Market Watch: The SIMA Study And Snowboard Retailers
Jeff Harbaugh
- July 23 2009
- 942 views
- 36 comments
I received The 2008 SIMA Retail Distribution Study (highlights only) about the same time I got yet another phone call from another snowboard focused, core retailer that had been around a long time and was in trouble. I hate those calls because these are shops that I would like to see do well.
My little accidental, informal, snowboard shop survey can’t hold a candle to SIMA’s study. But I thought there was some value in talking about them together.
SIMA does its study every two years. 2004 was the first year and the current one is for 2008. It’s great information. We all need more of this kind of stuff to run our businesses better.
The retailers surveyed “…carry either surf product alone or a combination of both surf and skate product.” No snowboard focused shops included. It focuses on stores that have been labeled as “core.” “The CORE channel includes retail operations that classify themselves as specialty, lifestyle or sporting goods stores. Core stores do not include military exchanges, company stores, and national department stores.”
Total core channel retail sales are reported to have fallen 3.45% to $5.32 billion in 2008 compared to 2006. We don’t have 2007 numbers because, obviously, they only do the survey every other year. Nor do we have a quarterly breakdown of sales changes in 2008, at least not in the summary I received.
If we did have a quarterly breakdown, I’m guessing we might see sales increases in the first three quarters of 2008 compared to 2006, and probably to 2007, and then a big decline in the 4th quarter. Which brings me to the calls I’ve been fielding from snowboard focused core retailers.
Last fall represented the convergence of trends that put a lot of pressure on snowboard retailers. First, they were operating in a market that wasn’t growing (There- I said that tactfully). A lot of brands, especially larger ones, in an attempt to move inventory and make money, expanded their distribution.
Awareness of the recession hit full force and consumers stopped spending. Meanwhile, discounted product was all over the internet and finding that product got easier and easier.
Snowboard retailers found they couldn’t hold prices almost from the day their preseason orders arrived. In a one season business, where most of the product (even a lot of the apparel) is useful mostly when actually participating in the sport, and participation is expensive at a time when consumers are cutting back, it was a perfect storm.
The SIMA report says that core skate and snow retailers didn’t have near as hard a time as core snow shops did, though I think maybe the press release headline, “Surf Industry Riding Out the Economic Storm” overstates the case a bit. I suppose that’s SIMA’s job. Certainly skate and surf retailers are better off than snow. Their categories are in better overall shape, they aren’t as dramatically seasonal, and lots more people need an attractive, comfortable shoe than need an attractive, comfortable snowboard boot.
But I wish we had some comparative fourth quarter numbers. Certainly there were over inventoried issues for skate and surf just like for snow. I wouldn’t call those issues easy to manage, but they are easier than in snow where if you don’t sell it, you have to practically give it away or keep it until next year.
SIMA includes a table that shows product mix contribution to retail sales for the three years the study has been done- 2004, 2006, and 2008. The two largest categories, each about $1.1 billion in core retail sales out of a total of $5.32 billion, are Surf/Skate Shoes and Surf/Skate Men’s Apparel. Third at about $1 billion was Surf/Skate Equipment, down 4.5% since 2006. There are a total of 13 categories, of which only five were up between 2006 and 2008.
My point is that the fourth quarter of 2008 wasn’t just the worst quarter most of us have ever seen. It was the fulcrum of change from the old to the new economy. I’ve been writing that for a while, so I don’t suppose I need to go into detail again.
The one good thing that may come out of all this is that I can imagine some product shortages this fall and during the holiday season. Doing what they “perceive to be in their own best interest in the short term” retailers have cut orders and manufacturers have cut production. I know that doesn’t sound good, but read on.
Most everybody in this industry who sells stuff has suffered from over distribution. It turns products into commodities and reduces gross profits. It occurs because all companies, in their competitive zeal for more sales, do what they “perceive to be in their own best interest in the short term.” But at this stage in our industry’s development, it turns out not to be in anybody’s best interest.
So for a change, everybody dong what they “perceive to be in their own best interest in the short term” may turn out to work for the industry though obviously not for individual companies. Unless of course, they are managed very, very well.
The consumer may find that the product they want isn’t 20% off and isn’t available everywhere. They may find that if they don’t buy it now, they won’t see it.
They might actually start to see more of our products as special again, and worth having even at a higher price. Retailers and brands alike will of course tear their hair out when they find they have a hot product they can’t get any more of. But as they’ve adjusted to this new economy, they’ve probably started to manage for gross margin dollars and not just for sales. They might find that the adjustments to their operating structure they’ve made leaves them with more net income even with lower sales.
Or maybe I’m just dreaming. I guess we’ll find out.
Market Watch, Jeff Harbaugh
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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July 23rd, 2009 at 12:53 pm
It'll be a tragedy if core shops start dissapearing in favour of sports supermarkets. You've got to give it to Burton, their Coalition range is a good way of empowering core retailers and giving them an edge over the 'buy lots and sell cheap by any means possible' retailers. Hopefully we'll see more ltd edition releases.
July 23rd, 2009 at 2:56 pm
are you serious? Burton's coalition program is a joke. You must work for them.
On another note. I hope jeff is right here, I like his thinking. The strong will survive, and the smaller shops in some ways should be able to adjust faster than the big guys
July 23rd, 2009 at 3:00 pm
^ Burton is selling all their products direct now, what does Coalition even mean anymore?
Jeff if you're right and the demand is there because production has been lowered this will ultimately help. There's too many people that have only experienced the online retail warehouse boom and not the local shop scene. These are the people I've found that when they actually enter a small shop are the ones to say, "WTF $450 bucks for a deck that's price gouging". Like you said with over distribution and production this is what happens.
July 23rd, 2009 at 7:23 pm
Haha, if I worked for Burton I wouldn't be spending my time at work cruising the net to spend more time talking about snowboarding. If not in practice the concept of releasing limited premium products to small independent retailers is one way of supporting them through hard times. Regardless of availablity online retailers dealing in larger volumes with fewer overheads are always going to undercut shops. Shops need to concentrate on supporting a local scene and offering unique products which big superstore retailers can't get their mitts on.
July 23rd, 2009 at 8:26 pm
What do you say to big brands like Burton who sold their goods in good faith to mom and pop retailers who can't pay their bills in the current economy? Should Burton keep selling these people just because they are part of the local scene? While this is a culture and a movement it is also about business. Why doesn't anyone discuss the fact that Nike sells more SB and 6.0 via on-line or at Nike.com than any other core brand? Why not discuss how they are buying there way into board sports while killing off the good local retailers. How many pairs of Nike SB or 6.0 are sold at Footlockers? Burton (and a lot of other larger brands) are supporting the local guys while keeping their own businesses alive. That's the reality.
July 23rd, 2009 at 10:01 pm
So Jeff basically what you are saying is…
Burton, Rome, and the Ski brands overproduced product and over distrubuted it. On top of that the Fulcrum point was December 2008. And then on top of that California had a really slow start to winter. So it was "A perfect storm" of disaster for the snow industry.
Too much product, not enough demand, discount mania from Board Paradise that led to everyone going off price.
Small preseason bookings combined with reduced production runs means, this winter could be very lucrative to those shops that are still around and even more lucrative for brands who aren't sitting on a ton of overstock from last year and ordered smart for this coming season.
July 23rd, 2009 at 11:03 pm
I think product lines distributed only to specialty shops is a great idea. I'm not prepared to pat Burton on the back for its distribution policies however.
Jeff
July 24th, 2009 at 12:48 am
I agree, but if burton sells the boxes the coalition product on close out, then it isn't so cool. They have done this in the past. Burton needs to pull their heads out. We should see some changes soon, cause they have gotten hammered by order cuts, and it is only going to continue if they keep on the course they have been heading
July 24th, 2009 at 8:29 am
Yeah, Burton have been hit hard, didn't their staff have to take a pay cut? Hopefully they'll use the recesion to re-alighn their priorities and reconnect with the retailers. THe guys who were selling their products when the sport was in it's infancy. Why does every debate concerning the business of snowboarding always boomerang back to the subject of Burton?
July 24th, 2009 at 3:35 pm
Yeah right,
Good balance sheets always get companies through hard times. The ability to adjust faster will help small shops as long as they are willing to take advantage of it and MOVE! I will say though that there will many fewer smaller shops left when we get through this all if by "small" you mean sales volume of under, say, $1,000,000. But I suppose small is more an attitude and way of operating than just revenue level.
Thanks for the comment.
J.
July 24th, 2009 at 3:38 pm
Realist,
I remember the early/mid 90s when there was just wasn't enough snowboard product supply. Kids put down deposits, everything sold at full margin, people could pay there bills. The customer treasured what they got, and retailers made money.
Jeff
July 24th, 2009 at 3:43 pm
Rich,
New brands, of course, always start that way, at least so far, though the time between distribution in specialty shops and broad distribution has shrunk dramatically. That, of course, is inevitable when there isn't anything that's really different between one company's product and the next. If you don't expand your distribution quickly, another brand will come along and get those sales with a product that's more or less identical except for the brand name.
Thanks,
Jeff
July 24th, 2009 at 4:49 pm
thanks for the reply,
we are small at about a mil. But lucky to have many friends and allies to throw us bones. But its interesting how challenging these times have been. It has really caused me to be careful and really watch expenses, and the result has been we are actually more profitable this year, even though our overall gross sales are down 20%. So I guess you could call these times" good times", But I can say mentally this has been challenging with sales down.
I hope all the companies can realize the same thing we are. Its not all about volume!
July 24th, 2009 at 5:29 pm
any thoughts on Shopatron?
July 24th, 2009 at 10:09 pm
Profitable with lower sales!!! Music to my ears. Though I have to say that making more money with sales down 20% is quite a trick. Better inventory control and higher turns part of the success recipe? Imagine what you could have made if you'd been managing like this when times were better.
Jeff
July 24th, 2009 at 10:33 pm
Realist,
Couple of things:
First, I've been suggesting for years that if you sold a bit less (at full margins), controlled your distribution and reduced some of your expenses, you might make more money. I think Burton, with it's huge share of the snowboard market (and not being likely to get any more market share), could really have benefited from approach, but they didn't ask me. And I'm not sure it's "in good faith" if a brand (not talking about Burton necessarily) pushes specialty shops to buy more and more as they manage their distribution in such a way that the specialty shop has no chance to sell the product at a good margin.
Second, I'm not completely prepared to blame brands for shops making what turned out to be bad purchasing decisions. Every business does what it perceives to be in its own best interest in the short run.
I've got more to say, but this damn program limits the length of comments.
Jeff
July 24th, 2009 at 10:36 pm
Realist,
This is a continuation of my last comment.
With regards to Nike, I admire what they've done from a business point of view, but share your concern about the impact on retailers. But big companies with big balance sheets will do that. Since no amount of bitching and moaning will change that, maybe we should just focus on how to compete and succeed in the existing and emerging competitive environment. If you don't have a good answer to that, you won't be around. I'd also point out that if Nike sells a whole lot of stuff, it's because our customers, the consumer, wants to buy it. Maybe we should focus on why.
Thanks,
Jeff
July 24th, 2009 at 10:38 pm
Snowstorm,
Uh, yup, that's pretty much what I'm saying. It's like my comment above. I think if you manage your gross margin dollars, inventory, and expenses better, you can make a bunch more money with the same level of sales. Not all the time- but often. It's a good time to start doing that, though it's kind of new mind set for a lot of us.
Jeff
July 24th, 2009 at 10:39 pm
Rich,
The reason it all boomerangs back to Burton is because they are somewhere around half of the market (my guess).
Jeff
July 24th, 2009 at 10:42 pm
One thing that is most comments are from the retailer side of things, being from the product side we effected as are our suppliers. Over production is pretty easy to do, since most retailers/distributors want their product early but want to order late, even with discounts on the factory and brand side it is becoming more obvious that people are holding to a later date to order, actually it's been like this for awhile. However it is virtually impossible to order late and receive early…so the risk is on the brand to produce early and this is where the risk of overproduction comes in. We also have currency issues since many boards are produced in europe and if not you for sure use some EU supplied materials. We have retailers who can't get credit, we have chainstores going out of business, reducing orders or just saying screw it and go direct with the factory.
July 24th, 2009 at 10:46 pm
mmm sure,
Obviously, brands and retailers have to figure out how to work together on the internet, and Shopatron is one current solution. I think the "pick it up at the store" thing is a great opportunity for retailers. It's great fun to watch this all evolve. Here's a couple of thoughts:
What happens when states (or maybe the feds) get around to taxing on line sales? Does that change the playing field?
The speed with which you can actually get the product in your hand after ordering it on line at a reasonable cost seems to be declining, though I can't prove that. A major argument for going to an actual store has been immediacy. I'm not quite sure that's as important as it use to be.
That's not exactly about Shopatron. Hope it's useful.
Thanks,
Jeff
July 25th, 2009 at 3:52 pm
well I for one, would love to here from the brands. My guess is they would get hammered on here because of there direct sales approach. Working together would be an ideal situation, but it appears the tradional way is no longer. I will say as far as over production goes I have some advice.
SPREAD CLOSE OUT DEALS TO ALL YOUR DEALERS.
It is such the LAZY mans way to just call up sierra ski, and snowboard , or backcountry, or any of those few. Get off you butts and make your reps spread it out. In the end your brand will retain a higher value.
July 25th, 2009 at 4:01 pm
yeah, it is surprising and I didn't expect it, Part of it is the fact that manufacturers are trying to put out higher margin products and certainly buying more off price. Because the boxes want summer in jan, they are already off price in march. The other thing is its alot easier to run a real tight ship in a recession. All Of my staff contributed to running a very tight ship. I don't think that would be a very enjoyable long term game. But it is smart to think there is a better middle ground.
I didn't say I made alot more, but I guess the bottom line is we did make more. However we haven't been growing inventory, like we generally do, so that could be a good contributor.
I am very anxious to see how this winter turns out.
July 25th, 2009 at 5:52 pm
Check out something called gross margin return on inventory investment. I've got an article coming out in what I think is now the next print edition of Transworld Biz. It's a great tool for inventory management and will help you increase gross margin dollars.
Jeff
July 25th, 2009 at 6:10 pm
Brand,
It's not an easy time for any body- brand or retailer. The issue of who takes the inventory risk is one that swings back and forth depending on economic conditions. The fact that nobody wants to take it is one reason I think there might be some shortages this fall/holiday season. I think your currency issues are likely to get worse- I don't see the dollar strengthening and it could get a lot weaker. The only reason it might not is because the recession in Europe is worse than here and their banks are in more trouble than ours. So maybe the dollar turns out to be the least bad currency.
People who figure out ways to minimize inventory risk by producing with shorter lead times, doing shorter runs efficiently, estimating their sales better, or whatever, will have an advantage. What you say about retailers being cautious about ordering even with discounts makes sense to me. A few points of discount are not worth getting stuck with unsold inventory- especially if it's snowboard hard goods.
Thanks for the brand perspective.
Jeff
July 25th, 2009 at 8:21 pm
Jeff - what are your thoughts on the "acceleration" of the seasons?
(Spring trunks and bikinis shipping in January - Snow product shipping in early July)
For me being a retailer in Canada - it all comes WAY too soon.
The box stores may want it that early - but it is so out of whack with our seasons that I am now having suppliers pack and hold orders until a more reasonable time for deliveries.
Used to be that Sept. ASR was the first time you saw Spring goods - - SIA was at the end of Feb. and was also the first look and the next season. Now most orders are due months before either of these shows.
I feel it has put un needed strain on my business.
Thoughts?
July 27th, 2009 at 3:54 pm
Hi Jeff, appreciate the comment and agree with most points. Here is a question for you. Why the double standard with someone like Nike? I venture a guess that 75% or more of their SB and 6.0 business is from people who don't skate or participate in any board sport. When other core board sport brands attempt to do the same thing they are buried by all of the haters out there claiming they have sold out etc? I don't totally agree with you on the point that they have a product people want. I'm not 100% there as I don't think their business is coming from true participants. I see the SB and 6.0 stuff mostly on people who I'm sure do not participate in any board sports or the culture. They are buying another color of a Nike Dunk or Blazer to strut around the city, not skate or ride their bike in etc. Just my 2 cents. Another question for you. How do you think smaller brands who have been considered core yet, they have always been slightly on the outside (maybe brands like iPath or Gravis for example) are doing? Do they have an opportunity to survive in the current climate against the big companies like Nike, DC, Vans, Adidas and the money they are throwing around? They can't outspend the big guys, how do they make a difference and survive? The same question can be posed for start-up brands trying to break into the scene. How do they make a difference?
July 27th, 2009 at 7:24 pm
warren, you should do a little prebook and then buy off price. If they want to produce around boxes, make it work for you
July 27th, 2009 at 8:39 pm
I just feel sorry for the shops like K5 and such for suppoting these brands hard and in the end THE MAN sticks it to us, I dont blame the core shops for doing smaller prebooks I blame snow jams and ski dazzles
For making the consumer wait for the better deals, the consumers dont care if there getting second quality stuff , it still looks new to them and its half off, Fuck snow, Im out out of the game and I love having money to spend on the stuf I can turn all year, Snow is gay now!!!! let Sport Chalet have it..
July 27th, 2009 at 9:07 pm
Warren,
If I were a retailer what would bother me is having to decide what styles and colors will be winners too far in advance. I assume that if they ship it to you early, they extend your dating? If not most retailers couldn't afford to take the stuff anyway. Do you have to take it early? Sounds like you're pushing back on that, which is what I would expect you to do. Brands do need some lead time, but they can only get as much as you will give them. Right now, and in the economic conditions I expect we're going to have, I'd encourage you to buy well and cautiously rather than try and maximize your discounts, etc. There are huge opportunities out there for brands who figure out how to build some speed and flexibility into their manufacturing processes.
Thanks for the comment,
Jeff
July 27th, 2009 at 9:13 pm
Realist,
I think 75% of most big brand's business is to people who don't participate, or they wouldn't be big brands. I don't know if there's a double standard or if Nike's just done a really good job.
I think it's a great time to be a smaller brand if you actually have something different about you and can keep your distribution under control. Surviving core shops are really going to need those kinds of brands.
Jeff
July 28th, 2009 at 12:36 am
SB does not sell online only skate shops
and who gives a shit about 6.0 or 6.bro you can buy that at KHOLS
July 28th, 2009 at 12:37 am
Jeff is on point
July 28th, 2009 at 3:01 pm
The problem is " ALL YOUR DEALERS" will not buy closeout, your idea sounds great, but making that happen is hard.
July 28th, 2009 at 10:37 pm
your wrong, they have ccs selling sb online, not to mention active, probably k5 there is a whole slew of them. The sb line has been hammered by the 6.o launch
July 30th, 2009 at 12:54 pm
Catch 22, deal on a personal level with your retailers and loose general brand interest, or expand quickly and fall out with your retailers for making sales with bigger non-core retailers to support your business model. Which brings me back to the Coalition arguement, create a large brand, expand it quickly and offer a unique / ltd editiion product to your core retailers…. which will irritate the big shops making the majority of sales. Oh man, glad i'm not in brand management.. what a minefield!