Small-town surf shop hires whiz kid and turns into e-commerce giant.
Central Coast Surfboards founders Mike Chaney and Dave Hall may have predicted big things when they opened their little shop in 1975, but they couldn’t possibly have foreseen it becoming the global e-tail giant that it has. Twenty-six years later, Chaney and Hall no longer run the business, but they’re major stockholders in a multi-million-dollar e-commerce and mail-order empire poised to dominate the lucrative but elusive online youth market. Not bad for a couple surfers from San Luis Obispo, California.
Their first stroke of genius came in 1979 when they hired sixteen-year-old Mike Adamski. By 1986 he had bought into the company and was managing the shop and CCS Mailorder, their fledgling product-by-mail business. “In the infancy of the mail-order, the shop was larger,” says Adamski. “We were storing merchandise in an extra dressing room and shipping out of the back room. By the time we were doing about a hundred packages or so a day, the UPS man was cussing at us. So we got our own little warehouse and started shipping out of there.”
The mail-order and retail-shop businesses leapfrogged one-another for a few years before the mail-order side, with ads in major skate mags, began to really take off.
What would become a full-color glossy catalog began on the pages of TransWorld SKATEboarding as a one-page black-and-white “tiny-type” ad displaying rows of decks, trucks, and wheels. As other mail-order operations began springing up and using the same ad format, Adamski realized CCS was getting lost in the crowd. So he launched the CCS catalog and used the magazine ads to promote it. “When the catalog was so dominant, we realized we were wasting precious space in the magazine doing the little tiny pictures and trying to get every last bit of information on one page,” he says. “So we stopped doing that and just used it the ads as a promotional vehicle for the brand and the catalog.”
By 1986 the mail-order wing had grown substantially, and when skateboarding peaked in the late 80s, the CCS catalog had all but replaced the magazine ads in terms of generating sales. By then CCS Mailorder had moved into its own warehouse space, and the company was able to manage the rush of business that decade’s skateboarding boom had unleashed.
The selling season would peak around the holidays, drop off, then pick up by July. Every year it seemed to pick up more and more, and everything was going great until about 1990. The recession and its impact on the skateboard industry was severe, but Adamski looks back on it as a period of opportunity. “There was still demand for product,” he says. “Chain sporting-goods stores were carrying skateboards, and as soon as skateboarding fell out of favor, they dropped the line and moved on to inline or whatever. And that provided opportunity for us and local shops.”
Many of today’s top brands were launched in the early 90s. It was a time when companies could be started with very little seed money and effectively promote their brands with black-and-white ads, grassroots tours, and low-tech videos. While the market had dropped to a small fraction of its former size, CCS had already established itself as a mail-order powerhouse that could deliver products to skaters wherever they lived, whether they had a skate shop in their area or not.
Brick-and-mortar retailers were never too keen on mail-order companies for the obvious reason that the mail-order companies can operate out of cheaper warehouse spaces, stock more inventory, and offer better prices. Retailers often cite the CCS catalog as the reason margins on hardgoods are so tight–if they can’t match the CCS price, they fear they’ll lose customers. But Adamski counters that he’s also at a great disadvantage. When customers browse the CCS catalog or Web site, they can’t actually feel a product, try it on, or take it with them if they decide they want to buy it. “There’s so much product out there, not every shop can carry everything that all the kids want,” he says. “So that provides opportunity for us. But again, if the shop does a good job, they’re gonna get 90 percent of the sales. One of the great things about the skateboarding lifestyle is what the kids get out of it–not just when they’re riding their boards, but when they go to their local shop, they hang out, and their friends show up, the latest video or magazine shows up, and that kind of thing. They look up to the guy behind the counter, so they have a kind of community, and any place–any shop–fostering that has a huge advantage over us. So like any mail-order or any e-commerce company, we have that disadvantage. That’s not gonna go away.”
Similar to its move from tiny-type magazine ads to glossy catalogs, CCS’ addition of a Web site (ccs.com) in 1998 established the retailer as a full-fledged e-commerce operation, as well. Despite the site’s shopping-cart ordering capabilities, it took some time for customers to do more than use it as a reference for their phone orders. But while other e-commerce sites have been launching over the last couple years and struggling to hawk skateboard equipment, CCS could continue to rely on its catalog business until customers warmed up to the idea of point-and-click ordering. According to Adamski, today about 25 percent of the company’s business is through direct Internet orders.
What CCS has going for it that other e-commerce operators don’t is an established brand name. By the early 90s, CCS’ print ads began featuring images of its prominent skateboard team, which currently includes Jason Adams, Bob Burnquist, Kareem Campbell, Rune Gilfberg, Rick Howard, Heath Kirchart, Chad Muska, Billy Pepper, Geoff Rowley, Ed Templeton, Mark Gonzales, and Keith Hufnagel. The team and the ads made it “cool” to buy from CCS, and the Web site is just one of several ways they can. “You can come and shop with us in person, you can call us, you can fax us, you can mail to us, and this is just another way,” says Adamski. “The idea was that we’re here in all those ways, and today whatever’s most convenient for you, we’ll be there for you. Tomorrow it might be something else, but we’ll be there with that also.”
Adamski’s continued to develop the site ever since it launched, and while his philosophy is to allow customers to choose how they want to interact with CCS, he believes the Web will continue to attract more of them. “As a vehicle it’s quite superior as a customer experience,” he says. “They can decide they want to buy something from us one minute, and in a sense have the catalog in their hands in a couple of minutes by logging on to the Web site, and then they can order with it.”
His ability to modernize the company and develop it from an early-80s skate retailer to an e-commerce powerhouse in the new millennium has attracted, in addition to the ire of brick-and-mortar retailers, the admiration of fellow skate industrialists and venture capitalists. In 1999, Adamski and his partners met with the owners of Kubic Marketing, the holding company for Dwindle Distribution, World Industries, and Merge, Inc., among others. Adamski and his partners had been doing a lot of business with Kubic’s companies, and after several rounds of discussions decided to sell CCS to Kubic. “The two CCS founders are about eight years older than I am, at a different status in their lives, and weren’t intending to go forward and put as much time into the business,” says Adamski. “It just started a dialogue. They Kubic had had some success in bringing in their financial partner, and the combined financial group was interested in what they could do to expand this group.”
Kubic bought CCS for an undisclosed amount and kept the deal under wraps while they considered how CCS would integrate into their operation. Kubic management concluded that while a profitable and lucrative investment, CCS’ success was dependent upon its strong relationships with the various companies whose li
nes it carried. They felt an integral association with Kubic’s own brands could jeopardize the reputation that CCS had built over the years. For that reason, last year Kubic decided to sell CCS to an appropriate investor, one that could help the company further develop its services and infrastructure.
The winning bid came from Alloy, Inc., a publicly traded e-commerce company that’s been successful developing an Internet community for young women. For them, CCS represented a chance to address the other half of their age demographic–boys. “We’d always kind of looked at them, and we’d tested a lot of stuff in the guys’ area, but we had never been successful in it to the level that CCS was,” says Alloy COO Jim Johnson. “Really, if you look at the landscape, there was nobody out there like CCS, in terms of a significant seller of merchandise to teenage guys. It just doesn’t exist. So when we heard they were engaged in the process to sell the company, we jumped at it. And it fit perfectly because we can use our database and our traditional direct-mail operation to leverage a larger Internet and media opportunity.”
One opportunity Johnson hopes to pursue is to use ccs.com as an advertising vehicle for companies he’s worked with on the girl-oriented Alloy site (alloy.com): “The Proctor and Gambles, the Kodaks, the Warner-Lamberts, and all these guys who wanted teenage eyeballs, were pushing us–’We want guys as well.’ So since we had this potential revenue stream, we wanted to match it with a source for guys’ eyeballs. So from a business strategy, it really worked out well.”
Alloy acquired CCS by paying off its debt (about ten-million dollars) and issuing 3.3-million shares (about one-sixth of its own stock). Through it all, Adamski has remained CCS’ CEO, and with Alloy’s help will continue to develop the company’s Web business. “They’re extremely experienced in the operational end of what we do and actually out in front of where we are,” says Adamski. “They’ve brought a huge amount of experience to the table and are leading us to the next phase of growth.”
Growth, initially, means building a Web community. While it won’t be quite the same as hanging out at a physical shop, Adamski hopes logging on to ccs.com will be the next best thing: “I get letters from kids who only have three other skaters in their high school. It allows them to be an active participant in a larger community. That, I think, does give us a lot of opportunity. I think the general marketplace overall for retail, because of e-commerce, will be opening up to these sorts of sales. I think pure mail-order companies have benefited from the Web, and then you see pure brick-and-mortars benefiting from having a Web presence. So it’s pretty much opening consumers up to alternative ways to shop. And ultimately a company like ours has to focus on providing a positive customer experience and earning the sale.”
One of CCS’ advantages over small retailers is its ready-to-ship inventory. As deep as it is, one consistent complaint from CCS’ vendors is that, like shops, CCS stocks a select range of products. Unfortunately for them, this isn’t one of the things Adamski’s customers are urging him to change. “I hear it all the time from companies that we haven’t carried enough of this or enough of that, but we show 180 decks in each catalog right now,” he says. “That particular deck may have been number 181 on our ranking, it just didn’t make it. We represent a pretty large amount of SKUs. Unfortunately for the brands, we’re not like a distributor in that when we sign on with a brand, we need to represent everything they sell.”
“It’s the exact same strategy we have on the Alloy side, too,” says Johnson. “It’s like you pick and choose the best of the best brands. That’s CCS’ expertise–they know what their customer is gonna like.”
When CCS shifted from a brick-and-mortar-based business to a mail-order operation, Adamski didn’t significantly alter his strategy. After all, his storefront may have changed, but his customer didn’t. “Any skate shop will tell you a huge percentage of its sales is concentrated on a very small percentage of the decks it has on display,” he says. “We all want to show a nice selection, but then we want to be sure we’re there with the inventory in the quantities of the stuff that really is selling. So that’s what we do–we try to expand and contract the product categories seasonally. Shoes we’ll show more for back-to-school, and we’re pretty consistent when it comes to hardgoods, but we’ll show more for Holiday. We ultimately look at kids as voting for their favorite product with their dollars. Wherever they decide to spend their dollars, that’s where we concentrate.”
With Alloy helping beef up the back end of CCS with database and inventory systems, Adamski’s working on developing the front end. Most of CCS’ orders are still taken by phone, but with the number of catalogs being requested from the Web site, Adamski and Johnson estimate about half of CCS’ business now originates with customers logging on to the site.
With that in mind, Adamski’s developing the CCS online community into a skateboard media in its own right. What form it will take he can’t–or won’t–say. But whatever it looks like, ccs.com’s front end will serve to excite visitors about its inventory out back. “What’s beautiful about what we do–the whole industry–is that our vendors are always generating new product and always providing the perceived need from the consumer for the next deck or the next pair of shoes,” he says. “We’ve had the opportunity to grow into this for many years. That’s one of the things I admire about what the Alloy guys have done to have grown substantially in a very short period of time. The needs for planning and forecasting have been really intense for them, and they can bring that and be able to help us with it. We’ve grown into it slowly, but we’ve built the infrastructure and invested in it as we’ve gone along, and that’s gonna be a tough thing for others to do.”
Unless, of course, you’re a small-town shop with big ideas.