Catching Up With: Dick Baker, Chairman Emeritus of SIMA

josh hunter

• October 22 2008
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Dick Baker addresses the crowd at BRA’s Retail Summit in Puerto Rico.

If there’s one thing I’ve learned while covering the business side of boardsports it’s that when Dick Baker speaks, you listen. Baker is a veteran of the apparel business. His career spans from Esprit, Lacoste, and Tommy Hilfiger to Op. His opinions are highly respected both in and outside the boardsports industry, just as he is. I had the opportunity to ask Baker a few questions this morning about the current economic climate and how it’s affecting the endemic market. Here’s what he had to say.

When you talk about the current economic situation, where do you start?

I think one of the things that everybody has got to look at first is that the overall economy and the scale of how crazy and unsettled it’s been has affected everything. I’ve got to go straight to the consumer here. This has been going on for well over a year—the consumer really isn’t spending the money in their pockets, and it’s now become exaggerated in the past three of four months with all the major financial crisis we’ve gone though as a country.

So how does that trickle down to our sector?

You’ve got some of the greatest companies in the history of the boardsports sector—Quiksilver, Volcom, PacSun—are all individually having their own issues. Some are self-inflicted, but the majority of them are really affected dramatically by what’s going on with the consumer.

I think the simply answer is that all of these companies—in the times we’re in right now—have to make changes. And they are all different. The changes that Quiksilver needs to make are different than Volcom’s, and PacSun’s are different than Quiksilver’s.

But, anybody who is a large public company in our sector that isn’t completely re-structuring their business according to the climate that we are in is not smart.

That’s not the case. These guys are all smart people.

Look at VF, who owns Vans and Reef. They are a huge, multi-billion dollar corporation that is a very well run company, and I would argue that they are not going to allow Vans or Reef to get into any trouble. They’ve done a good job. Everybody in the industry freaked out when they did that [entered into boardsports market] five or eight years ago or whatever it was, and they’ve been solid citizens and have been doing the right things with their brands.

It’s a good example of an outsider coming into the industry.

What about the smaller brands? At the BRA Summit in Puerto Rico you mentioned that you thought that very quietly there would be some capital put into some of the smaller emerging brands.

Well that hasn’t happened yet to a great degree, but what has happened is the smaller brands are selling quite well at retail on a very small scale. So, good news is that if you talk to retailers some of their bright spots are these up-and-coming, alternative brands that aren’t overly distributed. That’s good news.

The bad news is that they are very small and very hard to count on for timely deliveries and re-orders. They have their own cash flow issues. Again, once this thing stabilizes—which could take another year or more—as long as they can weather the storm, I think you’ll see some of these really exciting small companies step up with capital investments

So you think this has kind of put that on the back burner?

Yes, I think so. There’s been a lot of talk about how this is a time to get in—and it is. But, the biggest problem is when you throw outside money into these small companies, and they [investors] don’t have the experience in the sector or an understanding of the sector, that’s where it goes sideways. You know I’m a veteran observer that there is more road kill of non-apparel, non-surf/ skate sector investors who want to be in the game, but don’t know how to be in the gam, put money in and then have completely unrealistic expectations on their investments.

It’s like having your uncle Fred who scored on a tech company come in and put $800,000 into a brand thinking that’s it. Then all of a sudden a year from now he’s looking for a return on his investment when the company may actually need another 2 million dollars. That’s the dilemma of a small company.

With all of your experience outside the boardsports industry with some really large apparel companies, did you go through similar economic conditions, and if so, were you able to take something away from those experiences?

Nothing even close to this because in those days you really went through a cycle, but the cycle was one that affect the business, but didn’t affect the finance of the business. Meaning, what is going on today has far deeper reaching consequences because the credit market is upside down and you have cash flow issues with companies. It’s all these things that really have not existed in the past 25 years to the severity of the situation today.

That being said, with the market experiencing this volatility is there any business insight you’d offer?

The only one that is really relevant is that pertains to owning stock. If you own stock in a really good company, if you can–and a lot of people can’t—but if you can, you absolutely should weather this storm and sit and stay out of the fray. Wait for the market to come back because it will come back. Unless there is an inherent, larger problem within the company that’s very visible. Say cash flow issues or something like that.

Do you think that brands, like Billabong, that are traded on the Australian stock market are at an advantage now?

Yes, and I think Billabong is a great example. They are at a great place. They’re also going through the same difficult environment that we’re all working in, but they are very well managed, they have a stable of brands, the majority of their brands are market leaders, they’ve got global opportunity, and it’s a company that is well positioned for the next few years of difficult business climate.