Globe CEO Matt Hill On Company’s Turnaround

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After several trying years, Globe International, the Australian-based owners of Globe, Gallaz, and Dwindle Distribution’s brands, announced that they returned to profitability for the financial year ended June 30, 2010.

CEO Matt Hill, 39, whose brothers Stephen and Peter founded the company in 1984, took the helm almost six years ago in September 2004. Matt, who has worked at the company since he was in high school, implemented a long-term growth strategy that looks to be finally paying off. We caught up with him by phone in Melbourne at 5 am his time to learn more about the company’s position, strategy, and predictions for the road ahead.

Congrats on the turnaround. This is the first time in three years you’ve posted a profit, yet revenue was still off fairly steeply at 22%, or 9% with constant currency terms. Despite that, you managed to increase your bottom line by $10 million. What were the keys to doing this and how did your 2009 restructuring play in?

We’re pretty happy with the outcome—still there’s a 9% downturn there. The main thing for us was, like most companies, with down-turning revenues from late 2008 onward, we definitely had to cut costs. We also really wanted to make sure that we didn’t just cut costs, but that we came out as a better business on the other side. Strategically we really looked to restructure and revamp certain areas. Our product and marketing now are actually run, and creatively executed, better than prior to the financial crisis. You get forced to look a lot harder at your business.

We consolidated functions and cut a lot of costs, but we also took it as an opportunity to rather than just cut off slices, to say; “Okay, here’s the new amount of money we have to spend, here’s the new environment to operate in, so what are we going to do to structure more appropriately for that?” In a lot of cases that has had good outcomes. We’ve given people fresh opportunities to manage things. Some young guys are in the deep end and so far it has turned out pretty well.

Globe International CEO Matt Hill

Globe International CEO Matt Hill

How did you rethink your marketing message to really reach core customers?

Specifically on the Globe brand, we decided to take some chances. We completely re-launched our marketing with a whole new look and aesthetic and really geared it around a new team of riders. That was sort of an attitude of all bets are off and the game’s changed. We need to stand out and look different and really just let the creative guys run with some fresh, key messages in ways that let them run their natural game.

Also, making sure that we more intelligently tie [marketing] back to product initiatives, that there’s a fully integrated product and marketing message, not just marketing noise.

On the currency side, what do you see as the pros and cons of being based in Australia with your dollar being so strong against most other major currencies?

First, we look at constant currency terms. We run each of our divisions quite independently, so what happens in the Aussie dollar market isn’t as relevant to us. Currency at a profit level generally actually balances out. If we have a strong Australian dollar then our Australian division is buying in U.S. Dollars so suddenly they have a margin gain from that. U.S. Dollar-based areas aren’t affected until we return those dollars to Australia.

One of the strengths for us, that has really helped us through the financial crisis, is that we are strong in three territories. At any given moment, not every cylinder fires but we’ve got something going.

Can you speak to some of the successes and weaknesses in the States, Europe, and Austalasia for last year?

In the U.S., we’ve had a really good turnaround in the Globe brand. We were aware that the Globe brand needed work, so despite market conditions, [it] really stepped up. It has been placed in some really good retailers, we’ve had good sales, reorders are up, and forward orders are good—we’re real excited where Globe’s at. We’ve worked really hard at it so to see that finally start to pay off is really rewarding for all the guys that are working on it.

Also in the States, enjoi’s doing well for us and the rest of Dwindle’s skate business—it’s a really tightly run business with great strategies to deliver something for every retailer as far as skate hardgoods. Enjoi apparel is doing really well also.

What did revenue numbers look like here in the States?

It went from having a year before that was down dramatically to being more-or-less flat this year. Given the circumstances it’s a really good outcome. On the profit line, when you take out the restructuring costs, their profit went from losing us a lot of money to being a major profit contributor in this past year, which is a fantastic effort by the guys.

How about in Europe and Australasia?

In Europe, Dwindle hardgoods has done a really good job using third-party distributors and also some direct markets. We distribute direct in the UK and Spain now, which is a very successful initiative. We picked up those two territories because we had the infrastructure in Europe to do it. We’re not focused on direct in every market—we’ve got good distributors in Europe that we’re happy with.

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How has the acquisition of Cliché affected you in Europe?

Really good. Those guys are doing a great job. We’ve kept their office in Lyon and they’ve been a great addition creatively [and] for sales.  Cliché’s a real initiative for us in the U.S. because the brand is relatively unsaturated and underexposed. We’re hoping to turn that into a good growth story for next year.

As far as Globe goes in Europe, it was what I’d call a stabilizing year. They got back in some doors and also got sales to flatten out reasonably well. They’ve got good forward orders too.

In Australia, the business is the most multi-faceted that we have and the most mature. Globe is still a very strong, leading brand in the account base down here. In Australia and Europe Globe Apparel is an important part of what we do and Globe shoes really hold down the premier spot in the Aussie market.

How did doing away with the Australian retail business impact you last year?

First of all, it wasn’t a profitable division for us, and secondly, we [decided] we need to [operate from] a really nimble, and flexible cost base to handle the financial crisis. We were keen to have that be a simple, wholesale operational base. There’s also a non-tangible benefit in sticking to our DNA, which is wholesale [and] really partner up with our retailers and put more energy into working with them than trying to figure out the headache of doing our own retail operation.

Retail’s a tough one. We still maintain some flagship stores in core places like Hossegor, France and the Gold Coast and Torquay in Australia, but they’re more plays to make sure that the brand is well represented in the key markets. They’re not a retail strategy per se.

Is that something that as the market comes back that you think you’d revisit or is that off the plate for you guys?

It’s off the plate for the indefinite future. My preference has always been to partner up with great retail partners, and we have a lot of them, also to have a business that can operate in multiple distribution channels. Once you start owning your own retail stores, you’re locking yourself in to one lane on the freeway so to speak. I like the idea that you can operate in a few different lanes at the same time.

You guys have a really strong cash position with $14 million on hand and no debt. How have you managed that? Do you take a fairly conservative approach to cash?

Absolutely. Traditionally we’ve always been pretty ahead of this. Sometimes you got to have some debt to grow, but traditionally we always avoided that. As soon as we saw the financial crisis coming down the pipeline we were very anxious to get into a very strong cash position by being aggressive and making sure to turn inventory into cash before the market really downturned because you could still bill it without affecting your own market and needing to discount too dramatically.

Our business is very cash positive. Unlike some other industries, we don’t have a lot of capital expenditures, which is another good reason why retail is difficult. Retail sucks up a lot of cash. That puts us in a good position to be acquisitive if we wanted to without any financial stress. It enables us to ramp things up when we think it’s the right time for a brand or the market’s ready for it. You can be very opportunistic.

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That said, what opportunities do you see out there and do you picture any acquisitions taking place?

There’s nothing specific on our radar, but certainly it’s something I’d be open to, particularly if it was a good wholesale acquisition that fit into our infrastructure and added potential distribution opportunities. It would have to be something that was really complimentary to what we do because I’m equally comfortable with the brands that we’ve got. I think the next few years are going to still be pretty tough economically and so its gonna be a game of market share. I’d rather, given what we’re facing, be coming off a low base. There’s a lot of natural growth within our distribution channels even if things are hard.

What other opportunities do you see for growing your current brands in the upcoming year and capitalizing on the momentum you’ve got going?

It’s category growth in most cases. Apparel growth would be a really important one. Footwear design has really come along for us. To be honest our footwear design was lacking a couple years ago. We’re seeing, particularly in North America, good growth in that footwear line at the moment for that very reason. The Globe Cruisers skateboards are doing really well for us in all territories. I didn’t mention that specifically in any of the regions because they’re a huge success in all the regions. It all comes down to, each brand has key initiatives that they’re following through on or categories that they’re really chasing down.

A look at Globe's Shopatron powered Web store.

A look at Globe's Shopatron powered Web store.

Revenues have been steadily declining since 2005. In refocusing your cost and expense structure, what do you think is the correct size for Globe in today’s economy?

The correct size is always bigger right? (laughing) More to the point, the question is do we have the correct cost base where we’re growing from, which we do now. Within the declining revenue numbers, the back half of last year saw a deceleration.The important thing is we have a cost base that matches the likely flat line sales. We said; “Where could revenues end up? We need to make sure that we make money at that number.” From there we can add certain investments back into the business as we get revenue growth again.

We’re already two months into the current financial year and we’re looking strategically at where we spend some money to generate revenue with very specific regions and product and marketing initiatives. My hope would be that we would see some good growth, but I’m also still realistic that there are some volatile markets out there. We need to make sure that first and foremost we maintain a solid profitability line so that we keep accumulating cash and having money doing this.

It sounds like it was a pretty volatile time when you came in as CEO in 2004—there had been a number of chief execs before that, but you’ve managed to stay in position despite the lagging revenue numbers. Do you feel like this turnaround is the realization of your long-term goals and how do you think you managed to keep that focus despite the tough times?

Definitely. I’ve worked in the business since I was in high school so I know it intimately. One of the things that my brothers and I discussed in the concept of me taking the job is to get back to first principles and really reboot and reenergize and regenerate the company. I’ve always been fortunate in that I’ve had a really supportive board of directors who’ve really understood the long-term goals of what we were trying to get back to. It would be very difficult to do what I’ve had to do without that because it takes a while. You take a step back to take a lot of steps forward.

I laid out a strategy that we need to get back to our core brands. We’ve divested, we’ve actively sold some businesses that were good businesses but not strategically in line with where we wanted to go long term. That meant some revenue loss, but you do that believing that brands like Globe and the Dwindle brands can make up that gap over time. We wanted to operate on a single business model around the world where each division looks similar in terms of the brands that it carried but also could leverage those into all those different markets.

I’d say it’s the first time that all the strategies are in place and we’re well positioned. Our business overall, it’s a bit like playing a game of pool-you’ve got balls in front of each pocket and you can quickly go through and sink a lot of balls all at once-that’s kinda where we’re at.