Billabong – tapping into global youth culture
Established in 1973 on Australia’s Gold Coast by surfer and surfboard shaper, George
Merchant with his partner, Billabong’s pedigree as a surf brand was second to none. But since that time, the market for surf wear had evolved and changed, and companies competing in newly globalized markets such as the boardsports and lifestyle apparel sectors were experiencing new and persistent challenges with managing sustainable growth and profitability. For Billabong in 2010, senior management faced a number of strategic issues: currency fluctuations, seasonality of the brand and over-exposure to the US market. But Derek O’Neill, CEO of Billabong, was confident that non-surfing markets like Eastern Europe and parts of Asia would be keys to his company’s continued success.
Board Sports
The market was large. In the US alone, surf and snowboarding each were valued at $3 billion, while skateboarding was worth about $5.5 billion with about 23 million hardcore or ‘core’ consumers. Along with Quicksilver and Rip Curl, Billabong dominated the world market for surf lifestyle products and indeed the larger board-sports category.
All three companies had originated in Australia although Quicksilver had since changed ownership and relocated to the USA. Board-sports including skateboarding and snowboarding had exploded in popularity around the world during the 1990’s and 2000’s, riding a wave of globalized youth culture. They were sports that appealed to both young men and women alike: typically energetic, highly experiential and intrinsically anti-establishmentarian – boardsports were an optimal vehicle for expressing a young person’s identity. As a result, many leading surf brands diversified into new product markets, following core consumers as they took up new board sports.
But the anti-establishmentarian aspect of boardsports’ identity still had profound
marketing implications. Authentic skateboard, surf and snowboard brands were those launched by practitioners of the sports, often pro-athletes such as Tony Hawk and Jami Thomas in the case of skateboarding for example. A brand’s credibility could be irreparably damaged by ‘selling out’ – whether selling a brand on to a larger
corporation, selling bad quality product or selling through inappropriate distribution
channels – brand equity was intrinsically linked to retaining credibility with the target audience.
It was for similar reasons that companies like Nike and Reebok had failed to penetrate the board-sports market to any great extent – essentially due to a lack of pedigree. Nike’s most recent attempt was to market a range of footwear, SB, to skateboarders in the US exclusively through existing skateboard shops rather than its other mainstream distribution channels. Reebok instead entered into a licensing agreement with leading skate brand Dirty Ghetto Kids (DGK) to create a range of skate footwear that would help it penetrate the sector. Commenting on brand equity, Lora Bordmer, a spokesperson for Action Sports Retailing USA explained “selling out is not about profits…it’s about distribution. That’s a big deal in our industry – exclusivity”.
But with success, the leading surf brands entered the mainstream and the profiles of the market seemed to change. Much of the growth in board-sports during the 1990’s was attributed to the boom in females taking up surfing and other sports. Perhaps more fundamentally, however, it was estimated only about half of consumers purchasing boardsports apparel were actively participating in those sports, the remainder were buying into the image and lifestyles the brands represented instead.
Billabong’s Strategy Billabong’s initial internationalisation activity was to target the US surfing community in the 1980’s. Later that decade it expanded through licensing to South Africa, Japan and New Zealand, places where surfing was established. Around the beginning of the 1990’ it expanded into Europe, tapping into the surging interest in surfing culture there, but the US remained its primary international market.
In 1999 sales reached $110 million and the company prepared for a public listing. In
2000 the company was listed on the Australian Stock Exchange allowing it access to
resources to pursue strategic growth and retain brand equity with the burgeoning
boardsports global community. It did so by diversifying through acquisitions such as Von Zipper sunglasses in 2001, Element Skateboards in 2002, Kustom footwear in 2004, Nixon watches and Beachworks retail concept stores in 2006, and Xcel wetsuits and Tigerlily, an exclusive girls surf wear brand, in 2007. By 2009, having also acquired Sector 9 skateboards and DaKine, a premium boardsports accessories brand, turnover reached $1.67 billion. At about this time, the company’s intangible assets rose from $800 million to $1 billion, representing about 45% of their total assets. Through careful and consistent sponsorship of events such as men’s and women’s professional international surfing competitions and athletes, Billabong had built a brand profile that extended far beyond the surfing community, and indeed across borders.
By 2007, approximately 70% of profits were earned in foreign markets, up from 30% five years previously. And with over 40% of revenue coming from the US alone in 2008 or $500 million in sales, much of the company’s fortunes were precariously balanced on its ability to manage foreign exchange options. These currency fluctuations were particularly troublesome due to developments in its distribution strategy in the US.
Globally, Billabong used both own-brand stores and wholesalers to achieve market
penetration. In the US, it had somehow reconciled the issue of exclusive distribution in using Pacific Sunwear’s network of 900 stores to reach the mass market nationwide.
When the economic recession began to take its toll on US retail sales in 2008, such
fruitful relationships changed, however. As Pacific Sunwear experienced drops in sales and closed stores, it looked to rationalise product lines and reduce inventory, ultimately proposing a value price driven business model. Furthermore, in-store merchandising suffered as a result impacting sales for premium brands like Billabong.
Faced with theoption to discount prices or seek alternative channels, management believed the latter offered more opportunity in the long-term. By 2009, contribution to the group’s US turnover by sales achieved through Pacific Sunwear had dropped to 10%, half of previous levels. As profits plunged for the Australian multinational, it was time for Derek O’Neill to announce wherein lay Billabong’s future fortunes: Europe – “we got great momentum in that market and I think we can grow substantially over the next five years in Europe”, he predicted.
Non-traditional Markets
Europe was the second largest boardsports market outside of the USA. It also had some idiosyncrasies of which Billabong could take advantage. For example, erratic snowfalls in recent years did not seem to affect the sale of winter outerwear like jackets and gloves.
Similarly boardshorts were popular despite a relatively small surfing community. But markets like Germany and Italy were not traditional surf markets. For Billabong to succeed in penetrating Europe, some believed, it would have to tweak its marketing strategy. Industry analysts believed key to Billabong’s success in the region was the development of retail opportunities to drive growth and the targeting of female consumers.
At the time Billabong had 47 company-owned stores and another 21
operating under licence. By comparison its main competitor, Quicksilver, managed
about 300 in Europe. Furthermore Quicksilver’s Roxy brand was the market leader for the women’s segment. As a benchmark, sales for Roxy USA had eclipsed sales for
Quicksilver for men in the USA. Billabong’s recent acquisition of Tigerlily presented the company with the opportunity to engage directly with female consumers.
By 2008 sales in Europe had responded to the firm’s revised marketing strategy despite further currency fluctuations. The sales growth through own brand stores, taking advantage of its diversified product range to capitalise on heavy snowfalls that winter.
The success compensated somewhat for a poorer than average performance in the USA.
But 2008 brought further surprises as O’Neill announced his intention to expand deeper and further into Eastern Europe and Russia. It was two years since Quicksilver had announced a joint venture with a Russian partner to distribute Roxy and Quicksilver products in the market. The announcements reflected the growing popularity of surf brands in non-traditional markets: the Czech Republic, Hungary, Poland and Estonia for example together contributed about 1% of Billabong’s global sales. Confident in his plans however, O’Neill explained, “with internet and satellite TV today the kids in areas like Russia are as informed about trends and brands and music as anyone”.
Looking Ahead By 2010, the US market was still recovering. Business was performing better through its own retail operations than through the wholesale level. In Europe, sales had increased by 20% through the company’s own retail stores, taking advantage of its diversified portfolio to capitalise on heavy snowfalls that winter, industry analysts were impressed with Billabong’s sales performance and European profits. Meanwhile sales growth in South America of about 10% indicated much untapped potential in markets like Brazil
where surfing and beach culture were established facets of life. Despite sales growth in key markets, a strong Australian dollar was eating into Billabong’s bottom line. In 2009 it had announced another rights issue to fund future growth and O’Neill was keen to maintain the pace.
By 2010, Billabong was present in over 100 countries worldwide and
was investigating entry modes for India, China, Taiwan and Korea that would optimise market penetration and control over the marketing mix. Surf culture and board sports lifestyles were reaching youth audiences in these markets as well. The challenge for Billabong was how to tap into that potential in a way that remained profitable in light of the cultural and currency differences between headquarters and those new markets.
Questions:
1. Why is Billabong a ‘cool’ brand? Can the brand continue to grow while
maintaining this aspect of its brand equity? – Ravisha
2. How can traditional sports brands compete with brands such as Billabong? Shubhkarman
3. How could Billabong tweak its marketing strategy to improve sales in nontraditional markets? – Kuan Ru
4. Elaborate on the Segmentation, Targeting and Positioning for brand Billabong. Dhilip
5. Which stage of the Product Lifecycle is Billabong currently at and what strategies
would you recommend and why given its position? – Bhakti
6. In case Billabong wishes to stay in the growth stage of the product life cycle,
which strategies would you recommend and why. – Tanya
7. Explain the external environment that Billabong is facing currently and what
strategies it should deploy to overcome and grow given those circumstances. Cinthia
8. Please evaluate the competitive environment and explain what kind of changes
should Billabong bring in its marketing mix to stay competitive. – Gabin
9. Explain the international marketing strategy followed by Billabong. – Zhicheng
10. What would you recommend to Billabong to contemporarse its brand in 2021
and make it relevant to the consumers today in their existing markets. Explain. Tanvi
