Billabong Buys Von Zipper

Billabong International Ltd announced recently that it had purchased upstart eyewear brand Von Zipper for an undisclosed sum.

“Neither the cost of the acquisition nor the profit impact will be material to Billabong’s accounts for the 2001 year,” the company said in a statement. “A contribution to Billabong’s profit is expected to begin in the 2002 financial year.”

Billabong International CEO Matthew Perrin said in a Reuters news story that the purchase of the Von Zipper brand and staff was built on growth and performance targets: “The acquisition is very favorable to us. It really has been structured as a low-risk acquisition.”

The day after the deal was announced, Sean O’Brien, editor of TransWorld SURF Business, sat down with Billabong U.S.A. President Paul Naude, Von Zipper Sales Jefe Greg “G.T.” Tomlinson, and Von Zipper Creative Director Chris “Big B” Burke at the SIA Show in Las Vegas. The conversation roamed from Von Zipper to Billabong’s plans to open several Billabong flagship concept stores and where ‘Bong sees opportunities for growth. Here’s what they had to say:

Sean O’Brien: Congratulations on the deal. So, what exactly has occurred?

Paul Naude: Billabong International has acquired Von Zipper. For us, we’re really excited about it. Von Zipper, after it launched in the first half of last year, was a brand that had a lot of edgy product and a lot of edgy, guerrilla marketing — we think these guys are actually masters of that. From our point of view the deal allows us to expand into other product categories without having to put the Billabong logo on every product category that’s available. That’s not really our M.O. at this stage. We were interested in the eyewear category and we viewed Von Zipper as a brand that’s young and fresh and edgy and new enough that we could give it a solid launch without any sort of past baggage associated with it. We’re pretty excited about it.

The intention is to run it as an independent entity. It will continue to be run by all the existing staff in place — all the key players are still part of the program. The offices will continue to be based in San Clemente and, as I said, will be run as an independent entity. Where it makes sense to leverage operational issues, we’ll do that. But at this stage it will continue to be independent and that’s how we see it running — obviously we’re able to back it with some capital resources that may not have been as readily available to the brand in the past.

On an international basis, what we bring to the table will allow us to plug Von Zipper product into our worldwide distribution network which will obviously accelerate the brand’s growth in a short period of time.

Sean O’Brien: How much of an international presence does Von Zipper have now?

G.T.: We’re currently distributed with the Scandinavian folks. We have distributors there and in Japan. We did have relationships with folks in Australia, but obviously Billabong’s position in Australia supersedes that. Frankly, knowing that we had an opportunity on the horizon, we had quite a few inquires up to this point on a doable scale. But knowing that we were in conversation, we were reluctant to take those discussion any further than that.

Certainly, from the Von Zipper side, we’re really excited that we can tap into frankly the number-one surf, skate, snow lifestyle brand. For us it’s a killer opportunity to tap into their existing distribution network and see if there are other opportunities to hire some more people onto the team to make sure we do this thing correctly and fulfill the vision of Big B Von Zipper Creative Director Chris Burke.

Sean O’Brien: What exactly did Billabong buy?

Paul Naude: We bought a limo. We know we bought a limo. Laughter

G.T.: Is that an asset or a liability? Laughter

Paul Naude: We like the limo. Apart from that, we basically bought the whole company — everything from trademarks to equipment.

Sean O’Brien: So all the assets and liabilities.

Paul Naude: Yep.

Sean O’Brien: G.T., it’s no secret that you and Paul have been friends for a while. How important was that to the deal going through?

G.T.: Obviously there was a previous relationship between Paul and I, but here’s the thing: If the deal wasn’t the right thing for Billabong it wouldn’t have been done. Certainly our friendship didn’t hurt getting the deal done because we weren’t complete strangers, but if it wasn’t the right opportunity — for both of us — it wouldn’t have happened. It’s nice that we have a relationship — I mean last night we all had a pretty good time. It was like old times. There’s no uncomfortable silences — there’s nothing like that.

Paul Naude: Certainly G.T. and I have known each other for a long time and I really respected what these guys have done as a creative team. But on a personal level, the relationship helped us capitalize on this deal and it did make it a lot easier. We share common goals and common thought processes to what the brand should represent.

I’ve been interested in Von Zipper right from the very early launch. The secret of this business is if you understand the intangibles, you’ve definitely got a head start on the competition. These guys understand the intangibles probably better than anybody. Chris Burke has a great reputation for design and — without blowing smoke — G.T. is the king of spin.

Sean O’Brien: So are you going to let the Von Zipper view of the world infiltrate Billabong?

Paul Naude: I think we have a pretty amazing pool of talent at Billabong already. But as you grow your business into other product categories and other brands, you’ll start to get networked a little better and you’ll start to get better feedback from a variety of sources as opposed to just hearing views from inside the box. It gets you into situations where you can start looking outside of the box and getting information from outside so you can strengthen both companies.

For me the appeal of Von Zipper is that this brand has the opportunity to transcend the boundaries of the action-sports arena and I find that both challenging, motivating, and exciting. Von Zipper has a great opportunity to become a really strong brand for the youth-culture market at large.

Sean O’Brien: Can you foresee any product extensions using the Von Zipper name into other categories?

Paul Naude: It’s way too premature to discuss those ideas at this point. At this stage the focus is eyewear. These guys are rolling out new models which will be delivered to market in April that have already had a phenomenal response and cover a broad section of what’s going on in the eyewear business right now. At this stage we’re looking at going the eyewear side and goggle business for snow and then offering the typical brand-building screened T-shirt pieces.

G.T.: The cool thing about Von Zipper is that’s it’s our goal to play to the surf/skate/snow audience at large, but we certainly want to make sure that the fashion, rock-and-roll element is covered. We want to introduce things into the surf/skate/snow that might not be seen there now. So our hope is that we can lead on a few things. We’ll offer something that will have our little fun twist on it.

With the global resources that Billabong can bring to the table, we’re going to have a pretty nice canvas to paint on. It’s going to be a lot of fun. Paul said it earlier: they could have slapped their logo onto some sunglasses, but that’s not what Billabong’s about. They’re stoked that our marketing approach is different than what Billabong is doing — this in not the Billabong shade line. We maintain our creative control. If we do something offensive, I’m sure we’ll hear from Paul, but for the most part we’re going to have more fun than everybody else and, hey, if we can bring something to Billabong — killer.

It’s a killer marriage for everyone and all of the sudden our family just grew to a global operation. For me and Bigz and the rest of the crew, now we have the tools
to fulfill our goals and we’re going to try to make some history. I think we’ve done a pretty good job so far. We’re just eight months in the game. We have a long way to go.

Sean O’Brien: Who owned Von Zipper? Who did you have to negotiate with?

Paul Naude: These guys had a company called Operation Eyeball and there were seven or eight partners involved. At the end of the day, Rob Riese was the point person —

G.T.: — and he did an outstanding job.

Paul Naude: Rob went back to the partners and they would agree and so we would go back and forth. We’ve been working on this deal for some time.

G.T.: The other thing about the deal. It wasn’t necessarily planned, but the opportunity was there. For Zon Zipper it’s neat that ‘Bong’s a publicly held company and we’re its first acquisition. For us, that’s a pretty big honor.

Our business wasn’t that complicated, but these deals take a little time, and we had to get all the partners in a row. But at the end of the day it came through well. I think if we had a real big pissing contest among our partners, it might have turned Billabong off.

Paul Naude: When I said earlier that the key personnel would remain in place, I should have stated that out of the seven partners the continuing original partners will be Chris Burke, G.T., Rob Riese, and Jeff Riese.

So technically we bought Operation Eyeball, and we’ve set up a separate, wholly owned subsidiary called VZ Inc. — so our customers aren’t going to get a Billabong invoice for their Von Zipper order.

Sean O’Brien: Public companies have a need to grow to satisfy shareholders. How much did that fact come into play when you were looking for acquisitions?

Paul Naude: Billabong’s stock represents a total global company. Global brands are the future. Momentum globally adds to momentum in the respective domestic markets. When we went public, some of our critics said that we would have to open our distribution. We really don’t see it that way, especially since we know that the brand has significant amount of organic growth available to it. This growth is not only in existing markets, but specifically in other international markets — what we call today secondary markets — which we are about to attack as a company and really ramp that up.

Sean O’Brien: It seems South America has been a major push for the company.

Paul Naude: South America certainly will have an increased effort. Asia as a whole will be subject to an increased effort. Generally, now that the IPO is done and we’ve done the Von Zipper deal, there will be a strong focus toward our secondary markets, either setting up wholly owned subsidiaries like we did in Japan in the beginning of this year or on a licensee basis or distributor basis. That’s really our focus.

There’s a lot of growth opportunity open to us there. Take Japan for example. Everyone has a good idea of the types of volumes that can be done in Japan and when you switch it from a licensee to a wholly owned subsidiary, you’re immediate add on is significant.

At the end of the day there’s a lot of opportunity for the brand, both to ramp up in the secondary market and — to be honest with you — to increase sales in the existing domestic markets. In Europe, we’re growing at about 40 percent a year and have done for the last three years in a row and don’t see that trend straightening out. In the U.S., from the time we took over the company, we’ve had about fifty percent growth in two years — so we feel pretty good about that. And we still believe there’s a tremendous amount of opportunity domestically — specifically in certain product areas.

We’re really not feeling the pressure from a growth point of view. We run a pretty tight ship. Our numbers are readily available and you can see our company focus is on profitability rather than volume. We run a good business and we intend to grow the market at our pace. We don’t see opening distribution to a broader retailer base as being an option for the brand. We don’t think our target-market consumer shops in department stores.

Another area we see growth — the rumors are out and they are not rumors — is we will open our own freestanding stores here in the United States. We currently have Billabong stores in Australia and Europe and now in Japan.

Sean O’Brien: Also in South Africa?

Paul Naude: Yeah, I think we’ve established six Billabong stores in South Africa and we have an additional five or six between Europe and Australia.

In the U.S. the intention is to open some freestanding Billabong concept stores — not on the basis of running out a chain of them. But where it makes sense we’ll build a flagship store here and a flagship store there. We’ll see how it goes. But again, there’s no pressure. We’re going to do it, but we aren’t in a rush. We absolutely do not want to alienate our account base in any way by making this move, and we’ll include our retailers where it’s necessary and where it works.

Plus, will this be the last acquisition by Billabong? No.

Sean O’Brien: A Reuters news report from two weeks ago quoted Billabong International CEO Matthew Perrin as being interested in sunglass and shoe brands. So, is a shoe brand acquisition next up?

Paul Naude: We might have had a little change of heart on the shoe thing. At this stage it would be premature to say what other areas we’re looking at.

Sean O’Brien: But you’re open to opportunities?

Paul Naude: Yeah, and I think there are some opportunities in the footwear business. Personally I think the skate portion of the market is pretty heavily traded right now. But we’re not in that business, so it would be unfair for me to even give an opinion, because we’re not in the footwear business and I don’t profess to be in tune with what’s going other than what I see and hear at retail. But I think there are opportunities. But once again, I think we would be more interested in something with maybe a little more edge, like Von Zipper has.

Sean O’Brien: So with the additional financial support, what can we expect to see from Von Zipper in the next twelve months?

G.T.: At this point, we’re still choosing our secret recipes.

Sean O’Brien: Figuring out all the places to spend money?

G.T.: No. When we’re talking about spending money, bottom line is, we’re good at spending money but we do have to answer to the king. So we need to operate within the guidelines discussed between companies. The cool thing is, our approach to the market complements Billabong. Sunglasses are an item that reflect personality, and when you put on a pair of Von Zippers it’s a frickin party.

Sean O’Brien: Nice tag line.

G.T.: So when Billabong comes to the table with shades, it’s Von Zipper. It’s a separate identity, but it can add a level of cool to a brand that’s already pretty damn cool. For us, we have a few more tricks up our sleeve. It boils down to: we’re going to have more fun than everybody else. And if we’re having fun, the rest of the folks will want to come along with us.

We’re pretty good at getting a feel for what’s happening and with our team you can expect some pretty exciting things. But don’t expect us to go out and spend a ton of dough and change our approach. We’ll stay to our game. It’s not like we’re going to go down the list of Billabong teamriders and take them all. That’s not our goal.

Paul Naude: We absolutely want to keep intact Billabong relationships with teamriders who happen to ride for another eyewear company. Plus, Von Zipper has a certain style and a certain edge and every company picks its teamriders to reflect the company.

G.T.: But I will say this, that Billabong team list is extensive. laughter There are a few folks that I would like to see in our family.

Sean O’Brien: This is a conversation the two of you can have later. Laughter

G.T.: It’s our goal and intention to keep the teamrider issue separate. We have existing relationships with folks who ride for other brands than Billabong that we’re keen to
keep going. Some of those team riders have supported us from the day. The fact that they were in our family as we got this thing off the ground means a lot.

Sean O’Brien: Big B, anything?

Big B: Smiles. Laughs. Giggles.

G.T.: Report that Big B was unable to speak today due to the 5:00 a.m. wake-up call that he didn’t get. Laughter