I’ve been keenly following the developments of Billabong in recent months. The former market leader in surfwear apparel, with a number of acquired labels under its belt including Von Zipper, Element, Nixon and Kustom shoes (they also own the retail stores Amazon in NZ), has come crashing down. At its heights, its shares traded for $12 (the company was worth a giant A$3.8b in 2007), now they’re down at a mere 13c. In February last year a private equity firm offered them $841 million ($3.30 a share)… and they turned it down. Investors were livid – and rightly so. In recent weeks other takeover talks have fallen over, leaving Billabong no option but to refinance (for $350m), sell off what brands and assets they can and hope for the best. I spent a few years in retail with Barkers Menswear, Flight Centre, House of Travel and obviously nowadays have many retailers and fashion clients, so I’ve been thinking about what we can learn from the current sad situation at Billabong. Three key messages stood out for me – and they apply to all of us in business, not just those in retail or fashion.
1 – Billabong lacked (strangely, given it’s a public company) real reliable forecasting of their results. They have become known for continually downgrading their profits. It’s one thing to forecast how your future is looking (and this is something that a lot of SMEs can get better at – or at least start to do) but you have to be realistic. So ask yourself: are you forecasting so there are limited surprises? And are you forecasting realistically? It is better to beat your forecasts than miss them.
2 – They didn’t move with the times. Billabong had some cool brands… but cool doesn’t last if you don’t constantly stay one step ahead. In the minds of their fickle consumers, they haven’t done a good job of keeping the majority of their brands and products ahead of the game. Does this resonate with you? Are you resting on your laurels from your past success? It WILL come back to bite you. You have to continually re-invent yourself; if you don’t continue to evolve your business to keep up with emerging trends and to keep ahead of your competitors (or worse case, on par!), then count on the fact that times will be hard and your future will be questionable.
3 – Finally, debt, debt, debt is a killer. We all know the “olden days” private equity model but, for obvious reasons, my advice is to be really careful with getting yourself too “ladled up” with debt. There is a high chance that you can make your current business more profitable by many means other than taking on more debt to buy this or buy that… Just look at Yellow Pages in NZ – ouch. It is highly likely you have many under-utilised assets in your business that you can make work harder for you. And by assets I don’t just mean traditional assets – I mean soft assets (effectively your brain and culture) like people, brand, customer experience and innovation. These are worth more than your physical assets and without getting the most out of these soft assets, all the physical assets you have will quite possibly be underperforming! I really wonder what the people and culture was/is like at Billabong.
So good luck in making sure that you do not become a Billabong. Business Changing will try our best to help you not fall into their traps! The great thing about being in business is that you can see what works or does not work for others and learn from them.
Cheers all… Contact Zac for business coaching…
Good observations Zac and very accurate.
When we had our cider company ( sold now to Db) , across the whiteboard never to be deleted was CIMITYM – borrowed from venture capitalist Jenny Morel – ” Cash is more important than your mother “. When we added $ 750 k in staff and $ 1.0 m in pysical assets, we guarded cash even more .
Think the other thing that companies need to focus on is – timing. Assuming your ambition is to sell out at a great profit , you have to do things
1. Design your business to be attractive to others , not just yourselves
2 Regularly take external advice on what your company is worth to others, not any self inflated views or that the company ” owes me “. As you point out, they had everything in this regard and the founder turned it down. He is now paying the price
Keep up the good work
Zac de Silva says
Hi Tony – thanks for your comments. Yes very important that business owners keep a realistic view on what their business is worth. Obviously it is easy to be a bit delusional (I have been there and done that in the past, in my younger days if I am totally honest ha ha). Love that saying, I will cherish it for the rest of my business life, thanks for the wisdom!
Brenden Jones says
Good article mate. I think u shd b running another sizeable company again with your experience. Or start a private equity firm to take over these failing coys, they’re making a killing here in the uk doing that
Nick Paulsen says
I think one of the major reasons Billabong failed was because they didn’t take any time to understand the NZ market. Steve Alach built Amazon into a powerhouse but Billabong came over with huge arrogance thinking they could topple the NZ surfwear scene. We are not Australia and do not want to be treated as such, a huge in-justice to Amazon who I feel was one of the top streetwear branded stores within NZ
Jonny Harper says
Wow such an iconic brand too! I’m really enjoyed this read.
Ashwin Ranchhod says
I need a vehicle to invest in…..do it Zac de Silva be the new GPG……but a successful one!
Jim Sturgess says
Zac, agree. Companies that have been consistently successful over many years have a few, but one major attribute in common – the ability to change.
Tim Jones says
Great article Zac – even though I’m a SME my big goal over the last year is debt reduction so we can easily service all our base costs during any downtimes.
Zac de Silva says
Hi guys, thanks the comments! Bud, ha those were the days! Hope your good Jim (and enjoying the ASX!) and agree! Nick agree! Tim and Jonny, you are both wise SME business owners!