Quiksilver Wipeout? 3 Strategies to Catch the Next Wave Quiksilver is one of the most distinguished, celebrated and iconic brands in the surf industry. The company generated over $1.5 billion 2014, however the sales are on the decline and the company has only grown $300 million from 2004 through 2014. The CEO and CFO recently departed, the only female member of the board of directors quit in protest, the company is still straddled with debt, the company’s credit rating was recently downgraded and the stock price is near a 2-­‐year low. At PHRP, we believe there is opportunity to stabilize and turn the company around. Here are 3 strategic recommendations for success. 1. Roxy’s “Run”way to Success a. Embrace the Fitness Market – At $480 million in 2014 sales1, Roxy is one of the largest women’s sports and sports-­‐style brands in the world. The challenge is that the surf market is small and the Roxy sales declined 6% vs. 2013. In contrast, the women’s fitness and “athleisure” market continues to grow at a double digit pace each year, and the wholesale and retail sales potential is significantly larger than the women’s surf and swim market. As an example, the top three action sports retailers generate a little over $2 billion in sales in 20142. In comparison, Lululemon’s 2014 revenue was approximately $1.8 billion; they also have the highest sales per square foot ($1,678) of any apparel retailer in the industry.3 Roxy should make a greater investment in the fitness category. Currently, Roxy Swim and Surf has over 500 items and the snow category carries 151 items. In fact, Roxy offers a limited fitness category with 134 items 1 Based on Quiksilver 2014 annual report 2 Based on 10K filings by PacSun, Zumiez and Tilly’s. 3 Based on 10K filing by Lululemon Athletica Pacific Hills Retail Partners: Quiksilver Review – June 2015 www.pacifichillsretailpartners.com covering yoga, running and SUP products. However, it is not currently a key theme or category for the brand. b. Catch the “Athleisure” Wave: The halo effect of the rapidly growing fitness market is a relatively new category called “athleisure”. The athletically inspired clothing has become so important that the Gap, with over $16 billion in 2014 sales bought the retail brand Athleta that sells both fitness and “athleisure” product. The company is now aggressively expanding the Athleta; adding over 35 stores in 2014 to a total count of 101 locations as of Jan 2015.4 We believe Athleta will have estimated sales of $200 mil to $250 mil in 2015. Roxy should also make “athleisure” a key strategic category capitalize on the trend and compliment its fitness category. 4 Based on 10K filing by The Gap Pacific Hills Retail Partners: Quiksilver Review – June 2015 www.pacifichillsretailpartners.com c. Focus on Consumer Experience – Consumers don’t just want product, they want a great experience and relationship with the brands they buy. Brands are an intimate part of a person’s lifestyle. Brands such as NIKE, The Gap (Athleta), Columbia (pRana) and Lululemon have made it a major point to drive unique and holistic brand experiences that speak to women who view their lifestyles on much broader terms. As an example, Athleta’s “Chi Blog” covers fitness, style and wellness (i.e. nutrition, travel and meditation). Blogs, grass roots events and retail stores are all assets and tactics that Roxy is already using, but the brand still mostly focuses these activities around the surf and snow categories. Roxy should create an experience that leverages fitness as a core theme yet still includes its surf and outdoor roots. Also, Southern California is a mecca of yoga, health and wellness gurus who would be perfect brand ambassadors to help deliver a new consumer to Roxy. 2. Quiksilver -­‐-­‐ Surf AND the City a. Own the Beach – Although Quiksilver sales declined 13% in 2014, at $628 million, it is still arguably the leading surf brand in the world. Quiksilver should continue to innovate like it is currently doing with its stretch and bonded AG47 boardshorts to protect and gain share in the surf market. b. Take the Streets – As one of the top two or three brands in the surf industry, the market is still relatively small. Again, the combined 2014 revenue of the top 3 action sports retailers (Pac Sun, Zumiez and Tilly’s) was $2.14 billion. In comparison, there was over $8 billion in sales between lifestyle retailers Urban Outfitters, Abercrombie (the parent company of Hollister) and The Buckle. Hollister alone had sales of approximately $2 billion in 2014. Vans achieved $2 billion in 2014 sales and repositioned the brand from skate to more of a youth, skate and street culture brand. Quiksilver already offers a wide range of lifestyle product, but it has almost exclusively Pacific Hills Retail Partners: Quiksilver Review – June 2015 www.pacifichillsretailpartners.com marketed to the surf consumer. Transform Quiksilver marketing and product from surf stories to include the broader youth and street culture messages that have broader appeal. As an example, Abercrombie & Fitch has four key summer stories (“By the Beach”, “In the City”, “Great Outdoors” and “Travel Abroad”). c. Leverage Quiksilver Athletes -­‐-­‐ Quiksilver has great athletes who are attractive, irreverent and well-­‐traveled. Consumers, in markets like Chicago, Atlanta, and Philadelphia, who don’t readily identify with surfing, are likely to identify with these brand ambassadors’ stories of adventure, freedom and friendship. Tell deeper stories that will connect with the broader youth liefestyle market and build brand credibility. 3. DC Shoes – No Big Air for Skate a. Game Over -­‐-­‐ It may sound harsh, but game over for DC Shoes. The 2014 sales sharply declined 21% to $427 million. Sell or license the brand. Use the proceeds to pay down the nearly $800 million in long-­‐term debt5 and invest into Quiksilver & Roxy. The M&A market still appears favorable for footwear brands. Recently, Berkshire Hathaway bought Rockport from Adidas for $280 million on approximately $400 in revenue. Assuming seventy percent revenue multiple, DC could deliver in the range of $300 million of cash to reduce debt, provide a significant reduction in SG&A savings and additional resources for Quiksilver and Roxy. b. One David, 2 Goliaths – NIKE and VF (via Vans) now dominate the athletic and sports-­‐
style footwear space. As an example, Footlocker, the $7+ billion athletic specialty footwear retailer, has approximately 80% of its OTB committed to NIKE. In 2014, Vans 5 Quiksilver, Inc 2014 10K Pacific Hills Retail Partners: Quiksilver Review – June 2015 www.pacifichillsretailpartners.com achieved $2 billion and maintains aggressive growth plans as a fun, design driven lifestyle brand. Unless skate boarding participation rapidly grows, then skate shoes will remain a niche specialty segment of the athletic and sports-­‐style footwear category. DC Shoes does not have the resources, time or market position to effectively gain share. If Adidas, Under Armour or other large companies decide to enter the market, they will make DC Shoes share gain and protection even more difficult. Despite challenges over the past 10 years, Quiksilver remains one of the premium surf brands of the world. We believe there are strategies that will transform the brand and deliver sustainable growth. Let us talk to you about your business. About Pacific Hills Retail Partners At Pacific Hills Retail Partners, we believe there are endless possibilities when people work together. While great product and marketing are obvious key success factors, there are many additional disciplines that allow a company to thrive. Efficiently executing key functions such as sales, merchandising and production is more challenging than ever. The go-­‐to-­‐market process requires clearly defined and fully integrated strategies with close alignment of functional teams across the organization. We are a boutique firm of industry executives dedicated to helping our clients develop and implement commercial and supply chain solutions that drive efficiencies, reduce complexity, decrease costs and improve execution. Pacific Hills Retail Partners: Quiksilver Review – June 2015 www.pacifichillsretailpartners.com Our Mission We are committed to leveraging industry best practices, providing independent perspective, adding focus and clarity while avoiding competing priorities and internal biases. Our goal is to help each client unlock the full potential of its business. Contact Us To further discuss the state of the industry and how Pacific Hills Retail Partners can help you, please contact one of our following partners: Greg Harvey Tracy Hoelzel (630) 880-­‐9638 (562) 533-­‐6522 [email protected] [email protected] Pacific Hills Retail Partners: Quiksilver Review – June 2015 www.pacifichillsretailpartners.com