Inside Boardriders' plans for the group's future in Europe
today Oct 31, 2019
The surfing and board sports sector is undergoing significant changes. Nike has agreed the sale of Hurley to brand management company Bluestar Alliance, and Kathmandu has acquired Rip Curl, but the Boardriders group is firmly anchored in the industry. Boardriders owns, among others, Quiksilver, Roxy and DC Shoes, and was acquired by the Oaktree Capital investment fund in 2015. At the start of 2018, the group bought its long-standing competitor Billabong, owner of RVCA and Element, and the integration of the two organisations is in progress.
In Europe, their joint staff is merging together at Boardriders’s headquarters in Saint-Jean-de-Luz, in France’s Basque region. It is a delicate transformation phase for the group, with a restructuring drive affecting 136 jobs in Europe and the appointment before the summer of a new EMEA and APAC President, Greg Healy. Against this backdrop, in September the group announced the decision to sell its European headquarters, as reported also by several French news media.
FashionNetwork.com has asked Dave Tanner, the CEO of Boardriders Inc., to provide details of these developments. Tanner, who succeeded Pierre Agnès at the head of the group, defended the group’s ‘Growth Agenda’ plan, which relies on seven cornerstones designed to enable Boardriders to consolidate its position and expand into new competitive arenas.
FashionNetwork.com: The European headquarters of Boardriders and Billabong were both located on France's Atlantic coast. A reorganisation plan [for Europe] was presented at the start of the year, and was approved by the French authorities before the summer. [Boardriders and Billabong] employees who have remained are now located at the Saint-Jean-de-Luz offices, which you decided to put up for sale. This has raised questions about the group’s future plans. Why is Boardriders selling its headquarters?
Dave Tanner: For a long time, we have been considering various options for our premises at Saint-Jean-de-Luz. It’s happening at what is, frankly, a rather strange juncture. Rumours have been rife about the reimbursement of [the group’s] debt, its renegotiation, and the future of the group and its European subsidiary. It has all gone rather too far. First of all, I’d like to say that ours is a leaseback operation. It’s something that many corporations do, and we did the same in Australia a few months ago. We’re talking about a lease of at least 10 years, probably longer. We are using the funds to finance our growth plan. We’re convinced that this cash can be put to better use in bolstering our brands. And it's all the more pertinent as we are now integrating within the group the assets we’ve acquired, like Billabong. This will allow us to rapidly tap the benefits of this synergy.
FNW: Are you saying that this operation is not linked to the reimbursement of the debt you incurred when you bought Billabong?
DT: We have zero problems in paying back that debt. Our level of indebtedness is not a worry, if you compare it to industry levels, and we don’t have any reimbursement deadline before 2024. When we bought Billabong, we approved a six-year plan. Talking about a debt-reimbursement issue is totally off the mark. Our owners are well aware of the strategy. Broadly speaking, a merger takes three years. A year and a half have now passed. The whole plan was drawn up more than two years ago. There isn’t any news. Besides, we don't have any significant financial worry. Operating income may be negative, but this is due to the fact that we are incurring restructuring costs for non-profitable elements of the business, such as stores that are operating at a loss.
FNW: Do you think this strategy will make Boardriders profitable again?
DT: In terms of the bottom line, we are markedly improving. If you look back to four years ago, when our owners Oaktree Capital and the management team took over Quiksilver, they were faced with the job of staving off the company’s bankruptcy, and dealing with negative profitability. We saved the company by injecting fresh capital, by restructuring the US subsidiary after filing for Chapter 11 bankruptcy protection, and we turned the situation around in two and a half years, going from negative profitability to being in the black by over $70 million. This gave us the muscle to allow us to buy Billabong. Through this acquisition, we are consolidating the industry and creating synergies between the two groups. We also identified the possibility of cutting costs for $90 million as a result of the merger. We are already set up to reduce costs for $70 million out of these $90 million.
FNW: In Europe, the merger of Billabong and Boardriders meant the closing down of Billabong’s headquarters in Soorts-Hossegor and the pooling together of the staff at the Saint-Jean-de-Luz offices. This meant there were job cuts.
DT: With regards to the plan, it was drawn up two years ago, even before the acquisition came into effect. And we worked on it with the management of both Billabong and Boardriders. Pierre Agnès had an incredibly deep knowledge of and a vision for Quiksilver. He and I worked together on a daily basis for two and a half years to put the company back on its feet. He supported me in becoming CEO. In January 2018, he and I made the project public, and announced my appointment as CEO. Pierre and the French management team were well aware of the plan. They devised the strategy with us. The point I want to stress is that the decision wasn’t driven by the USA.
FNW: When will the transfer of Billabong’s staff to Saint Jean-de-Luz be completed?
DT: At the end of October.
FNW: Yet, between the ongoing activity and the announcement that [Boardriders] wants to sell its headquarters, the perception in South-West France is that the group is finished in the region.
DT: We are not leaving France! There is zero risk that we may leave France. Quiksilver and Roxy, two of our leading brands, have their own offices and will remain there. We filed for an employee protection plan because we are merging two companies. It was part of our strategy. But, based on our ‘Growth Agenda’, we will create 25 new jobs in France. We have an international vision for the group. In France, we have Americans, Italians and Germans [working for us], and the same in California, where I work with French people. And there are also French people working in Australia.
FNW: Is there an international mix of people working in each region?
DT: Of course, and it’s crucial for business! The approach is that company employees must understand other cultures. Greg Healy, who is now in charge of Europe, is one of the group’s most talented managers. He ran operations in the US for four years. He then carried out the merger between Billabong and Boardriders in Australia. And now he will finalise the same process in Europe.
FNW: However, the DC design team has left Saint-Jean-de-Luz. Why?
DT: There were five people working for DC in Saint-Jean-de-Luz. DC is a footwear brand, and 95% of its business is concentrated in that segment. It has always been based in the USA. For strange reasons, the staff working on DC’s apparel was based in France. When you run a business, it makes no sense to have 65 people working on footwear development in the USA and five working on apparel development in France. I decided to concentrate the business in the USA.
FNW: In other words, there is no intention of relocating the Europe-based design teams for the group’s brands in the USA or Asia?
DT: No, none of our brands has a design team in Asia. We have six main brands. For three of them, the design teams are based in the US: Billabong, DC and RVCA. The design teams for Quiksilver, Roxy and Element are based in Europe, and will remain in Europe. We shifted certain operations to Asia in order to exploit various synergies. In any multinational corporation, sourcing and product development staff must work close together. They cannot be scattered around the world. You must have personnel who is familiar with specific materials and factories, and 80% of our factories are located in Asia. So, we moved our non-creative, product development and sourcing staff from Europe, the USA and Australia to our Hong Kong hub.
FNW: Speaking of design, how do you get Billabong and Quiksilver creatives to work together, after being close competitors for many years?
DT: For 50 years, as it happens. I don’t want them to work together! It's a key element in our strategy and one of the first things we stipulated at the time of the acquisition: “Make sure the design teams are always buzzing. They must be constantly pushing themselves.” It's healthy for the business. We don’t share out the creative, marketing or design teams. And we don’t share ideas. What we do share is sourcing, distribution networks and the administrative and technical support functions. If we want our brands to stay healthy in the long term, we must retain this level of competition.
FNW: How are you going to grow?
DT: In September we published our ‘Growth Agenda’. It’s based on seven cornerstones, with a multi-year investment plan on 20 growth-driving initiatives, all underpinned by rigorous analysis and relying on the integration we have achieved, and on optimising our operations. We will be investing tens of millions of dollars next year, and the figures will be even higher for the next three years, with a recruitment drive that includes the 25 new jobs we are creating in France. We believe these initiatives will enable us to generate hundreds of millions of dollars of additional sales.
FNW: The plan includes strengthening the women's range, more digital tools, better sourcing, new licensing deals, new models to respond to the expectations of your key clients, developing new product lines and boosting sustainability. A lot on the plate at the same time.
DT: And in parallel, we will complete the integration process we began two years ago. We wouldn’t have announced this plan and its cornerstones to our lenders and our shareholders if we weren’t confident about our potential. This is why, when I see the media in France questioning the group’s future, my reaction is that it isn’t a true picture. You have contacts within the group, and of course some have been affected by the merger. But look at the group’s situation now, compared to four years ago. What we did to get where we are now required a lot of effort.
FNW: Are you still forecasting a revenue of $1.9 million for this year?
DT: Yes, it will be in that order of magnitude.
FNW: And how do you see the group evolving in the next few quarters?
DT: We have a multi-year plan. Through the ‘Growth Agenda’, we’re targeting additional sales worth $700 million. In our industry though, you need to be patient, since the products we are designing now will get to the market in 9 to 12 months. If we hire more designers, as we are doing, their work will be visible in 12 to 18 months. We’re forecasting growth in the 2020 financial year, stronger growth in 2021 and a real boom in 2022.
FNW: You underlined the strength of Boardriders’s brand portfolio. Are you thinking about selling any of your brands? Are you considering new acquisitions to complete the portfolio?
DT: We aren't currently planning to sell any brand. We are fleshing out the group’s organisation, and we’ll complete the integration process in the next 6 to 12 months. Once we’ll have done so, we will be in a position to add other brands and integrate them with our platforms. We don’t have any immediate plans in this respect, but I think that we’ll be able to do so in due course.
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