The deal surf executives, retailers and trade media had been waiting for—Authentic Brands Group’s official offer to buy Boardriders—came last week to the surprise of few in what’s expected to be another exercise in what makes brands, well, brands.
Authentic founder and CEO Jamie Salter’s offer to buy the holder of some of the industry’s largest stable of surf and skate brands had been expected after months of shuffling and whispers over whether it would be ABG or Bluestar Alliance–another brand portfolio manager that’s gone the route of licensing to rapidly grow—to take over names that had once dominated popular culture and fashion trends.
The meat of the deal—purchase price, leadership changes and business models—was non-existent in the company’s announcement last week, leaving plenty of room for questions.
Bloomberg reported in early March Authentic would pay $1.3 billion for the owner of the Quiksilver, Billabong, Roxy, DC Shoes, Roxy, Element, VonZipper, Honolua and Surf Dive ‘n Ski businesses. Authentic said in its announcement on the offer the group does about $2.9 billion in annual sales at retail, with some 7,000 wholesale accounts and more than 500 company-owned stores.
Authentic, which is privately held, had revenue of more than $950 million for the 12 months ended in September 2022, according to Moody’s Investors Service. The ratings agency had analyzed and rated in late February the proposed debt Authentic would take on to finance a purchase of Boardriders.
Salter said in a statement last week Authentic’s acquisition—if it secures all the necessary approvals—“brings me back to the roots of my early career.”
He then offered a hint of what will be done with these aging legacy brands.
“Along with the great brands and impressive global reach that will come with this acquisition, we see Boardriders’ potential as a thriving online marketplace under Authentic’s ownership,” Salter said. “With Boardriders’ proven retail playbook, we also see tremendous opportunities to accelerate the expansion of its shop-in-shops, branded retail stores, wholesale and e-commerce worldwide.”
The Distribution Conundrum
An “online marketplace” could indicate an increased desire to gather the e-commerce of all the Boardriders brands into a single web store. Authentic had said about as much in its 2021 registration statement when it was considering going public (that filing was subsequently pulled in January 2022) when it explained its use of technology allowing licensees’ web stores to sell other Authentic or third-party brands. That’s the case with Forever 21, which is part of the Authentic brand portfolio, and the fast fashion firm’s sale of outside brands on its site.
Seeing as how core surf and skate shops often grumble quietly about how allergic they are to brands selling direct—perhaps more so than in any other fashion sub-segment, given the industry’s near hermit-like behavior when it comes to perceived outsiders—the move could potentially rub specialty retailers the wrong way as they turn in search of alternative labels to stock their shelves.
Some already have. Look at the surf brand Hurley, which is now owned by the previously mentioned licensing company Bluestar Alliance, and think about how much floor space they had in, say, 1995 versus what they have now. It’s a lot less, or none at all.
The expansion of branded stores also referenced in Salter’s prepared comment is another channel to sell direct, once again potentially shrinking the justification for specialty shops to continue carrying these large brands or—at the least—maintain the size of their current buys.
The perception to the seller and perhaps those on the business end in these deals rests on the idea that sheltering under the wing of a management firm, such as Authentic, offers brands opportunity to grow or expand into new categories.
“Under Authentic’s ownership, Boardriders will be uniquely positioned to expand the reach of our iconic brands to millions of consumers, capture market share in our core categories and grow white spaces, including premium athleisure, training and lifestyle,” Boardriders CEO Arne Arens said in last week’s statement on the offer.
That growth mentality would seem to run up against the perspective of the specialty retailer—which is in constant search of unique inventory and is also what keeps many brands coveted and special.
What Defines a Brand Anymore?
The question in this potential sale is whether brands are defined on the basis of the revenue they generate, or whether it’s more nebulous factors that branch off the concept of brand equity (is it something the consumer aspires to own, does it stay away from heavy promotional activity, who have they collaborated with and on).
Some may argue those two concepts are not mutually exclusive, but history has shown that “cool” brands can only grow so much before they tap out and either hit a revenue ceiling, or try to push past that ceiling and blow it on consumer relevance.
There are plenty of examples to pass around staying within the surf and skate space alone. In fact, look no further than the subject at hand: the Boardriders group of labels, which Authentic called “superbrands” and “iconic” in its release.
What makes them superbrands outside of sheer girth? When a line can be found everywhere from a surf shop to department store to discounter, is that when they jump to “superbrand” status?
You’d be hard pressed to find someone who places Quiksilver and Stussy in the same industry bucket. Yet, they both have roots in surf at the most basic level.
One grew to incredible heights with Quiksilver becoming a $500 million business at one point and it’s women’s label Roxy also ballooning to a similar size.
Stussy, on the other hand, is much smaller by revenue than those brands. Vernon Proper estimates sales under $50 million. Yet, Stussy’s sold in retailers such as Dover Street Market—a shop Roxy or Billabong would not (could not?) be sold in, and a store with plenty of cache that has opened Stussy up to a whole other consumer base in luxury fashion.
What avenue is preferred? That’s likely in the eye of the beholder.
If a brand is trying to hit revenue targets, it’s clearly the first path. If a founder or CEO is trying to build a lasting brand with some semblance of mystique and people are proud to wear, one might try the second with tightly controlled distribution to avoid brand dilution.
Logistics Baked into Brand Ethos
Salter perhaps sees branding in a slightly different way, with a focus on back-end fundamentals. The logic may be that if executives are dealing with less back-end headaches, such as logistics or e-commerce software, they can focus on good product design and development.
“I came to realize that most brands were structured for a different era—before the speed of digital and the complexity of global; antiquated, and ultimately difficult to retool as the market and the consumer evolves,” Salter said in the 2021 SEC filing. “Being best-in-class in every competency at every step of the value chain is an impossible task for most teams, but that’s what defines success in the traditional model. Insource all activities, capital needs and risk. A vast number of great brands are structured like this.”
Salter went on to say he met with his business partners at [private equity firm] Leonard Green and told them “the brand industry was broken” and its core problems were that it was “over-retailed, burdened by legacy cost and inefficiency and not equipped to win in the ongoing digital transformation.”
The CEO said he sees Authentic as a “new breed of brand licensing company.” The idea for Authentic, the company said in its 2021 SEC filing, is to “expand the brand licensing paradigm.”
What that ultimately looks like for Boardriders’ brands—which are in varying states of growth, age and market relevance—it’s hard to say. After all, Quiksilver, under former CEO Andy Mooney, had already attempted a strategy in which it aggressively looked to licensing as part of its turnaround.
“With each deal, because of the way our model works, we essentially get to ask ourselves the question, “If I could rebuild this brand exactly how I want it, what would that look like?” Salter said in the 2021 SEC filing. “And then we work to make the vision a reality.”
Time will tell what that vision looks like for Boardriders.
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