- Increased popularity of other sports
Skateboarding has also become more popular which has diversified the product range. It is a popular sport because, like surfing, it requires little skill and can be attempted at almost any age. Skateboarding however is more popular as it is more accessible and people can practice or take part almost anywhere such as in their own driveway. It is estimated that today there are at least 20 million people who take part in skateboarding in America alone.
These statistics have affected Billabong as they have spread into umbrella companies as discussed before. One of these brands, Element, focuses on skateboarding only and is currently even more successful than the Billabong brand. ()
- Urbanisation
Urbanisation is increasing globally as there are generally higher economic opportunities in cities raised through careers, education, housing and more accessible transportation options. Urbanisation is threat for Billabong as people move away from the beach they are less likely to utilise Billabong products. Although some major cities are still located on the coast, such as Sydney, Australia, not all areas have this accessibility- especially in America which is Billabongs highest consumer. The top three growing cities in America include Raleigh, N.C., jumping 4.9% from 2007 to 2008, Austin, Texas, with a 3.77% increase and Charlotte, N.C., which moved up 3.36%. Both North Carolina cities are approximately 3 hours from the coastline and Austin, Texas, is even further being a 4-5 hour drive. ()
Although these transitions cause a negative impact for Billabong there are some which create an opportunity, such as many people moving to Denver in Colarado with a 2.17% increase from 2007 to 2008. This opens an opportunity for Billabong to sell their snow products, something which is very limited in Australia due to the hot climate.
Political and Legal
- Reduce export barriers
Over recent years the Australian Government has decided to become more lenient on the terms of international trade and investment flows by lowering the trade barrier. This has allowed for more imports and exports to transfer between Australia and the Euromarket which works both negatively and positively for Billabong.
It is negative as there is higher competition through this force as other companies come in and sell their products within Australia, however the benefits outweigh this. Positive results include using cheaper and more accessible outsourcing for Billabong products and mainly that Billabong can export to other countries for increased sales.
- Deregulation of financial markets
The deregulation which occurred in Australian in the 1980s was a positive thing for Billabong as it allowed for Billabong to expand into the overseas market and put the company on the international radar. In turn this boosted the sales and reputation of Billabong allowing it to become a publicly listed company in 2000.
- Aust. government protection of domestic manufacturers
Another positive legal factor is the protection offered by the Australian government to Billabong. This is because of the continued protection of domestic clothing and manufacturing which supports local companies and in turn boosts the Australian economy. This protection is carried out through the maintenance of tariff barriers which increase the price of goods produced by Billabong’s foreign competitors so that they are not at a hugely reduced price when compared to Billabong.
Environmental
Billabong has adopted “Be The Change You Want In The World” as a guiding statement in their offices. This is to help promote a more responsible world and act as a philosophical challenge for their staff members individual decisions when inside and outside the workforce. To operate with this statement Billabong has implemented several environmental strategies including carbon reduction, recycling and sustainable products.
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- Carbon reduction
Billabong began a carbon reduction plan at the beginning of 2012 which aims to reduce 15% of their emissions over the next five years. This is expected to be achieved through the introduction of energy efficient lighting technologies within retail stores. Other initiatives are implemented at a workplace level such as use of videoconferencing instead of overseas travel, phasing out of paper-based procedures, reductions in packaging and including environmental performance as a target which is tracked.
- Recycling
Recycling takes place in the office and also in the products. Billabong uses a new innovative fabric known as eco-suede which is made from recycled plastic bottles, as well as all the pricing tags being made from recycled stock. Over the 2010-2011 financial year period Billabong recycled over 49 tonnes of their packaging and technological supplies, which meant they used 35% less paper and 17% less cardboard packaging to ship goods.
- Sustainable products
Billabong is currently using innovative and environmentally friendly materials, as previously mentioned the eco-seude is an example. This project has diverted an estimated 40 million plastic bottles from landfill over the 2007 to 2011 period so far. Another sustainable material utilised is organic cotton which is a natural fibre so has a lower impact on the environment. Pesticides and fertilizers are also eliminated in the process of growing the cotton and crop rotation is practiced to minimise watering the plants. Further into the process Billabong ensures water-based inks and dyes are used in the printing of their garments which are not as harmful to the environment as synthetic or chemical based techniques used in most companies.
Technological
- Innovative designs
Billabong stays ahead of the competitive market with continual technological advances in both their product designs and in store experiences. An example of the in store experience was tested in Manly on the Corso store in 2011, with GoSea touch screens allowing customers browse surfing holidays and lessons then book them on the spot for discounted prices. This provided a tangible experience for the company which improved customers shopping experience by utilising the senses. ()
With their product designs Billabong has created many revolutionary wetsuits and boards, however a most notable innovation is the Billabong V1 wetsuit with a built-in instantly inflatable air bladder. This is only available to competitive surfers currently to help save lives when surfing on extremely large waves.
(). These technologies allow Billabong to stay ahead of their competitors, such as Quicksilver, as it gives them an advantage and shows the customers that their design team is continually working to produce the best products available at this time.
- Media e.g. web, facebook
Today’s retailers have to make the most of media opportunities as customers have become tech savvy and are looking for a constant flow of information through social media sources. These networks are a major influence on customers as they shape behaviour, styles, purchasing, word of mouth and more. Billabong utilises several of these outlets although could change the way they operate them to increase potential.
Billabongs’ Facebook page is the most popular of their social media sites with 2,094,528 followers and their twitter page is also quite popular with 33,893 followers. The problem with these sites for Billabong is that the updates are mostly about issues related to their products, such as surfing competitions, though do not focus or update on their products regularly enough. In turn their social media sites act as a newsfeed for international surfing updates, which is great for those who participate in surfing and follow the sport however it loses the attention of their customers who just buy the products. ()
Opportunities
Increased popularity in other sports allows for new sub-brands.
Urbanisation: more people moving to snow areas.
Environmental movements: attracts environmentally aware customers.
Export barriers reduced make it easier for trade.
Government protection of domestic manufacturers increases profit.
Advertising through social media.
Innovative designs which gives competitive advantage.
Threats
Rising levels of living costs and decreased consumer income.
Exchange rates causing consumers to buy overseas.
Fashion trends which surf and snow wear cannot keep up with.
Urbanisation: less people living on the coast.
Emergence of sporting brands which pro-surfers prefer.
Industry structure
Bargaining power of suppliers
The cost of items bought from suppliers has a significant impact on profitability for Billabong. Since Billabong became international they outsourced manufacturing to small or mid-range sized companies who are all located in third world countries. Unlike other companies however Billabong follows the SA8000 Accountability standard and therefore no forced labour or child labour is practiced. Due to the location of these companies they have no actual bargaining powers and it is unlikely that they would try to integrate vertically anyway.
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Bargaining power of customers
The bargaining power of customers is also slim due to the product range. In generic retail it is easier for customers to have bargaining power as department stores can offer similar products for a much lower price than branded stores, however with surf and snow gear common companies cannot copy these designs as they do not have the budget or resources e.g. to produce wetsuits.
It is also unlikely that in the first world economies Billabong sells their products to that consumers would be able to find a retailor to product a similar personalised product at a cheaper price.
Threat of new entrants
In the retail business it is fairly easy for new entrants to set themselves up, for example Billabong did exactly this in 1973, however today it is even easier with more channels in the industry and people are looking for new, innovative and unique designs.
Just a few examples of surf, snow or skate companies who have come onto the competitive market in recent years include:
Rhythm – A clothing and swimwear company producing innovative designs with indie/hipster prints on their board shorts and other products.
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Rival – A spin off company from Running Bare who focus on athletic swimming products, including those made for surfing. ()
Threat of substitute products
As stated before in the bargaining power of customers, there is little threat of substitute products as common brands do not have the resources or interest to produce surf and snow gear. There is however a threat with direct products such as competing brands in the same industry including surfwear giant Quiksilver and the new entrants as previously mentioned.
The larger companies are a major threat as they are already well known and have loyal customers. They are also threatening because people know they are similar to Billabong so if a customer wanted to switch brands they could easily move to Quiksilver, Roxy or Ripcurl as they would already know what to expect from the products and service. Looking at it from the other perspective the new emerging companies are also just as much of a threat, as they have innovative designs and as mentioned in the socio-cultural section people are looking for unique and on-trend fashion these days. The smaller companies can provide this to their customers as they usually have more focus on their design team and attention to detail rather than the world of surfing, which Billabong is majorly focused on such as the competitions and titles.
Internal environment
Strengths
Environmental movements will attract eco-friendly consumers.
Innovative designs give a competitive advantage, however these are only technologically innovative and not fashion forward or style concerned.
Independent surf stores do not make enough revenue these days, therefore by spreading into smaller retail stores was a good idea, e.g. General Pants Co, even if the sale of surfwear as a whole is declining.
Weaknesses
Surf and snow wear is hard to modernise or change year to year.
Social media is not used to it’s full potential and discusses surfing as a sport rather than the company and their products.
Management was not prepared for small retail stores. The strategy chosen was too technical and demanding of management time for a company like Billabong who did not have the experience or skill in the retail area.
Surf brands are not fashionable anymore as hipster and other trends come in.
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Competitive Advantages
Billabong is sold in over 100 countries which is a major competitive advantage over direct competitor Quiksilver who rely on their USA sales only. This limits Quicksilver to seasonality earnings as while they are either making only summer or winter profits, Billabong makes both all year round due to the Northern and Southern Hemispheres.
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Strategic Factor Analysis
External Factor Analysis Summary (EFAS)
Internal Factor Analysis Summary (IFAS): Billabong
Current strategies
This section of the report will outline the three main strategies being used by Billabong in the current market. The three strategies fall under Business strategy, Functional strategy and Corporate strategy.
Business Strategies
Billabong pursues a hybrid business strategy of differentiation and focused differentiation strategy. The differentiation method is an integrated set of actions taken to produce goods that customers perceive as being different in alternative ways. These goods are non-standardised which customers value as it suits their lifestyle and uniqueness. However the success of this strategy lies in the company's ability to continuously and consistently upgrade and differentiate their product and features. Billabong adopted this strategy as it outlines what the company strives to achieve for its product and is achieved by:
Billabong has a large emphasis on the quality of their product and therefore the price is higher than other apparel brands which eliminates the cost leadership strategy.
Due to their large number of design teams around the world focusing on individual tastes and trends, Billabong creates a true differentiated product as it focuses on the niche tastes and preferences of their customers to each country. This also allows Billabong to mitigate the buyer’s power by creating this different products which has the ability to reduce customer sensitivity to prices.
Their marketing campaigns focus on a quality of life that is differentiated and only “understood” by those who experience the feeling of surfing,skating and skiing. This portrays a differentiated image in the customers mind set that can be argued to be focused (as it only reaches certain customers that live the projected lifestyle).
Billabong can also mitigate suppliers bargaining power as they can absorb the price increase due to the higher profit margins for both sides.
Functional Strategies
Marketing:
The current strategy for Billabong in marketing, is the the attraction of new and potential customers that are already in the industry of sport. Billabong’s current marketing campaign is labelled “I surf because...” which evokes a strong emotional connection to surfing as it appeals to the feelings and thoughts that come with the lifestyle instead of a promotional campaign. The benefit of this campaign, is that it utilises all aspects of media and means of distribution to reach potential customers at little cost. This is achieved by the customers themselves marketing “I surf because...” posting their own photos on Facebook, Twitter, email share, video share etc to portray their lifestyle but also due to the incentives of Billabong to create your own ‘I surf because’ and win prises to travel to different surfing hotspots around the world. As a whole, this campaign builds a massive amount of targeted buyers without the effort of hard selling a single one of them. (“Memories Of”, 2012, para. 11). The marketing Strategy of Billabong is also highly influential in their business and should be considered in current strategies:
Product
Wide variety of apparel ranging from surf, skate, snow and casual wear.
Continued development of products = Billabong employs separate design teams in all countries of influence which are Australia, North America, Japan, South America and Europe. This is designed to create products that appeal to the individual tastes of each area instead of a generic ‘one designer’ style.
Maintains an Australian brand heritage and loyalty to Australia = authenticity.
Billabong is positioned as a high-priced, high-quality, apparel.
Price
Billabong operates with a competition based pricing method which competes with their competitors such as Quiksilver and RipCurl as a high-priced product and generating a higher return per item.
Billabong rarely performs other pricing strategies such as price skimming, loss leadership etc to sell their products and raise their percentage of the market.
This creates as steady forecast and no bullwhip effect on sales.
However lacks potential boosts and further gains by not expanding into different strategies which can ultimately influence the customer's perception.
Place
Billabong products are distributed in over 100 countries and are available in over 11,000 stores worldwide.
Billabong utilises a selective channel strategy, selling their products in specialised surf and skate shops while avoiding department outlets and discount stores.
This strategy allows Billabong to maintain the image of a serious business of surf-wear, skate-wear and snow-wear while still reaching multiple customers through an upmarket distribution channel.
Opened their own retail outlets.
Most recently, Billabong had to close 150 stores worldwide losing 400 jobs due to the high-costs associated with a single retail outlet store and low sales in certain areas (“Jobs to Go”, 2012, para 3).
Promotion
Advertises their brand mostly through magazines, retail outlets and sponsorships
Billabong also hosts their own pro surfing competition “Billabong Pro” where they get sole rights and advertising privileges and apparel used by surfers.
Publicity from “I surf because” and other media channels such movies “Blue Crush”, and own produced viral videos such as ‘Billabong Odyssey’ that appeal to their target market.
Billabong sponsors local surf life saving clubs, surfing groups and riding clubs.
Billabong associated with many charities such as Unicef's’ Pakistan Flood Children’s Appeal’ (“Billabong Design”, 2012, para. 1).
Human Resources
Due to the external factors and struggles that Billabong has faced in the past and still does today, Billabong was forced to reassess its strategy concerning employment relations and to change its methods to once again be competitive in the industry. Today Billabong truly is a global company with as stated before 6,000 employees worldwide and excluding manufacturing and distribution, Billabong is surprisingly 52% female in a male dominated industry. The addition of female activity alongside globalisation (cultural diversity), has allowed Billabong to retain and attract staff much easier which was a huge benefit for Billabong as traditionally, the company operates with a relatively informal and flexible working environment as well as a flat management structure.
Strategies performed by Billabong
Billabong maintained its flexible workplace environment as they noticed it increased job satisfaction and quality of the employees.
Also maintaining the flat management structure as it allows a constant flow of information and easy decision making process.
Billabong performs an induction training process for all staff and continuous education and training to help employees gain further expertise and become multi-skilled in the company. This process also allows Billabong to promote staff further in the company instead of hiring externally.
Billabong has adopted a polycentric staffing model and generally recruits local managers and designers in the area as they have a comprehensive understand and knowledge of their ‘home market’.
However this can lead to conflicts of interest as local and regional managers may have different views and goals.
Reward system
Increased wages/salaries for those who continue to meet KPI’s.
Bonuses and share offerings offered to more senior employees if they are successful.
Allowing staff to relocate to a preferred country to suit their lifestyle.
Internal prizes and contests for employees to obtain free holidays.
Since 73 Club
Recognises and rewards long-term employees of over 15 years.
Increases staff loyalty and is also offered to customers than buy at a premium
Corporate Strategies
Billabong has indulged in many corporate strategies in the recent years to improve sales, but unfortunately their timing could not have been any worse with their vertical integration and related diversification. This section will look at and outline the current strategies performed by Billabong concerning the different methods of corporate strategies:
Vertical Integration
This can be credited as one of the main reasons for Billabong’s failure in the past years. Billabong started to vertically integrate around ten years ago by going forward in the chain and purchasing retail outlets around the world that sell the same products as Billabong. Billabong chose to purchase these stores in hopes to capture more of the value chain and ultimately more of the revenue and achieve economies of scale. Currently however, Billabong chose to close 150 stores worldwide that weren't performing well in hopes to reduce the costs associated with them and also reduce their overall debt (“Jobs to Go”, 2012, para 1-3). The process of full integration was the strategy goal as they continued to move up and down the chain controlling nearly all procedures of the entire chain flow.
Related Diversification
Billabong performed related (concentric) diversification by purchasing retail outlets as stated in the above section. Billabong had knowledge and understanding of the retail industry, as not only do they manufacture their own clothing, but also have their own retail chain. Because of this prior knowledge, Billabong was able to implement their own strategies and procedures with great ease achieving economies of scope and transferring core competencies to the other outlets Billabong acquired. This section also includes acquisition as a corporate strategy.
Joint Venture
Most recently, Billabong went into joint venture with TCP ( Trilantic Capital Partners) and sold half of their brand ‘Nixon’ as an attempt to half their debt in time to avoid a breaching bank covenant. These companies hold around 48.5% each of Nixon and is a leading brand in the global youth accessory market(Megan Brunner, 2012, para. 1). The joint venture has been highly successful with great synergy throughout the companies and is predicted to hold future growth for both companies. Concerning Billabong, this is a huge benefit to help them overcome their $325 million debt still left over. The capital raising from the joint venture will cut that amount to $100 million and give Billabong much needed breathing space to reassess their business.
Recommended strategies
Business Recommendations
Continue with the diversification business strategy but change the designs and image of their products.
Billabong today is labeled and viewed as generic and not fashionable in the consumers’ eyes. Therefore the recommendation for a business strategy would be for Billabong to redesign and refocus their products in order to gain back lost market share, or even open new segments in their target market. This means Billabong will have to offer a wider variety and style to their customers in the market. The products don’t have to be of the best quality as it is too expensive, but they must be differentiated from their main competitors while still maintaining the experience and feel of surfing,skating and skiing.
Their main target market in the past has aged and consequently fallen out of the phase of wearing beachwear and being highly social, therefore a new segment and target market must be analysed as their old target market is losing favour in Billabong. This can be easily achieved because the brand Billabong is powerful enough and well known to gain access into other apparel areas or different brands.
In order to create the new fashion and be at the forefront of design, it is recommended that the design teams around the world should either be replaced or restructured. This is from the belief that the same trend applies to the designers as from the old target market, who are outdated and not as fashionable anymore. The company should hire more youthful and ‘funky’ designers with ambitious visuals and creative designs to build the new apparel range in the vast variety of countries where Billabong is sold. The trends today and certainly for the near future of fashion, is moving away from the typical beachwear and simple clothing and transcending itself into a more ‘hipster’ and ‘swag’ apparel that is appealing to youths (which used to be one of Billabong’s main target market) and not beachwear.
Functional Recommendations
Billabong needs to invest further research and development into their online marketing and sales department.
Billabong’s online sales have increased dramatically over the past recent years with growth of up to 80-120% from 2010 to 2011 (“Billabong Online”, 2011, para. 3). However there is still great potential for further growth as seen by competitors that are nearly doubling Billabong’s online sales. This is seen by Quiksilver which has a large emphasis regarding online marketing and have just recently in July 2012, opening up 10 retail sites around europe (Abdul Montaqim, 2012, para. 1). Quiksilver is even selling their products via Amazon and have online retail sites in over 90 countries. Billabong must adapt to this strategy as seen by Quiksilver, Roxy, DC and a few other beach/skate wear brands who are showing great profit figures and stability within the same industry.
Billabong should look to open further online and retail sites in countries where their product is selling, and duplicate Quiksilver’s strategy of aggressive marketing expansion. The e-commerce platform can be easily created by their own design team who have done the same in Australia and USA and must be implemented in the other countries that have the potential to expand into. Billabong should also look into selling their brand through other e-commerce sites and retail outlets (however maintaining their image of not selling in discount stores and big department stores) to access more of the market.
Not only is online marketing the gateway to the future success of retail brands, to set up this system is also dramatically cheaper and far more efficient than other methods of marketing and advertising. Their current campaign of ‘I surf because’ is a perfect example of how they should create an advertisement campaign, as seen by their online sales growth can be credited to this brilliant idea and should be set as a foundation to their future campaigns.
Restructure the managerial Hierarchy of Billabong to attract and hire more experienced and adaptable members.
Billabong was created by a surfer who hired his fellow surfing mates to work with him. This mentality has continued throughout the years and is still run and managed by ex-surfers and quite frankly unqualified members. The first big change for Billabong was hiring their new CEO Launa Inman who straight away went to work and really focused on getting Billabong back on its feet.
The recommendation for this point comes from the belief that the management structure of Billabong is outdated and not up to scratch of its fellow competitors. For too long Billabong has gone along with hiring surfers and friends while other companies have sought out and hired experienced managers that have multiple expertise and a great vision. We recommend for Billabong to undergo a strategic audit throughout their management hierarchy assessing all middle managers and also upper management of their performance and contribution to Billabong by assessing their KPI’s.
However there are complications with performing an audit. Billabong should consider and prepare for conflict as many employees to not appreciate being interrogated. Therefore Billabong must implement the audit with great care and prior notice to allow the employees the chance to adjust and prepare. Rewarding staff that show great KPI’s and abilities is a great way to regain their trust and motivate them to not only stay with Billabong, but continue working hard for the company.
The managers that fail the audit should be given a chance to prove themselves as they might of only lacked motivation or have been managed inefficiently. Although these employees must be closely assessed over the near future with regular KPI check-ups and meetings. Those that fail again shall be released and then Billabong can hire and employ new managers with sufficient education and qualifications.
Corporate Recommendations
Billabong should not sign the agreement with TPG and continue by themselves.
TPG has offered to buy Billabong for the second time now at offering $1.45 a share. However we do not believe or recommend that Billabong sign the contract and allow TPG to buy the business. First and foremost, Billabong has just hired a new CEO with great potential and motivation to change the company. Launa Inman is going to issue the new managerial strategies which will be announced on 27 August 2012. Therefore Billabong should hold out the offer from TPG and focus their resources and time towards the new strategy to truly make it a success and put Billabong back into positive gearing.
What must also be considered is the reduction of the companies debt from $350 million to only $100 million thanks to the selling of Nixon and the decision to issue new shares into the stock exchange. This is a promising sign for Billabong as they now have room to breathe and also the company pushed their loans back to 2014 ensuring repayments can be met (“Billabong Moves”, 2012, para. 1-4). The reason for these statements is to provide Billabong with the confidence to continue by themselves for a minimum of the next two years (until their loans are due). This reduction of debt illustrates the potential for Billabong to continue reducing the company's debt and turn Billabong into the successful retail company it once was in 2007.
Continue closing down unsuccessful outlets and focus on the profitable areas.
Billabong has been closing down retail outlets around the world freeing up millions of dollars and allowing Billabong with more liquidity and money to invest with. In saying this, the recommendation we have decided on is to continue this decline of outlets and use the money pooled from those stores to focus more heavily on the areas that are showing great signs of profit and potential growth.
The retail industry is suffering heavily in today’s society. The introduction of online selling and stores has dramatically reduced the margin of profit that can be gained from an outlet. This profit is forecasted to dwindle as time goes by and more consumers feel safe and knowledgeable to purchase online. Thus Billabong should look to keep their profitable retail outlets open as the brand needs to have a tangible image for customers to see and enter a Billabong store to get a feel of the company. Although the main emphasis of this recommendation is to focus the money gained from closing down the other outlets and using it to re-invest into the business.
Billabong should look into more joint-venture opportunities and sell their product with other big brands in other retail outlets to gain more market opportunity. Performing this will allow Billabong to step away from the method of related diversification (which is argued as the main reason to their demise) and allow another company to take on the costs of operating a retail outlet and the unprofitable aspect of the value chain. Since the future is looking more into online, Billabong should step away from owning stores and instead only sell their product in the outlets and reap the benefits.
Implementation and control
Reference list
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Memories Of. (2012). Retrieved on July 27, from
Billabong Online. (2011). Retrieved on july 28, 2012 from
Abdul Montaqim. (2012). Retreived on July 28, from
Megan Brunner, (2012). Retrieved on July 29, from .
Managing change in Billabong Case Study, Docstoc online (2012). Retrieved on July 29, from
Cooperate overview, Billabong.(2012). Retrieved on July 29, from
Billabong International Ltd,(2012) Retrieved on July 30, from
BILLABONG INTERNATIONAL LIMITED (BBG), Investsmart online(2012). Retrieved on July 30, from
Billabong History, About Billabong(2009). Retrieved on July 30, from
by
elizareidd (student)
