Mark Kelly of GSI on the collapse of BASE
In the wake of the BASE collapse I spoke to Mark Kelly, founder of Global Surf Industries, about the business of surfboard manufature and how it is changing. GSI, who've been producing boards since 2002, are one of the world's largest board manufacturers. If backyard builders represent one end of the board-making spectrum GSI occupy the other, selling 15 different brands of surfboards in 70 countries around the world
Swellnet: When you started, did you have the current business model in mind or did you evolve to this?
Mark Kelly: My goal was always to have the biggest smallest company in the world. We currently turn over well into the eight figures and we have fifteen staff around the world – all of whom work from home. And we outsource what we do well. We outsource manufacturers globally.
SN: All in south-east Asia?
MK: Yep. If we could find a manufacturing operation that was competitive in Australia or the US, or anywhere else in the world, we would use it. But at the moment we feel we have the best manufacturer. We have a couple of different manufacturers for our boards depending on what technology they are. We sell boards in 70 countries and we run 15 brands.
SN: My perception is that GSI used to cater to lower-end surfers but in recent times you've begun catering to the higher-end market: Is that a true statement?
MK: Yeah, in the beginning the low hanging fruit was stuff that no-one else wanted. So in 2002 if you wanted to buy a beginner board, like a mini-mal or something, you'd struggle to find one. You could buy a second hand but there wasn't much out there. So we targeted the beginner and the intermediate surfer.
Once we got going retailers came to us and said, 'You guys are unbelievable, you've got great service, great prices, great quality. Can you get a brand?' I think the first person to approach us after that was Greg Webber...
SN: He approached you?
MK: Yeah. We've never signed a label that hasn't approached us. I've knocked back over 200 people. So it was Greg first and then Steve Walden. And then around about the same time McTavish and Aloha came on the program and then from there Bill Stewart and Hayden [Hayden Cox – Hayden Shapes] have signed up. We've also done deals with Thomas Meyerhoffer and Tom Wegener for a more alternative product, and, again, because those guys approached us with an idea.
SN: Did you ever think you were in competition with BASE – similar business model, similar markets?
MK: Not really. They made super high-performance boards and we didn't go there. We just didn't think we catered to that audience. We made stock boards with different models, different sizes and brands. We had a nice menu of boards that people could buy through retail stores around the world, whereas BASE had been basically shooters, you know.
Once they started opening stores I think they worked out that that market was pretty tight and there were a lot more beginners and intermediate surfers than there are people on the world tour. They then came into out territory a little bit – they sort of came down to our level. But they came down to it on price and started selling shortboards really cheap. They were selling boards in their own stores for less than $500. That's just insane.
Our boards – and keeping in mind people sometimes slag off GSI – are some of the highest priced boards in the marketplace. The Webbers, the Alohas and even the Superfish, their prices are well above a lot of name brands in the stores, yet we continue to sell them because the quality is good, there's branding recognition, the boards work, and consumers keep coming back and buying them.
SN: Where did BASE go wrong?
MK: They had a lot of big names at BASE but one of their problems was all those names targeted the same consumer.
SN: And what sort of effect do you think it's collapse will have on the industry?
MK: From my point of view the whole industry lacks professionalism and I think thats a big thing. Like, a lot of the domestic manufacturers just go direct to consumers.
There is always someone in Australia every September who comes out with some cheap board and they never last a year and all they do is drive the prices down. I personally think that the whole backyard industry is the worst part of the industry. They don't put too much in but they tend to copy everyones boards. They do a lot of stuff that is undermining the core market.
SN: Can I just interject, one of the claims is that the cottage industry leads the way in surfboard innovation. Would you say that's a false perception?
MK: Yeah, I would. I think if you asked all the domestic manufacturers to pool the amount of money they spend on R&D we wouldn't have a big day at the pub.
The custom surfboard will always be around. I don't agree that it is the leading edge of innovation because a lot of domestic manufacturers don't have the time or money to do R&D, and nor are they that way inclined. A lot of them just follow someone else's shapes. Say Kelly Slater goes down to Bells and wins the thing on a 5'3" quad - guess what everyone starts making! No-one's going out doing that shit by themselves. They follow a trend and very few will create a trend.
You look at materials. The cottage industry, when it was run by guys like Clark Foam for instance, was like reading the Grapes of Wrath: they wanted everyone to be in a semi-co-operative, but then they're weren't really working together. Then by giving them all old technology they kept everyone down.
The other thing about surfboards, and the surfboard industry in general, is no-one really likes it when anyone makes a profit. Profit seems to be a very ugly, untidy word that people just don't like. But if you don't make a profit things like what happened to BASE happen - and then where's the industry after that?
So if you want to run a business you make a profit and you act professionally and you try to grow your market either through innovation or better service. And all those things require making a bit of profit. Without that you've got nothing.
People don't like Gordon Merchant because he's a multi, multi-millionaire. Yet I say 'well done'. The amount of money that he's put back into the industry is vast. And the amount of innovation that he's been able to cause, and also what he's doing with his money and the amount of projects that I know he's involved with is unbelievable. But if you've got no money then you cant invest in anything.
SN: A lot of your success is due to cheaper labour...
MK: Not necessarily. One of the big things for us is that one of the factories we use buys more than a million yards of glass a year. So you tend to get a pretty good price. When you buy resin by the 6000 kilogram lot you pay a lot less than a domestic manufacturer. Some of our raw material prices are one-tenth of what a domestic manufacturer would pay. So I think the bulk of the cost saving comes in raw material rather than labour.
Labour is still there. It takes a long time to make a surfboard, it is highly tuned and nothing happens automatically. Even the term 'popout' is just so wrong. Like an NSP takes 23 hours to make. Nothing pops out of anything. That always grates me because it's so wrong.
SN: Well, about the 'Asian popout' tag. In the past people have been derogatory toward GSI, have you ever tried to counter those perceptions?
MK: In actual fact we've gone the other way. When we first started a lot of the retailers were like, 'I don't want anyone to know this board is made in Asia'. And we were like, 'Well, it is, and it always will be'. So we actually started putting our GSI logo under the glass with 'Made in Thailand' on it. We did that so retailers couldn't hide the fact that our boards were made there. We put the label on as a control factor.
There's a lot of Asian manufactures, but our models are very different to everyone else's and we don't want to be associated with them. So every board that has come out of our factory since January 2003 has had that logo under the glass.
SN: You don't see it as anything to be ashamed of?
MK: No. We think we've got a really good reputation. We've put hundreds of thousands of dollars back in to surfing through sponsoring of festivals, board giveaways, team events, charities - again, add what all the domestic manufactures put back in and it's not a lot. And we try to have very high ethical standards. We've taken domestic manufacturers to our facility in Thailand, for instance, they've been able to walk through the whole place. There's nothing to hide. I couldn't say that about everyone.
There's a big manufacturer in Australia who imports boards and doesn't have 'Made in Asia' labelling on them and they pass those off as Australian-made boards. I've spoken to customs numerous times about those people and sooner or later one of their containers will just get held up on the wharf and their money will go straight down the drain.
We do all we can to make sure people know that, (a) they're our boards, and (b) where they're made.
SN: Despite that it seems to hard to shake the stigma.
MK: Yeah, I think it's like the music industry, a lot of people hate Kylie Minogue because she's popular but at the same time she's done a lot of good stuff.
SN: I'll beg to differ with you there.
MK: Oh, you could say the the same thing for say Madonna.
SN: You're gonna have to find better examples Kel.
MK: Well, whoever it is people want to call others out for what they're doing or not doing. Particularly in Australia where everyone likes to back the underdog. At the end of the day what are they putting back into the industry? And what are they doing for the benefit of innovation, or are they just copying other people?
People whinge and bitch about where we make our boards but at the end of the day, literally, I sleep really well, and I know that we've got a great company that makes great products.
SN: A common gripe from surfers parting with large sums of cash is that a board might snap soon after buying it. Have you ever considered warranties or similar guarantees?
MK: I think with PU technology it's pretty tough. With some of our other technologies it's better. We do break tests on a lot of the boards and we'll test different lay ups. One of the boards we've started producing under the NSP label is a coco matt. We use a coconut husk as the strengthening device between a couple of layers of fibreglass and that has the highest break ratio of any board probably ever made.
If we get a bad product review on our website it's flagged and that person is sent an email within an hour and called by one of our staff to the point that that person will be happy within 24 hours. We bend over backwards to make that happen, and that's pretty much globally.
SN: Where do you see the board-making industry in ten years time?
MK: The thing with normal surfboard production is that the barrier to entry is very, very low, so the custom board will never go away. Yet the barrier to entry to what were doing now is very high. Surftech was a big competitor a few years ago and now you don't see a Surftech board anywhere in the world. Firewire did a good job at introducing technology and they probably rode the back of the Clark Foam demise pretty well. They did more in 100 days after Clark Foam closed down than Surftech did in eight years – introducing new technology really quickly. But as it is, they've got a single technology and they target a single audience so I think they're quite exposed.
For us, we've got eight different technology of boards now and we look after all types of surfers. We don't want to be the dominant force in surfboards in the world. I've got no interest in doing that. Our main goal is to make our customers happy and the consumers happy and if we get those things right our business will be really good. If we lose any of that well probably go the way BASE did. It's simply about keeping everyone happy, being profitable and keeping everything working.