By  on July 25, 2008

LOS ANGELES — Power players in the Orange County action sports apparel world are closely watching the sale of independent retailers to surf/skate brands in what may be an emerging market strategy.

This week, Volcom announced it had acquired Laguna Surf & Sport for an undisclosed sum. Founded in 1982, the multi-brand core shop has long been a Volcom account. But it also carries labels like Hurley, Mada and Matix in its two Orange County locations — one of which gained national visibility on MTV’s reality show hit “Laguna Beach.”

“This multibrand concept is a little different for us, but it helps us to diversify our retail business while providing us greater insight on our customers and market trends,” Volcom chairman and CEO Richard Woolcott said in a conference call with analysts last week.

On the opposite coast, competing surf brand Billabong last month bought Quiet Flight, which operates 14 stores, including five in Florida and Billabong’s Times Square flagship. The label had also acquired a single retail store on Australia’s Gold Coast in May. Though surf/skate brand executives said the deals are symbolic of a changing retail landscape in the industry, it’s yet unclear whether such acquisitions are part of a long-term retail strategy or simply advantageous deals during an economic downturn. “This is a trend that isn’t fully fleshed out, but I think you’ll see more of this down the road by competing brands,” said Dick Baker, president of the Surf Industry Manufacturers Association. “Now that brands are acquiring multibrand retailers, what’s yet to be seen is the working relationship between the brands that can afford to do this and their [competitors].”

Many action sports labels, including Quiksilver and Burton, have spawned their own stores in recent years to feature expanded apparel collections, accessories and hard goods. But acquisitions of existing core shops are rare. One deal in 2004 also involved Billabong, which bought Honolua Surf Co., a Hawaiian multi-brand chain that produces its own apparel line. A Billabong spokesman was unavailable for comment.

Prime real estate opportunities may be a driving force in recent deals, said analyst Jeffrey Van Sinderen of B. Riley & Co. Laguna Surf & Sports’ Laguna Beach store, for example, sits on a popular stretch of Pacific Coast Highway, two blocks from the ocean. “Sometimes it’s easier to buy an existing business, particularly if it’s doing well and is in a key location,” Van Sinderen said.

On a Thursday conference call, Volcom executives said the Laguna Surf & Sports acquisition wasn’t part of any “in-depth strategy,” and they do not intend to change the product mix at either store.

Surf/skate sources interviewed doubted that Billabong and Volcom will convert newly acquired retailers into their own branded stores. But opinion on the deals was still mixed: Some competing brands privately expressed concern about their own apparel presence in stores now owned by rival labels. Others saw the moves inevitable and potentially beneficial for the market.

“There are going to be positive and negative comments from all sides on brands buying independent retailers, but overall it only helps the industry as a whole,” said one brand representative. “Consolidation is happening all around us, so it seems to be a likely avenue of growth that select brands can enter.”

Charlie Setzler, president of Rusty North America, said that if brands get squeezed out of stores as a result, “it’s an opportunity for another retailer to carry brands that they may have not sold before.” Meanwhile, Costa Mesa-based Volcom’s Q2 net income fell 23 percent to $4.8 million, down from $6.2 million in the year-ago period. The company announced Thursday that it expects fiscal 2008 revenue in the range of $344 million to $347 million, in line with previous estimates.

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