MOSS ADAMS CAPITAL: Apparel and foowear market monitor highlights notable deals, stock prices and results.
Details on Industry Insight.
I followed up with Cary Allington, a partner in the business, to see how the enterprise is going.
ActionWatch provides in-depth data of sales at surf and skate shops. It plugs directly into point-of-sales systems and can measure market share, margins, sell-through and lots of other data for different brands and products.
It remains to be seen if the action sports industry is ready for this kind of data, Cary said, which requires more retailer participation and manufacturers to increase budgets for market research.
Some retailers I know were initially leery of participating. They worried about sharing data and about somehow giving manufacturers who purchase the data an advantage.
But the retailers told me after they began using the data, they liked comparing their results against those of the retail panel and found it a useful way to track business trends and performance.
Cary answers some questions below about how ActionWatch works and what retailers can gain from joining the program, which is free for store owners.
At the bottom of the Q & A, I added ActionWatch's first quarter sales report and a sample data page.
Why and when did you and your partner start ActionWatch?
I left my job as marketing director at Vans in 1999 to go back to school for an MBA, where I realized through reading of multiple case studies required in business school that our industry had significantly less information available than a lot of other industries. I felt like we could have made better decisions at Vans if we'd had better market information. So, after finishing business school I started looking for a partner who could manage the technology side, but we did not start developing ActionWatch until 2004. It then took us quite a while just to put the initial technology together, which required a lot of custom-developed software.
Can you give me a few examples of the data that ActionWatch measures?
The 140 stores currently on the panel provide monthly reports directly from their POS systems that show-at the item level-units sold, sales price, wholesale cost and units remaining in inventory. These numbers allow us to report on both dollar and unit market shares, average retail selling prices, average retailer margins and other pretty useful metrics - and these numbers are available down to the model level in most product categories. Also, the panel is composed only of independent specialty surf and/or skate retailers-what some call the "core" channel-so there are no large chains such as PacSun or Zumiez.
How does the firm generate revenue?
Our business model is a mirror image of this same type of service that has existed for a long time in other industries. We trade with our retail partners. They provide individual store reports, we provide aggregated reports back to them. We sell to the industry suppliers and to financial analysts who cover companies in this industry. We've also sold data to financial industry managers who were considering making large investments in privately held companies and wanted to get better information about those companies' competitive position in the core retail channel.
What do retailers get out of the arrangement?
Like in most other industries, it is a completely free program for retailers. Participating retailers receive access to a set of about 60 aggregated data reports which are updated each month. They use the reports for benchmarking to compare their store against and also to get a better idea of how the various brands are performing in other stores like theirs across the country. This information can often help them in negotiating with their vendors.
Another big benefit that retailers get from the program is that ActionWatch increases the voice of the independent specialty retailer in our industry. This is something we've been preaching a lot recently, because this program is a great way to make sure suppliers are paying attention to what is going on in this channel and not just the big chain retailers.
Is individual retailers' data kept confidential?
Market research companies could not exist without an agreed upon and upheld level of confidentiality. In our case, retailers' individual store data is translated into a common product naming language and then merged with the data from all the other retailers' data on the panel. Only after it has been translated and merged together is it available to our customers and retail partners, so the individual retailer's data is kept completely confidential. We also have set up a ton of security to further protect retailers, including using industrial strength hardware and software firewalls and not keeping any retailer names or contact information on our servers.
What has been the response to the data?
There are a bunch of testimonials on our website from retail participants, including one from Bruce Cromartie at BC Surf & Sport who starts off with, "I would definitely recommend ActionWatch to other specialty retailers." We've heard a lot of great stories about how retailers have used the reports to help them make their businesses more profitable.
Our customers have also responded very well to the program. Quiksilver employees have logged in to view ActionWatch data over 100 times in the last six months. The data is very robust but also quite easy to navigate, so it's a great package for our customers.
What is ActionWatch's biggest challenge going forward?
We have two big challenges. One challenge is getting even more retailers involved so that we have enough to ultimately split the panel at least in half and report sales for the west vs. the east. Although this type of market research program has existed for a long time in other industries (including similar industries such as outdoor, ski, tennis and even scuba), it is a new concept for most surf and skate retailers. Many retailers in this industry tend to be uncomfortable sharing data, so it is a challenge to help them understand the program has good benefits with no risk and, frankly, that they can trust us.
Challenge two is getting more customers. This type of market research program is not only new to retailers, but also new to manufacturers. Since market data like ours has not been previously available in this industry, people have not been exposed to it and also have not been required by upper management to use anything like it to support business plans or other business decision making.
How are you trying to overcome that challenge?
Regarding the challenge with retailers, we're doing everything we can to expose retailers to the program from multiple sources so they're not just hearing about it from us. For example, we partnered with Transworld Business to provide data for the monthly "Core Retail Report" column - the ActionWatch logo is at the bottom of that page every month. We've also been officially endorsed by the Board Retailers Association for a couple years - they have promoted ActionWatch participation to their members. But we would like for a few more industry suppliers and associations to get involved with encouraging retailers to participate - this industry needs better market information, but a program of this magnitude ultimately needs broad industry support to succeed.
Will ActionWatch make it?
We have been trying to get industry support - both from retailers and manufacturers - for over four years now for this program, and it is taking much longer than we had expected. It's possible that we misjudged and that this industry is not yet ready for a market tracking program this robust. It requires retailers to share data on a level they haven't done before and will require manufacturers to substantially increase their market research budgets. We have subscription agreements through the rest of this year but will have to seriously re-evaluate this fall if we still haven't been able to make more progress.
Here's the ActionWatch first quarter press release:
ActionWatch Retail Panel Reports Sales Revenue Up in First Quarter but Down in April
Sales revenue figures compiled from the ActionWatch Retail Panel show that sales in the combined three months of Q1 2008 were up by 4.5% over sales in the first quarter of 2007. However, sales in the first month of the second quarter were down 1.6% compared to April 2007. While sales of apparel and hardgoods were down in this period, sales of footwear and accessories were higher than in April last year. This data only includes stores that were on the panel in the same periods of both 2007 and 2008 to provide an apples-to-apples comparison.