Billabong Is a popular Australian company whose business Includes surf. skate, snow. sports apparel, accessories, and hardware. The company started in 1973 in Gold Coast, Queensland, Australia and through their four decades of business they have established brands such as Element, Von Zipper, Honolua Surf Company, Kustom, Palmers Surf, Xcel, Tlgerllly, Sector 9, DaKlne, and RVCA brand names. In 2008, the company witnessed peaking numbers with profits of $1 58 million and $1. 2 billion in revenue. As the economy came toa spiraling downfall, the Australian clothing brand as no exception to the recession.
Many of their business making decisions in acquisitions cost the company millions of dollars, Resulting from the loss, Billabong had to make a corporate decision of selling their Nixon watch brand to help cushion some of their debt. Following their profitable year they acquired Sector 9, their now skateboard subsidiary, in which they spent an undisclosed amount. Few months later, the acquisition of an online retailer, Swell. com, was also purchased for an undisclosed amount. DaKlne was purchased for $100 million expanding their market into backpacks, luggage, and accessories.
Billabong also bought out some small clothing retail stores as a means of brick and mortar instead of building their own flagship buildings. The company took many hits over the last couple of years foreshadowing their surf brand wipeout. They lost many of their wholesale suppliers who were mainly independent surf shops and also the loss of PacSun, its largest North American buyer, who started manufacturing their own surf and swim wear. A group of private equity firms that included, Altamont Capital and Blackstone Group offered a loan package to help reduce the debt of the brand.
The package included n estimated $325 million bridge loan, purchase of the DaKlne brand for $64. 4 million, and a newly hired chief executive officer. Launa Inman who is the current CEO will be replaced by a former chairman and CEO of Oakley, Scott Olivet. Billabong denied a take over from TPG Capital last year that had a worth of approximately $842 million. This deal was a huge loss for Billabong. TPG Capital made another offer this year that was significantly lower after viewing the Billabong books that showed their tidal wave of losses.
The world’s largest apparel maker, VF Corporation, just recently alted their Interest in purchasing the brand because the two companies could not come to an agreement on the purchase price. The decisions the top level management made following such a catastrophic recession should have been reevaluated before executing. Billabong was spending too much after the fall of the economy and was not assessing the risks they were taking. After losing their main component of revenue, wholesale buyers, Billabong went to purchasing small retailers is where I think they went wrong.
Not able to know the actual price of a few of their acquisitions I can only assume they overpaid, which typically happens in any acquisitions. The selling of DaKine is a good decision in my opinion. The company Is In a retrenchment state where they are closing down many stores and are lessening their debt by selling off some subsidiaries. Following this stage they will need to start implementing a stability phase to help them recover so that in the future they can make wiser decisions when they approach again for growth and acquisitions. Showing characteristics similar to that of Border’s I believe also contributed to their recent troubles.
They need to anticipate the market trends quicker and react in a timely manner. Their main target of consumers is aimed towards the Generation Y whose apparel is trend savvy and constantly changing. Billabong took too long to fulfill and enter the changing fashions of their consumers. The trend of colored denim Jeans was in hot style early 2012 but by the time they got their Jeans on the market they had to discontinue and discount their product at 40% so that they could replenish inventories. If they had done a better Job of realizing market trends they could have capitalized on this opportunity.
Rip Curl and Quiksilver are their largest competitors when it comes to surf brands and accessories. Another flaw I could see as a consumer was on their pricing strategy. Billabong doesn’t differentiate themselves that well from the two competitors. Rip Curl is the more cost efficient brand and Quiksilver has set a higher price trying to perceive the image of a quality differentiated brand. Billabong however has a confused pricing strategy perception to consumers. They never beat Rip Curl on the prices and have higher prices than Quiksilver on various products despite having a weaker brand image.
I recommend with their acquired brands they need to market them better for brand imaging as they are specialized to fit that certain consumer arket. They must build a more dedicated consumer and company culture to assist in customer retention. With the obvious confusion in pricing I can see many consumers turning away by either saving costs by going to Rip Curl or paying a little bit more for a stronger brand like Quiksilver. Billabong has share prices have plummeted over 50% since the beginning of 2011 and the current price is at $0. 39 per share.
With the recent news of lenders helping the brand out, employees in Australia have been ecstatic to resurface the company into positive progress. Expert analysts have recommended the long term value of the stock can be possibly a good uy simply because of the refinancing package deal and new chief executive officer. They believe the company is headed in the right direction and this will help Billabong produce “average” returns over the next few years. Hopefully they will make good decisions following their deal, riding the high tide of sales or possibly nose diving into even more losses.