In the new snowboard reality, Burton leads and the industry tries to catch up. That, at least, hasn’t changed. However, chain stores are flexing newly acquired muscles with first- and second-tier brands. And as the consolidation noose tightens, smaller companies are left scrambling with consignment schemes and unheard-of terms. So, what’s going on, who’s benefiting, and who calls the shots when it comes to distribution?
Let’s Make A Deal
We’re neck deep in the painful process of winnowing down the number of snowboard brands in a corporate version of survival of the fittest. Where there were once 300 board brands, there are now merely 75. It’s likely this number will eventually bottom out in the neighborhood of 30 or 40.
While there are fewer companies, 85 percent of the unit share is still dominated by approximately thirteen brands, leaving more than 60 brands fighting for the remaining (and meager) fifteen percent.
In the past three years, the ski brands have also changed the nature of the ordering process by their willingness to offer “ski terms” for snowboard products. These companies usually have the financial flexibility to go after marketshare by offering terms and prices smaller companies have a hard time matching.
“When the ski brands entered the snowboard market a few years ago,” says Mark Richards, owner of Val Surf in Southern California, “every one of them offered the same terms as their ski program. This was mostly December 1 dating or better . That had a huge impact on nearly all of the snowboard brands that were demanding C.O.D. or net-30 at the time.”
Brand strength still holds the market together, and retailers, first and foremost, order what they think will sell-even if the terms and incentives aren’t the best.
However, “when retailers are considering their third or fourth brand, that’s when they’re really going to be looking for deals,” says Marco Allinott, North American sales manager for Morrow/Westbeach. “If a jacket is one dollar more than the retailer wants to spend, they just won’t order it, because they know they can find it elsewhere at the price they want.”
When this is coupled with the remaining glut of first-quality snowboard product, the retailer currently has a degree of power that’s new to the snowboarding industry-especially with brands that aren’t in the top tier.
SNOWboarding Business has heard stories of 365-day dating, no-risk ordering, “count and fill” rep service, and other consignment schemes. Most of these programs are generated from brands whose survival is most in doubt-but not all of them.
“Even some of your top brands-below Burton and K2-are scrambling for marketshare, but I think this often backfires,” says Silence’s General Manager Terry Deleo. “When these big companies offer amazing packages and terms, what message does that send out? I think it makes them look incredibly unstable.”
Over at Sims, CEO Jim Weber agrees that it’s the manufacturers who are driving this phenomenon: “It’s not so much retailers asking for these great deals, it’s the manufacturers offering them as an enticement to carry the line. The smart retailers are doing very well by saying, ‘I don’t know if I need to carry five models from your brand. I just need to carry two.’ That’s when the wallet comes into play and deals are made. Fortunately, we haven’t seen too much of that at Sims.”
According to John Logic, owner of the Snowboard Connection, “We met with the rep of a pretty big brand and told him, ‘We’ll buy six of these boards. When they sell out, we’ll order six more. Can you do that?’ He said ‘No problem.’”
In instances like these, the burden of risk has for the most part shifted from the retailer to the manufacturer. And those manufacturers who have the flexibility to build or deliver in season will have a growing advantage.
The Chain-Store Effect
Of course, this new market muscle affects some retailers more than others. Volume is still the key to better prices. While small specialty stores are where the majority of snowboard product is purchased, the gap between these stores and large-format chain stores is shrinking.
Was it altogether tongue in cheek when Mervin Manufacturing offered a “I’m a ‘core shop, I’m obsolete. I’m a chain store, I’m the future” T-shirt at Vegas?
“Figuring out a way to broaden distribution without hurting your niche is one of the biggest challenges for a brand like ours,” says Pete Saari, vice president and cofounder of Mervin Manufacturing.
The current heavyweight champ of the chain-store world is Gart Sports/Sportmart. In a non-scientific straw poll of around 60 retailers, manufacturers, and resorts conducted by SNOWboarding Business, Gart Sports/Sportmart snowboard-buyer Derek “Heavy” Mills was named the fourth most powerful person in the snowboarding industry, behind Jake Burton, Jamie Salter, and Brad Steward.
Predictably, Mills says he can’t comment on the sway Gart’s importance in the market has given him with brands or the types of distribution strategies and terms he receives. But one thing is clear: his open-to-buy is huge and most manufacturers want a piece of it.
“Our open-to-buy has increased because of the amount of stores we now have with the acquisition of Sportmart,” says Mills. “Snowboarding will have a bigger presence in Sportmart. However, our snowboard open-to-buy probably isn’t as big as some of our vendors thought it was going to be. They probably saw that we doubled the number of our stores and thought our open-to-buy was also doubling. That’s not true, but we are poised to have a huge year. We’ve been far ahead of the industry averages for growth.”
So, some brands have had to make tough decisions about what is more important: brand imaging or a big order. Because for some manufacturers, having Sportmart carry their product is more of a liability than a advantage.
“It became a distribution issue for us,” says Morrow’s Allinott, referring to Gart/Sportmart’s desire to have Morrow product in its Sportmart locations. Morrow was one of the only brands Gart Sports once carried that decided not to open the Sportmart stores-and subsequently lost Gart’s entire order.
“We wanted to look at it on a regional basis, but they told us it’s the whole thing or nothing,” says Allinott. “Part of consolidation for us was putting Westbeach and Morrow together. Westbeach is still in its infancy and our focus of growth is the specialty shop. We try to take a long-term approach. If you get one big order, but lose 50 smaller orders that add up to that one big order, you’re actually worse off.”
The Industry Leader
Burton will not be in Sportmart this year, although its product will remain in Gart Sports. How did it keep its boards in Gart but not Sportmart when a brand like Morrow could not?
“Brand strength,” says Burton National Sales Manager Clark Gundlach.
Indeed, in the snowboarding industry wolf pack, Burton is the undisputed Alpha male. Where it leads, retailers and manufacturers generally follow.
It’s widely believed that Burton controls between 30 to 35 percent of the snowboard unit share in North America, and it’s identified as the one brand most retailers say they need to carry to be a credible and authentic supplier of snowboard equipment.
“It’s really like two different industries,” says Richards. “There’s Burton and then there’s the rest of the brands. I mean the number-two brand is so far behind Burton, you can’t really compare them.”
Even its competitors concede that Burton does it right: “Burton has done so much groundwork for the industry that people don’t even realize,” says Allinott. “That gives them the ability to lead the industry where they want it to go, and they have the luxury of having the money needed to make decisions they think will help the industry-not just their bottom line.”
This position has given Burton powers and responsibilities other brands simply do not possess. “We have the luxury not to have to worry about what our competitors are doing,” says Gundlach, echoing Allinott. “If we were constantly looking over our shoulder and worrying about what everyone else was doing, I doubt we’d be where we are.
“So, I haven’t paid much attention to all those deals out there,” continues Gundlach. “However, I’ve heard that manufacturers are going to extremes to get their product into the retailer’s product mix. I think you could open up a snowboard shop these days and fill it just with consignment product. I don’t know if it would sell, though.” He says this deal-making has not affected the way Burton does business.
So, has Burton’s market strength hurt or helped the industry? Nearly every manufacturer and retailer says it’s helped, but not everyone is convinced.
Chris Bachman is the owner of the Shred Shed in Skokie, Illinois-one the largest snowboard dealers in the Midwest. The shop had been a 250,000-dollar Burton dealer, but at the beginning of the ‘97/98 season Bachman was notified that the brand was dropping him because of gray marketing.
“They said they had proof, but they never would show it to me,” says Bachman. “They were extremely arrogant. They gave us the option to turn over every one of our sales receipts to them. If we did that, we could keep the brand. I told them no way. Hey, that’s my business, not theirs.”
Bachman says his problems with the brand didn’t end once the boards were out of his shop, citing incidents at demos and with other vendors that were adversely affected by his sour relationship with Burton.
“They never had to prove anything,” says Bachman, “and yet their accusations hurt my credibility with my customers and vendors. It got so bad, that even after we weren’t carrying them, the Burton rep called me up and said that he had heard that an employee of mine was bad-mouthing Burton. ‘Do you want our business back or not?’ he asked. Would any other brand be able to say that to one of their customers? Even when they were no longer in my store, they were still trying to control me.”
A few other retailers complain about Burton’s distribution policy or the tactics it employs during the order-writing process. You rarely hear of these angst-inducing incidents caused by brands other than Burton. Could it be these brands simply aren’t as important to the retailer’s bottom line, or is something else going on? Retailers who have lost the Burton account say it definitely makes an impact. “Burton was 30 percent of my business and we were 35 percent down after we weren’t carrying them,” says one retailer.
Bachman says he was responsible for the hit in sales because of his reliance on Burton: “We developed Burton so much, that we definitely had a loss last year because we weren’t carrying it.” And although he will be selling Burton products again for the ‘98/99 season, he say’s he’s being more careful. “I really cherry-picked my Burton order this year and whittled it down to 60,000 dollars. They’ll never be my number-one brand again. I’ll never allow myself to get into a situation where I’m relying so heavily on one manufacturer.”
Gundlach says Burton has to take gray marketing very seriously: “We can trace our product from unauthorized shops back to our dealers. If we think there’s a problem, we ask the retailer for documentation on those sales. If the dealer cannot support the authenticity of the sale with documentation, we’re forced to terminate that dealership. Every dealer signs a contract that clearly prohibits the trans-shipping of product.”
Gundlach says he realizes that company strength comes with brand strength, “but I don’t want people to think that we’re this big controlling smokestack in the industry-because we’re not. We care about the sport and our dealers, and care about the product the consumer is riding.
“We do appreciate every piece of feedback that comes back from retailers and consumers,” he continues. “We take it very, very seriously. We don’t try to be arrogant, and if we’re coming off that way, I want to know about it, because that’s not who we are.”
The New Reality
Having the best terms in the world doesn’t ensure the product will be in demand. And as the consolidation continues, many retailers are minimizing risk, not through consignment deals or terms, but by being honest and assertive when placing orders.
“It’s really not about making some power play,” says Richards. “It’s all about asking for staggered delivery dates and being up front with the manufacturer. Make it clear that if business is bad or if it doesn’t snow, you won’t need those later orders. Most manufacturers we’ve told this to seem to be grateful that we’re so up front with them.”
Manufacturers seem to be listening. “Splitting shipments and getting things to retailers when they need it is a lot smaller problem than having people order stuff they can’t sell,” says Allinott. “From my point of view, I would rather sell that product to someone who really needs it. Sure, it puts more risk on the manufacturer, but ultimately it’s a much better way to do business.”
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August 01 1998 |
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