Realm/Op Partnership Sinks

More than four months after it was announced that Op was buying TheRealm, it’s now official that the deal is dead on arrival. “We signed aletter of intent in July and in good faith started to develop productand get the deal closed,” says Op President Dick Baker. “But after aprolonged negotiations to get the deal done, we came to a point where wecouldn’t go any further.”

According to Mike “Snips” Parsons, vice president of global marketingfor The Realm and one of the brand’s founders, “There were four or fiveissues that we had to solve for the deal with Op to go through. Wenarrowed it down to one remaining issue — and everyone thought it wasgoing to happen — but in the end, the previous investors and Opcouldn’t come to terms.”

It’s obvious Baker is disappointed with the outcome. “I’m very upsetabout it,” he says. “We put a lot of time, effort, and money into makingit happen. There’s also a lot of good people involved — not only herein the U.S., but also in Japan, Australia, and Brazil. It’s a killerbrand with a great vibe and to see it cease to exist would be a crime,but I couldn’t in good faith continue with the negotiation process anyfurther. We went through a period of almost 90 days of reallyunnecessary delays and negotiations over the trademarks and financialarrangements.”

Neither Parsons nor Baker would go into further specifics about whatkilled the deal, but it’s clear that there’s no hard feelings between theprimary players. “Op was really cool in the sense that they really heldThe Realm together for about three months,” says Parsons. “We werepretty far down the track. In the end I think both sides couldn’t seeeye to eye.”

So does Parsons view the last few months as a tremendous waste of timeor a mistake? “No, in retrospect I don’t think it was a bad move atall,” he says. “Something had to happen. We needed some financial help.There was no question about that. The image of the company worldwide wasstronger than ever, but we needed help with production and financing.”

**** The New Investors Save The Day ****

As the Op deal began to unravel, a new set of investors began to showinterest in giving The Realm just the sort of help Parsons describes.The three-person investment group, lead by Op’s own Vice President OfSales and Marketing John Vance, inked a deal late last week that finallygives The Realm new owners. While terms of the deal were not disclosed,”This is not an asset deal,” says Vance, “We’re buying the worldwiderights to the trademark.”

So, who are the Realm’s new owners? While there have been all sorts ofrumors flying around the industry, the investment team includes Vance –who was national sales manager of Quiksilver’s wintersports division before joining Op– and two unnamed private investors. “The investment team is me and twoother guys who specialize in buying small companies and helping themgrow,” says Vance. “They’re private investors who want to stay private,but I can tell you that one is an attorney and a retired judge whospecializes in licensing agreements. The other guy started out as astockbroker and now is a financial advisor. He sits on the board ofdirectors for Sun West Bank, who just happens to be the people we gotthe credit line through. Sun West is one of the better business banks inOrange County.”

Vance had known these investors for years. In fact, the financialadvisor handles all of Vance’s personal investments.

“They’re true financial guys,” he says. “They’re not going to let us goastray. My role in the company is to be behind the scenes and just makesure our spending, sales, and deliveries are where they’re supposed tobe.” Vance tendered his resignation at Op last week and will become TheRealm’s CEO.

“We’re stoked on the outcome,” says Parsons. “Now we have peopleinvolved who are ready to fund the growth of the company. The previousRealm was never in that position. We had some great investors, but if wegot two-million dollars worth of orders back then, we had to scramble tocome up with the money to produce that.”

“Although the Op deal would have given us a nice marketing push, thisscenario ultimately allows us to control our own destiny,” continuesParsons. “We’ll be able to maintain our team. We’re in the process ofsigning Tom Curren, Pat O’Connell, Bron Heussenstam, and JesseMerle-Jones. All of our reps and liscenees are intact. From amarketing standpoint, it will still be the same. We’ll do smaller,grassroots events, and we’ll do about the same number of advertisingpages we did last year — maybe a little bit more. We’re going to buildit slowly.”

**** Couldn’t Let Go ****

Vance’s interest in The Realm began after his duties at Op werebroadened to include being brand manager for The Realm. “I had done alot of leg work for Dick Baker trying to close the Op deal,” saysVance. “We worked like dogs trying to get it closed. However, once itwas clear that the deal was starting to unravel, Mike Parsons and Iasked Dick Baker whether Mike should go out and find some newinvestors and Dick’s comment was ‘Yeah, you probably should.’ So Mikeand I went to lunch that day, and that’s when I told him that we hadthese guys in the wings.”

Like most deals, a handshake agreement was quickly reached, but gettingthe final contract signed took three weeks. “It was like counting chadsin Florida,” laughs Vance. “It took a day and a half to do the deal andthree weeks to get the language right for both sides.”

Vance says any hassle was clearly outweighed by opportunity. “There arevery few companies that have been able to create the image and the vibethat Mike and his crew have created in the last three years,” saysVance. “There are a lot of guys who have come up with a brand and throwna bunch of money at it — but nothing really gets going. This is adifferent deal. The Realm has momentum — any retailer who’s beeninvolved with the brand will sense that. Unfortunately, with the firstgo through, the backside of the business probably wasn’t addressed aswell as it should have been.

“If you look at the elements we have at The Realm today,” continuesVance, “there are a lot of parallels to some of the most successful surfcompanies in the business. Our vice president of global marketingParsons is an ex-U.S. champion and still one of the top big-waveriders in the world. Every single person in the company is just likethat. They get in the water at least a couple of times a week — we’reliving and breathing this thing.

“We’re not an apparel company, and we’re not a fashion company — we’rea surf company that makes clothing,” says Vance. “That’s a distinctionthat’s made the great brands great. And over the course of the three orfour months I spent trying to get the Op deal to close, I gained atremendous amount of respect for the crew at The Realm and what they’vebeen able to do. For me, it was a huge disappointment — as it was foreverybody — that the deal with Op didn’t happen. But when it started tounravel, I couldn’t let go. There was too much potential there. Soreally it didn’t take too much convincing for me to invest my own moneysupporting The Realm.”

Another factor that Vance says helped him decide is The Realm’sinternational team — which includes licensees in Brazil, Australia,South Africa, and Europe, and a distributor in Japan. “This is anothercritical element,” says Vance. “When I started looking at this thingwhen I was at Op, one of the things that made it attractive was it hadglobal reach. It wasn’t just the local brand that was hot in SouthernCalifornia. This thing is already rocking on a worldwide scale.”

*** Is He, Or Isn’t He? ****

The last remaining piece of the puzzle not in place is Greg “G.T.”Tomlinson. In addition to being sales manager for the brand, G.T. wasalso one of the brand’s founders and remains its most effective andvocal supporter. G.T. turned down other positions in the industry tostay on with The Realm during this transition time, but as of thismorning hadn’t agreed to remain with the brand — despite being offereda deal that gives him equity in the company. P
arsons and Pat O’Connellwill also be shareholders in the new Realm order.

“We think G.T. is very important,” says Vance. “It’s critical that wekeep the key components intact — and we’ve done that. G.T. is literallythe last link in the chain. Everybody else is already signed on.”

**** Moving Forward ****

It seems the last twelve months have left Parsons quite a bit wiser aboutthe surf industry, and it seems he’s eager to put this newfoundknowledge to work. “We’ve learned that it doesn’t matter if you have abrand with a ton of hype that everyone is begging for if the retailerscan’t rely on you,” he says. “We’ve definitely learned that lesson andthat’s going to be our biggest challenge moving forward. We’re going tohave to regain the retailers’ confidence, because we didn’t ship ourlast Fall/Holiday line — but that wasn’t Op’s fault. We’re looking atit as a fresh start. We can go to these retailers as say, ‘Here’s ourstory. This is where we’re at now, and this is what we think we cando.'”

In fact, Vance says that once the dust settles next week, he’ll phoneall of The Realm’s approximately 450 accounts. “I’ll personally callevery single account, introduce myself, explain what happened, wherewe’re headed, and just be up front with them,” says Vance. “We’ll tellthem our spring collection is going to be a little late. The Summer lineis going to be on time, and by winter we’re going to be dead one withour calendar. I’m going to ask those dealers with spring orders forshipment in February if they can stretch that to March or April.”

Vance says what typically happens in the surf industry is that theretailers would be left hanging with no explanation regarding why theirorder was late. “I don’t want to do that. I want to tell them up front,’Look, I can’t make your February date, but I can make this date –whatever that date is — and it will be there then. Will you still takethe goods?’ If they say ‘Yeah, we’ll roll with you,’ then great. If theysay, ‘You know what, we can’t use it, but we’ll come back and visit youlater,’ we’re okay with that too.”

“We’re setting realistic goals for where we’re at and where we’re goingto be in a year,” says Snips. “It’s a no bullshit program. We’ll tellthem, ‘This is where we’re at, and this is what we can do and here’swhere we’re going,’ and then live up to it. If we make good stuff, and ifit shows up on time, it’s going to sell through. We’re going tocontinue to do killer marketing and keep the hype alive and besuccessful.”

For the spring line, The Realm may end up using Op’s apparelmanufacturer Rays Apparel. “However that’s just a short-term fix,” saysParsons . “We’re going to go back to vertical and do it ourselves. We’vehired a designer, and we’ve hired a production guy, so it will be backto the way it was before the Op deal.”

“Right now we’re purchasing at-once goods,” says Vance. “It’s stuff thatwas built by the old Realm, never paid for, and is sitting in variouswarehouses. We’re buying it so we have at-once stuff to ship. Plus, wedon’t want to burn any bridges where we don’t have to. The winter linewill really be our first collection that will be built offshore. We havenegotiated a deal with a major factory in China who I’ve dealt with inone of my past lifetimes.”

The brand’s office will most likely remain in San Clemente. “We have astrong following at Salt Creek and at T-Street and San Clemente HighSchool,” says Parsons. “Volcom kind of owns Newport. Each brand hasthese niches, and San Clemente is a killer niche for us to be in.”

**** Marty Gilchrist Launches Realm Rubber ****

One of the most exciting developments is the announcement that wetsuitswill soon be offered under The Realm label. Long-time wetsuit guru MartyGilchrist will, in effect, become a licensee of The Realm and will debuta full range of wetsuits at the January Surf Expo show. “Samples will bedone by the first of the year, and we’ll debut the entire line inOrlando,” he says. “We’ll have at-once product starting at the end ofFebruary. The line that’s finished right now is complete all the wayfrom Lycra to hooded steamers, and the international line includes about80 styles.”

Parsons is particularly excited about The Realm Rubber program. “We’vebeen a surf company from the start,” he says. “We make killer stuff tosurf in, so offering wetsuits makes complete sense. The visibility andexposure that we’ll get out of the logos on the wetsuits will reallyhelp us, and with Marty’s expertise and experience we think we’ll beable to launch with the best wetsuits in the industry right off the bat.If we tried to go out and make wetsuits ourselves, there would be no waywe’d be able to do that.”

About a year ago, Gilchrist was involved with the aborted Freedomwetsuit brand, so will the Realm’s wetsuit program include any “Freedom”technology? “Absolutely none,” says Gilchrist emphatically. “I leftFreedom more than a year ago, and the features on the Realm suit will beall the technology I’ve been working on with another group for the lastyear.”

According to Gilchrist, while The Realm’s apparel and wetsuit programswill be run as two separate companies with separate profit and lossstatements, he expects a cohesive marketing program behind the brand.”It’s our goal to get out there and work real hard so The Realm is knownfor wetsuits and not just apparel,” he says.

**** Credit Where Credit’s Due ****

“If there’s a person who deserves to be singled out, it’s Dick Baker,”says Vance. “When the old Realm ceased to exist, Dick kept it alive. Hekept the phones going. He brought a spring line to the shows. Hedeserves a ton of credit for that.”

“When I talked to him and explained that I was going to leaving, he wassuper supportive,” continues Vance. “Dick’s a total believer in thebrand. The Realm and Op would have been a really good fit for Op, butI’m sure there’s some other really good brands out there that Op willlink up with in the coming months or years.”

But for now it seems Vance, Parsons, and the entire Realm team is readyand eager to leave the arcane world of deal making, indemnification, andlegalese behind and concentrate once again on building a brand andmaking great apparel.