that I thought were generally lower than before. Great for the consumer. Not necessarily so good for the company that has to support a big advertising and promotional program with a lower gross margin. Unless of course their volume is growing quickly. In which case, maybe that volume gets some of the margin dollars¿if not percentage points¿back. So better pump up the marketing budget and get that volume up.

Which is, of course, what all your competitors are thinking and doing. You know, maybe if the booth was the size of a football field …

And In Conclusion

Oh god, I promised to tie this all together somehow. The skateboard industry, as traditionally defined, is in danger of being the engine that fuels somebody else’s growth with no benefit to itself. I suppose that’s the common message from all the vignettes above. In our little corner of the world, competitive pressures are reducing margins, product is oversupplied, and advertising and promotion are the only ways to differentiate brands.

Skateboarding and the skate culture may be a huge commercial success, but many core-focused companies may not share that success. We’re competing with each other instead of focusing on the real threat.

Jeff Harbaugh works with companies to help them manage market transitions. Reach him at: (206) 232-3138. Or e-mail: jharbaugh@email.msn.com.ir advertising and promotional expenditures represent, you know they are smaller than they want you to know. Why?

The smaller you are, the easier it is to get big percentage revenue increases. If you’ve only sold one ten-dollar T-shirt, selling two the next year doubles your revenue. Big deal. If on the other hand you sold 100-million dollars in T-shirts (or whatever), and double it the next year to 200-million dollars, it’s the same percentage increase, but it’s a huge accomplishment. Percentage-sales increases decline precipitously with revenue growth.

Spending a bunch of money and incurring big losses to get market share isn’t necessarily a bad idea¿you just have to have the balance sheet to finance it and a strategy to eventually become profitable. In other words, it can’t just be a fear-driven, defensive response to your competitors.

Favorite Company Name

And the winner is … Red Ink. I started laughing so hard when I saw the name that I don’t remember what they do¿some kind of apparel, I think. My money is on those guys to be survivors, because I have a hunch they understand how their financial model has to work.

Which brings me back to shoes. There were a lot of beautiful shoes: new materials, cool features, broader selections, more colors. And prices that I thought were generally lower than before. Great for the consumer. Not necessarily so good for the company that has to support a big advertising and promotional program with a lower gross margin. Unless of course their volume is growing quickly. In which case, maybe that volume gets some of the margin dollars¿if not percentage points¿back. So better pump up the marketing budget and get that volume up.

Which is, of course, what all your competitors are thinking and doing. You know, maybe if the booth was the size of a football field …

And In Conclusion

Oh god, I promised to tie this all together somehow. The skateboard industry, as traditionally defined, is in danger of being the engine that fuels somebody else’s growth with no benefit to itself. I suppose that’s the common message from all the vignettes above. In our little corner of the world, competitive pressures are reducing margins, product is oversupplied, and advertising and promotion are the only ways to differentiate brands.

Skateboarding and the skate culture may be a huge commercial success, but many core-focused companies may not share that success. We’re competing with each other instead of focusing on the real threat.

Jeff Harbaugh works with companies to help them manage market transitions. Reach him at: (206) 232-3138. Or e-mail: jharbaugh@email.msn.com.