Quiksand!
When Quiksilver, Inc co-founder Bob McKnight finally retires on Friday after 38 years in the top job, aggrieved shareholders would like to breathe a collective sigh of relief and wait for the new broom to sweep the once-great brand back to profit. But it ain’t gonna happen.
It’s not McKnight’s fault, of course – nothing ever was – but he leaves behind a legacy of directionless paper-shuffling and a management team in total disarray. The US financial year (which also ends Friday) has been an unmitigated disaster for Quik, with the ZQK stock price falling 80 percent, management morale at an all-time low after mass sackings across the board, one major and high profile shareholder very publicly calling bullshit on CEO Andy Mooney’s 11-point profit improvement plan (Profit? What profit? The company hasn’t made a buck since 2006!) and all three core brands suffering major losses in all markets.
On top of all this, earlier this month the Seeking Alpha investor website published a virtual obituary for Quiksilver in the form of a detailed (if perhaps a little hysterical) analysis of the company’s debt crisis by Hadrian Capital Management. Titled “Restructuring the Quiksand Capital Structure”, the 5000-word dissection of the company’s woes produced compelling reasons why Chapter 11 bankruptcy was not just an option for Quik, it was the only way forward.
This is not the forum to go into the detail, and I am not the writer credentialed to critique the analysis, but I will say that there were some flawed assumptions about the general state of the market. Since the rockabilly craze of 1990, analysts have loved to scream from the rafters that surf is dead, long live the next big thing. I think we all know that’s not going to happen either, but what we may well be seeing is a fundamental shift in consumer expectations of the surf industry.
After 30 years of watching a small group of people get very, very rich because of our need to wear a particular logo attached to a tee shirt the same as every other brand’s, surf consumers may well be looking for something more, and in this instance more may be less.
But getting back to Quik, the Hadrian scenario was quite shockingly bleak, but even bleaker was the additional information supplied on the chat thread that followed the original post on October 20. In response to a reader’s suggestion that former Disney honcho Mooney’s licensing strategy might save the company (if not the brand values), Hadrian responded: “We feel that could have been a potential business model alternative had such concept been devised and implemented a couple years ago. However, in face of Quiksilver's most recently reported cash and cash equivalents and available credit, antagonized by costs expected to be incurred by Management in trying to successfully execute the PIP measures, in addition to working capital needs arising from upcoming inventory builds for meeting January and February ship dates, we think a sudden change in operational direction or business model is neither operationally achievable nor economically viable… We strongly believe that Quiksilver's demise at this point is inevitable, it's likely only a matter of months now--not years--as wholesalers continue to reallocate buyers' purchasing power to higher turning merchandise and Quiksilver's base of specialty stores continue to shutter or, similarly, avoid stocking shelves with Quiksilver brand merchandise.”
Ouch! Meanwhile, in September Andy Mooney sacked the entire marketing department, including CMO Nick Drake, in a move that Shop Eat Surf (one of the few trade media outlets Mooney talks to) said “signals a re-emphasis on core marketing”. This wasn’t much in evidence this month as more team riders got the flick and Surfer and Surfing hit the streets with virtually no Quik advertising. All this in a year when someone pretty damn close to the top couldn’t see the value in keeping a team rider who was over 40 and clearly past his prime. One Kelly Slater. Hello!
While Andy Mooney tries to dodge a bullet by putting the brand on hotel chains, Krispy Krèmes and whoever else might be cashed up and prepared to license, the keeper of the core flame is now one-time retail boss (and surfer) Pierre Agnes as global president. I’m sure Jeremy Flores is breathing a sigh of relief, but others might be remembering that the last time a Frenchman held that job he bought a failing ski company for half a billion bucks and started the rot.
Couldn’t happen again. Could it? Well, no, but don’t look for any game-changing vision in that direction either.
Disclosure: The writer was a Quiksilver executive from 1999 to 2007.
Comments
Looks like Bob is the last rat to jump the sinking ship, Kelly was six months smarter.
"Disclosure: The writer was a Quiksilver executive from 1999 to 2007."
If that is the case Phil then who is responsible for the rot setting in?
Mooney has obviously screwed a pooch that was already suffering terminal illness but his decision to focus on product , not athlete (I noticed for months that the massively paid Dane Reynolds had become the invisible man as far as global media advertising by Quik went) seems to have been a desperate move that failed dismally.
Surely Dane and Kelly were the last great strengths the company had.
My guess is Bernard Mariette, ex-Quik pres who approved the purchase of Rossignol in 2005.
Yes JDubbya picked a winner with Hurley particularly now he is struggling in the CT they would have chopped him quick smart. Dane has got to be the luckiest person on earth; does a few doodles, dicks around with the videos and surfs where and when he want for mountains on money. Charmed life no doubt about that I am extremely jealous. Phil love these commentaries I read the book from start to finish with only a couple of breaks heaps of fun. That French guy was really out there stacks more money (and drugs) than sense. How is it that most of Africa is a toilet bowl and a firm like QS just pissed money up against the wall with nary a care in the world?
The delusional hierarchy of QS are not Robinson Crusoe. I see it so often. I call it the field of dreams delusion. They think if they implement an idea people will just automatically follow it. I see it all the time. 99 times out of a 100 its just BAD BAD BAD and money wasted but in the interim the wackers making the poor decision still get paid the big $'s until they get turfed or walk and another wally with another bad idea takes his place. Meanwhile the company keeps tanking.
There is a shift in much of our thinking and the old models simply cant keep up. The proactive win and reactive die as the world spins too fast for the wally's to catch up. Sadly, many good honest people get caught up and suffer as well. BB, QS and RIPCURL where all just in the right place at he right time. They rode the wave and did well but now their effectively dead in the water. Companies always need to reinvent to keeop ahead but maintain their core values. When BB put Occy on that open ended contract pre retirement I just shook my head. It was a better gig than the Ex PMs get..and with the greatest of respect Occy aint know PM. Well he would have been better than a few recent ones!
been coming for a long time ...the writing has been on the wall for 20 years......a small group of people made enormous amounts of money and then.......got outa there before the fall......
one of the reasons for QS and BBG finding themselves with big bloated turnovers ,because they branded everything,so they could be the BIGGEST.....penis syndrome from the owners of both Co's.......who will be number1#???
they both got to about $1.8 Billion turnover...but they burnt the brans out to where no self respecting surfer would wear their product anymore as they have alienated surfers by selling and developing products that have nothing to do with the core surf market...
the saddest thing is there is NO career path at either of these Co's for our children,and even for the owners/founders kids...which must be considered as failure to build a Company like Patagonia with long term goals and moral integrity....
So the question is......can a surf Co be publically listed...and still be a surf Co......me thinks not!!
"they both got to about $1.8 Billion turnover...but they burnt the brans out to where no self respecting surfer would wear their product anymore as they have alienated surfers by selling and developing products that have nothing to do with the core surf market..."
I think that is close to the crux of it Maurice. I remember saying similar things to Nick Carroll and he kind of poo-pooed that argument and said the surf co's didn't give a fuck about what surfers thought and didn't need to.
seems like they did.
So what happens to Aus stores/staff/design if the parent goes Chapter 11? I'd say they'd be a fairly big employer around here.
Will it be like Holden's when GM went through bankruptcy? Ie, keep operating as per normal, restructure cuts more things where the public cannot immediately see?
Nick Carrol poo-poo's a lot. That is a man very set in his ways and I wonder if someone like him thought that was a good thing. Fuck the culture which gave it its existence seems to me like dropping a turd on your own doorstep.
No tears here.... Aint paying ridiculous prices for a pair of boardies made in a chinese sweat shop........
Phil, you all turned your backs on the diehard supporters, and went for the fairweather trendies..... Problem is, surfers and wall st don't mix.....
Anyway, the caviar was nice while it lasted...... Right?
Thank god for the hipsters with attitudes more true to the original surfer's ethos.
QS - sorry to see a lot of people lose jobs but there will be new brands and new work.
Adios!
"So the question is......can a surf Co be publically listed...and still be a surf Co......me thinks not!!"
Spot on Brutus, publicly listed companies are by nature purely profit driven at the expense of any true core values.
Without offering it as a defence the core value of those early surf companies was to stay in business. If anyone is under the illusion that all you had to do was start a surf clothing company in 1971 and come back later to count the cash, the reality was very different. It was an intense cut throat business, Phil I suspect would know a lot more about who did what to whom and why, my point is only that it created a fiercely competitive culture that in many ways mirrored what was happening in the water. Don't pull back, take the biggest heaviest wave, do the biggest sharpest deal! In the end it led to a fatal inability to recognise that the deal can be too big and too sharp.
In the beginning--(in the 70s)-it was surfers selling to surfers--it was cool to wear a surf tee then--most had some totally cool graphics--not just their stupid name in big letters on the front of the tee like now.. But it seems once they got a taste of the bucks--they didn't care who bought their tees--little grannies in the mid-west--they didn't care as long as they made a profit at the end of the day....looks like they may be taking their last ride ride on a twenty footer--over dry reef.....
I've got to be honest Tony, if I could think of a T Shirt print that everyone would buy I'd be flogging them anywhere also.
The point is--it was surfers selling to surfers--we liked the same prints--we were more or less riding the same wave as the company it seemed---Not anymore--we know these companies have lost their roots--a CEO from Disney--come on--they have lost their moral compass and everyone seems to know it....
I'm not too sure about that moral compass either mate. I don't know if you read the other threads but I've been playing devils advocate, or more correctly just plain being a wanker and baiting Blindboy on the climate thread ( Sorry BB ).
So I can't really blame the crew that made lots of dollars from surfing. As for the public Co's, well that particular arm of capitalism has many pros and cons, not just surf related.
I can't really get on board with the whole Surfers United under the one T Shirt graphic either. Past the age of 13 it's never really interested me.
When Quick did that "Quicksilver Crossing" BS---what 15 or so years ago--with Captain Daly--(turncoat)--the biggest "Surf Exploitation Scheme" ever--to log these breaks--(supposedly kept secret)--do photo opts with the boat--surfers etc. --all to exploit this for Quicksilvers pockets---I mean --what real hardcore surfer would want some filthy Surf Company with mega bucks (at the time)-- discovering new breaks?)-- We want that left to ourselves--the surfers--that was the last straw for me--I literally took all my surf tees--especially Quicksilver--poured some gas on them in my yard and burnt them--(true story)--and never looked back.).I still have a satisfied feeling from doing this)....Looks like Quick might be getting back what they deserve...after years of surf exploitation....
Maybe Volcom might be next--a company built on the "Youth against Establishment" creed--then sold to "The Establishment"-- (a French fashion company-Kering--pronounced Caring--to appeal to the feminine side)-- for 600 million by richard wolcott--Nice way for richard to say thanks and slap "The Youth' in the face...Caring (Volcom)-- recently had to drop the "Youth against Establishment" tag--because its too hypocrytical now.. Their new tag line "True to This"--is totally meaningless--true to what? True to dumping on the kids and thinking they won't notice..When Volcom first sold out to --"The Establishment"--there were reports of kids putting there Volcom tees in the fire pits at the beach and burning them--its pretty hard to fool "The Youth".. I guess we'll see-- Kering-- (Caring)-- has some pretty deep pockets to keep Volcom afloat for awhile if they want..And-- oh ya --Kering also owns Gucci--which makes high end purses for women and now they own Volcom---How core is that?
Tony you should read Chas - enfant terrible - Smith's book Welcome to Paradise Now Go to Hell and his take on Volcom. Enlightening to say the least.
Thanks for the tip--should be interesting--never much agreed with anything Chas had to say at Surfing Mag. --but will check it out.....
the whole youth market is a hoax.....the demographics that are buying surf goods are GenX and Baby boomers.......there was/is no real numbers in Gen Y 's consumer habits...
kering are pretty interesting as a co...I saw a article about the rating given to Co's on their products for environmental responsibilit and not slave/child labor.........score was given out of 5,5 being the worst...QS got a 4.....Patagonia and Kering a 2.......hmmmmmm
and Volcom are actually making profit......better management to survive the advent of online shopping and the rise of the vertical brands which deliver basically the same product for less than 1/2 the price...
so what is a surf co these days ??
Kering owns Outerknown too doesn't it?
Wonder how Kelly is feeling about all this?
Yes-- Kering now owns "Outerwhat"--be sure to look for their new Fall fashion reviews....
Fuck me. Now I guess I ought to burn my Gucci satchel ( It's NOT a purse!). I don't suppose it would hurt if I just held on to a little coin pocket would it? You'd like it , it's very nice.
You seem a little defensive---"It's NOT a purse"........
The Australian founders Allan Green and John Law sold out of Quiksilver when it went public circa 2005/6 towards the top of the boom. They pocketed over $150 million as was reported in the BRW rich list around the same time. Gordon Merchant didn't cash out and Rip Curl never went public. And the winner is........
I though Merchant did cash out in a way, took a back seat on the board of directors?
actually Gordon is the one who has fought hard to keep surfers involved and get rid of the corporate ..ah wankers.....I think last report is BBG womens grew 17% and BBG 12%.......they are back...
interesting to note gordons always been pretty tight with his $'s and Q/S very loose and spent enormous amounts on nepotism..
History is full of businesses who have failed because they thought they could sell sub standard quality products for inflated prices by using "marketing hype" to generate demand; 'surf industry' businesses are not unique.
What the surf brands need to realise is that they ARE just like any other business.
That's not to say the corporate wankers shouldn't be shown the door ...
I have never thought the big three's products were sub standard, always been good quality threads but inflated prices... don't get me started when a pair of boardies that aren't functional for surfing are going for $90.... same material as at target or k-mart
I wouldn't say the t'shirts you get today,( or over last 5 or so years) from any of the three big brands are the same quality as what they were say, 15 or 20 years ago ...Hell, I've still got tees today (worn, yes, but not ripping or frayed to nothing) I had from back then, but am lucky to get a year or two out of any new ones!
Sheesh, I even have a Billabong jacket I got in the 90's and it's still going strong, so too a few jumpers / sweaters ... but any of the new stuff, gone in a year or two.
Price today vs back then?
Wetsuits? Picking up say an E-bomb at a discount shop for say $200, makes it OK in my mind ... couple of years use, that's cool. But, same wetty for say double or more in price ... nope. Not me.
Boardies ... oh, dear me ... again, for me, if not for the discount type outlets, were you get deals like say 3 x Hurley Phantom's for $60, I'd be buying at Kmart ...
Products across the range ... over inflated today for the sub standard quality. The first surf company to go back to the roots of quality at reasonable prices will have found their sustainable model.
Oh, and the "youth" market ... ha, who has the $ to buy gear now? Same folks who want to revisit their youth! The millennials are too fickle ... gen x / y, next wave since they are the ones who get the inheritance from the boomers. Trends folks, look at the demographic trends!
It personally hurts to see Quiksilver in such a bad state. The Big three companies are the commercial identity of surfers worldwide and i will still wear the mountain and wave on my chest anywhere in the world.
Everyone has focused on the negatives with the fall of Billabong and Quik but look back and see what they have done for surfing in terms of creating history. The tour the champions, the classic video parts not to mention wetsuits and board shorts that helped us surf with more comfort year after year. All these things were created to help surfing move forward. If Quik and Billabong hadn't made it huge and chased the dragon till the bitter end some other company would've been there in the very same shoes.
Its easy to focus on what went wrong with these companies. Greed is a basic human instinct that lies within each and everyone of us! If you were sitting on the board of these companies with your pockets getting fat you would have acted in the exact same way.
I think the companies as a whole need to realise that the sales booms 90s and early 2000s will never repeat themselves. On a whole they will benefit from the current downsizing and hopefully pull through the tough times.
As a surfer and a consumer i would like to see smaller higher quality offerings in product and marketing output that reaches out to core surfers and helps to re create that tribal brand image that made surfing such a hit originally. It won't make them billionaires but as someone mentioned above it might help in creating a sustainable brand that will provide surfing industry jobs for future generations.
.........The personalities and voices of our surfing hero's has been lost. incorporate that into marketing and give the youth, young adults and mature age surfers a reason to buy the clothes their idols wear.
I question a few of your statements plops. The reason that the industry is in such bad shape is for a number of reasons
1. They have lost sight of who their customers are. It is not the hard core surfer any more. Just go into some of the surf shops and ask do they care if Slater etc win a world title. No they don't. The average customer is the weekend punter that surfs or even surfs a few times each season. Kids are not brand loyal and parents don't want to pay $70 plus for board shorts when you have shops like Factorie, Sideways, Cotton On etc that are selling board shorts for $30- $40
2. The GFC has changed the market place forever and the big companies still believe a high GP is achievable
3. The internet has hurt the bricks and mortar retailer. Why walk around all day comparing prices when you can go online and search at home and get it delivered express the next day.
4. The heads of Billabong and Quiksilver are essentially the same guys as 10 years ago. Some may have gone but most are still there. They are still believing that all people will only buy 1 brand but that is were they are wrong, people want choice of brands. All the company owned shops mostly just stock GSM brands or Quick brands. Go to Sideways on the Gold Coast and see how people can buy any brand for up to 70% off retail and it is only excess stock from factories.
5. The day the industry went down was the day each brand listed on the ASX or DOW JONES as that is when they are driven by the bottom dollar despite the consequence of the brand. Look at Quiksilver putting their name to resorts just to get a franchise fee. If that is not selling out I don't know what is.
6. Finally it just comes down to the dollar. China is so close that you can make a quality product at a fraction of the price of the majors. People don't believe the marketing hype any more.