The volatile economic cycle continues to take its toll on some brands, while others are still moving along their predicted courses. Here’s this week’s financial round-up from latest reports from global youth culture brands.
Burton Cutbacks
As a leading company in boardsports, especially snowboarding, when Burton has to cut-back and lay-off people when it’s still winter, you know that the industry is suffering. Burton is a privately held company so they didn’t actually have to announce their recent round of cutbacks and lay-offs, but they did, which shows a degree of transparency and goodwill at a time when such traits are much needed towards gaining consumer confidence and trust.
On March 25, Burton declared they would be reducing salaries in North America to reduce its annual spending based on the challenging global economic situation, starting from the top down. First Jake and Donna Carpenter, the owners of Burton, have eliminated their own salaries, and a percentage of pay-cuts have been made in higher amounts starting with the most paid employees, on down with a sliding scale of 15% to 0%. They’ve reduced their company’s 401K match from 4% to 1%, and laid off 5% of their North American staff, bringing the total down to 663 (in total, including globally, Burton employs 962 people).
Other cost reductions include less travel, among other things, all an effort for “long-term prosperity of our brands, boardsports, and the people involved,” said Jake Burton Carpenter in a press statement. Burton, which is a leading snowboarding company, also owns Channel Island Surfboards, DNA Distribution (which includes Alien Workshop and Habitat Skateboards), Analog, Gravis, ANON, and R.E.D.
Zumiez
Zumiez 10-K statement came out on March 23 with some interesting news. They plan to open 37 stores in 2009 and plan to continue with promoting events and activities in their existing and new markets towards increasing brand awareness and supporting action sports. However, they admitted that their business is seasonal with the largest portion of their net sales and net income coming in the 3rd (back-to-school) and 4th quarters (holiday). Since the end of 2008 was challenging across the board, this had an adverse effect on their financial condition and could effect what they are able to do for 2009.
Their gross profit margin in the 4th quarter of 2008 was 32.4% compared with 38.4% in the same quarter the previous year. In the fourth quarter, comparable store sales fell 13.5% compared to growth of 4% in the same quarter the previous year.
What’s also interesting about Zumiez is that starting in 2007, then again in 2008 and 2009, same store sales started to decline in California, Arizona, Nevada, and Florida which accounted for approximately 60% of total sales for Zumiez. This indicates not only a decrease based on the economy, but quite possibly less interest in action sports and action sports-related brands. We’ve seen indications of this (especially among 13-25-year-olds males in North America) in many action sports genres from sports participation numbers, frequency of activity, and sports to learn percentages.
However the good thing about Zumiez is that they do have a strong corporate climate and tend to work hard at keeping employees happy and well-trained (i.e. the Zumiez $100K event). This climate also helps support viral marketing for Zumiez to others, which is a different sort of scene than many other retailers. Much can be learned about how and why they do this.
Volcom
Interestingly, while many action sports brands are getting hammered, Volcom rides a smoother wave. One reason, as we’ve noted before, is that many young people think of the brand not always in terms of action sports, but also a crossover brand from music. Looking at things from a consumer perspective for once, and not shareholders, you have to appeal to the audience in terms of design, style, and attitude, which when you read many different financial reports, tends to get lost in the jargon of what makes good business decisions for shareholders. Volcom also has a popular new line of denim, which is vital to global youth culture fashion, and they bought a popular sunglass brand, Electric, which has also helped with their global credibility.
In addition, Volcom’s currently in a love affair with European consumers who are just now getting into the diamond. European revenues increased from $40 to $73 million also from moving to a direct distribution model vs. licensee model. However, like other brands hit by a bad 4th quarter, their revenues were up but not by much, ending December 31 at $70 million from $69 million in the previous year. They’ve also grown less dependent on retailer PacSun, which accounted for an increase of 7% or $3.4 million in sales from 2007 to 2008, but dropped since 2007. Becoming less dependent on top retailers, and offering a more diversified platform is good news, especially as PacSun continues to struggle along with many other retailers.
One of Volcom’s main concerns for 2009, as it should be, is increased protectionism, manufacturing in China, and of course the recession slipping into a depression.
Nike’s “Other”
Nike’s 3rd quarter report which ended February 28th (yes, it’s a different sort of cycle), posted a net income that was down 46% from $463.8 million to $243.8 million in the 3rd quarter of 2009. This is enormous, but often the bigger the brand, the harder the fall. The good news is that their so-called other businesses including Converse (stay tuned for a full brand profile report next week) and Hurley, increased 1% since last year in the same quarter.
In other Nike/Hurley/Converse news, Hurley has taken on the title sponsorship of the U.S. Open of Surfing from July 18-26, and the 3 brands also intend to showcase at Agenda, which has been moved to the Hyatt Regency in Huntington Beach during the same timeframe. 
Photo by Alexanfer Lepeshkin courtesy of H&M Hennes & Mauritz AB of happy attendees at the Moscow store opening
H&M in Moscow
As we’ve noted plenty of times (see also our Profile Report on H&M), H&M Hennes & Mauritz is a brand to watch. While their first quarter group profits decreased 12%, their financial statements noted this also had to do with the negative currency effects. They continued to launch H&M Home in February and are on track to opening a store in Seoul, South Korea in spring of 2010.
This fast-fashion retailer has constantly challenged other retailers by creating a faster turnover of in-store styles and coming out with very interesting masstige collaborations, working in Second Life, and launching key new stores in specific global markets. Earlier, on March 11, they launched an H&M in Moscow to an incredible reception of 2,000 people. As a fashion-conscious city, Moscow is an ideal audience interested in their fresh styles and price points. The theme for Spring is Romance including collections in watercolor shades and light neutrals. They are planning an collaboration April 23 with Matthew Williamson.
