Inside The Rubber Empire: A rare look at O’Neill’s operations.

With 175-million dollars in annual sales, O’Neill could be the second-largest surf brand in the world, according to Marketing Manager Mark Tinkess. Surprised? Don’t be. It’s all part of the company’s low-key strategy.

“When Jack O’Neill discovered the neoprene foam carpeting the aisle of a DC-3 passenger plane, he knew he was in business. Literally,” says Tinkus. But it’s likely even he didn’t know the height his business would reach.

The story of Jack O’Neill and his development of the modern wetsuit is legendary in the surf industry. But behind that lies an even more incredible tale of a modern, worldwide business that consists of a headquarters office and three retail stores in Santa Cruz; factories in San Francisco, Mexico, and Asia; a growing Southern California-based sportswear licensee; and a group of global distributors spreading products to more than 60 different countries. Put all these together and the total pie is a lot bigger than the individual pieces.

In fact, the company estimates that it controls 50 to 55 percent of the wetsuit market in the United States. Transworld SURF Business’ own retailer survey conducted earlier this summer (see related article in this issue) reported that 42 percent of specialty surf shops rank O’Neill as their best-selling wetsuit, placing it far ahead of all other rubber companies.

With this in mind (plus the fact that we were invited), the TransWorld SURF Business editors visited O’Neill’s headquarters and main shop in Santa Cruz, then headed up to San Francisco for an exclusive tour through its factory early this summer. Here’s a look at what’s going on inside the rubber empire.

Single Focus

Maybe it’s the fact that the company is hundreds of miles away from the perceived epicenter of the surf industry (Southern California), or maybe it’s just the cold water O’Neill emplyees have to surf in almost year round, but one thing is for sure: O’Neill is focused on building wetsuits.

Sitting comfortably in his office in Santa Cruz, longtime O’Neill veteran and current Marketing Director Mark Tinkess talks about the company’s wetsuit development process.

“Things start with developing the designs here in Santa Cruz,” he says. “We have focus groups, then work on sourcing, go to Japan and check out new fabrics, see what’s available from China, then come back to put something together. Then we go down the coast and let shops try the samples–like we did with the Zen tour–to gather more info. Finally, we hand off the designs in November to the production and sales guys.”

In summary, he explains what makes O’Neill so strong in its business: “We control the process from beginning to end and all we think about is wetsuits. And the suits fit insane.”

Sew Much At Work

Indeed, O’Neill does control the manufacturing process from beginning to end. It owns its own wetsuit factory in San Francisco and has been in the same location since 1991.

Located on the southeast side of the city, approximately 100 people work in the nondescript building producing approximately 35 percent of the company’s total wetsuit output. Another 35 percent comes from a factory in Ensenada, Mexico (where more than 200 people work), and the remainder comes from facilities in Taiwan and Hong Kong.

Operations, planning, sales, and forecasting take place in the San Francisco operation, but the several designers who come up with the initial ideas work out of the Santa Cruz office.

As expected, the facility was busy finishing the fall products and the warehouse was packed with product ready to ship to retailers when we visited.

According to Cherry Chu, O’Neill’s vice president of manufacturing and operations and our tour guide, the company develops 185 different styles per season, including fullsuits, short johns, spring suits, and jackets. There are also wetsuit designs for diving, waterskiing, wakeboarding, triathlons, some private-label business, and even Coast Guard-approved lifevests.

Although the garment industry has a reputation of being old fashioned, the O’Neill factory uses the latest technology as much as possible to make the production process more efficient.

After a pattern is created by the designers, it’s digitized and scanned into a computer. This helps O’Neill designers store and save all the designs they’ve come up with over the years. It also helps them take a specific style and then develop exact dimensions for the range of sizes.

After these sizes are made and samples sewn, fit is approved. Walking through the design department, there are racks full of different suits spanning decades worth of ideas–many sporting the neon colors the surf industry would rather forget.

Patterns are laid out across tables, and computers occupy desk tops. The mix of technology and hand-made processes is intriguing–if not contradictory at times.

After designs are approved, the patterns are taken downstairs to the cutting room. Neoprene is brought in from Taiwan and Japan and is cut according to the plans. But first, a computer figures out how to maximize the total fabric utilization. This computer shows the different designs laid out on the fabric and calculates usage percentages. Once the material is maximized, neoprene is cut out several sheets at a time.

These components are bundled together and taken back upstairs where the different pieces are sewn together. Rows of sewing machines line one floor, and the entire operation looks very similar to a traditional clothing factory. For graphic details, there’s even an in-house screen printing area that stays busy. Workers are paid on a piece-rate basis.

After the suits are sewn together, the work is checked for quality, they’re then trimmed, and hang tags are added. In fact, all the suits manufactured at the Mexican and overseas factories come through the San Francisco plant to get quality checked and have the hang tags added.

At this point, products are moved into the massive warehouse in back, where racks full of suits fill the room. Getting around the area is like negotiating a maze. You could literally get lost between all the suits.

The San Francisco facility is mostly a sew and glue operation. The company utilizes different factories to make other constructions. For instance, all the wetsuit hoods come from Mexico, while the vulcanized surf booties come from Thailand. Interestingly, the Mexican factory makes many of the same models as the U.S. facility does, but all O’Neill suits are labeled in the same place–inside the sleeve–with size and location of production.

Once Suits Are Produced

Production isn’t the only place where O’Neill is thinking globally. The company has recently refocused its strategic planning and launched a global marketing campaign, utilizing one brand logo, story, and a strong, centralized world team that includes the likes of Shane Beschen, Adam Replogal, Cory Lopez, Rat Boy, Pat O’Connell, Rochelle Ballard, Chris Gallager, and Wingnut. To support this move, it’s advertising heavily in surf, dive, wakeboard, bodyboard, snowboard, and windsurfing publications.

In the surf industry, O’Neill has divided its campaign and is running wetsuit ads in Surfing magazine, while focusing on apparel in Surfer. Although one series of ads is promoting rubber while the other is highlighting sportswear, the design of the ads is consistent. “Nobody even notices they’re for different products,” says Tinkess.

The apparel doesn’t actually come from the Santa Cruz office, although the image and presentation has to be okayed by headquarters. O’Neill licenses out its sportswear to the Irvine, California-based La Jolla, Inc., a company that’s run by former Op and Quiksilver executives John Warner and Jim Moran.

And the sportswear division is definitely on a roll. Ac
cording to Sportswear Marketing Director Joey Santly, its sales went from nine- to 34-million dollars this year, with the juniors business growing at 800 percent.

“We do about 30 percent of our business with Pac Sun, and our juniors’ line is one of the best-selling in those stores this summer,” says Santly.

To further build the O’Neill image, the company will be premiering a team video at the fall trade shows and will ship it to shops around November 1. And to continue building on the global brand presence, the company is also hoping to sponsor an Association of Surfing Professionals World Championship Tour event in the coming year. And the O’Neill Cold Water Classic in Santa Cruz is locked into a three-year deal for the ASP World Qualifying Series, so that representation will continue.

“The company is thriving right now, and we have an opportunity to be strong, so we’re taking action,” says Tinkess. “When you break it down, we’re making good product, delivering it on-time, have good reps, a professional customer-service department, and we stand by our products.”

He says it almost so matter-of-factly that it makes total sense. But if it was so easy, other companies in the surf industry would be doing it as well. Yet it’s for these reasons that O’Neill is dominating the wetsuit industry and will continue to for years to come.