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Surf wear makers hit rough waters

Sales are hurt by the economic downturn and changing trends. The industry seeks to differentiate itself.

May 19, 2008|Leslie Earnest | Times Staff Writer

LOS CABOS, MEXICO — On a recent hot night in Baja, short-skirted women gyrated alongside beer-drinking men at the legendary nightspot El Squid Roe, and Fernando Aguerre dispensed shots of tequila to anyone who would have one.

But the party atmosphere during the Surf Industry Manufacturers Assn.'s annual Cabo Crawl belied rough waters for the people who make board shorts and bikinis. Business has been hurt by the economic slowdown, leading to declining sales and falling stock prices.

"Right now, everybody's paranoid," said Aguerre, co-founder of the Reef sandals brand and president of the International Surfing Assn. "I think the whole industry probably has a sharper eye on their financials."

Many businesses are being hit by the economic downturn, but the surf industry has another issue to contend with: the location of many of the surf shops that bind manufacturers to their core customers, said analyst Mitch Kummetz of Robert W. Baird & Co.

"You look at California, which is the epicenter of the surf/skate market, and that's where a lot of these surf shops are located," said Kummetz, whose monthly board sports report tracks independent surf and skate retailers across the nation. "Southern California and Northern California have been very difficult markets of late due to the housing market."

Two iconic surf wear companies based in Southern California, Huntington Beach-based Quiksilver Inc. and Anaheim-based Pacific Sunwear of California Inc., are among those that are struggling.

Pacific Sunwear, the largest specialty chain selling surf and skate brands, said last month that its net income for the fiscal fourth quarter dropped to $5.2 million from $9.1 million a year earlier. Its shares have plunged 23% since Jan. 1, dipping 13 cents Friday to $10.91.

Quiksilver, meanwhile, swung to a $21.9-million loss for its fiscal first quarter ended Jan. 31, compared with a $2.5-million profit a year earlier, as its winter sports division flagged. The stock, which traded over $15 last summer, fell 5 cents Friday to $9.81.

Quiksilver Chief Executive Robert B. McKnight Jr., however, didn't look the least bit worried Wednesday, the first day of Surf Summit here, an annual event during which seminars are squeezed between rounds of surfing, swimming, golfing and partying. Demand "just goes in waves," he said, and people in the business have to learn to go with it. The industry veteran's advice to his cohorts: "Don't let it freak you out."

The surf wear industry was riding high a few years ago, as a new wave of female customers were drawn in by the movie "Blue Crush," staring Kate Bosworth and Michelle Rodriguez, and television shows featuring female surfers, Kummetz said. More recently, however, the trend has shifted to fast-fashion retailers such as Forever 21 and H&M.

Getting dumped by female shoppers is particularly painful because they outspend their male counterparts.

To flourish in a difficult market, teen retailers seek ways to differentiate themselves. The surf industry does that by trumpeting its authenticity, meaning its roots actually trace to the water.

That's where Surf Summit comes in. The tribe, as the industry describes itself, bands together for four days, reveling in the rituals that define it.

"It's an industry that operates on vibe and soul and credibility and authenticity, and [those things] usually come from people respecting other people who surf," said Bob Mignogna, who was publisher of Surfing magazine for three decades. "It's the reason we're in this industry and not in banking or insurance or something else."

The fun can morph into money. For example, being named breakthrough brand of the year at Surf Summit gives a young company a marketing advantage and can make it look like a smart buy for larger companies, Mignogna said. Xcel's Infinity series was named wetsuit of the year in 2007 as the industry veteran, now a mergers and acquisitions consultant, was helping ink a deal for Billabong to buy that brand.

"That was quite nice to have in our back pocket when we were doing that deal," Mignogna said. (Xcel snagged the wetsuit award again this year, and Insight was named breakthrough brand.)

Helping the industry ride through the tough times is one reason Surf Summit continues to draw more than 300 participants, despite the economic challenges.

"Back in the day, trying to get people to the seminar was a bit like pulling teeth," said Sean Smith, executive director of the Surf Industry Manufacturers Assn. in Aliso Viejo. "Basically, we were talking to ourselves."

Although the seminars now are well attended, Aguerre says disconnecting from day-to-day business also is important. The best ideas don't always spring from a conference call or a hastily called meeting.

"We talk about business all the time," Aguerre said -- revenue, new orders, delivery deadlines. And that can "kidnap our ability to dream."

"Enough of that. We need to talk about some other things too," he said. "It takes time to wind down your day-to-day work and wind up the left side of the brain."

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