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Details on Industry Insight.
Can New Quiksilver Line Reach Beyond the Beach?
By NICHOLAS CASEY
The Wall Street Journal
March 6, 2008; Page B1
Quiksilver Inc., a brand long favored by sun-baked surfers, is banking on a clothing line aimed at 20-something women to help the company branch out.
The new line, which starting this summer will be sold by retailer Nordstrom Inc. and Quiksilver's 669 stores, among other outlets, will keep the brand's name and wave-and-mountain logo. But it marks a change in tack for the company with headquarters in Orange County's "Surf City," Huntington Beach, Calif.
Quiksilver's original line of wetsuits and swimwear was aimed at teenage boys who identified with surf and skate cultures. The company's Roxy brand was started in 1990 to target surfer girls with branded sandals and swimsuits.
Now Quiksilver is aiming to appeal to women who may have never hit the waves, with items from sweaters to jeans, priced around $40 to $100. The line "looks back to the past, to figures like Jackie Onassis," the company says.
The move is more evidence that for teen-oriented retailers like Quiksilver -- niche brands with big growth ambitions -- continued expansion requires courting a following beyond their founding cliques. Most recently, American Eagle Outfitters Inc., known for clothes popular among high schoolers, announced it was getting into the children's business with a new brand called 77kids. In 2004, Abercrombie & Fitch Co. reached for a more upscale crowd when it opened Ruehl No. 925, a concept store targeting customers in their 20s and 30s.
In an office adorned with shots of big wave competitions in Hawaii, Quiksilver Chief Executive Bob McKnight spoke about plans to open more stores in the Midwest: "It's about going into territories you haven't covered yet."
Quiksilver made a similar promise before. In 2005, the company spent $305 million to acquire Skis Rossignol S.A., a French manufacturer of skis and snowboarding equipment, citing potential for Quiksilver to extend its reach onto the slopes. But the acquisition proved a big mistake for the company when a series of winters with a dearth of snow discouraged customers from buying skis.
After the division reported another operating loss last year, $40 million in 2007, Wall Street grew nervous. Quiksilver shares tumbled, and in February company President Bernard Mariette, a Quiksilver veteran, abruptly resigned, vowing to form a group to purchase Rossignol back from its parent.
In the interview, Mr. McKnight said he believes that Rossignol has the potential to be "the best outdoor brand in history," but it's a process that could take 10 years or more -- time he says Wall Street wouldn't allow him. "We kept telling the story and spinning the yarn" promoting the division, Mr. McKnight said. "But in the end, they lost faith."
The acquisition of the hard-goods company proved not to be a good fit for Quiksilver, whose forte is selling apparel, Mr. McKnight added. The stumble has taught him that for the time being, the company should focus on lower-cost projects "like the women's line, rather than buying a $300 million ski company," he said.
Last year, Quiksilver's apparel and footwear revenue rose 19% to $2 billion, making up the bulk of the company's $2.43 billion overall revenue. In its new venture, Quiksilver will face competition from established women's brands such as Urban Outfitters Inc.'s Anthropologie and Liz Claiborne Inc.'s Lucky Brand Jeans, which are vying not just for female customers, but also for the attention of retailers.
Mr. McKnight acknowledged the competition in the women's arena but said he was confident that his brand "has a different slant." Another plus, he noted, is that many items in the line range about $10 to $20 less than the average. The company's foray also stays well within Quiksilver's familiar territory on apparel, he said. "We're not making runway dresses," he said. "What we do is very basic ... we tend to stay pretty safe, and I think our customer is pretty safe."
Quiksilver spent 2006 recruiting designers with track records at trendy brands, and last year crafted the designs. The new line now features 91 styles including classy jeans and jackets sporting epaulets. Quiksilver's logo, branded prominently on wetsuits, is harder to spot in its women's line.
Quiksilver has taken a few cues from its surf marketing to build buzz. In a studio in Los Angeles's Silver Lake district, the company is sponsoring projects by six women that it dubs "visionaries in residence." They include a singer-songwriter, a bicycling activist and a performance-art rock musician. They will also hawk the new clothes, much as Quiksilver's surfing and skate endorsers do. "It's about inspiring women," says Khrystyne Zurian, 26, who is designing an environmentally friendly concept car under Quiksilver's auspices.
The big risk in such expansions is the possibility of alienating a company's original consumer. Surf label Ocean Pacific, for example, lost much of its cachet in the 1990s after it branched into other categories. It was eventually swallowed by New York-based brand managers Iconix Brand Group Inc.
Matt Warshaw, a San Francisco surfer who wrote "The Encyclopedia of Surfing," doesn't see the same happening to Quiksilver. In recent years, he says, "they've squared the circle" between surf and mainstream fashion while remaining cool among "core" surfers.
Fred Crawford, a retail consultant at New York-based AlixPartners LLP, calls Quiksilver's latest strategy a "high-risk approach," given the economic slowdown that's hitting retail. Consumers this year will be more inclined to shop at department stores than specialty clothes shops, according to a study his firm released this week. That means companies like Quiksilver need to be "battening down the hatches" and "keeping to their niche," he says.