The Rise and Fall of Quiksilver
I have been a fan of Quiksilver clothing for a long time now. The famous logo of a cresting wave and snow-capped mountain appealed to me, although I am not a surfer. The brand evolved into a billion-dollar company in the early 2000s, broke the 2-billion-dollar mark in 2007, but then suffered declining sales thereafter. Let’s dive in to see what happened.
In 1969, Alan Green took a loan from his father to produce wetsuits at first, and later added sheepskin boots for surfers. It was not until 1973 that Quiksilver was born. Alan partnered with John Law to produce Quiksilver’s first product, the boardshort. They wanted to make a living from their surfing passion, setting up shop in Torquay, Victoria. Their products quickly became popular in the surfing community, with famous surfers wearing the Quiksilver boardshorts.
The brand was taken to new heights when legendary surfer Jeff Hakman licensed the rights to the US. It’s quite interesting how he met the founders. Hakman had won an Australian surfing competition when he met the Quiksilver founders. After striking up a friendly conversation, Hakman asked the founders if they would agree to license the rights. The founders agreed, only if Hakman ate a paper doily as a sign of commitment.
After duly eating the paper and shaking hands on the deal, Hakman quickly phoned his business partner, Robert McKnight, who was in Hawaii. McKnight had a business degree and was the venture’s finance head. McKnight worked out the details of the deal, proposing to invest no money upfront but instead promised to pay a royalty as a % of sales initially. McKnight and Hakman had no idea how the brand would blow up across the US. When they started it, they thought that it would merely sustain their surfer lifestyle. The brand gained so much traction that McKnight took a loan from his father to expand the production of the Quiksilver apparel.
The duo would price the boardshorts at a premium relative to other brands such as Ocean Pacific. That did not deter American customers from trying the brand. In a matter of days, their first batch of inventory was completely sold out. McKnight and Hakman reached out to more surf shops to widen their distribution network. The company expanded carefully in the midst of a rise in competition. Their edge came from the focus on surfwear while competitors were producing swimwear. At the start of the 80s, Hakman decided to leave the business to pursue his surfing passion in Australia. McKnight took the reins and set up the business for success by distributing the clothes to department stores. McKnight knew that the business had a lot of potential. It was not a side hustle meant to sustain his surfer lifestyle anymore.
His business strategies positioned the firm for an IPO in 1986, when sales nearly reached 20 million dollars. McKnight used the proceeds from the IPO as follows: 1) To pay off debt, 2) To buy trademarks for the US and Mexico territories and 3) to expand the production capacity to meet increasing department store demand. The brand could be found in Macy’s, Marshall Fields and the likes. McKnight brought in John Warner, who had tremendous department store experience from Macy’s. With the help of the new hire, McKnight more than doubled the company’s sales in a span of a year. That proved that the department store strategy was working perfectly.
Quiksilver naturally expanded its line of products, adding new styles and colors as well. By late 1980s, the company had a well balanced revenue stream, split across shorts, t-shirts, pants, jackets and surfing accessories. Product distribution reached over 2,000 stores by the end of the 80s, and the firm crossed the 100-million-dollar mark in the early 90s. Department store sales accounted for around half of Quiksilver’s total sales, which had the potential to bring down the business in the midst of a weaker retail environment.
This is what happened during the weaker economic conditions of the 90s. Department stores were cutting down on space earmarked for certain apparel and Quiksilver took a hit. The company tackled the problem by shifting distribution to specialty stores instead. They also bought Quiksilver’s European licensee and launched a licensing division to take care of the Western Europe geography. McKnight looked for new areas of growth in the women’s wear category. In 1991, Quiksilver launched Roxy, initially a swimwear product line. The next year, sportswear, denim and snow wear was introduced as well. The brand then resorted to a string of acquisitions to grow even further.
To solidify their operations in the women’s category, they bought The Raisin Company, a manufacturer of women’s apparel. The company even ventured into the snowboard category. All of these actions helped Quiksilver weather bad economic conditions. The revenue stream was no longer dependent on department stores. But the growth plans had just started. In my opinion, I think that McKnight wanted total control over the brand. That’s why he snapped up franchisees in other locations as well. By 2002, he bought the Japanese and Australian licensees. Two years later, the company bought DC shoes, which helped propel the company’s revenue to above 1 billion dollars. But the acquisitions did not end there. Other brands such as Rossignol, Dynastar and Look were acquired.
Revenues ballooned to over 2 billion dollars thanks to these acquisitions. But that proved to be the company’s downfall. They might have been expanding in different categories too fast. They thus started selling off smaller brands like the Waterman Collection and Quiksilver Women, and they even dropped out of the skate market. In 2014, they took nearly 190 million dollars in goodwill impairment charges related to the acquisitions they did earlier. That basically meant they were writing off the brands, as they did not deliver the projected value.
By 2015, Quiksilver filed for bankruptcy, securing a loan from Oaktree Capital Management to work through the restructuring. I read up on the reasons they filed for bankruptcy. Here they are. Overhead operations were widespread, failing to derive economies of scale. Manufacturing and design divisions were geographically separated and not in sync, leading to delays and backlogs. They over-diversified their portfolio, losing focus of who they were. Kelly Slater, the pro surfer who won 11 surfing championships, even cut ties with Quicksilver after being with the brand for decades. But the company exited bankruptcy under a new name, Boardriders. I am not sure where they are headed from there.
Do you like the Quiksilver brand? Do you think that the company grew too fast? How much more can they grow from here? As always, let me know what you think.