The State Of Surf Hardgoods Report
Manufacturers Report Slow Wholesale Business, Increase in Custom Orders
Last April, TransWorld Business published its first annual State Of Surf Hardgoods report. After polling more than 100 leading retailers and 50 top shapers, we presented the results. This year we've done it again, except better.
We polled more retailers and manufacturers, asked more targeted questions, and got more accurate results. In addition, we're now able to draw comparative conclusions based on last year's data.
Last year, 51 percent of retailers polled said they expected surfboard sales to increase in 2008. Unfortunately, when asked to describe the overall state of the surf hardgoods market at the close of 2008, nearly 95 percent of retailers polled responded either flat (43 percent), down (44 percent), or way down (8 percent).
So, why is it that only five percent of a 185-store survey sample reported an increase in surfboard sales for 2008? (To see the entire retail survey results, click here for part one and here for part two)
Cause And Effect
Obviously, unforeseeable global economic factors have taken a toll on surfboard sales, but some suggest that many of the challenges facing the surf hardgoods market were self-inflicted.
"Generally, the board business has been operating like a tripod with one leg missing: strong in production and marketing, but weak in service," says Erik Arakawa, Hawaiian Islands Creation shaper. "This deficiency keeps the door open to excess manufacturing overseas."
The influx of Asian-made, imported boards or "pop outs" and small-scale "backyard" shapers are often castigated as the main culprits. While both were birthed by free-market demand, domestic board builders commonly consider them cancers spreading in the post-Clark Foam climate. The most common gripes are price related. Asian-made boards are produced for less, in turn generally retail at lower pricepoints, and are sometimes sold in volume to retailers for discounted rates.
On the other end of the spectrum, "backyard" shapers are able to avoid many of the overhead expenses associated with running a legitimate business and are therefore able to sell boards directly to surfers for much less than branded boards retail for.
You won't have a problem finding a domestic board builder to spell this theory out for you. "What happened is that Clark Foam went out of business, prices shot up, everybody and his brother thought they could get rich by producing boatloads of surfboards, they made way too many, there weren't enough people to buy them, and we wound up with shitloads of boards in shops, garages, storage units, and warehouses everywhere," explains M10 Surfboards Founder Geoff Rashe. "We'll be dealing with the aftermath for a couple more years."
Imports And Inventory
One of the largest surfboard manufacturers in the world is Global Surf Industries (GSI). The company produces nearly a dozen different surfboard labels at a 55,000-square-foot facility in Chonburi, Thailand called Cobra International. GSI Managing Director Mark Kelly declined to comment on the exact number of boards the company produces annually, but did address the issue of inventory levels in the U.S. "We used 2008 to clear a lot of our dead stock out," he says. "Retailers then turned these boards into lower-end sales. The feedback from the market this year was that secondhand boards and ding-repair kits were in high demand."
Kelly believes that the inventory issues brought on by Clark Foam's closure aren't as concerning as they were twelve months ago. "Most of our customers have been driving their inventory levels down now for twelve to 24 months. Our sales guys have to work hard for every sale. We have been seeing lots of one-to-four-board orders this year where last it was an average of nine boards [per order]. Basically the retailers are replacing boards on the floor when they feel that have to rather than because they think they should."
When asked if surf shops in Southern California are overstocked with surfboards, Killer Dana Founder Steve "Lounge" Price says the answer is simple. "Some shops are and some aren't, but everyone feels over-inventoried at a time like this. The shops that are [over-inventoried] bought too much of what doesn't sell fast enough simply because it was cheaper, or they overbought to get discounts, or they have had a lot of stale inventory even before the current business climate went south."
On the East Coast, Adam Krovic oversees surfboard buying for 17th Street Surf Shop's nine locations. He says that sales have picked up in early '09. When asked if his stores are overstocked, he says, "No, we are building our assortment heading into Spring 2009."
Although inventory levels don't seem to be an issue for either of these retailers, they both report altering their prebook strategies for spring. Krovic says 17th Street moved their shipment window back two months from March to May, and at ZJ's Roberts says they are planning for a down season and working with vendors on getting better margins where possible.
Average Change In Sales Reported By Board Builders Over Past Twelve Months
The general conjecture is a good news/bad news scenario. While most retailers say inventory levels are back in line, many manufacturers are reporting significant declines in their wholesale business. In fact, in a survey conducted by TransWorld Business, the average board builder reported a thirteen-percent decrease in sales over the past twelve months.
When retailers aren't ordering as many boards, shapers aren't producing as many, and material suppliers can't cajole their accounts into placing bulk orders. The entire supply chain has to adapt. It's not the first time shapers have fallen on tough times, however, and even material suppliers are finding new opportunities in the down market.
"I would rate it the worst I've ever seen, says Dale Christensen, president of Surf Source, Inc., of 2008. Founded in 1989, Christensen's Atlantic Beach, Florida-based business supplies more than 150 surfboard manufacturers—primarily on the East Coast and in the Caribbean—with the raw materials used to construct boards. At the end of 2008, he saw a twenty-percent decline in board builders ordering supplies compared to twelve months prior.
Despite the loss of accounts, Christensen says that bright spots in his business actually helped him finish 2008 up ten percent from '07. He attributes the growth to increased exports brought on by the weak dollar, as well as adapting his business to meet current market demand. "We've filled an increased need for ding-repair products due to more surfers repairing instead of replacing," he explains. "Also, many surfboard manufacturers have now relied on us for on-the-spot purchases for materials they used to stock."
According to Christensen, 2009 could be a different story. He says the economy has made his purchasing much more challenging than in the past. "We have to forecast everything when buying in containers," he says. "This 'perfect storm' of economic conditions has made it very risky and difficult to forecast or purchase anything. What was selling a year ago is not now. It's a shot in the dark, one in which you need a lot of bullets."
Average Change In Material Cost Over Past Twelve Months For Completed Board
With retail prebook orders down, shapers are not only changing their ordering methods, but they're also altering the materials they order. "We had a dramatic increase with Sun Cure UV curable resin throughout 2008," Christensen says. "The factories are getting smaller and more manageable, which makes UV curing much more efficient. We've also seen a lot less EPS foam being used and replaced by polyurethane foam. Manufacturers have even found benefits from using their epoxy resin with polyurethane foam."
According to the TransWorld Business survey, manufacturers reported that 82.8 percent of the boards they shaped over the past twelve months were foam core. Of those, 10.7 percent were reportedly built using polyurethane foam and epoxy resin.
It's difficult to forecast whether this trend will continue. In 2008, Christensen says foam and cloth prices remained static, but both polyester and epoxy resin increased by as much as 45 percent along with the price of oil. In December 2008, however, Simlar, a leading supplier of polyester resin, announced it would be dropping its prices six percent for 2009 due to reduced oil prices.
Built To Order
In many ways the surfboard market is returning to its roots. With wholesale orders shrinking, most shapers have re-focused their direct-to-consumer business and report a significant increase in custom-board orders.
"Production has been pretty steady for us, but we have been mainly doing the custom thing for a long time," says Will Smith, general manager of Chemistry Surfboards in Oceanside, California. "Our reliance on the shops hasn't been as heavy as a lot of manufacturers. Being known for producing custom boards in a short amount of time has helped our existing accounts as well because they can move a lot of product without stocking a ton of inventory."
Rashe reports the same from M10's Santa Cruz factory. "I think we are getting back to the basics of the pre-boom of surfing," he says. "The problems we real board manufacturers face are the same as always: low margins, lack of skilled labor, no profit, et cetera. The big players are screwed because they depend on retailers, but the people who buy the boards will have no problems. Those who want a Channel Islands will always be able to get one, those who want a custom can order one from their local shaper, and the beginner can always find a used board or a Chinese one."
At Dewey Weber Surfboards in San Clemente, California shaper Shea Weber has seen an increase in custom orders as well. "I think hand made customs are going to be very strong this year. Our custom business is already up and our wholesale accounts are looking for handmade brand-name boards again," he adds. "Not so much last year."
According to longtime Oceanside, California-based shaper Mike Walters, bad economic conditions traditionally lead to increased custom-board sales. "During a bad economy surfboard sales usually get a boost because people can't afford the expensive toys," he says. "Surfing is free once you have your board; 2009 should bring a good change. This isn't the first time we've had to hug the turns and dodge the bullets!"
Rashe says he's optimistic and thinks the downturn in the economy is exactly what the surfboard market needed. "It's getting back to the cottage industry that we all know and love: surfboards handcrafted by surfers for surfers," he continues. "It seemed like the whole thing was about to die, and look what happened. I'm very optimistic about this downturn in our economy. It's like a big forest fire where everything had to burn down in order to fertilize the soil, let in some sunshine to all the little plants that were trying to survive under that big oppressive canopy, and generate new life. It's really inspiring."