Billabong

Case Study
Billabong International Ltd., is a leading surfwear and skatewear company, and one of Australias
iconic brands. From humble beginnings on the Gold Coast in 1973, it has grown through
international expansion, diversification and acquisitions to become a leading international surfwear
grown its commitment to the global boardsports sector through athlete sponsorship, event hosting
and management and support of industry bodies.
But in 2013 the company was in serious trouble. After a couple of years of poor results Billabong
International lost $859.5 million last financial year more than three times its market value after
writing off the value of brands1 such as Billabong and Element by more than $600 million. It stock
price had tumbled from a once high of about $18 to a mere 40 cents (see chart below). Billabong
risked going bankrupt before a bail out by an American investment group Centrebridge and Oaktree
offering a $386 million debt and equity rescue package last September.
Under the leadership of new CEO Neil Fiske, the company is now engaging in a bold turnaround
strategy. Is it too little, too late?

BBG: Billabong Interna:onal Limited - Stock Price History

$14

Stock Price ($AUD)

$12
$10
$8
$6
$4
$2
$0

A brands value is an intangible asset listed on the balance sheet of a company. Billabong International de-
valued their brands by $600m contributing to the large financial loss.

Company History
Billabong was founded on Australia's Gold Coast in 1973 by surfer and surfboard shaper Gordon
Merchant and his then partner, Rena. Those early days were rather inauspicious, with the pair
designing boardshorts at home, cutting them out on the kitchen table and then carting the finished
product around to the local surf shop to sell. The business found immediate traction, with surfers
drawn to the superior functionality of the Billabong boardshorts. The next step for the fledgling
brand was to introduce the better local surfers to Billabong and incorporate them in the marketing
of the brand. Company-sponsored contests and special events would later follow.
By the 1980s, Billabong International had firmly established its place in Australian surf culture and
was ready for international expansion. The initial focus was on the large North American market
and, again, the brand enjoyed success. Sales began to grow in other offshore markets, licenses were
granted in a number of territories including New Zealand, Japan and South Africa, and in the late
1980s a new beachhead was established in Europe. Through the 1990s the surf industry grew
exponentially and professional surfing gained a newfound respectability. The company also followed
its core customers into other boardsports markets, including skate, snow and wake, where it
replicated its proven business model. By the close of the decade, Billabong had been restructured to
capitalise on the growing global opportunities in the boardsports sector.
The restructure set the foundation for an initial public offering on the Australian stock exchange in
mid 2000. This gave the company greater impetus and the financial capacity to grow the business.
Some seven months after the public float the company demonstrated its growth plans with the
acquisitions of the Von Zipper sunglasses brand. Four months later, the company acquired the
emerging Element Skateboards brand and went on the build the brand using the same business
model as the original Billabong brand. The successful integration of those businesses saw the
company add to its stable of brands in following years, with Honolua Surf Company acquired in
January 2004, Kustom footwear and Palmers Surf in September 2004, a controlling interest in the
beachculture airport-retail business in November 2005 (later converted to 100% ownership) and
Nixon watches and accessories in January 2006. Other businesses were also established, including
the Element footwear range and various branded retail stores around the world.
In 2007 the Group continued to build its brand portfolio with the acquisitions of the specialist
wetsuit brand Xcel and girls swimwear brand Tigerlily. This was followed in 2008 with the acquisition
of the Sector 9 skateboard brand and the DaKine premium boardsport accessories brand.
In late 2009 the Company formally entered the online sales channel through the acquisition of US-
based boardsport retailer Swell.com and the purchase of an interest in Australia's Surfstitch.com. In
March 2010 the Company enhanced its skate offer through the signing of an agreement to license
the California-based Plan B skateboard brand. This was followed in July 2010 by the acquisition of
the California-based RVCA brand, the completion in September of the acquisition of the West 49
retail chain in Canada and the completion of the acquisitions of Australia's Jetty Surf, Surf Dive 'n' Ski
(SDS) and Rush retail banners in November.
In April 2012 Billabong completed the transfer of its Nixon brand into a new joint venture company.
The joint venture saw Nixon become an independent business owned by Billabong International and

Trilantic Capital Partners (each holding approximately 48.5%) and Nixon management holding the
balance of approximately 3%.
In July 2013 Billabong completed the sale of its DaKine brand to Altamont and West 49 brand in
February 2014.

Billabong on a Trail of Growth by Acquisition

The first decade of 2000 saw Billabong International acquire a portfolio of sports brands.
Von Zipper, an eyewear brand, was acquired in early 2001 and the acquisition of skateboarding
apparel and hard good brand Element was announced in July 2001.
The acquisition of the Kustom surf shoe brand, as part of Billabong's purchase of the Australian Gold
Coast-based Palmers Surf company, was disclosed in September 2004. The following year in
December, an official press release was published to announce the acquisition of Nixon Inc., a watch
and accessories brand in the board sports market.
The acquisition of wetsuit and technical watersport accessories brand Xcel became effective on 1
September 2007, and Jodhi Meares's Tigerlily brand (young female surfwear) was acquired shortly
thereafter in December of the same year. The Tigerlily decision represented the first time that
Billabong had acquired a brand focused exclusively on the 'girls' market, and the intention of
management was to position the new addition so that it complemented the company's own
'Billabongs Girls' line.
In 2008 Billabong continued with the consistent acquisition activity that occurred in 2007 and
announced four acquisitions over four successive months. Following the acquisition of the Gold
Coast store Kirra Surf in May, the company announced its acquisition of the retail operations of
Quiet Flight, a retail company on the east coast of the US that had already been operating licensed
Billabong and Element retail outlets in Times Square, New York, US. The Quiet Flight deal resulted in
the addition of 14 Quiet Flight and Surf Warehouse retail stores, most of which were located in
Florida, US. Then in June 2008, the founders of the Sector 9 skateboard company accepted an offer
from Billabong that also included the purchase of the Gullwing skateboard truck brand. Finally in
August, Billabong confirmed the acquisition of boardsport accessories brand DaKine, which
specialises in backpacks, bags, gloves and accessories, in a press release that projected that "DaKine
is expected to contribute approximately 4% of Billabong International Limiteds Group sales in the
2008-09 financial year".
Billabong's retail expansion continued into late 2008 with the November purchase of the United
Kingdom (UK)-based 13-store retail chain Two Seasons for an undisclosed sum. Billabong only
announced a single acquisition in 2009 with the purchase of Swell, a US-based online retailer of
boardsports brands, for an undisclosed sum.
Billabong commenced 2010 with the signing of a ten-year licensing deal with popular skateboard
company Plan B, and Plan B subsequently entered into a partnership arrangement with Element. In
May 2010, Billabong's retail expansion continued with the acquisition of American surf retailer
Becker Surf & Sport in May (the Becker deal included the business' online operations, but not its
surfboard operations), followed by the purchase of prominent Canadian action sports retailer West

49 in late June. Further acquisitions were then announced in the remainder of 2010: the acquisition
of apparel brand RVCA was confirmed in July and the label's founder Pat Tenore explained his
decision in the Billabong press release: "One of the key things about Billabong is its respect for the
creative independence of each of its brands and that level of flexibility will allow RVCA to maintain
its identity while benefiting from the support of the wider Billabong group"; after RVCA, Billabong
then returned to the retail market and ended the year with the October acquisition of the Australian
retail stores Surf Dive 'n' Ski and Jetty Surffrom vendor General Pants Groupfor an undisclosed
amount.

Current Overview of Operations

Today Billabongs core business includes the marketing, distribution, wholesaling and retailing of
apparel, accessories, eyewear, wetsuits and hardgoods in the boardsports sector under the
Billabong, Element, Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Xcel, Tigerlily, Sector
9 and RVCA brands. The company has approximately 4,000 staff worldwide and its shares are
publicly listed on the Australian Securities Exchange. Billabongs products are licensed and
distributed in more than 100 countries and are available in approximately 10,000 retail outlets
worldwide. Products are distributed through specialised boardsports retailers and through the
Company's own branded retail outlets. The majority of revenue is generated through wholly-owned
operations in Australia, North America, Europe, Japan, New Zealand, South Africa and Brazil. The
Company's brands are marketed and promoted internationally through association with high profile
professional athletes, junior athletes and events.

Latest Financial Results

Billabongs financial results (June, 2014) for the continuing operations show a profitable business.

A full description of current operations is available in the annual report available on Blackboard.

Corporate Structure

Turnaround Strategy
The new company mantra under the new CEO Neil Fiske is Fewer, Bigger, Better.
Fewer, bigger, better businesses. Fewer, bigger, better brands. Fewer, bigger, better styles.
suppliers marketing programsIT systemscapital investments.
This philosophy will pervade everything we do. The easiest way to make money is to make the big
ideas bigger.
Make no mistake. This is a turnaround.
This is a complex, difficult turnaround. We are not daunted by challenges we face, but neither do
we underestimate them.
Quite simply, the business over the last several years has become enormously complex and
diversified. We have been trying to do too many things and none of them particularly well. Building
global brands takes one skill set. Running regional multi-brand retail is something totally different.
And being a pure play multi-brand e-commerce business is another thing altogether. Then multiply

that complexity by a regionalized organization structure with independent decision making and
different operating infrastructures. As complexity grew, we lost focus. We confused the
organization.
As someone said to me on my first global tour of the Company: We need clarity. Are we a retail
company with brands or are we brands with retail? I believe the greatness of Billabong lies in the
authenticity, heritage and aspiration of our brands. Period. Thats what we do best. Thats what we
need to build upon. The core of this business is good. Its profitable and can be even more profitable.
It has real growth potential. Our direction will put the focus back on that core. I know that Billabong,
globally, in Australia and especially here on the Gold Coast, has an iconic status. That means when
you hit turbulent times there will be no shortage of opinions and speculation. So lets not lose sight
of the facts. The Billabong brand is still the number one brand in specialty surf shops in both
Australia and the US. It has over 90% awareness and high regard in the target demographic. And by
the way the current world champion, Joel Parkinson.

New Strategy Overview

New CEO Neil Fiske outlined a 7 part turn-around strategy:
I.

II.

III.

IV.

V.

VI.

VII.

Brand: Building powerful global brands is seen as the core of what Billabong does well. I
believe the greatness of Billabong lies in the authenticity, heritage and aspiration of our
brands. Period. Thats what we do best. Thats what we need to build upon. Strategic focus
on the big three brands (Billabong, Element, RVCA) and emerging brands that have global
scale, but are locally responsive.
Product: Build a strong merchandise planning and buying. Develop clear assortment
strategies with a balance of global versus regional mix, and fewer, larger style to reduce
product lines by 25%.
Marketing. Develop an integrated marketing plan 12 month calendar by region. Develop
customer database, with emphasis on digital to target the 15-18 year target consumer,
customer relationship management.
Omni-Channel. Mix of online, own stores and wholesale to other retailers. The best
customers shop in all channels. Drive retail profitability through closures, productivity, rent
negotiations and inventory management. Unify three channels to build scale. Invest to build
key wholesale accounts.
Supply-Chain. Large cost reductions possible through productivity improvements. Currently
logistics costs are 50-100% higher than industry benchmarks. Aim to improve productivity
stock turnover from 2.4X to 4X over next few years. Diversify out of China for cost and
capability. Move to fewer, bigger suppliers.
Organization. Alignment of organizational structure with new strategy. Develop global brand
structure for the big three brands. Strengthen the merchandizing, design and marketing
teams through new talent. Build global scale and capability in four critical areas: finance, the
supply chain, IT and direct to customer platform (online sales). Recruiting talent for key
positions in the leadership team. Rationalizing the administration by eliminating low priority
work and streamlining layers and diversity (doing fewer things bigger and better).
Financial Discipline. Key cost reductions (inventory management, logistics, administrative
streamlining) to fund the marketing war chest.

Turnaround Status (December 2015)

Early indicators of success

Key Actions to Date

Brand

Re-signed founders of Element, RVCA and VonZipper

Re-signed 2012 ASP World Champ Joel Parkinson
Signed marquee next generation athlete Jack Robinson

Portfolio actions

Sold West 49
Strategic review of SurfStitch and Swell

Distribution changes

Country tiering
Chile, Peru to distributor model (Forus)
Smaller brands to distributors outside of Tier 1 countries

Restructuring

Organisational re-alignment
Europe downsizing
South Africa restructuring

Talent

Executive team: Ed Leasure, Jean-Louis Rodrigues, Mara Pagotto, Bennett Nussbaum

Global Billabong Brand President: Shannan North
Billabong Womens team (Global GM Susan Branch, Global Design Lisa Stemmler, Global
Merchandising, Global Marketing)
Billabong Mens Design: Brad Lancaster
Billabong Sales: Jason Shelton (US) Justin Cook (Australia)
Billabong Creative Marketing: Michael Minter
Acting General Manager Asia Pacific: Paul Burdekin
Latin America Vice President: Felipe Motta
Merchant and Design bench strength

Financial / Corporate

$135 Million placement (shares issued)

$50 Million rights offering
Asset-based lending completed
Board renewal complete


The Surfwear Market
Here is one commentators view about Billabongs brand prospects.

Regaining their cool: can the big three surf brands recover?
by Marketing ON 2 October 2013
By Andrew Warren
Australias big three surf brands have found themselves in choppy financial waters.
Last week, Billabong, one of Australias most iconic surf brands, confirmed a $386 million refinancing
agreement with US consortium Centerbridge-Oaktree Capital Management acquiring a 40% share,
guaranteeing the struggling brands short-term future after it posted an $859 million loss last
financial year.
Like Billabong, public surf company Quiksilver has reported declining revenues, asset write-downs
and growing losses, recently announcing third-quarterly earnings had declined 84%. Privately-owned
Rip Curl has also been in profit free-fall. In mid-2012 Rip Curl founders Brian Singer and Doug
Warbrick engaged Bank of America Merrill Lynch to help source a prospective buyer for the brand.
The planned sale was abandoned in March with a lack of interest at the asking price of $400 million.
The current woes are a long way from the heady days of the 1990s and 2000s, which saw each of the
big three surf brands aggressively pursue international expansion and high-profile sports
sponsorship deals.
So, why have the Big Three surf brands found themselves struggling? And what is the way to calmer
waters?
Heady ride, then dumped
Each of the big three had grown embryonically in the 1970s alongside the rising popularity of the
beach and surfing in Australia and California. The people running each business were avid surfers
themselves and brands established strong credibility within surfing subculture. Billabong, Quiksilver
and Rip Curl clothing came to symbolise surfings laid-back, counter-cultural values, equally
consumable by non-surfers that identified with the lifestyle.
The 1990s and 2000s saw Quiksilver and Billabong aggressively acquire emerging youth labels (DC
Shoes, Rossignol Skis, Element, RVCA, Dakine, Mrs Palmers surf gear, Nixon watches) to consolidate
market share. The brands integrated business operations by funding new retail stores, buying-up
existing chains and standardising design. Between 2005 and 2011 Billabong purchased some 600
retail outlets; 150 of which have closed in the last 12 months. Large department chains have also
featured prominently and agreements with surf brands were intended to facilitate greater access to
non-surfing consumers.
The companies fortunes further rode on a re-organised World Championship Tour which included
highly publicised surfing events on every inhabited continent. Snowboarding and skateboarding rose
to greater prominence and complemented the values already imbued in the surf brands. New and
highly profitable markets emerged in Europe and Asia.

Regaining their cool

Yet, as the big three surf brands grew so did a disconnect between global commercial ambitions on
the one hand, and maintaining local subcultural credibility on the other hand. Ironically commercial
success has also been the source of their troubles.
The big three have lost their cool with young people their core demographic. Exposed to
increasingly fast fashion cycles the Big Three have been unable to move expensive, out-of-fashion
clothing.
What then does the future hold for the surf business?
The big three are now attempting to reconnect with this core by creatively refocusing their brands.
You can now order custom designed clothing from Quiksilver. Rip Curl has begun playing-up a
craft association and the authentic nature of their surf products tracing back to the companys
custom surfboard manufacturing roots.
More sustained efforts to reconnect with core consumers might involve re-focusing on design and
clothing styles distinctive to local markets. Such an approach worked well for Billabong in South
Africa during the early 2000s when surf shop owner Cheron Kraak received a licence from Billabong
founder Gordon Merchant to design and manufacture clothing locally.
In 2005 Kraak helped Billabong win a fashion award as the most popular female youth brand in
South Africa. Billabong bought back the licence in 2007, started supplying stores with generic designs
and sales in the country have since tanked. Opportunities also exist to grow online retail, which
currently makes up around 10% of the big threes overall sales.
But what appears increasingly probable is that at some point in the future the big three will
themselves be acquired by larger retail corporations. The case of Volcom is instructive.
Volcom began life from Southern Californias surf/skate subcultures in 1991 and grew rapidly in the
early 2000s using the slogan Youth Against Establishment. In 2005 the brand floated on the New
York Stock Exchange. However, by 2011 Volcom had seemingly reached growth limits and was
acquired for $607 million by French luxury fashion conglomerate Kering (formerly PPR). After
delisting Volcom, Kering re-energised the brand by increasing funding to select action sports events
and athletes. Volcom is now outperforming the big three, with sales growth for the first half of 2013
increasing 19%.
Space to grow
Despite the wobbles in the Australian market, the global demand for surf-styled apparel is expected
to remain strong and there are some useful lessons among some of the newer entrants.
Hollister, a spin-off of US retailer Abercrombie & Fitch has successfully moved into surf clothing and
retail in the last decade. And smaller, culturally engaged brands are also emerging. One example is
the Byron Bay label, Afends. Afends has experienced dramatic growth in the last three years, trading
in loud, edgy apparel sold through independent stores supplemented by a strong online presence.
The brand has a growing following amongst young surfers and skaters in Australia and California and
shuns advertising in the usual surf media outlets. The problems being experienced by the Big Three
has actually created space for the growth of creative, independent surf brands, thanks to the
reduced threat of acquisition.

Problems facing the large surf brands such as Billabong are a reminder that doing business in surfing
is volatile and inherently risky. But the big three will survive in one form or another. The challenge
for them and other emerging brands is to maintain subcultural credibility.

This article was originally published at The Conversation.
Read the original article. http://theconversation.com/regaining-their-cool-can-the-big-three-surf-
brands-recover-18406
Andrew Warren does not work for, consult to, own shares in or receive funding from any company
or organisation that would benefit from this article, and has no relevant affiliations.