In 2019, Quiksilver will celebrate 50 years.
The iconic brand—founded in Australia and widely associated with Southern California culture—has been through it all as one of the founding members of an industry that, today, has evolved and grown beyond anything that could have been forecasted.
But Quik, like many companies, has faced its fair share of growing pains over the years — most recently, filing for Chapter 11 for its US operations and undergoing an aggressive global restructuring.
About 18 months later, the company has emerged from a rebuilding phase, which included an overhaul of operations, production, and reorganizing “over-extended retail,” which meant closing a well-known big-box account, according to Oaktree Capital’s David Tanner, who was instrumental in leading this transformation.
A corporate name change, from Quiksilver Inc. to Boardriders Inc., was announced in March, coupled with the news of the company’s return to profitability for the first time in years.
To say the metamorphosis was an enormous undertaking is a gross understatement, and Tanner and President Greg Healy have indicated there is still much work to be done. But the tide is turning with early indications of a silver lining, such as positive order book trends for fall, positive comps at full-price retail, and promising long-term growth internationally. The company will close out FY17 with a 7% margin.
With those accomplishments under their belt, and an impending 50-year celebration and grand opening of the company’s new Malibu retail location this fall, Tanner and Healy explain what this means for the future.
Inteview edited for length and clarity.
What were the primary driving factors in the corporate name change?
David Tanner: We were going through a very intense period for these last 18 months, turning the company around. We've done a ton of work, cleaning up the cost structure and stabilizing the revenue line. We've got the organization pointing in the right direction.
We've built a lot of rigor and discipline into the business, and we are fundamentally in a different place from a performance perspective than where we were five years ago.
This was a company that, for a number of years, was declining at 15% per year, was dramatically unprofitable, and there was no bottom.
Taking it into Chapter 11, we’ve cleaned up the balance sheet, restructured the business, fixed the cost structure, and built the foundation for growth. We’ve taken the business from unprofitable to mid to single digit margins.
We wanted to signify to our employees and to the world that this a different company. It's not the same old Quiksilver, it's a fundamentally different organization in the way it acts, and its performance.
We aren't just one brand as a company, we are three strong brands that all have growth paths. We wanted to embrace all of our brands because they are all important to our future.
It opens the door to the next stage in our company. It signifies the shift from defense to offense, and looking at where we are going. We are looking much more at the market and how we are going to grow the business than we were two years ago. It's a combination of all those factors. It's been talked about for a while and we just felt like it was the time.
How did you arrive at Boardriders Inc.? How long did this process take?
Greg Healy: Boardriders Inc. is a name that represents what all the brands under our roof stand for. The essence of our brands is centered around board riding, whether that's on the water, on a skateboard, or on the mountain, so we felt it was necessary to name our company along those lines.
We started along this path about five or six years ago when we launched our first experiential retail store called Boardriders in the Southwest of France, and that concept has spread across the world. We now have 14 of these stores globally, and just announced that we'll soon be opening a new location in Malibu on Pacific Coast Highway. It's been a really successful retail venture for us, and it was just a natural extension that we named the whole company Boardriders.
David: The stores are very experiential, and are our most profitable doors. They really encapsulate the board riding culture and have become community hubs that people gather in. I think "board riders" just really represents the culture that we serve.
That's exciting news about the new Malibu location.
David: Yes, it's where the former American Apparel store was located. An iconic location.
Can you speak to specifics of the strategy that has allowed you to “right size” the business since emerging from Chapter 11 last February?
David: Let me give you a little history as to why Oaktree invested here. Before we got into discussions, we knew the marketplace because we had invested in Billabong as well. We knew the players, and we knew there was opportunity to improve operations of the business given Quiksilver’s rocky history.
We knew a lot of people in the industry. We knew a lot of things that were going on under former management. We knew the debt overhang that existed on the business from a failed Rossignol transaction almost a decade ago, and we the knew capabilities we at Oaktree could bring from both a financial and operational perspective that we could help fix the situation.
Before we even invested we did a ton of work to understand how strong the brands were versus the competition. We surveyed thousands of consumers around the world and got comfortable that the brands really meant something and weren't going to evaporate.
We entered the U.S. entity into bankruptcy, which fixed a few things. When the company was publicly traded it was chasing the top line way too much, growing retail and putting the product into bad channels just to grow distribution. So taking it into bankruptcy allowed us to get out of a lot of bad retail and allowed us to take $600 million in debt off the balance sheet.
During that period, from September 2015 to February 2016, we retained all of our tenured, important suppliers and all of our important employees. We were able to reshape the U.S. business, and take the entire enterprise private, while building our strategy for turnaround, which we started aggressively going after a year ago when we came out of bankruptcy.
The strategy for that turnaround was first getting the cost structure in place. It was was historically out of line; it was built for growth in the late 2000’s and never really taken apart the right way. We closed a bunch of over-extended retail around the world and removed a lot of SGA, or selling general administration costs, really looking at all of our spending habits, contracts, and our procurement. We took $125 million of the SGA costs out of the business, and feel like we are now in the right spot from a cost structure perspective.
We also made the organization truly global. It has historically been run with regional planning, regional design, regional merchandising. There was an intent to make it global but it was not well architected, and it caused a lot of problems and disruption in the business.
We fundamentally redesigned the production engine of our business to make it a global model. We rewired how planning and merchandising, design and sourcing worked to make them efficient. We contracted our production calendars to build closer to market, faster to market, and not to buy blind on inventory.
We got significantly more visibility into efficiency and profitability to know our ranges for building margins and skus, which were local versus global, and whether we had the assortments right.
Lastly, we have been investing for growth by looking at our brands’ strategies in a very crowded space, and asking, ‘What should we be doing with them and how should we be differentiating ourselves?’
In doing that, we went back to the drawing board, and researched more than 10,000 consumers around the world. We wanted to understand what they thought of our brands, our competitors' brands, and what the consumers needs are from a functional and emotional basis.
It was a massive effort that took many months of work. It was very analytic. It is basically rewiring how we go to market to be more differentiated, more distinctive in the mind of the consumer to increase growth.
We are not completely done with the brand strategy. There will be changes coming to the market associated with that. One of the changes you are already seeing is the Quiksilver Generations Campaign, which we are excited about. It taps into one of the ways consumers attach to our brand which is around heritage. Consumers really appreciate the fact the brand has been around for almost 50 years now, and was the original board short company.
What results are you starting to see from the past 18 months of work that are encouraging? What are your thoughts on the overall economic landscape for our industry?
Greg: We’ve seen double-digit growth for fall in Roxy and strong comps for our snow business for DC, Quiksilver, and Roxy. We are seeing growth from our core accounts, which was a focus when we all started to restructure the company. We realized we had lost our way with the core and it was something we focused on.
We look at the retail side of the business, which is seeing positive comps at full price stores in North America, and we know we are taking the right steps.
David: We have intentionally closed out of over-extended retail. That means no more Costco. We really pulled back and cleaned up our inventory position—when we walked into this we had $80 million to $90 million in excess inventory. We are not overbuying anymore; it’s healthier for us.
We now have growth on the books—something that hasn't happened in five or six years. When we came on, the company had zero profitability. Now we are operating with a margin of 5%, and will end FY17 with a 7% margin.
I don’t think this industry will see a lot of growth, but I do think there is share to be taken. For a lot of years, we missed that and let other brands take it.
We also see big potential in overseas growth. For example, we just built our e-commerce platform for Brazil and are looking at how we can leverage that more.
Anything else you’d like to add?
David: During Chapter 11, we were doing everything we could to hang on to good people.The first six months after that, it was this ‘wait and see’ mentality. Now, because the story is real, people have looked at the progress we are having, and as a result we have been recruiting great talent. Damon Way, one of the DC Shoes founders, has come back under the tent, followed by a long list of talent.
It’s also important that we recognize and thank the support of our customer base, who has been with us and supported us in the last 18 months.
From Oaktree’s perspective, whenever you get into a new situation, you never know how the culture and people will adapt to an aggressive turnaround. I couldn’t be prouder of the people here who have embraced change, discipline, and structure and have been passionate and tireless. I can't say enough about our employees around the world. You don't move a boat of this size without everyone paddling together.