Ripples From Wall Street: Quiksilver's bumpy ride
The ripples from the Wall Street crash have finally reached the coast.
In the six weeks since the economic meltdown the stocks of many large surf companies have plummeted substantially. Billabong have lost approximately 30% of their value on the sharemarket, Volcom roughly the same.
However, the biggest casualty in the surf industry has been Quiksilver. One could say that there is never a good time for an economic crash, though in Quiksilver's case the timing was particularly bad.
The state of their shares bare this out - as of today Quiksilver shares are $1.04. A year ago they were $15.
The main reason for Quiksilver's plunge is their purchase of Rossignol in 2005. Quiksilver paid US$560M for the French snowsport manufacturer and in hindsight it was an injudicious buy. Even before the purchase Rossignol were underperforming and heavily in debt. Quiksilver acquired that debt when they took over the company.
Add to that production of expensive winter hardgoods that left them financially exposed to the unpredictable nature of both fashion trends and weather cycles. Other factors added to their woes; unsuccessful integration of manufacturing processes; slow down in discretionary spending; and finally, the credit crunch. The deck was firmly stacked against Quiksilver.
And the venture failed. Last week Quiksilver finalised the sale of Rossignol, selling it for US$147M. A loss of approx US$400M in three years. (An interesting sidenote: the company that bought Rossignol, Chartreuse & Mont Blanc, are majority owned by Macquarie Group. They are everywhere).
On Tuesday Quiksilver's CEO Bob McKnight issued a press release saying that in the future Quiksilver were going to focus on their traditional products: "We're delighted that we can now return to our roots, do what we do best and once again fully concentrate our efforts on our core apparel and footwear brands."
They were upbeat words in the face of a grave situation. They also mark a change in strategy for Quiksilver. In the last ten years they had an agenda of expansion that took them far beyond their surfwear origins.
Following the lead of conglomerates that expanded beyond their initial industry Quiksilver diversified its interests. Their reach extending into snow, skate, music, fashion, cars (the Peugeot Quiksilver) and mobile phones accessories. They sold their products in over 90 countries. In short, Quiksilver had been empire building.
However, as many large companies learnt in recent weeks, the rules of business have suddenly been re-written. Size and scope of operations are now serious considerations as companies may be burdened by debt or practices unfamiliar to them.
Quiksilver are hoping that by consolidating and specialising they can weather this storm.
So one of surfing's iconic brands is struggling and altering it's operation to stay afloat, what will this mean to surfers?
Well, for most of us....not much. For most surfers the sharemarket machinations hold very little interest and, in reality, they have no bearing on their surfing experience. As long as someone is making wetsuits, boards and boardies they will be happy.
However, as Quiksilver is such a large and pervasive company there will be many interesting changes. At least interesting to those inclined to find such things interesting...
I expect pro-surfing will be adversely affected. Quiksilver, being one of the largest sponsors of surfers and events, will have less money to fund them. As it is, the ASP have just released the 2009 WCT tour dates and Quiksilver are still slated to hold their events at Snapper and Hossegor for the men and Snapper and Honolua for the women.
However, they have recently withdrawn from a slew of events in 2009 - the Roxy WQS at Phillip Island, the Quiksilver National State Titles, and the Roxy Surf Jam that has been held nation-wide for the last 10 years. On the 'CT front they withdrew from the Roxy Fiji Pro last year.
It's worth noting here that Globe have cancelled their Fiji comp for next year too. The official line is political unrest, though a share price of just $0.20 wouldn't help.
As for sponsorship of surfers, last week 16-year-old Hawaiian surfer Carissa Moore left the Quiksilver stable for Nike 6.0 and Red Bull. Her deal is reportedly worth a staggering $500,000 per year. Moore is the first big-name competitive surfer to take a non-surf sponsor, after Kelly Slater and Jordy Smith both famously turned down mainstream dollars. It's an extreme case, but I wonder if this is a hint at the future; surfers seeking sponsorship outside the industry, and in the process non-surf companies extending their influence in surfing.
Maybe the days of the 'big three' monopoly are numbered? Maybe Quiksilver's strategy of containment will mean they can no longer afford the stratospheric wages of the modern surfer. Maybe that's a good thing.