Opinion: Why Quiksilver Failed!

The only thing surprising about Quiksilver’s filing for bankruptcy is that it took this long to happen.

The company has been losing money for eight straight years – all the cut and tuck maneuvers, the restructuring, the sell off of brands that weren’t essential to the core business – all those correct decisions did not solve the bigger problem facing the brand, indeed the industry as a whole, which was lack of demand for the look.

In reality, the critical mass of the surf industry began to fragment in 2005, resulting in a steady decline in revenues and earnings that only began stabilizing in the last few years.

The reason for this was the mall customer, (the aspirant customer that grew the surf industry’s footprint initially), shifted out of surf looks and into a mosaic of different looks: street, urban, athletic, contemporary, outdoor, vintage, etc.

As a result, surf resources today are challenged not only by endemic competitors but also by competitors from these different genres.

The era of brands growing from $0 to $100 million in 10 or even 20 years is over. Today success lives in modest neighborhoods. The last gravy train to leave the station was RVCA

This fragmentation of taste and trend undermined the foundation of the industry’s business model forcing what was once a brand-centric environment to become commodity driven. Margins are down, quality is down and the level of design detail in fabrication and styling is nowhere near what it was 10 years ago.

The growth horizon for start-ups and small brands in general has shrunk considerably. The era of brands growing from $0 to $100 million in 10 or even 20 years is over. Today success lives in modest neighborhoods. The last gravy train to leave the station was RVCA.

When a small brand becomes ‘noticed’ and sells into key specialty stores nationally that normally means they’re doing around $2m – $5m annually at the most. When a brand is considered to have ‘arrived’ like say for example Roark, they are doing around $8m – $10m worldwide. And when a brand is considered to be ‘established and still growing’ like say Brixton, their sales are in the region of $15m – $20m.

When a small brand becomes ‘noticed’ and sells into key specialty stores nationally that normally means they’re doing around $2m – $5m annually at the most. When a brand is considered to have ‘arrived’ like say for example Roark, they are doing around $8m – $10m worldwide. And when a brand is considered to be ‘established and still growing’ like say Brixton, their sales are in the region of $15m – $20m. A quick way to establish brand size is whether they are factored or not. You can’t be factored doing less than $5m.

The baseline investment for a start-up in this environment is $2 million. Anything less the brand will fail. Most small brands will fail anyway but this has not seemed to discourage the numbers of start-ups because there is more than 2 times the number of brands in this space today than there was 10 years ago. The mortality rate is high – it takes a small brand 12 months on average to burn through the first $1m in seed capital.

In the early stages the only way for brands to get critical mass is to penetrate the specialty chain distribution – PacSun, Tilly’s, Buckle, Zumiez. And you need to be in at least two or three of them to get momentum.

Kids out of college have dreams in their minds and stars in their eyes thinking about being the next RVCA or Volcom but the cold hard truth is this is an industry with sub-=par margins and very little capacity – an industry devoid of comfort and chic with no low-hanging fruit because anything you can reach for is already picked clean.

Scaling a brand today is a very decentralized proposition. A decade ago the distribution channels were specialty stores, major stores and international. Today its specialty, specialty chain, department stores, sporting goods stores, outdoor stores, online retail,  own brand online, flagship retail, outlet retail, off-price SMU, international distributors, outside industry collaborations – it’s a complex matrix that’s very management intensive.

The surf industry today is more a lifestyle and less a career direction, than it’s ever been. Kids out of college have dreams in their minds and stars in their eyes thinking about being the next RVCA or Volcom but the cold hard truth is this is an industry with sub-par margins and very little capacity – an industry devoid of comfort and chic with no low-hanging fruit because anything you can reach for is already picked clean.

The winners of the future are the brands with a strong identity and a clear purpose. They are brands who stand for something and have recognizable core products they sell season after season.

That said the winners of the future are also those with the ability to respond to emerging trend and not allow those same core products to become a constraint to their brands to the point of ignoring newdirections because ‘that’s not who we are..’

Anything can work depending on how it’s interpreted

Read more of MT’s insightful stories, as well as sharp biz advice here. 

(Michael Tomson is a South African-born former pro surfer who started the game-changing surf clothing label Gotcha, grew it to $65 million, sold it and now lives in Laguna Beach where he writes, consults, cocktails, and enjoys frequent visits from BeachGrit.)