MARKET WATCH: Notes From SIA
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- February 03 2009
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- 11 comments
It was a pleasure to go to the SIA show and see some real excitement and enthusiasm. I talked to a number of new - and not quite so new - as well as small - and not quite so small- brands, who seemed to be doing well and were upbeat. I guess I finally, actually believe that good snow makes the winter sports business not recession proof, but recession resistant.
SIA reported on January 26th that retail sales for August through December fell 1.5% in total dollars compared to the same period last year- a good result in this economy. But current model ski sales were down 17% over last year and snowboard hard goods were down 5%, but “reverse camber boards continue to sell extremely well.” Thanks Mervin.
Consistent with these numbers, there were persistent and continuous rumors in Vegas about a “big” oversupply of boards. I put big in quotes because obviously no brand was prepared to tell me, “Yeah, we made more stuff then we can possibly sell and have no idea what to do with it.” On the other hand, a few minutes spent on the internet will convince you there’s an awful lot of product out there on sale.
The discussion was pervasive. I’m not going to lay out everything everybody said to me, but it felt a bit like 1996 which was the last time this happened. The difference is that in 1996 it was a lot of brands with a few boards and now it’s fewer brands with a lot of boards. If only because there are fewer brands in existence.
There are four basic reasons oversupply might occur. First, because you own a factory and want to keep it running. That doesn’t turn out to be a good reason, but it does happen. Second, because you’re a public company and are a slave to the quarterly earnings cycle. Third, because you’re trying to position your company for a liquidity event (IPO, sale).
If none of those apply, then I guess you must have missed that there’s a recession and were over confident of your competitive position and ability to take market share in an, at best, slow growing market.
We all try and peer into the future and usually we get it wrong. That can be particularly difficult in a one season business where all the brands make good product, differentiation is limited, we’re in the worst recession any of us have seen and are selling a product that, more often than not, people don’t have to replace.
We can, I think, take a lesson from how Nike approached the skate shoe market. Nike has a huge advantage over any other skate shoe company because if tomorrow they didn’t sell a single pair of skate shoes, it wouldn’t move their earnings per share even one cent. This means that they were able to manage their distribution to create a certain artificial demand that gave them credibility. I’m guessing they will do the same thing in snow.
We in the action sports business inconveniently have to pay our bills with what we sell, so we can’t quite take the Nike approach. Every company is different. But if you take a strictly financial point of view, you may find yourself with a better bottom line if you make and sell a bit less.
Carrying costs for unsold inventory are high, and inevitable that stuff you can’t get rid of becomes worth less. Retailers buy more of what moves at full margin for them. Managed scarcity can help create demand.
You may be able to spend a bit less on advertising and promotion. You’ll have less working capital tied up in the business. Your product will be a bit more special.
I could go on, but none of this is rocket science and you get the picture.
Every company will (and should) do what it perceives to be in its own best interest. But when there’s a cumulative oversupply issue, there are repercussions for the whole industry. Ask the skateboard industry about blank and shop decks. Snowboard brands that haven’t overproduced and over supplied are confronted with a comparable competitor’s product that’s, say, $200 cheaper at retail.
The silver lining, I suppose, is that the consumer gets a better deal and that should help create participants.
But I have the perception that over the last few years we have actually gotten some traction in moving price points up a bit. And now it looks like we’re crapping in our own nest again.
I sure hope I’m wrong.
Jeff Harbaugh is a consultant for the action sports industry and works with companies to identify and focus on critical business issues and opportunities fundamental to the bottom line. For more information, visit www.jeffharbaugh.com.
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February 3rd, 2009 at 3:50 pm
On top of that many markets suffer from gray products that flood the markets with overwhelming quantities and that cause great damage to all. Be careful and don?t sell to small countries with no market info. Don?t sell to Reshet Trading and to RSVX ? its all gray.
February 3rd, 2009 at 8:18 pm
Gerry,
I’m not sure the gray market problem is as big as it use to be (because distribution is so much broader anyway and supply is not an issue), but certainly you can’t ignore it. I myself, some years ago, was in the position of having to turn down the wonderful 3,000 board order from Israel and the no doubt legitimate order from Bulgaria. It is hard to say “no” to cash money, but if you’re going to build a brand, there are times you just have to.
thanks for the comment.
J.
February 3rd, 2009 at 9:31 pm
Good to see you were out and about. Ya I think the show was pretty upbeat. But I didn’t sense a lot more activity in the major’s booth then the up starts. I did get a sense it was stick to what you know mentality.
February 3rd, 2009 at 9:33 pm
man I’m sleepy..I ment to say did sens a lot more activity…god damn.
February 4th, 2009 at 9:41 am
bhawk,
Couldn’t miss my last chance to lose money at blackjack could I?
I certainly spent more time in the major’s booths- if only because of the sheer amount of product to see. I spend a lot of time wondering if the consumer needs/wants all this variety of product to enjoy boarding. I wonder if the breadth of product lines in the majors doesn’t represent a focus on what their competitors are doing rather than on what the customers want.
We all have to be careful drawing conclusions from perceived traffic at a particular moment or moments in time. I talked to the owner of one small brand that’s been around five or six year. They are making less than 1,000 boards and sell them all at a premium price to 30 plus retailers in a fairly small geographic region. Their booth didn’t seem to have a lot of traffic, but you have to assume they already know what they are doing with those 30 plus retailers and if they got, oh, maybe 7 new accounts from the show, it would be great. More than that and they might have a production problem!
So the big guys are always busy, but remember a lot of their business (most?) is already done. Crowds (or the lack of a crowd) in your booth isn’t necessarily the measure of success. But it’s good PR.
Thanks,
J.
February 4th, 2009 at 10:58 am
TRUE…
February 4th, 2009 at 11:55 am
Most of the hard goods lines I sell are actually narrowing their lines, and upping their retails both in Canada (due to our once again crappy dollar) and also in the US.
I think that both of these are good things.
February 5th, 2009 at 8:16 am
Warren,
I think they are good things too. Are you talking about the big brands? The issue with upping the suggested retail prices of course is whether or not those prices stick at retail. If everybody goes off price in October and there’s a monster oversupply of last year’s product, effective prices will not be higher.
Thanks,
J.
February 8th, 2009 at 12:18 am
right.
February 19th, 2009 at 12:31 pm
Hi Jeff,
A great way to ID the culprits of poor planning & market saturation is to look at the discount and overstock resellers usually saved for the fashion industry and housewares world - and not just online, but the true brick-and-mortar chains that don’t like to waste retail space.
I found Grenade Gloves, Burton jackets & hats, Skull Candy & Anon products along with other brands showing up in TJ Maxx retail locations this past summer-into-fall season at 40-70% less than they were sold in Indy shops. This even included small numbers of hard goods like boards and bindings.
Just wait to see what will land there this year and you’ll have pretty good fodder for an investigative piece next season! I’d love to see how executives answer the question of not allowing this to happen again in the future even though they seem to be following the department store supply model instead of driving the independent shop value.
March 13th, 2009 at 7:44 pm
Steve,
Sorry to be so late answering this. Like a month. Somehow, Transworld has stopped the automatic notification when a comment is posted.
This year is not typical, at least not based on recent history, due to the recession. I suspect lots of brands are desperate to get rid of inventory wherever they can at whatever price. Also, I am not prepared to condemn brands automatically for selling to places like TJ Maxx until I understand their strategy and market positioning. It’s all on a case by case basis. I mean, I know it’s not good for independent retailers, but that doesn’t necessarily mean it isn’t the right thing for the brand to do. I know that sounds a bit harsh, but it’s just business.
Thanks,
J.