John Textor explains what’s happened with the brand in the last year.
In a phone interview with SNOWboarding Business held right before the holiday break, Sims Owner John Textor discussed the current situation with Sims Snowboards, including why it shipped late this season, what went on with its binding supplier, and how the company has been restructured. Here’s what he had to say:
Q: Give me an update of where Sims is right now.
Prior to May of 1999, Sims was marked by changes in ownership and significant legal battles as it tried to globalize and streamline distribution. There were capitalist involved and there were industry people involved. Prior to May of 1999, me and my group, Wyndcrest Partners—which includes Michael Bay—were minority investors in the company.In May of 1999, by way of our capital investment of several-million dollars, we put together a restructured company. But it was still the same entity, Sims Sports Inc., and it included a number of shareholders from the past. By virtue of it being a C Corp., it also had various liabilities and exposure to the past and some time that exposure was not well defined.Ultimately, the May 1999 restructuring was designed to bring in capital, bring in new people, put tremendous energy behind the brand, and try to get beyond its past. However that entity was very much tied to the past.The brand has opportunities much greater than that entity could support. Simply stated, we were still paying for the past. We recently found ourselves in court on a relatively minor, but a very distracting, issue related to something that a prior Sims owner did in 1995.
Q: And how did those things affect the company?
These added up to tremendous distractions and tremendous expenses. However, by virtue of the capital we’d invested, which is more than several-million dollars, we obtained various rights with respect to the Sims brand that went beyond those of Sims Sports, Inc.We have exercised those rights in cooperation with Tom Sims and we have acquired those rights to go forward through a new vehicle, which be called Sims Distribution, Inc. Everything going forward, including the product we have been recently delivering, is by way of this new company. The owners are Tom Sims, myself, Michael Bay, and two other smaller individuals. We’re no longer hamstrung by a past that in many cases we weren’t even a part of.
Q: When you say you obtained various rights, what does that mean?
That means when you invest several-million dollars in a company and that company has required funding from us to continue, we have decided we would rather fund the company in an entity we owned entirely as opposed to one we control partially. We have acquired the rights that Sims Sports Inc. had. We have acquired the rights to the brand license directly from Tom.
Q: Does Tom still hold the trademark?
Yes, exactly as he always has.
Q: What happens to Sims Sports, Inc.?
Sims Sports, Inc. still has certain outfits, all of which I own, by way of the fact that I am the largest secured creditor of Sims Sports, Inc. Me and my entities are owed several-million dollars.Now as a practical matter, with the value of the license, I tend to ultimately realize value through the new company. But all the assets of Sims will go to me as the largest secured creditor, but it’s not likely to require anything but a direct assignment of those outfits from Sims to me. This is not a bankruptcy. This is effectively a restructuring.
Q: Explain how are you shifting things from Sims Sports Inc. to Sims Distribution, Inc.?
Not only as a shareholder, but the largest-secured creditor, and as a long-term partner with Tom, we were able to use our rights based on the several-million dollars we invested to do a friendly reorganization of this deal with Tom and to go forward in a cleaner way subject of course to Tom’s ultimate decision as to whether or not to grant a new license to SDI.What happened was that the May 1999 restructuring represented an attempt to create a company that could go forward with the Sims opportunity. But because it was so very tied to the past, it became difficult to do that. The several-million dollars that I put in over the past several years has given me rights to clean this thing up more permanently and that’s what we’ve done.
Q: Do you have to still seek the other investor’s approval on all the different moves you make going forward?
No, but nobody is complaining. They’re happy that I’m putting more money in and they have an opportunity. We’ve put several-million dollars into the company in the last few weeks. To the extent that they have any opportunity going forward is great for them because I’m the only investor who is willing to put in more money.
Q: So who’s in charge now? What does the corporate management structure look like?I’m chairmen of the board of the new company. We’re adding additional people to the board of directors to give it a more diversified support structure. The directors we identified will include past CEO’s of major sporting-goods companies who have snowboarding industry experience. It’ll include leading retailers who give us a better retailer perspective who’ll contribute to the management of our company.We’ve also added Mark Livingston, who is the new president of the company. He’s got nice operating experience both in and outside the sporting-goods industry. The company is being consolidated into one location in Oceanside, California. We’d been running the company out of a Santa Monica office for the marketing, design, and creative divisions, and accounting and warehousing was out of my facility in Florida. That’s all being consolidated under one roof in the San Diego area within the coming couple of months.Mark has been working with a team here at Sims for a couple of months identifying transition needs. The people in the company won’t really change. Our product efforts are still led by the same team, which has dramatically improved over the last couple of years.Travis Wood is still our key marketing and promotions engineer. With our sales staff, everything remains entirely intact. The only changes that occur in personal will occur in the areas of accounting and warehousing.
Q: So how many employees will there be?
It’s difficult to measure because we rely heavily on independent-contractor relationships for the creation of art and various other functions, and in some cases marketing vehicles.Not including the sales-rep side of the business, it’s basically a twenty-person operation in North America. It could be larger than that seasonally based on shipping and warehousing.We are set up with a strong partner in Japan, Hasco, who technically acts as a distributor, but very much works hand-in-hand with us and its staff is quite significant in Japan.
Q: So how is this going to affect the day-to-day operations and what’s going on with product production and shipping this year?Before I answer that, we have to address one other area. Retailers are going to want to know about and need to understand what happened this year, because products, teams, and things were looking so good for Sims. So, why another restructuring?Again getting back to the May 1999 restructuring, the goal was new capital, new people, and a tremendous investment in the brand. We had new product, new teams, new promotions, and an extremely different approach as to how we ran our business, but it was also a very, very tight business model because we combined an intentional sales contraction with increased spending on the brand.
Q: What does sales contraction mean?
We intentionally pulled out of major retail chains that were not necessarily consistent with our brand strategy. We pulled out of the ill-defined big-boxed sporting-good stores. We literally cut out several-million dollars of sales from our order book with those orders in hand from good-paying customers so we could make this commitment to specialty retailers.And we knew shrinking our sales was the best way to build back o
ur brand. Our product needed to be in the right stores with the right positioning and we needed to convince this market Sims was serious about its position in the snowboard marketplace, not just its volume.At the time we took over this brand it was a big brand, but was a stale brand. Let’s face it, we were all over the place in product and our ads. We were trying to be everything to everybody.When you have this extremely tight model of contracting sales and increased spending on the brand, team, staff, major investments in the World Snowboarding Championships, and additional projects with films and video games that we’ll talk about later, and at the same time you have intentionally contracting sales, everything better go perfectly for you to be able to finish through with that model.
Q: So then what happened?
We had a major external assault to our business, which was the closure of the binding factory C-Tech. We didn’t control or own that factory and it closed in the month of June. It represented 25 to 30 percent of our revenues, and it was pretty damn difficult to handle.With this situation, we had two choices: we could just walk on bindings altogether, but that wasn’t an option for us because we’ve been a binding leader in the market. Or we could help the factory.The binding factory did an emergency Chapter 7, a total liquidation. Not withstanding anything that might’ve occurred in its relationship with Sims, it had much bigger problems. The company is owned by Imperial Rubber out of Canada.So if we wanted to produce the bindings, we had to get our molds back, and we if wanted to get our molds back, we had to take possession of the facility. I approached the bankruptcy trustee, acquired position of the facility, and leased it directly from the landlord.We took back the facility, took over our molds, and made significant payments to do that. We made deals with the equipment suppliers so that all the equipment in the factory would remain in place and we rehired, directly into the Sims organization, all of the key people who supported that manufacturing facility—from the people who worked the injection molding equipment to the CEO of C-Tech, Steve Cartier, who is now working for us.We made an effort to finish the bindings because they were so important to our business. But we knew it was going to force us to be extremely late.We wanted to have the same facility with the same equipment and the same raw-material suppliers with same people that had built the Link binding so successfully.To finish my point, this is what’s so important to understand. When you are in the month of June and a manufacturer that used to provide products for you on open terms goes out of business and suddenly you’re the direct manufacturer, now you are laying out cash for everything—to take over the facility from the bankruptcy trustee, laying out cash to the landlord, and putting cash to all the raw-material suppliers that were owed money by the bankrupt C-Tech.We were in a position where we got these tremendous financial assaults to our business that caused us to reallocate resources. And to be asked in the month of June to put up several-million dollars to ramp up production is very difficult to do. Not just for a small company, but even for a medium-size company.What that meant is that we delivered very early to Japan and very early to many places in Europe and reasonably on-time to everywhere else in Europe. We fully delivered every product to those markets with the exception of bindings.That’s because we were set to be paid up front for most of that. We were able to take new money that I funded into the binding project, combined with sales and profitability in the markets, and use that to put up the enormous amount of money, several-million dollars that was required for this binding project.What that means, unfortunately, in your core market of North America, your going to be late. There were a whole bunch of products that we still had to move in to the North American market and our whole model had changed.So, I think what’s important for everybody to understand is that we were fully produced and early in every respect on every product with the exception of bindings. This assault on our business in the month of June created difficulty for us in moving product into this country on-time.Now we have shipped substantially all of our boards; we still have stuff moving. Clothing is moving, boots are moving. Gloves, other accessories, and bags are moving. But 100 percent of the producers of our product have been paid for product this year and it’s being delivered, but all being extremely and embarrassingly late.But there’s no issue of limited financial wherewithal. We’ve paid out more than a few-million dollars in the binding project to be a direct manufacturer. We’ve paid several-million dollars just in recent weeks to finish off all of our products. You should know that we’re perfectly on-time with sample development for substantially all of our product, even with the earlier sales schedule this year.
Q: What percentage of your business is Europe and Japan compared to the U.S.?
Historically, by that I mean early to mid 90s, it was pretty close to a third-third-third, with a little bit more being North America.As Europe was restructured by way of the prior ownership’s decision to separate from DNR, our numbers in Europe went down considerably. I would say two years ago Europe represented between probably less than ten to twenty percent of our business, and has been building comfortably.Japan, with respect to North America, has also increased as a percentage simply by the elimination of these large accounts. Our largest customer in North America is a fraction of the size of our largest customer previously, because we are selling to small shops and small chains.So North America is about as big as Japan and Europe is lagging significantly behind. We expect it to grow further in North America, although we are going to our retailers hat in hand, asking them to understand the challenges we faced this year. We’re asking them to focus on consumer demand of the Sims product, asking them to focus on the other things that we are doing like putting on the World Snowboarding Championship that has moved to Vail, which is a powerful thing for our retailers. We’re also working on a large global release IMAX film and doing various other things with our team.We are asking our retailers to stay with us not withstanding the difficulties that we put them through this year. We think that we can still grow in the U.S. because we are already getting significant reorders in most parts of the world, which show that our product is checking through exceptionally well.The consumer does not care about C-Tech. The consumer cares about Jason Murphy on the cover of the X Box Amp game. The consumer cares about the wonderful things Mack Dawg has done to showcase our riders and product. The consumer cares about what TransWorld tells them is fun about snowboarding.With the exception of this tremendous anxiety we have set upon our retailers by being so late, things are good from the consumer perspective. They’re not going to be if we do not do a better job of keeping a product there at that decision point when the consumer comes in and asks for it. But that’s the challenge that we face.In summary, all of the problems you see in the Sims model this year are very much attributable to this assault on our business, which was regrettable, but unavoidable with the closure of the binding factory. It was a domino effect, which is frankly quite amazing.
Q: Yeah, so where does that take us going forward with the brand?
We are shipping very aggressively as we speak. All be it very late. We shipped thousands and thousands of boards over the last few weeks and they are showing up in the stores. In many places we beat the snow, but regrettably we were not there for back-to-school markets.Nonetheless, the product is getting there and all in all our cancellations have been surprising low, which is a testament to how well our brand and products are anticipated in t
he market.A lot of people were concerned about September 11 and a lot people are concerned about reduced travel to resorts. We have not had the discounts because people are still waiting on the product and are still willing to take it. So far, anything that we’ve been doing at retail to make sure that these people hang on and continue to support their orders with us and accept the product, it has been very consistent with what every company in the industry is doing, moving their product into the stores at this time. And like everybody else, we were somewhat affected by September 11, but all in all our product is being received and accepted and our cancellations have been extremely low, given how late it is in the season that we are delivering.We are very thankful to our retailers for remaining loyal to us while expressing to us their frustrations, but still being good partners.We certainly do not expect to see our products showing up in anything but the right retail outlets this year. And our gray market situation is very much under control.
Q: Do you want to discuss those other projects now?
We are going to issue a press release regarding a IMAX film that I am underwriting along with Michael Bay. We are doing it in conjunction with Nevus Entertainment. Nevus is the aggregation of several major directors in action sports.Michael will be the senior director and producer, but the directors who are actually going to be responsible for generating the content are Taylor Steele and Bill Ballard from surfing, Mack Dawg and Mike Hatchett on the snowboard side, and David Seaone. This group is teaming up with Michael Bay to do the most kick-ass action-sports thing you’ve ever seen. The budget is going to be significantly larger than it was for the IMAX picture Extreme and each of the directors will have a budget to do their thing.And Michael Bay is going to have a budget that is used to his discretion to help the individual directors really go over the top. The film will be a Nevus Entertainment and Sims Snowboards production. I’m executive producer along with Greg Morrow, who leads Nevus Entertainment, and we expect it to be a well-scored musical event. We think it will reach a greater distribution than any IMAX film in history.
Q: This film will not be just a snowboard film, but it’ll include other action sports?
It will be action sports. Generally, we expect to do a lot on the snowboarding side for our company and other friendly brands. Your going to see all the good brands in there.If the first one is successful, we can reissue a snowboard-only IMAX picture to capture all the content that we regrettably had to leave on the editing room floor from the first film.In terms of new stuff, the important message is that Sims is a small company, but there are a lot of big companies that can’t do what we can. They don’t have Michael Bay to take this thing into 100 countries in a IMAX format.
Q: What other things are you working on?
We are doing a World Snowboard Championship-dedicated video game in the X-box format next. It’s not only going to feature content from the World Snowboarding Championship. If a rider wins the World Snowboarding Championship, they’ll get a part in the game. If they place high and do a good trick, they’re going to capture the World Snowboard Championship event in that game.Michael is also going to be involved in that in terms of the rhythm, styling, and scoring of it, combined with the leading guys who are developing snowboard games.Sims has to do the things that we can do that others can’t and having relationships with the founders of Microsoft helps. Having relationships throughout the film industry helps. Where we can find a way to vault ourselves into a big-company profile from our small-company existence, that’s what we have to do.That’s what you will see in Sims do in the next year. It’s an amendment to the Travis Wood model. Travis has designed this strategy even on the bigger stuff—he and the team here has been very good at using grassroots, underground levels of promotion, communication, getting the right teamriders, and doing the most with those you have.Now it’s time to blow the doors off the definition of what we think is a fertile marketing ground. Sims is going to take leadership in these areas that many of our competitors can’t. We have the capital to fund theses projects. The strengths of the economics of these projects go way beyond the economics of selling snowboards. We’re excited about that.
Q: Tell me a little more about your company Wyndcrest Partners.
For me to read anywhere that Sims is going under, knowing what I know about myself and my capital, is the funniest thing I could possibly see in the press. And people are saying it. Our competitors are saying it. Retailers are calling us asking if we are still going to be in business? Retailers are asking us questions and it’s a shocking question to me given to who it is that we are.Wyndcrest is a private partnership that invests alongside major institutional and venture capital investors. We invest heavily in technology companies and, to a lessor extent, traditional companies. Sims is an out-of-model company that we invested in because of my history with the Sims skateboard past.Of our twelve companies we have, three are guaranteed winners, we have three that are already closed and guaranteed losers, and we have six that fall somewhere in between. There is a whole bunch stuff that is happening at Wyndcrest.When you are a private investor in the technology space and you have three out of five successes and one of them was a top-five deal in history, as an IPO, that is a really good track record.Wyndcrest, by the way is Michael Bay and myself as senior partners. We invest our own money in deals. We have invested somewhere around 45- to 50-million dollars in the last two years and it has generated returns of several-hundred million dollars.Q: So what about Sims?
Granted, we really f—ked up and were really late, but there is no such thing as Sims going under on my watch. It is mathematically not possible.Now it doesn’t mean that we open up our check books and we give Sims whatever money they ask for, but it does mean that they have to be managed prudently and in a fiscally responsible way. I am the steward of the Sims brand at the discretion of Tom Sims. He’s a friend, he’s a partner, and I grew up with Sims blood running through my veins. This company does not go under when I am around.