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Interesting Volcom business notes

By Tiffany Montgomery
September 26, 2008 5:25 AM

Volcom CFO Doug Collier spoke at an investor's conference in New York this week.

I listened to the recording, and made notes of some interesting business details mentioned by Doug, pictured below.

Doug CollierThe format of his presentation was a conversational Q & A, with a stock analyst asking questions and Doug answering them.

Here are the details that I found interesting:

Juniors: The analyst asked Doug if Volcom plans to expand its girls business. Doug said given the volatility in the juniors market, the company thought it was best to keep Volcom Girls about one-third of its business.

He also said the company thought it was good to keep it that size from a brand perspective, because Volcom is perceived as a guys brand.

He described the girls market as very competitive and volatile and girls as not as brand loyal as guys.

PacSun: Doug said Volcom's relationship with PacSun is the best its ever been, with strong communication on both sides that has really helped the planning process.

Europe: Doug said Volcom is currently evaluating on a country-by-country basis if distribution can be broadened beyond the core level, possibly into select department stores or sporting goods stores.

Volcom will do that in a country only if it feels its core business is very strong and it can move to that next level without upsetting the core base.

It is also important that Volcom has strong personal relationships with the core market before it makes that next move. And, that Volcom is a big part of the core retailers' business so that the core stores have an incentive to maintain the relationship, Doug said.

Doug cited Quiksilver as a company that has done a good job of growing its distribution while still staying relevant in the core surf market.

Countries such as Spain and Germany where Volcom has bigger business could be possibilities for broadened distribution, he said.

Japan: Doug provided some more insight into why Volcom recently purchases its Japanese distributor.

He said Volcom has worked with the distributor for a long time and they see eye-to-eye. The distributor has done a great job with the business, especially at the core level.

Volcom believes Japan can be a much bigger business for the company, especially if Volcom creates special sizes and follows some color trends. Creating specialized product for the market is beyond the scope of a distributor, however.

Now that Volcom is bringing the operation in-house, that can happen. Volcom kept the distributor's entire team, and added a new general manager and controller. Both executives speak very good English and have experience working with U.S. companies, Doug said.

Because the distributor has done such a good job with the core market, Volcom believes there is an opportunity to move that next level of retail distribution in Japan.

Also, the company expects it can lower prices in some categories while improving margins because it has brought the operation in-house and eliminated the cost of intermediaries.

Laguna Surf & Sport: Doug described LSS as an influential account in Laguna Beach and in Southern California. He said LSS "became available" and before someone else purchased it, Volcom moved in.

That way, Volcom ensured it would continue to have shelf space in this key account. Doug said Volcom will continue to carry other brands in LSS stores because it likes to see Volcom's product on the floor competing with other brands.

He also said there is a potential for opening a couple more LSS doors, but it doesn't sound high on Volcom's priority list.

Current environment: Doug said competitors are offering in-season discounts, and Volcom has had to play in that area.

He also said prebooks are down, and retailers want to order more in season. Thus Volcom has built more speculative inventory, but because that doesn't always work perfectly, some goods have moved into the off-price channel, he said.

All of that has lead to a little bit of a hit on gross margins, he said.

Acquisitions: Doug said acquisitions are part of Volcom's strategy, and it is interested in companies that fit into Volcom's core competency.

He cited Volcom's purchase of Electric as an example of Volcom's philosophy about acquisitions. Electric fills a category Volcom wasn't in but is still in the action sports market.

Doug said Volcom is interested in good brands with sizzle which may not have the financial resources to fund their growth.


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