Sport Chalet is closing

Vestis Retail Group, the parent company of sports equipment and apparel stores Sport Chalet, Eastern Mountain Sports, and Bob’s Stores has filed for Chapter 11 bankruptcy protection today.

I don’t have the financials for Bob’s Stores or Eastern Mountain Sports, but if the numbers for them looks like that of Sport Chalet, it looks like it’s another victim of passing trends and Amazon. I wrote about the bankruptcy of Quiksilver and how it can save itself, and about Amazon‘s effect on Walmart.

Mountain sports presents another challenge above its sea-level cousin, surfing. It costs a LOT more money to go skiing. Skis, jacket, goggles, beanies, gas, food, etc. The list goes on and on. With the slow economic recovery putting Vestis’s holdings on a slower expansion pace, downsizing and keeping only strategic stores in wealthier markets would have slowed the cash flow hemorrhage. Another factor unique to snow sports is the abnormally warm winters with little snowfall. This climate factor greatly hurt sales.

Who knows what the boardroom meetings were like when CEO Mark Walsh, CFO Susan Riley, and others were meeting; nonetheless they should’ve listened to the decision-maker that had a closer eye on industry, market, and environmental trends.

In every business plan, I include industry and market analysis that covers the trends, threats, and emerging opportunities for every business.

April 18, 2016

What is Strategy Consulting?

One of the services we offer is strategy consulting. However, the name is quite vague so what is strategy consulting? It is a lot of things. It varies by the needs of the client. Some clients need help developing an overall strategy for the business.

Say they have a product but not much else. So they need everything from naming of their product, research on where to sell their product, team building, etc. Naming might require a psychographic analysis of branding.

If they are a little farther along, it can be an audit of what they’re already doing, or analysis of where to go next. A business might be looking at weighing the pros and cons of expanding to a new market, introducing a new product, do a product overhaul, etc. Product overhaul might require a net present value calculation of multiple alternatives.

Every situation is unique so contact us and let’s figure out what you need.

April 14, 2016

Product extension

When you think of McDonald’s food you think of burgers. Maybe other things too but mainly burgers. However, back in the late-80s/early-90s the Golden Arches tried to expand into pizzas.

mcdonalds_pizza — Image Credit: Collecingcandy.com

This was ultimately an unsuccessful expansion for reasons beyond a confusing palate. They failed because they expanded beyond their core competency: making hamburgers.

Operations

From an operational stand point hamburgers are different than pizzas. Making pizzas require different equipment and ingredients. One reason for McDonald’s profitability at relatively inexpensive pricing is due to cost efficiencies from economies of scale; every inch of a McDonald’s kitchen is optimized. Fry pans have a designated size that fit with the size of the patty, that are heat up at a certain rate. Pizzas don’t need frying pans. They need ovens. Ovens that are expensive to put into existing restaurants and take up valuable kitchen space. Pizzas also took longer to prepare than the fast food burger. People had to wait longer; an unusual thing for a fast food company to ask of their customers. Lastly, pizzas not fit through the drive through window as easily as a bag of burgers and fries.

Marketing

They could’ve had success with pizzas if they approached it from a different angle. McDonald’s found success with a production expansion with the Egg McMuffin. Originally, skeptically received, breakfast is a McDonald’s staple now. Burgers are lunch thing, but they successfully introduced breakfast. Pizza is a dinner thing. Therefore, instead of pizzas, McDonald’s should have brought in pizza by the slice (a very well-known concept at pizzerias) or at least personal sized /small pizzas. A slice of pizza for lunch is not a foreign concept. An entire pizza for lunch is.

The difficulty in making and selling different types of food is probably why even large chain restaurants choose to differentiate different palates under different brands as Pizza Hut is doing with WingStreet and Carl’s Jr. with Green Burrito.

Now it will be harder to reintroduce pizzas because McDonald’s is busy rebranding itself to health with marginal success. Pizzas aren’t considered to be healthy. Nonetheless, it is not hitting their market value with a 5 year high at $118/share.

McDonald’s might set up for another go at extension but instead of a product extension (i.e. new product), they might go brand extension (i.e. new company). The popularity of fast casual dining such as Chipotle (before the e-coli debacle) and Blaze Pizza might be an attractive direction to expand McDonald’s.

January 3, 2016

How Quiksilver (and surf brands in general) can save it/themselves

Last week I highlighted aspects about Quiksilver’s bankruptcy. So this is what Quiksilver and other surf brands do should to save themselves.

Sector downturn

Looks like the other big surf brand, Billabong is also hurting too with diminishing revenues and net losses from 2012 to 2014.

Recently Billabong also sold its other assets: DaKine, Swell.com and Surfstitch to enhance liquidity.

Billabong also thought about selling RVCA but didn’t. I’ll get to that in a bit.

As I discussed in my previous post, Quiksilver bankruptcy is partly due to surfing not being as cool as it used to be.

So what is cool?

If extreme sports was cool in the ’90s and ’00s, extreme athletics is cool now. MMA and CrossFit is cool.

In March 2015 WWE announced a 50/50 joint venture partnership with MMA brand, TapOut. Founded in 1997, the brand had $200 million in revenues in 2010. Later that year the founders sold it to Canadian company Authentic Brands Group LLC for an undisclosed sum.

CrossFit had 8,000 affiliates in October 2013. As of January 2014 the company had 9,000. In May 2014 it hit 10,000 affiliates.

As shown by strategyandanalytics.com’s graph featured in Fast Company’s article, CrossFit’s popularity growth is amazing.

Of course, most people don’t actually want to do WODs and armbars. They only want to dress like they do, much like surfing and snowboarding.

This is why it’s no coincidence that Reebok (doing well financially with 5% growth in 2014 and seven consecutive quarters of growth) has its hand in the UFC and CrossFit.

Under Armour is so popular. Under Armour which also makes products for MMA and CrossFit enthusiasts were named as one of the most valuable American brands by Fashionista and as one of the top 10 MMA brands by FightState.

Heck, even Adidas (Reebok’s parent company) makes judo gis!

But Reebok isn’t a surf brand!! Quiksilver isn’t an MMA/CrossFit brand!!!

So going back to RVCA. RVCA, is a popular surf brand that is also popular amongst the brazilian jiujitsu crowd with its sponsored athletes such as MMA star BJ Penn amongst BJJ stars. RVCA recently did a collaboration gi with uber popular gi brand Shoyoroll. Billabong decided to keep this brand.

As RVCA has shown, it is possible for a surf brand to do a brand extension into other lifestyle activities.

So what should Quiksilver do?

Change their marketing communications. Surf ads right now are blondes in exotic tropical locations. Unfortunately for Quiksilver and other surf brands is that demographics are changing: wealth discrepancy is large also Hispanics and Asians are the fastest-growing minorities in the US. This growing market segment might not have the money or time to travel to exotic destinations nor do they even look like a pro surfer such as Alana Blanchard.

So abandon their existing surf model? No, look at the other elements of surf. The aspects of the lifestyle that are more relatable to this large, young, and growing market segment:

Surf spots: Urban surf spots such as old Huntington Beach (it wasn’t always the gentrified “Surf City USA” it is now), Long Beach, Rockaway Beach NY, San Pedro, etc. Even urban Honolulu can be a little edgy.
Embrace their connections with the skate world.
Athletes: Add famous MMA and/or CrossFit athletes that also surf. Especially with the Reebok-UFC deal, lots of MMA fighters are looking for more sponsorship money. UFC middleweight contender Luke Rockhold surfs in Santa Cruz.
Other lifestyle images: Tattoos and asphalt instead of sunsets and palm trees, turntables instead of ukeleles.
Diversify: Buy or strategic partnership with boxing/muay Thai brand Fairtex/etc. or Brazilian jiujitsu brand Gameness/etc.

We’ll see what the future brings.

October 11, 2015

The power of a good team

Yesterday I was watching the documentary Supermensch: The Legend of Shep Gordon. Shep Gordon is an ubermanager that managed Alice Cooper, Blondie, Groucho Marx, helped create the celebrity chef with his management company ‘Alive Culinary Resources’ (subsidiary of Alive Enterprises), and many others.

It reminded me how much entrepreneurs need a strong team around them to make their vision a reality. In Shep’s case, his entrepreneurs were the musicians. They were talented people that were passionate about what they were creating but in order to continue to create it and eventually profit from it, they needed a manager.

A lot of times an entrepreneur just has a vision. An idea and little more than the passion to make it come to reality. However, there are lots of technical skills that have to be utilized to make an entrepreneur’s vision come to life.

Lots of my clients have the same issue. They have a great product but don’t have a team to make it happen. I advise them to find all the areas in which they don’t have the knowledge/skills to make to launch their business. Then hire the necessary person or hire/outsource that task.

If you don’t have the funds to hire someone, then you will likely have to offer equity within the company. This is MUCH easier said than done. Most people cannot afford to go without a steady paycheck for long periods of time in the hopes of future revenues. That is why you gotta go through lots and lots and LOTS of candidates to find the right match; in skill sets, temperament, and even personalities (if you bring on the wrong person you will suffer, like one of my clients). You have to sell yourself and your business to this individual. You have to convince him/her to take this chance on your business. Being persistent and persuasive is once of the most important skills an entrepreneur can possess. You’ll need persistence and persuasiveness when finding partners, getting financing, negotiating rental terms, the list goes on and on. In business school, I took a negotiating course and one of the themes was “You don’t get what you deserve. You get what you negotiate.” How right it can be.

No one said starting a business will be easy. It is not for the timid. Nonetheless, for those that make it, the rewards are tremendous.

May 19, 2015

Time is a finite resource

One of the top five reasons people say they cannot start their own business is lack of time. I always, always, ALWAYS emphasize time efficiency to my clients. For example, scheduling calls in advance, taking notes during meetings, making checklists, etc. all can help maximize time efficiency. I cannot tell you how many times people have called to discuss business but do not have their materials in front of them…even worse, while driving. Invariably they do not remember everything that was discussed and another meeting will be had.

In a startup, there are so many things to consider and juggle. Rent, advertising, staffing, licenses, etc. It becomes very easy to become overwhelmed in the thousands of tasks that need to be done which can cause us to lose sight of direction and lose creativity. However, according to Economist Joseph Schumpeter business people would be better off if they did less and thought more.

All this “leaning in” is producing an epidemic of overwork, particularly in the United States. Americans now toil for eight-and-a-half hours a week more than they did in 1979. A survey last year by the Centres for Disease Control and Prevention estimated that almost a third of working adults get six hours or less of sleep a night. Another survey last year by Good Technology, a provider of secure mobile systems for businesses, found that more than 80% of respondents continue to work after leaving the office, 69% cannot go to bed without checking their inbox and 38% routinely check their work e-mails at the dinner table.

Managers themselves could benefit. Those at the top are best employed thinking about strategy rather than operations—about whether the company is doing the right thing rather than whether it is sticking to its plans. When he was boss of General Electric, Jack Welch used to spend an hour a day in what he called “looking out of the window time”. When he was in charge of Microsoft Bill Gates used to take two “think weeks” a year when he would lock himself in an isolated cottage. Jim Collins, of “Good to Great” fame, advises all bosses to keep a “stop doing list”. Is there a meeting you can cancel? Or a dinner you can avoid?

Your time is valuable. Make sure you’re spending it wisely.

August 17, 2013

Category: Operations