Soaring Oil Price’s Impact On Boardsports

mike lewis

• July 17 2008
• 2,022 views
• 7 comments

Filling up the tank these days is about as much fun as dropping the soap at San Quentin. The impacts of rising oil prices, a declining dollar, rising inflation, and the subprime crisis are making for the perfect economic storm that is affecting the price of everything from Vaseline to t-shirts. Transworld Business put its ear to the tracks to hear the buzz in the industry on the impacts of this economic maelstrom.

Greg “Chopper” Randolph
PR Communications Manager, Smith Optics

TWB: What changes have taken place at Smith based on rising prices and other macro factors?

A little over a year ago, we began to make some investments in our business to address some trends we saw coming, one of them being petroleum’s effect on the cost of doing business.

We ended a 20 year agreement with a 3rd party manufacturer and shipping facility and purchased our own factory, warehouse and distribution center in Clearfield, UT. We also brought all of our goggle manufacturing as a result of this investment back to the US. We did this for a number of reasons—growing demand for our product, the costs associated with shipping raw and finished goods all over the earth, the opportunity to wean ourselves off of foreign and third party manufacturing…Responsible efficiency is what I like to call it. The cost up front was large but we are already seeing the savings in a number of ways. With the cost of energy and transportation going up this has saved us an enormous amount of money on the transport of materials and finished goods. We are betting that domestic manufacturing is going to be the best solution for Smith when it is all said and done.

TWB: Have you seen the cost of raw materials go up?

We have seen the cost of our raw materials go up with Urethane and Polycarbonates up roughly 5-8%.

TWB: What are you predictions for the future impacts of the rising costs of oil?

We feel the oil bubble will burst. We won’t likely see $30 a barrel oil ever again but new technologies and energy sources, namely electricity from nuclear, wind, etc will come online over time to lessen price pressure on petroleum. Our goal is to reduce our reliance on oil with the innovation of new materials which will hopefully eliminate our need for petrochemicals, find ways to recycle petro-chemical products in order to make our petrochemically based products (Smith will bring over 150,000 goggle units to market in 08-09 made of 96% recycled urethane!), and execute more efficient manufacturing here at home which lessens the impact of fuel costs considerably.

Scott Klossner
CFO, Backcountry.com

TWB: What do you do to educate your customers about price levels and changes?

We have been holding price currently and have not had the need to educate them directly.

TWB: What will your strategy be in passing along increased costs to your customers?

We compete with companies that have no shipping costs, the brick and mortar stores. We do have a sales tax advantage in most states but the increased cost of shipping if passed through to the consumer will tip the scales at the margin. And even if we could pass the costs directly on to the consumer, there would be no benefit to us; it would cost the customer more, which again will reduce conversion on the margin. The sheiks win and pretty much everyone else loses.

TWB: What are your predictions for the future?

We have not seen the top of this mountain yet. However my hope is that as the price of oil rises two things will occur. One is that where we can drill the higher price for the crude will insentivise more drilling. And second, the political pressure will cause the politicians to quit stopping every progressive idea to find and develop domestic options, drilling and other means. Of course, a more fuel-efficient nation will help as well. One could say that this sticker shock could actually be the vehicle for forcing positive changes and force the development of a comprehensive energy strategy. But I also believe in the tooth fairy.

Mike Wicki
Sales Director Overseas & Head of Logistics, Zimtstern

TWB: Have you seen an increase in raw material costs yet, and by what percent? If so, what materials have you seen the biggest jump in?

It’s hard to say by what percentage the increase actually is. One of the increases we’ve seen is on cotton made products. Since the demand for alternative fuels is on the rise, more and more farmers tend to plant the plants which can be used for fuel production. The result is a shortage within the cotton supply chain. Which again results in a higher price for raw cotton. Since most technical fabrics are also oil based we expect a price increase on them too. So far the impact is not yet that remarkable.

TWB: Are you raising prices for retailers? If so, by what percent?

We currently leave our prices where they are. But we might have to increase prices here and there depending on the style and its exclusivity.

TWB: What would you like your customers to know about how rising costs are affecting your business model?

I guess it’s important for them to know that almost all brands try to keep the prices as low as possible. But if they wish to receive the same service as in the past, e.g. Product deliveries on time, marketing, team, customer service etc., we’ll have to increase the prices sooner or later or then adjust the quality somehow.

At the end of the day retailers need to understand that a brand starts to spend money for a product and its development up to 3 years before the $$$ rolls back in. That’s why it’s absolutely important that the retailers pay their invoices on time. If that doesn’t happen anymore brands start to lose money, which again makes them think about the possibilities B2C offers.

Bob Carlson
Co-Founder, Arbor Snowboards

TWB: How has Arbor been impacted by rising oil prices?

With the increased buying power of the Euro, with the dropping dollar and oil being tied to the dollar, any increase in oil is being offset by the purchasing power of the Euro with our boards being made in Austria.

We are seeing some rising costs in shipping, but our European sales are growing and we ship direct to Asia, so these shipping costs are really being offset by Arbor becoming more of a global brand.

The one thing I am concerned about is the cost of fuel for people in the US to go on their snowboard trips, whether they be short day trips or longer week trips.

Todd Roberts
Co-owner, ZJ Boarding House

TWB: What has the impact of rising oil prices been for your shop?

The biggest impact is that it is affecting everyone’s discretionary income. Customers are kicking more tires and making their purchases count. The same customers that seem to buy a lot of boards are now bringing in a few used ones to sell first before purchasing another new one. I guess I’m doing the same thing in my own spending. There seems to be a lot more thought and care going into bigger ticket items.

Ed Seymour
Global Sales Director, Westbeach

TWB: In what areas are rising petroleum costs having the biggest impact on your business?

Today the biggest visible impact is on local costs, surcharges on prices for fuel. I am sure when heating and lighting bills land we will see increases. For sure local wage demands will rise too. The recent rises have not affected raw materials so much as these were produced sometime ago. However for future seasons there will, no doubt, be increases.

TWB: What would you like your customers to know about how rising costs are affecting your business model?

Retailers have their own issues, of that I am certain, they will not be concerned about their suppliers and will expect us to meet our own challenges. We are trialing a new business model in two key markets and this has real advantages for the retailer and of course for Westbeach, a way to capitalize the strengths of what a brand and a retailer can bring to a partnership.

Note: Seymour did not wish to comment on this new model at this time at is still in the top secret, developmental stage.

Sean Robinson
Co-owner, Emage Network

TWB: In what areas are rising oil costs having the biggest impact on your business?

I don’t think we’ve directly seen the impact to the products we buy yet. If anything, it’s been in customers ‘bracing’ for the impact. I don’t think they’re feeling it super hard yet, and most people are still just complaining about how expensive gas is…”More of a reason to ride your skateboard” is what we tell them.

TWB: Have you seen an increase in costs from manufacturers yet? Have you had conversations with your suppliers about this yet?

Honestly, the only thing I’ve seen so far is a couple companies’ increase in truck prices. I haven’t had the conversation with any vendors yet, but we’re bracing ourselves for increased costs of product and shipping charges.

TWB: Will you pass these costs along to your customers at an equal amount or absorb some of them in decreased margins?

We’re planning on passing on the increase. Margins are already pretty slim in this industry, so we can’t afford to absorb the hit.

TWB: What are your predictions for the future?

Predictions? Here’s a fact: Everything always gets more expensive. I
just hope that the government can keep the rate of inflation under control,
so that we don’t have another ‘Great Depression’…That would be depressing.

Dustin Goss
President, POW Gloves

TWB: Have you seen an increase in raw material costs yet, and by what percent?

We are seeing about an 8% increase in material and labor increases. Synthetic materials have increased the greatest.

TWB: How are you absorbing this? Do you think this is sustainable?

We operate lean and mean — we have a huge GM and are looking at other ways to reach efficiencies to offset raising product prices — inflation is killing our global economy and we are doing our best as a manufacturer to not join this inflation party.

Stay tuned to Transworld Business’ print magazine for an in-depth analysis of these trends.