Billabong Case Study Billabong International Ltd., is a leading surfwear and skatewear company, and one of Australia’s iconic brands. From humble beginnings on the Gold Coast in 1973, it has grown through international expansion, diversification and acquisitions to become a leading international surfwear grown its commitment to the global boardsports sector through athlete sponsorship, event hosting and management and support of industry bodies. But in 2013 the company was in serious trouble. After a couple of years of poor results Billabong International lost $859.5 million last financial year – more than three times its market value – after writing off the value of brands1 such as Billabong and Element by more than $600 million. It stock price had tumbled from a once high of about $18 to a mere 40 cents (see chart below). Billabong risked going bankrupt before a bail out by an American investment group Centrebridge and Oaktree offering a $386 million debt and equity rescue package last September. Under the leadership of new CEO Neil Fiske, the company is now engaging in a bold turnaround strategy. Is it too little, too late? BBG: Billabong Interna:onal Limited -‐ Stock Price History $14 Stock Price ($AUD) $12 $10 $8 $6 $4 $2 $0 1 A brand’s value is an intangible asset listed on the balance sheet of a company. Billabong International de-‐ valued their brands by $600m contributing to the large financial loss. Company-‐sponsored contests and special events would later follow. cutting them out on the kitchen table and then carting the finished product around to the local surf shop to sell. The next step for the fledgling brand was to introduce the better local surfers to Billabong and incorporate them in the marketing of the brand.com and the purchase of an interest in Australia's Surfstitch. This gave the company greater impetus and the financial capacity to grow the business. Japan and South Africa. and in the late 1980s a new beachhead was established in Europe. Through the 1990s the surf industry grew exponentially and professional surfing gained a newfound respectability. This was followed in July 2010 by the acquisition of the California-‐based RVCA brand. In April 2012 Billabong completed the transfer of its Nixon brand into a new joint venture company. The joint venture saw Nixon become an independent business owned by Billabong International and .Company History Billabong was founded on Australia's Gold Coast in 1973 by surfer and surfboard shaper Gordon Merchant and his then partner. snow and wake. In 2007 the Group continued to build its brand portfolio with the acquisitions of the specialist wetsuit brand Xcel and girls swimwear brand Tigerlily. with the pair designing boardshorts at home. Four months later. Sales began to grow in other offshore markets. The restructure set the foundation for an initial public offering on the Australian stock exchange in mid 2000. This was followed in 2008 with the acquisition of the Sector 9 skateboard brand and the DaKine premium boardsport accessories brand. By the close of the decade. the completion in September of the acquisition of the West 49 retail chain in Canada and the completion of the acquisitions of Australia's Jetty Surf. licenses were granted in a number of territories including New Zealand. Billabong had been restructured to capitalise on the growing global opportunities in the boardsports sector. In late 2009 the Company formally entered the online sales channel through the acquisition of US-‐ based boardsport retailer Swell. with surfers drawn to the superior functionality of the Billabong boardshorts. Rena. In March 2010 the Company enhanced its skate offer through the signing of an agreement to license the California-‐based Plan B skateboard brand. Those early days were rather inauspicious. The business found immediate traction. Surf Dive 'n' Ski (SDS) and Rush retail banners in November. The initial focus was on the large North American market and. again. Some seven months after the public float the company demonstrated its growth plans with the acquisitions of the Von Zipper sunglasses brand. The successful integration of those businesses saw the company add to its stable of brands in following years. including skate. where it replicated its proven business model.com. the company acquired the emerging Element Skateboards brand and went on the build the brand using the same business model as the original Billabong brand. a controlling interest in the beachculture airport-‐retail business in November 2005 (later converted to 100% ownership) and Nixon watches and accessories in January 2006. the brand enjoyed success. with Honolua Surf Company acquired in January 2004. including the Element footwear range and various branded retail stores around the world. Kustom footwear and Palmers Surf in September 2004. By the 1980s. The company also followed its core customers into other boardsports markets. Billabong International had firmly established its place in Australian surf culture and was ready for international expansion. Other businesses were also established. Billabong commenced 2010 with the signing of a ten-‐year licensing deal with popular skateboard company Plan B. Von Zipper. but not its surfboard operations). The Quiet Flight deal resulted in the addition of 14 Quiet Flight and Surf Warehouse retail stores. The following year in December. Finally in August. and Jodhi Meares's Tigerlily brand (young female surfwear) was acquired shortly thereafter in December of the same year. The acquisition of wetsuit and technical watersport accessories brand Xcel became effective on 1 September 2007. In May 2010. US. a watch and accessories brand in the board sports market. was acquired in early 2001 and the acquisition of skateboarding apparel and hard good brand Element was announced in July 2001. Billabong on a Trail of Growth by Acquisition The first decade of 2000 saw Billabong International acquire a portfolio of sports brands.5%) and Nixon management holding the balance of approximately 3%. Billabong's retail expansion continued into late 2008 with the November purchase of the United Kingdom (UK)-‐based 13-‐store retail chain Two Seasons for an undisclosed sum. an official press release was published to announce the acquisition of Nixon Inc. an eyewear brand. The Tigerlily decision represented the first time that Billabong had acquired a brand focused exclusively on the 'girls' market. and Plan B subsequently entered into a partnership arrangement with Element. and the intention of management was to position the new addition so that it complemented the company's own 'Billabongs Girls' line. a retail company on the east coast of the US that had already been operating licensed Billabong and Element retail outlets in Times Square. the company announced its acquisition of the retail operations of Quiet Flight. for an undisclosed sum. gloves and accessories. In July 2013 Billabong completed the sale of its DaKine brand to Altamont and West 49 brand in February 2014. which specialises in backpacks. followed by the purchase of prominent Canadian action sports retailer West . US. the founders of the Sector 9 skateboard company accepted an offer from Billabong that also included the purchase of the Gullwing skateboard truck brand. as part of Billabong's purchase of the Australian Gold Coast-‐based Palmers Surf company. New York. The acquisition of the Kustom surf shoe brand.Trilantic Capital Partners (each holding approximately 48. In 2008 Billabong continued with the consistent acquisition activity that occurred in 2007 and announced four acquisitions over four successive months. most of which were located in Florida. in a press release that projected that "DaKine is expected to contribute approximately 4% of Billabong International Limited’s Group sales in the 2008-‐09 financial year". Billabong confirmed the acquisition of boardsport accessories brand DaKine. Billabong only announced a single acquisition in 2009 with the purchase of Swell. was disclosed in September 2004. Then in June 2008.. bags. a US-‐based online retailer of boardsports brands. Following the acquisition of the Gold Coast store Kirra Surf in May. Billabong's retail expansion continued with the acquisition of American surf retailer Becker Surf & Sport in May (the Becker deal included the business' online operations. Billabong’s products are licensed and distributed in more than 100 countries and are available in approximately 10. Tigerlily. The majority of revenue is generated through wholly-‐owned operations in Australia. South Africa and Brazil. junior athletes and events. Products are distributed through specialised boardsports retailers and through the Company's own branded retail outlets. North America. eyewear.000 staff worldwide and its shares are publicly listed on the Australian Securities Exchange. The company has approximately 4. Von Zipper. Current Overview of Operations Today Billabong’s core business includes the marketing. Kustom. Sector 9 and RVCA brands. Element. Palmers Surf. Billabong then returned to the retail market and ended the year with the October acquisition of the Australian retail stores Surf Dive 'n' Ski and Jetty Surf—from vendor General Pants Group—for an undisclosed amount. Europe.49 in late June. Japan. wholesaling and retailing of apparel. .000 retail outlets worldwide. The Company's brands are marketed and promoted internationally through association with high profile professional athletes. Latest Financial Results Billabong’s financial results (June. after RVCA. accessories. New Zealand. Xcel. Honolua Surf Company. wetsuits and hardgoods in the boardsports sector under the Billabong. Further acquisitions were then announced in the remainder of 2010: the acquisition of apparel brand RVCA was confirmed in July and the label's founder Pat Tenore explained his decision in the Billabong press release: "One of the key things about Billabong is its respect for the creative independence of each of its brands and that level of flexibility will allow RVCA to maintain its identity while benefiting from the support of the wider Billabong group". distribution. 2014) for the continuing operations show a profitable business. Corporate Structure Turnaround Strategy The new company mantra under the new CEO Neil Fiske is Fewer. We are not daunted by challenges we face. Bigger. This philosophy will pervade everything we do. Better. The easiest way to make money is to make the big ideas bigger. better brands. Make no mistake. difficult turnaround. Fewer. This is a turnaround.” “Quite simply.A full description of current operations is available in the annual report available on Blackboard. suppliers… marketing programs…IT systems…capital investments. Building global brands takes one skill set.” “This is a complex. Running regional multi-‐brand retail is something totally different. Then multiply . better styles…. “Fewer. bigger. bigger. Fewer. And being a pure play multi-‐brand e-‐commerce business is another thing altogether. the business over the last several years has become enormously complex and diversified. bigger. We have been trying to do too many things – and none of them particularly well. better businesses. but neither do we underestimate them. The Billabong brand is still the number one brand in specialty surf shops in both Australia and the US. We confused the organization. That’s what we do best. Joel Parkinson. Period. IV. administrative streamlining) to fund the “marketing war chest”. customer relationship management. Product: Build a strong merchandise planning and buying. Develop clear assortment strategies with a balance of global versus regional mix. Aim to improve productivity stock turnover from 2. I know that Billabong. we lost focus. Diversify out of China for cost and capability. The best customers shop in all channels. globally. It has real growth potential. Recruiting talent for key positions in the leadership team.4X to 4X over next few years. the supply chain. Omni-‐Channel. Build global scale and capability in four critical areas: finance. II. heritage and aspiration of our brands. Key cost reductions (inventory management. Brand: Building powerful global brands is seen as the core of what Billabong does well. Marketing. Move to fewer. Alignment of organizational structure with new strategy. That means when you hit turbulent times there will be no shortage of opinions and speculation. Large cost reductions possible through productivity improvements. Our direction will put the focus back on that core. That’s what we need to build upon. Develop customer database. Rationalizing the administration by eliminating low priority work and streamlining layers and diversity (doing fewer things bigger and better). rent negotiations and inventory management.that complexity by a regionalized organization structure with independent decision making and different operating infrastructures. It has over 90% awareness and high regard in the target demographic. RVCA) and emerging brands that have global scale. So let’s not lose sight of the facts. That’s what we need to build upon. has an iconic status.” New Strategy Overview New CEO Neil Fiske outlined a 7 part turn-‐around strategy: I. but are locally responsive. Are we a retail company with brands… or are we brands with retail?” I believe the greatness of Billabong lies in the authenticity. V. Mix of online. Drive retail profitability through closures. Strengthen the merchandizing. in Australia and especially here on the Gold Coast. heritage and aspiration of our brands. As complexity grew. Invest to build key wholesale accounts. That’s what we do best. bigger suppliers. logistics. Period.” “As someone said to me on my first global tour of the Company: “We need clarity. productivity. Supply-‐Chain. . Develop an integrated marketing plan 12 month calendar by region. Organization. Unify three channels to build scale. VII. Financial Discipline. own stores and wholesale to other retailers. VI. “I believe the greatness of Billabong lies in the authenticity. And by the way the current world champion. with emphasis on digital to target the 15-‐18 year target consumer. III. It’s profitable and can be even more profitable.” Strategic focus on the big three brands (Billabong. and fewer. Develop global brand structure for the big three brands. larger style to reduce product lines by 25%. IT and direct to customer platform (online sales). design and marketing teams through new talent. The core of this business is good. Element. Currently logistics costs are 50-‐100% higher than industry benchmarks. Turnaround Status (December 2015) . Early indicators of success . Jean-‐Louis Rodrigues. Global Merchandising. RVCA and VonZipper Re-‐signed 2012 ASP World Champ Joel Parkinson Signed marquee next generation athlete Jack Robinson Portfolio actions • • Sold West 49 Strategic review of SurfStitch and Swell Distribution changes • • • Country tiering Chile.Key Actions to Date Brand • • • Re-‐signed founders of Element. Global Design Lisa Stemmler. Bennett Nussbaum Global Billabong Brand President: Shannan North Billabong Womens team (Global GM Susan Branch. Mara Pagotto. Peru to distributor model (Forus) Smaller brands to distributors outside of Tier 1 countries Restructuring • • • Organisational re-‐alignment Europe downsizing South Africa restructuring Talent • • • • • • • • • Executive team: Ed Leasure. Global Marketing) Billabong Mens Design: Brad Lancaster Billabong Sales: Jason Shelton (US) Justin Cook (Australia) Billabong Creative Marketing: Michael Minter Acting General Manager Asia Pacific: Paul Burdekin Latin America Vice President: Felipe Motta Merchant and Design bench strength Financial / Corporate • • • • $135 Million placement (shares issued) $50 Million rights offering Asset-‐based lending completed Board renewal complete . Between 2005 and 2011 Billabong purchased some 600 retail outlets. The planned sale was abandoned in March with a lack of interest at the asking price of $400 million. Billabong. confirmed a $386 million refinancing agreement with US consortium Centerbridge-‐Oaktree Capital Management acquiring a 40% share. Privately-‐owned Rip Curl has also been in profit free-‐fall. guaranteeing the struggling brand’s short-‐term future after it posted an $859 million loss last financial year. New and highly profitable markets emerged in Europe and Asia. Rossignol Skis. Quiksilver and Rip Curl clothing came to symbolise surfing’s laid-‐back. Nixon watches) to consolidate market share. The people running each business were avid surfers themselves and brands established strong credibility within surfing subculture. one of Australia’s most iconic surf brands. The brands’ integrated business operations by funding new retail stores. counter-‐cultural values. buying-‐up existing chains and standardising design. So. Like Billabong. then dumped Each of the big three had grown embryonically in the 1970s alongside the rising popularity of the beach and surfing in Australia and California. RVCA. Large department chains have also featured prominently and agreements with surf brands were intended to facilitate greater access to non-‐surfing consumers. Element. asset write-‐downs and growing losses. 150 of which have closed in the last 12 months. why have the Big Three surf brands found themselves struggling? And what is the way to calmer waters? Heady ride. The companies’ fortunes further rode on a re-‐organised World Championship Tour which included highly publicised surfing events on every inhabited continent. public surf company Quiksilver has reported declining revenues. Billabong. Dakine. . Snowboarding and skateboarding rose to greater prominence and complemented the values already imbued in the surf brands. which saw each of the big three surf brands aggressively pursue international expansion and high-‐profile sports sponsorship deals. The 1990s and 2000s saw Quiksilver and Billabong aggressively acquire emerging youth labels (DC Shoes. Mrs Palmers surf gear. Regaining their ‘cool’: can the big three surf brands recover? by Marketing ON 2 October 2013 By Andrew Warren Australia’s ‘big three’ surf brands have found themselves in choppy financial waters. The current woes are a long way from the heady days of the 1990s and 2000s. recently announcing third-‐quarterly earnings had declined 84%. In mid-‐2012 Rip Curl founders Brian Singer and Doug Warbrick engaged Bank of America Merrill Lynch to help source a prospective buyer for the brand. Last week. The Surfwear Market Here is one commentator’s view about Billabong’s brand prospects. equally consumable by non-‐surfers that identified with the lifestyle. Volcom began life from Southern California’s surf/skate subcultures in 1991 and grew rapidly in the early 2000s using the slogan “Youth Against Establishment”. as the big three surf brands grew so did a disconnect between global commercial ambitions on the one hand. In 2005 the brand floated on the New York Stock Exchange. Afends. One example is the Byron Bay label. which currently makes up around 10% of the big three’s overall sales. with sales growth for the first half of 2013 increasing 19%. a spin-‐off of US retailer Abercrombie & Fitch has successfully moved into surf clothing and retail in the last decade. edgy apparel sold through independent stores supplemented by a strong online presence. thanks to the reduced threat of acquisition. Opportunities also exist to grow online retail.Regaining their ‘cool’ Yet. After delisting Volcom. The big three have lost their ‘cool’ with young people – their core demographic. Exposed to increasingly fast fashion cycles the Big Three have been unable to move expensive. Volcom is now outperforming the big three. out-‐of-‐fashion clothing. However. . You can now order ‘custom’ designed clothing from Quiksilver. Billabong bought back the licence in 2007. started supplying stores with generic designs and sales in the country have since tanked. The problems being experienced by the Big Three has actually created space for the growth of creative. The case of Volcom is instructive. The brand has a growing following amongst young surfers and skaters in Australia and California and shuns advertising in the usual surf media outlets. What then does the future hold for the surf business? The big three are now attempting to reconnect with this ‘core’ by creatively refocusing their brands. Afends has experienced dramatic growth in the last three years. independent surf brands. Space to grow Despite the wobbles in the Australian market. Hollister. by 2011 Volcom had seemingly reached growth limits and was acquired for $607 million by French luxury fashion conglomerate Kering (formerly PPR). More sustained efforts to reconnect with core consumers might involve re-‐focusing on design and clothing styles distinctive to local markets. Rip Curl has begun playing-‐up a ‘craft’ association and the ‘authentic’ nature of their surf products – tracing back to the company’s custom surfboard manufacturing roots. and maintaining local subcultural credibility on the other hand. And smaller. But what appears increasingly probable is that at some point in the future the big three will themselves be acquired by larger retail corporations. culturally engaged brands are also emerging. In 2005 Kraak helped Billabong win a fashion award as the most popular female youth brand in South Africa. Such an approach worked well for Billabong in South Africa during the early 2000s when surf shop owner Cheron Kraak received a licence from Billabong founder Gordon Merchant to design and manufacture clothing locally. the global demand for surf-‐styled apparel is expected to remain strong and there are some useful lessons among some of the newer entrants. trading in loud. Ironically commercial success has also been the source of their troubles. Kering re-‐energised the brand by increasing funding to select action sports events and athletes. http://theconversation.com/regaining-‐their-‐cool-‐can-‐the-‐big-‐three-‐surf-‐ brands-‐recover-‐18406 Andrew Warren does not work for. This article was originally published at The Conversation. own shares in or receive funding from any company or organisation that would benefit from this article. and has no relevant affiliations. . But the big three will survive in one form or another.Problems facing the large surf brands such as Billabong are a reminder that doing business in surfing is volatile and inherently risky. The challenge for them and other emerging brands is to maintain subcultural credibility. Read the original article. consult to.
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