SS7: Growing The Pond

SIMA Surf Summit 7 was held May 13—16 at the Crowne Plaza Los Cabos hotel in San Jose Del Cabo, Baja California and gathered together the surf industry’s all-star roster. Held in conjunction with the inaugural Board Retailers Summit, the event swelled to more than 350 attendees and featured a rare mix of educational seminars, surfing along undeveloped coasts, and poolside networking.

It also almost ended before it began.

Maybe it was the hot San Jose Del Cabo sun or the free and unlimited libations. Maybe it was that last-second Derek Fisher jumper. But whatever it was, several Surf Summit 7 attendees—including a few SIMA board members—turned into feces-hurling chimpanzees in the wake of the Lakers’ dramatic 74-73 victory over the San Antonio Spurs.

Down in the Nautica sports bar at the Crowne Plaza, a standing-room-only crowd watched Fisher’s miraculous eighteen-footer before the room erupted in celebration. In the general confusion, cups and a chair were thrown, a table was broken, and the pool-table felt was damaged so badly that a repairman supposedly would have to be flown in from Mexico City. Hotel security merely stood at the front of the room and shot digital photos of the instigators. Twenty-first-century crowd control at its best.

Yep, Surf Summit had definitely turned a corner. Now in its seventh year, the event had morphed from a small council of the leading surf executives into the leading boardsport industry conference. Now—nine-grand worth of damage later—it appeared we might be kicked out of the hotel before the event even began.

And that would have been a disgusting shame. After all, the Surf Industry Manufacturers Association (SIMA) and the Board Retailers Association (BRA) had been working feverishly on the event for months and had lined up an array of speakers and panels worthy of an exciting and fast-growing industry like ours.

In the end, everything worked out. Before Quiksilver CEO Bob McKnight took the stage for his keynote address, the Nautica had been cleaned up, the hotel management partially mollified, and a few revelers served up as examples and kicked out of the hotel. Growing The Pond With Bob McKnight
If anyone could get us back on track that Thursday night, McKnight could. At Surf Summit 4, he helped alter the course of an industry infatuated with online commerce, and everyone hoped lightning would strike again. As SIMA and Op President Dick Baker said in his introduction, “This is somebody who we all want to be. He’s passionate, focused, irreverent, and—most importantly—a protector of the industry.

McKnight took the podium and asked the crowd, “Raise your hand if you’ve ever run a billion-dollar company. While the audience chuckled, not a hand was raised. “Me either, continued McKnight. “So trust me when I tell you that truly we’re just making this up as we go along.

McKnight told the crowd as long as we focus on three things, we’ll be okay: “One is just to maintain a long-term perspective despite the highs and lows of Wall Street or retail economy. Also, always stay true to the core consumer and the core retailers. The last one is really work hard to grow the overall boardsports market.

This idea of “growing the pond had perhaps the most resonance with the audience and was used repeatedly throughout the weekend, becoming the rallying cry of Surf Summit 7. McKnight said that although the competitive aspect of surfing is important, there were five other areas the boardsports industry should be concentrating on to grow the pond: big waves, the beach, travel, watersports beyond surfing, and highlighting the characters of surfing. “The most important thing we have in our industry are the personalities, he said.

McKnight also outlined some of the threats facing our industry. First and foremost was the threat the changing market posed to core shops. “It’s our job, no matter what, to protect these guys, said McKnight. “We are the only industry to have a re like this. Do you think FUBU and Phat Farm have a core retail base like we do? No. We are so fortunate that we have an army of core retailers around the world who support us and show us off, and we need to take care of them. It’s just as simple as that.

McKnight also mentioned a familiar litany of threats like Abercrombie & Fitch’s private-label Hollister brand, counterfeit goods, the growing popularity of hip-hop brands, declining environmental quality, and global unrest.

“All of us here together are not the competition, McKnight concluded. “Our competition is out there, not in here. There’s so much more to do. Keep innovating, keep taking risks, and keep supporting the core.Day Two: Getting Down To Business
The hoped-for swell didn’t materialize on Friday morning, but that didn’t stop a dusty procession from heading out to the East Cape or the Pacific side. Some had been out there for days already, including a ragged group that set up camp at the surf spot dubbed Indy Rock. Living on beer and fired-warmed refried beans, the group was a great example of how Surf Summit is more than just the seminars, but the chance to make friends, surf, and hang out in a beautiful environment. “Power networking, the corpo types call it.

And while a few passed up on the more structured parts of Surf Summit 7 entirely, most made it back for the 1:00 p.m. start of the seminars.

This year marked the first year of the annual Board Retailers Association Summit, which ran concurrently at the hotel. For most of the day retailers and manufacturers were kept apart in separate meetings, only gathering together at the end-of-the-day sessions on hardgoods and retailing. While many company heads mentioned that they missed having the retailers in the room, this year’s segregation helped establish BRA as a bona fide trade association and led to more retailers than ever being in attendance for the group sessions.

Understanding The Teen Market.
The seventh annual SIMA conference kicked off with Marshal Cohen’s The New World Of Teens presentation. Having tracked “this business for fifteen years, Cohen based his findings on a study of 22,000 people—more than 6,000 of whom were teenagers. This vast research led Cohen to draw some important conclusions about the teenage demographic as it relates to the surf industry.

Cohen’s studies also showed that America is getting fatter by the year. From 1991 to 2001, the United States went from four states with an obesity rate of fifteen percent to 49 states. What’s interesting is that the fatter we get, the lower the bar gets for what’s considered fit. “Not only have we gotten bigger, Cohen explains, “we have psychologically accepted it.

The thesis Cohen presented was of the growing importance of actual store patrons—without them, the retail market would crumble, and consumerism would come to a screeching halt. “The consumer has been the pillar holding up the economy for the past three years, he said. “Educating the teenage consumer—any customer—is more important today.

One way Cohen suggested managing a brand is through vacuum marketing. Cohen feels that trendy stores tend to drop a particularly hot item after one year when it’s no longer cutting edge. But the consumer is still living that lifestyle, which gives other stores the chance to clean up.

Another topic was age-specific marketing that spoke directly to the consumer. Cohen put the audience through a test, displaying four similar pictures of beautiful women on beaches. The photos were unadorned, but each had originally been used for advertisements. In fact, each photo was from a different company, all selling the same product—in this case fragrance. “How’s that connecting with the consumer? asks Cohen, immediately answering, “It’s not.

He repeated the exercise, this time with four photos of men and women in intimate embraces. Again, each photo had been used for a fragrance ad. His point was these ads were so generic that they don’t connect with the consumer, nor give the brand any clear identity. His argument was weakened, however, when he revealed the brands associated with the photos—Calvin Klein, Ralph Lauren, Polo—all companies with loyal mainstream followings. Perhaps if these companies were marketing this way there was a very good and lucrative reason.

Cohen closed with some thoughts on growing the surf market by emphasizing its lifestyle. “Surf needs to inject more music, {it} needs to educate {the consumer} that it’s a healthy way of life, said Cohen. This was a good point, but it got a bit confusing when Cohen stated that surf culture was the antithesis of hip-hop culture: “They buy it {surfing} because it’s anti-hip-hop. We need to kick hip-hop’s ass.

It’s doubtful that declaring a market war on another popular culture will get anybody anywhere, but it’s pretty clear that the look of being a surfer is more popular than the act of surfing. Or, more to the point, people who want to look like surfers spend their money just the same as surfers—maybe even more.

International Markets.
After Cohen’s lively, graph-filled opening seminar, Ira Kalish, director of consumer business for Deloitte Research, stepped up to give SIMA attendees a studied look into a wide variety of international markets. He also confessed that earlier that morning he went for his first surf ever.

“When I give presentations I like to know something about my audience, Kalish said. “Before I spoke at Frito Lay I had a bag of potato chips. So this morning, for the very first time in my life, I surfed—and I intend to do it again.

The SIMA crowd roared with applause, and Kalish dove right into his presentation on world markets that are on the rise and why.

Kalish described particular concerns and opportunities in regions like Latin America, Central and Eastern Europe, Japan, and Australia. Asia, in particular China, was the area that he deemed as being the most critical market. “China is becoming an engine of growth for the world, he said. “Imports are coming into China so rapidly that it’s stimulating economic growth for many other countries—especially Japan.

Stimulating is an understatement. Last year China exported 400-billion-dollars’ worth of merchandise, it has a 600-billion-dollar retail market, and is easily the fastest-growing economy in the world.

In Shanghai alone, retail sales are growing at a twenty-percent-a-year clip. While this all sounds obtuse, these numbers obviously mean something to the surf industry. In fact, Quiksilver opened a Boardriders Club in Shanghai earlier this year and predicts it will someday have hundreds of stores in China.

Of course, there is the problem that China has very little in the way of surf. And there are daunting business challenges there as well, like stopping the counterfeiting of popular merchandise. Still, there are tremendous positives, too, even beyond the fact that it has such a large population. For one, Kalish claims that brand loyalty in Asia is much greater than in Western Europe or the U.S.

He noted that manufacturers producing goods in China should be aware that the yuan will likely devalue, making sourcing in China more expensive. {See page 30 for more on this emerging market.}

Kalish also highlighted a general U.S. trend toward restricting free trade, which he sees as a negative for global growth. Part of this trend is rooted in a backlash against mass-market retailers such as Wal-Mart. He asserts this anti-chain-store trend sits well with specialty retailers the world over and in a broad way may be good for the surf industry.

“It could be a positive for some of you in the sense that a lot of your business goes through these specialty-store chains, who will not be affected by this backlash, he said. “They have an opportunity to gain some market share as the big-box value retailers are restricted in their growth.

A Specialty State Of Mind
Unlike the SIMat they don’t connect with the consumer, nor give the brand any clear identity. His argument was weakened, however, when he revealed the brands associated with the photos—Calvin Klein, Ralph Lauren, Polo—all companies with loyal mainstream followings. Perhaps if these companies were marketing this way there was a very good and lucrative reason.

Cohen closed with some thoughts on growing the surf market by emphasizing its lifestyle. “Surf needs to inject more music, {it} needs to educate {the consumer} that it’s a healthy way of life, said Cohen. This was a good point, but it got a bit confusing when Cohen stated that surf culture was the antithesis of hip-hop culture: “They buy it {surfing} because it’s anti-hip-hop. We need to kick hip-hop’s ass.

It’s doubtful that declaring a market war on another popular culture will get anybody anywhere, but it’s pretty clear that the look of being a surfer is more popular than the act of surfing. Or, more to the point, people who want to look like surfers spend their money just the same as surfers—maybe even more.

International Markets.
After Cohen’s lively, graph-filled opening seminar, Ira Kalish, director of consumer business for Deloitte Research, stepped up to give SIMA attendees a studied look into a wide variety of international markets. He also confessed that earlier that morning he went for his first surf ever.

“When I give presentations I like to know something about my audience, Kalish said. “Before I spoke at Frito Lay I had a bag of potato chips. So this morning, for the very first time in my life, I surfed—and I intend to do it again.

The SIMA crowd roared with applause, and Kalish dove right into his presentation on world markets that are on the rise and why.

Kalish described particular concerns and opportunities in regions like Latin America, Central and Eastern Europe, Japan, and Australia. Asia, in particular China, was the area that he deemed as being the most critical market. “China is becoming an engine of growth for the world, he said. “Imports are coming into China so rapidly that it’s stimulating economic growth for many other countries—especially Japan.

Stimulating is an understatement. Last year China exported 400-billion-dollars’ worth of merchandise, it has a 600-billion-dollar retail market, and is easily the fastest-growing economy in the world.

In Shanghai alone, retail sales are growing at a twenty-percent-a-year clip. While this all sounds obtuse, these numbers obviously mean something to the surf industry. In fact, Quiksilver opened a Boardriders Club in Shanghai earlier this year and predicts it will someday have hundreds of stores in China.

Of course, there is the problem that China has very little in the way of surf. And there are daunting business challenges there as well, like stopping the counterfeiting of popular merchandise. Still, there are tremendous positives, too, even beyond the fact that it has such a large population. For one, Kalish claims that brand loyalty in Asia is much greater than in Western Europe or the U.S.

He noted that manufacturers producing goods in China should be aware that the yuan will likely devalue, making sourcing in China more expensive. {See page 30 for more on this emerging market.}

Kalish also highlighted a general U.S. trend toward restricting free trade, which he sees as a negative for global growth. Part of this trend is rooted in a backlash against mass-market retailers such as Wal-Mart. He asserts this anti-chain-store trend sits well with specialty retailers the world over and in a broad way may be good for the surf industry.

“It could be a positive for some of you in the sense that a lot of your business goes through these specialty-store chains, who will not be affected by this backlash, he said. “They have an opportunity to gain some market share as the big-box value retailers are restricted in their growth.

A Specialty State Of Mind
Unlike the SIMA room, where tables for the audience stretched off to the far horizon of the cavernous Faro ballroom, the 40-person-capacity BRA meeting room was downright intimate, echoing the nascent nature of this retailer organization and harkening back to the SIMA Summit of six years ago.

But while the BRA lineup may have lacked the uniform polish of the SIMA lineup, it often went to the heart of matters in a direct and detailed way.

“We {the specialty retailers} pick what’s cool and we create that brand, said BRA Founder Roy Turner at the kickoff of the first-annual Board Retailers Summit. “That’s why our interaction with the manufacturers is super, super important. This simple statement neatly encapsulated the entire message of the retail event.

Dan McInerny, founder and president of Hub360, kicked things off by focusing on what it takes to be a successful brand in today’s market. According to McInerny, a successful brand is someone who can make great product, deliver it on time, surround itself with quality people, market to the core consumer, have a solid distribution strategy, and plan and execute properly.

But as McInerny goes on to point out, while the main rules for being a good brand haven’t necessarily changed over time, the retail environment has. “In the 90s the relationships between brands and retailers begin to change, he said. “Factors include competition for floor space, the need to tell a story, and pressure for growth. All of this leads to the introduction of in-store shop concepts and displays.

During this time the market also saw the introduction of the first privately-owned Boardriders Club, which eventually led to Quiksilver’s and other brand’s expansion into vertical retail stores. “It’s game on, said McInerny.

In the wake of the change, he encourages retailers to concentrate on the ways they can stay competitive: “Keep your focus on change, be a student of the game, understand a brand’s expectations from your store, be proactive in your approach, be prepared to re-invent how you do business and grow—or die. Most stores use this as a mantra already, but it was helpful to have it voiced yet again.

Turner used his time to suggest communication. Through associations like BRA, specialty retailers can join forces and communicate in order to cope with the market changes and be successful.

“We {as retailers} have to place ourselves back within the cycle of business, said Turner. “We have to commit and continue to give manufacturers good information so that we remain part of the process.

“We need to look at the big picture, he continued. “Fellow surf-shop owners, while competitive, aren’t your main competitors—they are lifestyle partners. By sharing our resources, collectively we can compete with the Old Navys, Hollisters, and Targets.

He cautions that chain stores and Internet commerce are part of a trend where a centralized buyer is dictating the product needs for the majority. “This is what really scares me, he said. “A community or sport that loses all local control or contact with the functions of economy—production, consumption—is a doomed community. A centralized buy will kill product selection over time.

Ego-Check Expansion.
The Tower Records business model was used as a cautionary example for growth in the second BRA seminar of the day. In his speech, Ralph King used the story of Tower Records to highlight the reasons some store expansions work, while others fail. He also discussed why opening new store locations increases company vulnerability and the importance of keeping egos out of business.

Drawing upon his knowledge of record-store chains, King explains that store expansion is not an idea that should be taken lightly. Aside from prior experience as the former senior VP and COO of Record Bar (which grew from a 70- to a 300-store chain under his leadership), King is a turnaround consultant for companies in trouble. Currently he and a partner are midway through acquiring T