When Quiksilver, Inc co-founder Bob McKnight finally retires on Friday after 38 years in the top job, aggrieved shareholders would like to breathe a collective sigh of relief and wait for the new broom to sweep the once-great brand back to profit. But it ain’t gonna happen.
It’s not McKnight’s fault, of course – nothing ever was – but he leaves behind a legacy of directionless paper-shuffling and a management team in total disarray. The US financial year (which also ends Friday) has been an unmitigated disaster for Quik, with the ZQK stock price falling 80 percent, management morale at an all-time low after mass sackings across the board, one major and high profile shareholder very publicly calling bullshit on CEO Andy Mooney’s 11-point profit improvement plan (Profit? What profit? The company hasn’t made a buck since 2006!) and all three core brands suffering major losses in all markets.
On top of all this, earlier this month the Seeking Alpha investor website published a virtual obituary for Quiksilver in the form of a detailed (if perhaps a little hysterical) analysis of the company’s debt crisis by Hadrian Capital Management. Titled “Restructuring the Quiksand Capital Structure”, the 5000-word dissection of the company’s woes produced compelling reasons why Chapter 11 bankruptcy was not just an option for Quik, it was the only way forward.
This is not the forum to go into the detail, and I am not the writer credentialed to critique the analysis, but I will say that there were some flawed assumptions about the general state of the market. Since the rockabilly craze of 1990, analysts have loved to scream from the rafters that surf is dead, long live the next big thing. I think we all know that’s not going to happen either, but what we may well be seeing is a fundamental shift in consumer expectations of the surf industry.
After 30 years of watching a small group of people get very, very rich because of our need to wear a particular logo attached to a tee shirt the same as every other brand’s, surf consumers may well be looking for something more, and in this instance more may be less.
But getting back to Quik, the Hadrian scenario was quite shockingly bleak, but even bleaker was the additional information supplied on the chat thread that followed the original post on October 20. In response to a reader’s suggestion that former Disney honcho Mooney’s licensing strategy might save the company (if not the brand values), Hadrian responded: “We feel that could have been a potential business model alternative had such concept been devised and implemented a couple years ago. However, in face of Quiksilver's most recently reported cash and cash equivalents and available credit, antagonized by costs expected to be incurred by Management in trying to successfully execute the PIP measures, in addition to working capital needs arising from upcoming inventory builds for meeting January and February ship dates, we think a sudden change in operational direction or business model is neither operationally achievable nor economically viable… We strongly believe that Quiksilver's demise at this point is inevitable, it's likely only a matter of months now--not years--as wholesalers continue to reallocate buyers' purchasing power to higher turning merchandise and Quiksilver's base of specialty stores continue to shutter or, similarly, avoid stocking shelves with Quiksilver brand merchandise.”
Ouch! Meanwhile, in September Andy Mooney sacked the entire marketing department, including CMO Nick Drake, in a move that Shop Eat Surf (one of the few trade media outlets Mooney talks to) said “signals a re-emphasis on core marketing”. This wasn’t much in evidence this month as more team riders got the flick and Surfer and Surfing hit the streets with virtually no Quik advertising. All this in a year when someone pretty damn close to the top couldn’t see the value in keeping a team rider who was over 40 and clearly past his prime. One Kelly Slater. Hello!
While Andy Mooney tries to dodge a bullet by putting the brand on hotel chains, Krispy Krèmes and whoever else might be cashed up and prepared to license, the keeper of the core flame is now one-time retail boss (and surfer) Pierre Agnes as global president. I’m sure Jeremy Flores is breathing a sigh of relief, but others might be remembering that the last time a Frenchman held that job he bought a failing ski company for half a billion bucks and started the rot.
Couldn’t happen again. Could it? Well, no, but don’t look for any game-changing vision in that direction either.
Disclosure: The writer was a Quiksilver executive from 1999 to 2007.