Volcom Drops the Stone
Now when a brand is down in profits but beat’s analysts’ “expectations” it’s considered all “good,” which makes us wonder if not-too-bad is the new financial reporting spin for “success.” Such is the case for Volcom, which reported a 4th quarter revenues of $64.2 million compared with $69.6 million in 2008, but because it beat analysts’ expectations at $62.7 million, it’s all good. The Costa Mesa brand and it’s “youth against establishment” ethos is still quite strong, but let’s take a look at the details: Sales in Canada, the USA, and Japan were reported down 16% to $46 million, but where they caught up was in Europe where Volcom rose 18% to $12.9million. As we noted before, Europe (and China) are obviously less saturated than North America, indicating that public brands needs to move on to virgin territory -or at least where a brand is still on the cusp of new/cool.

In addition, their relatively new purchase, Electric eyewear increased from $5.3 million from $3.8 million. Add all of this up and it’s a loss of 8%.

“I am very proud of the entire Volcom team’s focus, dedication, and strategic agility this past year as we navigated through one of the most challenging economic periods in history,” said Richard Woolcott, Volcom chairman and CEO. “We rose to the challenge, remained healthy and profitable and planted the seeds that I believe will position the company for growth and success in the years to come.”

Other aspects where Volcom has succeeded is they’ve kept debt at bay (unlike Quiksilver) and they greatly decreased their operating expenses from $42 million to $28 million.

Based on the trade shows we recently attended, Volcom’s push with their Genuine Denim collection is one of their next big moves, however they’re going up against Hurley who ironically has a very similar campaign going on, and of course behemoths like Levi Strauss, Bulldog, and plethora of others.

Which brings us to our Spring Youth Culture Study 2010, to be released next week, which reveals exactly where Volcom stands in terms of consumer preferences among 13-25-year-olds. Comparisons in the Study look at where Volcom stands against the competition (as a brand overall, plus in categories such as T-shirts and denim) plus brands on the rise, others on the decline, and a comparative analysis from the last several years, including Label Networks’ future forecasts.

Gap on the Rise
While brands like Billabong and Abercrombie & Fitch (who learned the hard way, and later began discounting and turned a profit) are not keen on discounting, the real decision doesn’t always come down to the brand, but the consumer. Just ask The Gap and Old Navy (and Abercrombie & Fitch).

On Thursday, February 25, Gap, Inc. which owns Old Navy among others reported a 45% profit for its fourth quarter based on its lowering prices for Old Navy. Not only does this mean an increase in funds for The Gap, but marks the way for their expansion into China and Italy, and expanding Banana Republic into Europe.

Other things The Gap did right is slash their inventory and re-created Old Navy to appeal to more conservative spending patterns by consumers.

Overall profits for The Gap rose to $353 million from $243 million last year or 4% from a total of $4.24 billion from $4.08 billion a year ago.

H&M On a Roll
Fast-fashion retailer H&M is always a favorite to look at as one of the innovators in fashion and retail for youth culture globally, as indicated by our European and North American Youth Culture Studies. H&M just reported that their January sales increased by 11% compared with the same month in the previous year.

In addition, H&M has made plans to expand into Seoul, Korea, and are launching an eco collection (with lots of floral patterns) along with a new skincare product line. In addition, their Sonia Rykiel collection is going very well, as more fans flock to their store for their latest designer collaboration.

Billabong Misses the Mark
Reported on February 19th, Billabong’s net profit for the half-year ending December 31, 2009 was down 15.4% to $69.7 million from 2008. They say this is due to many things including weak trading conditions at the consumer level, especially in North America, and lower gross margins in Australia and Europe based on a weaker exchange hedge rates.

Sales revenue overall decreased 10.8% to $780 million, while in the Americas, sales revenue decreased 17.6% to $317.5 million. More specifically, sales to PacSun were down a whopping 50%, indicating it’s time to step-away from the surf/skate chain. (Although with Gary Shoenfeld at the helm, things might turn around.)

What’s interesting about Billabong’s statement is that they say margins have been unusually affected by “an increase in global overhead costs (which includes corporate overhead, international advertising, and promotion costs, central sourcing costs, and foreign exchange movements).

Transworld Business ran a good interview with Billabong’s Candy Harris about Billabong Women’s which is worth a read. One thing that stood out for us however (actually there were several) was when she said that Billabong has never strived to be a “price point brand.” We do believe that her ideas of telling the story are extremely important, but price points are absolutely key when it comes to this new generation of consumers, who do have Forever 21, H&M, American Apparel, and now TopShop fast-fashion retailers to deal with. Not to confuse price point with discounting, but there is a correlation here. As many brands at Project confessed to us last week in Vegas, being too “premium” had taken a massive toll, especially in denim. Now, these so-called premium brands are far less “premium” in their price points. You might even call them “sub-prem” or the “new normal.”

This reminds us of a presentation we do for Origin Designs in Whistler during their Telus Conference 3 years ago when we presented charts and graphs based on youth culture consumer insights indicating that action sports brands need to realize that their true competition isn’t necessarily Volcom vs. Billabong vs. Rusty or Quiksilver, but it’s Volcom vs. H&M, and Billabong Juniors vs. Forever 21, and so on. Many people came up to us after this and said it was an “eye-opening” presentation which they enjoyed because they had mostly been thinking inside of their own industry instead of the broader picture of the youth culture landscape.

Testament to Label Networks’ news, research, and analysis, our subscribers now include brands who realize they need to know about this broader consumer landscape. As we’ve stated before in “The Decline of the Action Sports Lifestyle -a Wake-up Call to an Industry That Still Thinks Its Hot,” it’s a new marketplace out there people, and today’s youth consumers have changed greatly -more than most so-called intuitive brands are often aware of.

Label Networks’ Spring Youth Culture Study 2010 -North America will be released the first of March, 2010.