In the wake of SurfStitch, in the shadow of Amazon
The writing seems to be well and truly splattered on the wall for beleaguered online retailer SurfStitch after recent news that a $100 million class action lawsuit has been given the green light.
The shareholder-driven class action, which among other things implies the alleged covering up of losses incurred through a botched copyright licensing deal with surf technology group Coastalwatch and Three Crown Investments, is the latest in a string of issues the retailer has had to face over the past few months, including consecutive profit downgrades and share price plummets.
And while all this plays out in the background - or on the front pages of the tabloids, as is the case for publicly listed companies like SurfStitch – online retail behemoth Amazon is looming in the wings, preparing to land on Aussie shores.
While many traditional surf retailers see online (and/or brands that have an over-active presence online), as the enemy, the common response from the defenders, is that they didn’t in fact invent the Internet and the platform is here to stay. The question is more so around how the industry manages it responsibly. The general consensus is that brands can and should have online stores, showcasing the full range of product and telling complete brand stories, while maintaining a premium and non-promotional feel.
Many bricks and mortar retailers have understandably become gun shy (and very vocal) of online platforms that have driven their top line sales and marketing communications with high levels of promotional activity, thus diluting the premium positioning that many brands (and retailers) work so hard at building. SurfStitch was...sorry, they’re not dead yet, is a prime example of this, whether by straight promotion or cleverly crafted hooks such as sign up offers, value adds and so forth.
“Existing e-com platforms are yet to be profitable in Australia”, says Glenn Calligari, owner of the Hillzeez chain of surf stores in WA. “The strategic shift to content and engagement has not delivered conversion rates needed for profitability. Supply remains ahead of demand and the fallout continues to be a promotional calendar that uses price to move volume. This hurts the industry.”
Following this is the impact on margins for those who feel compelled to follow suite, as well as perceived training of the consumer to only buy ‘off-price’ product – naturally affecting the long term viability of bricks and mortar retailers, especially those who have the added pressure of crippling rents within national mall environments
So with the impending doom of SurfStich, are there any lessons to be learnt by brands that have gone all in with SurfStitch in pursuit of the much-needed turnover? It’s my view that with the added pressure of Amazon coming to town, at the very least brands will be revisiting their policies for online trading. In other words, where and how their brand can be traded online.
Amazon is a beast, and has already made a play for some Australian based surf brands to join their party, sparking widespread debate across the industry. (Read ‘What should the industry do when Amazon comes to town?’ on The Business of Surf).
To further complicate the issues, Amazon is not just a one trick pony. With its ‘Marketplace’ and third-party seller options, there are a few ways to get into bed with the enemy - so to speak. Brands will be deliberating whether they will open their own branded stores on Amazon, while retailers will weigh up the options of opening their own shop fronts on the platform – though the trading policies of many brands will restrict the sale of their products via a third party platform, it may still be a temptation far too big to pass up.
Bob Hurley, the founder of Hurley International says: “Not one brand or industry will stop Amazon. To try and do so is like when many were trying to stop the Internet. The key is to acknowledge/accept it, don’t focus on what Amazon is doing, but how can we collectively do what Amazon can’t. Create value in community. Encourage human connectivity. Help surfers get better and to have more fun.”
Much of the response from the industry has been around staying relevant and improving customer service and experience – a theme at least agreed upon from both sides of the fence.
Perhaps one thing we need to get our collective heads around is what the arrival of Amazon means for the broader Australian market. Alan Kohler, a respected Australian business journalist put it this way: “Actually it is all businesses, not just retailers, that need to understand the true nature of what Amazon represents — that is, business people to get their minds around what the fourth industrial revolution really means. It is the total capitulation of businesses to their customers or, to put it another way, the final transfer of power from producers to consumers.”
As one Bondi based retailer said: “People sell to people.” The answer is probably not too much further from that. It’s just how it’s done that’s the tricky bit, but there will always be a place for bricks and mortar retail. After all, people like people.
To broad brush it, retailers have generally done it tough in recent times, but there are pockets of good operators who have evolved their stores, their product assortments, and they’ve paid attention to improving the customer experience. Others have had to ride out the storms of high rents, decreased foot traffic, and broader economic factors, but as it is in times like these, the cream always rises to the top. The number of independent bricks and mortar stores has shrunk remarkably over the past eight years. It’s been a case of survival of the fittest, or in many cases, the smartest and most proactive. Some might even say the industry has finally ‘right-sized’ after the dizzying heights it reached in the early 2000’s.
The industry, as it stands today, has some decisions to make. Success doesn’t look like it did ten years ago – it’s certainly not top line sales growth at high double-digit rates. Those who focus on sustainable profits, responsible trading, managed distribution, and customer experience will emerge as the new leaders of the game.
As Callegari states: “Every participant in this industry, at a brand or retail level, must know what they stand for. If you don’t stand for something you stand for nothing!”
The old adage of ‘adapt or die’ has reverberated loudly down the corridors of the industry for some time – both for wholesalers (brands) and retailers. The good news is that participation is at an all time high. Surf schools are still growing, boardriders clubs are bursting with more grommets than they can handle and the increase in female participants is a trend that continues in the right direction.
Surfing ain’t going anywhere, and neither is the industry – it might just be changing form, and quickly, but here’s hoping that everyone involved has learnt a few lessons along the way. Time will tell. //BRAD BRICKNELL
Brad Bricknell is the founder and editor of The Business Of Surf, an online media platform providing business insights for the action sports industry. The Business Of Surf launches today.
Comments
Alan Kohler, a respected Australian business journalist put it this way: “Actually it is all businesses, not just retailers, that need to understand the true nature of what Amazon represents — that is, business people to get their minds around what the fourth industrial revolution really means. It is the total capitulation of businesses to their customers or, to put it another way, the final transfer of power from producers to consumers.”
Fucking complete bullshit. In fact, consumers have less power than ever before, we are more and more at the mercy of tech-giants, paying rents to them for goods and services we used to own outright.
I disagree FR, yes technology is moving us to a service vs ownership model, but the ability to switch from service provider to service provider at convenience has never been simpler
We have the illusion of consumer power, when in reality, the concentration of power in the hands of tech-titans has never been greater.
Switching service providers is easy......in theory.....try changing electricity providers, or telcos, or banks .....get back to me and tell me that is easy. It's a fucking nightmare.
We completely accept the use and sale of our data to Facebook, Google etc etc, that controls our flow of information, what is marketed to us etc etc
Mostly we get put on the drip of small payments for rents of good and services and stick and set.
I have to disagree again, from my experience working in a tech firm, the power that say Telstra once had over its customers is declining so fast that they are undergoing 10 years of massive layoffs all the while new entrants into the market with new methods of service delivery are butchering the profit & market share the telco sector once had. Look at whatsapp for example, over the top of the traditional voice call model and taking the profits, but i can choose to whatsapp/line/telegram at any given moment. I don't even need to use my phone service provider's credit if im on wifi.
Deregulation of the energy sector is another good example. Not only are we being swamped by supply of energy providers, but we are also being encouraged to generate and sell our own power back to them!
Big Banks / Big Airlines being forced into low cost alternative offerings to fend-off consumer price -driven competition.
Even facebook and Google are able to be downloaded one day, switched off the next all for $0 cost. It is our choice as consumers whether we want to subscriber and share our private info. We have control of the flow, many of us feel like we don't have a choice, but i am still living a full life post instagram & facebook. I feel better for it.
In summary I think the subscription service model that has taken consumerism to the next level is here today because it is indefinitely cheaper than purchasing license. The real trap I see, which I think you are alluding to also, is that these service providers are increasingly finding that the more that they make available for cheap, the more our society chooses to consume.
Again, I appreciate your experience, but mine and many others is that all this so-called competition is mostly illusory and hard to access.
Changing telcos/ISP providers is a 3day to 2 week nightmare for most people.
Trying to make sense of the ultra confusing energy plans being offered takes more research and effort and reading of fine print, not to mention hidden costs and delays and paper work than most people can muster.
I used to be able to buy software and be happy with it. Now I have to rent it and as soon as OS systems are upgraded I HAVE to spend to dough to upgrade or the software simply doesn't work anymore.......even if I was perfectly happy with the way the system was working.
Tech companies know that by using a rental model they have locked you in to a continuing spend, running on the treadmill of planned obsolescence and continual upgrades.....otherwise, you wake up one day and nothing works.
Is that freedom? Is that choice?
I agree that the physical handover and exit fee saga is difficult to say the least, but to me that aspect is something that has always been the case and is a necessarily evil revenue to cover the administration costs for an energy company replacement given the vast array of competitors and thus consumer turnover out there. Even the penalties for termination are now closely monitored by the consumer watch-dogs for anti-competitive behaviour. Still doesn't make the actual process of researching the plan easier!
You might be surprised to find that overall, most software companies are moving away from the licensing model, and the $ per upgrade methodology, and providing software as a service, to avoid the bill shock and harness economies of scale for platform improvement (development). Once all the software you use goes across to that model, yes you will be paying rental fees, but the flat rental fees are much less than the licensing models of the past. The software market is effectively being pushed toward a consumer driven cost-reduction model. As soon as the first software company offers a solution as a service instead of a license, its hard to compete on price with the old license + upgrade model. The freedom software as a service (SaaS) gives you is that you can cancel your subscription any time and go with a competitor. you might lose some coin in termination fees, but in the long run you can switch much more easily to ensure you are getting the best bang for your buck. rather than spending it all for a license and constant upgrades and finding out down the track that there are better solutions out there you could be using.
The result is that companies providing the services are driven to provide a better service experience (or better price) to keep you on their platform instead of going to a competitor.
with respect Yocal, you've completely lost me there.
You're describing a world, but it ain't the one I live in.
No disrespect taken,
What I experience is different to what you have experienced.
Agree Yocal and I'd add that it's just the method of delivery that has changed which has in turn lead to increased options.
From a surf/snowboard perspective (with the exception of boards) I buy everything online. Mostly from online shopfronts from Rakuten or Amazon. And, I'm not ashamed to say, mostly on price. The people that sell online here in Japan still have their bricks and mortar shops but their online presence is just another aspect of their business.
I think any smart surf shop in Australia will embrace Amazon, it's just another way to get product to a wider market.
Plus Amazon Prime is cheap and a great way to get books and movies.
"The general consensus is that brands can and should have online stores, showcasing the full range of product and telling complete brand stories, while maintaining a premium and non-promotional feel.
Many bricks and mortar retailers have understandably become gun shy (and very vocal) of online platforms that have driven their top line sales and marketing communications with high levels of promotional activity, thus diluting the premium positioning that many brands (and retailers) work so hard at building".
Can anyone translate this from marketing speak into plain english?
The first para is brand narrative blah blah.
Second para; 'top line sales' would probably be revenue before COGS and other expenses. I think its saying that online retailers take haircuts on pure sales revenue by discounting prices, beyond what premium brands would've envisaged thus undermining the combined effect of a person in the store explaining in person what the benefits of the premium brands are. So it ultimately hurts both the bricks'n'mortar model and the underlying suppliers such as the Rip Curls of the world.
Dunno... My best guess :-)
Fact is, the surf brands "premium" was always an illusion and once real competition entered the market the facts of products manufactured cheaply in Asia started to reveal their true value: which was vastly under what the surf industry had valued them at.
“Existing e-com platforms are yet to be profitable in Australia”, says Glenn Calligari, owner of the Hillzeez chain of surf stores in WA. -
Maybe he's not done enough research, my online retail westuit brand is doing just fine thanks.
Being profitable isn't that hard, have a good product, do some marketing (in the right places) and follow up with impeccable customer service both pre and post sale. Of course, I have the advantage of not having to pay the high costs of rent, staff (and all their associated costs).
When I started selling wetsuits in Australia, I went for the traditional bricks and mortar approach, however it didn't take long to realise I was throwing money away on useless magazine ads and not being paid by struggling retail outlets.
Online retail has been great for me. I intend to make use of Amazon as soon as it becomes available.
Just like zenagain, I pretty much buy all products online with the exception of the actual board itself, which I will get from the local shaper.
Out of interest, is your online shop your sole source of income? Do you have any employees?
Not having a go at all - and good on ya for making it work! - but just trying to understand what playing field you're on. "Doing just fine" can mean a number of things depending on the particular business environment.
at the moment its extra income only, it is approaching a level that someone could live off. I've gone in with a long term plan and kept the whole thing funded by myself (at start up), then any expansion or costs have come from within profits and debt free ie I have never borrowed money to try and expand.
I'm looking at is as an early retirement plan.
At this stage its easy enough to run between myself and my wife. I did have some sales rep's early on, but when I pulled out of the bricks and mortar stores, there was no need for them anymore.
I know for that continue I will need to adapt to the changing retail environment.
Mate, Im looking for a new suit, 4X3 for vicco winters, whats your website? (nothing guaranteed)
search Derevko wetsuits. We sell quite a few around the Torquay area and haven't had any complaints, so ask a local if you see someone wearing one.
that yours? heard nothing but good things about them.
As a buyer of products for a living the company I work for mandates 3 quotes for every purchase. As a general consumer I have adopted the same concept for most of what I spend my hard earned money on. Obviously not every individual works this way, I prefer complex buys to come from bricks and mortar for warranty reasons, but in a competitive world apples must be judged against apples. When you approach the market its glaringly obvious that certain vendors have mark ups that price themselves out of contention, these vendors do nobody any favors including their own staff as a rule. The unfortunate side to the coin is the retail sales staff who suffer because the bottom line of their bosses balance sheet is looking sick.
Its a catch 22.
I am continually amazed that the surf retail industry survives at all. I mean who's got money for all this.....stuff?
What I love about surfing is that you can strip it back to basically the most primitive gigbag of equipment, a board, a pair of shorts, a wetsuit, a leggie, some wax. I've had the same pair of boardies and wetsuit for the last two and a half years and I surf fairly regularly, at least once per fortnight. What is there left to buy?
Granted, I make my own boards and I make them to last but even if I bought a new one every other year, we're still talking about a pastime with little in the way of related expenses. Why would anyone pay $100 for a pair of boardies at the surf shop, online or otherwise, when you can step round the corner into the Op-shop and there's whole racks of them going for couple of dollars?
The C, I bought my favorite pair of boardies from Walmart in Honolulu a couple of years ago. Went into a surf shop in Haliewa the next day and the exact article was $65 with a 1 inch logo stitched on the pocket.
Look at the snow gear that Aldi sells, a mate of mine bought a snow board from them afew years ago, his son laid out 3 times the amount for a Burton the same day. Side by side they are identical except for the logo.
Aaaah, consumerism.....
Go figure.
That's classic, snowboards from Aldi, who'dve thunk it? Come to think of it, I watched some bloke surfing Crescent the other day on one of them BIC plastic boards and it looked every bit as functional and fun as any other of the boards being ridden that day and I think you can get them from K-Mart!
exactly it was a ponzi scheme that lasted for 30 years and now it's collapsed and the inflated value is never coming back.
Last time I tried to buy a wetty in a surf shop I wasted 15 minutes arguing with some millenial who was trying to tell me I was a large when I'm a medium. Low paid retail workers who know shit about shit won't stop people buying online, in fact they are part of the reason why people are buying online.
Totally.
Pretty similar to my last surf shop experience back in Oz. Fucker looked my wife and I up and down as if we were tresspassing and proceeded to ignore us. We walked straigt out. Next day, back in Brissie went to (can I say this?) Primitive surf in some industrial estate on the northside, bloke was a champion. Bought 2 wetties and some clothes and dropped $700 cash. I would have spent the same in the previous shop if the pretentious little snot wasn't so rude to us.
Had a child in a skate shop on the Goldy try and convince me that my son wouldn't know the difference between an 8.5 and a 7.5 deck. These arrogant little imbeciles know nothing about customer service.
It is really unfortunate that these units are becoming the norm, Good, old school surf shops employing guys with real product knowledge that make economic and practical sense have become redundant as the industry implodes upon itself, probably driven by the catch 22 that is the online super store.
Don't know if you can say that Zen but it is apt that you mention that Brisbane shop in this context. They closed down for good on the weekend: http://primitivesurf.com/
Jeez, that's really sad. Met Craig up the coast a few months ago, lovely bloke.
Unfortunately lovely blokes don't pay bills. All the major brands stopped supplying him because he was not paying his bills.
Really Andrew? Thanks for saying. Such a shame as I'd only been there a couple of times on my trips back home but the service was really good. Don't know the bloke personally but he was great for a chat and I was happy to drop a bit of coin there.
Maybe it was the position? Bit of an out-of-the-way place to have a surf shop.
When you're riding a wave, the logo on your boardies or the logo on your t-shirt does'nt mean jack. The surf industry survives on all the wallys who buy into this meaningless surf-logo mythology. Once the wallys run out of credit (which won't be long) the whole industry will get swallowed up by a giant whale.
"The good news is that participation is at an all time high."
Good news? Perhaps for those making money from the industry. I'd be happy if the whole thing died. Less people in the lineup. Surfing's shit, you should all stop doing it.
Went for a run on Sunday. Got to Burleigh shops in time to see guys pulling apart the Mt Woodgee shop. End of an era.
If only surfstitch sold these, the business could be saved.
http://www.theinertia.com/business-media/heres-a-hanger-that-is-also-the...
Consumerism gone mad. Maybe they don't have hoses in USA
Gotta love Inertia
Just a little bit out with there litres of water tub /hose per wash ...he he
Marketing...??
Bill Hicks had it covered in detail years ago.
Great article Brad.
Have seen a few true craftsmen stop building as consumers became price sensitive when mass produced Asian boards hit the market, it's sad to watch but cannot be stopped. Also seen surf shops at the mercy of both unforgiving suppliers and rising interest rates stopping consumer discretionary spending, the last time a rising cycle was in play. I was very lucky my own obstinacy allowed me to hit a niche early on. Luckier still now. If I went back into it, the top of the pyramid is where to aim like Glen says, the premium experience.
And FR agree that owning software or any other useful tool trumps subscription - there's a world of Linux based open source OS and software that circumvents the subscription based BS
Interesting article and no doubt the Amazon juganaut is here to stay. Now if we think of the retail goods which do NOT go onto Amazon. This helps to break the juganaut. In the past branded surf was of quality, now not but reliant on the graphics. Yes that may work, as in Mambo but that was quite unique (great story BTW).
We all wish to be individuals, our boards for me, clothes to say who I am. Now something The juganaut does not provide is custom service. Does it fit, colour, size. Has the item got it. That's a hard one get from an image from a screen. The juganaut I should here to stay but so is face to face.
Wow isn't it funny how things work. We have been an online business for a few years now and went from being a side business to my main job this year! But our customers WANTED us to have a shop not just being online. So this year we built a shop on the Central Coast NSW, our main business is still online but we now do get guys in just to touch and feel our cloths and get to understand our resins. To make the shop viable though, we had to build Shaping sheds for hire out the back
Surf "cool" was once quite powerful to generate sales of clothing but that edge has faded a lot - perhaps forever. It was once a novelty to wear brands associated with our sport. Now it is ho hum and for kids and parents scarce dollars that once went into looking cool in high priced gear now have been chewed up on mobile phone costs and technology. Who cares if your T-shirt has a log no-one knows if you have the latest cool phone?
I think their self image is now much more wrapped up in their online social media habits and "likes" than in some little logo on their chest.
Also Kids have been trained to shop for bargains online and take pride in getting something cheap known logo or not. Paying full price to them is a waste of money and makes them seem like a fool. They order two sizes return one for free and get around the sizing issue.
Tough gig for the surf companies. Twenty years ago there could be a successful surf shop on one side of a Mall and another would open up across the other side and somehow both would make money. Supply almost drove demand. No longer. A small group did very well.
Not too many tears from the peanut gallery though as the industries success has been instrumental in crowding out the surf.
Bob Hurley summed it up perfectly for me (but Im old school) - Encourage human connectivity. Go bricks and mortar - talk to someone.
After exploiting surfing to the masses for years--we can only hope the 'surf industry' has a long and somewhat painful demise......
All you really need is a board and a bar of wax.....
.
The author of the article swaps his pen for a sword...
Amazon to block Aust buyers from its Global sites - ABC news
Why would they do that? Did I miss something? Amazon Global is a pretty good source for those bizarre technical books that Aus bookstores either don't keep in stock, or say they do then apologise 6-8 weeks later and say they don't. I guess Amazon Oz will be able to source those things.
GST.