HUNTINGTON BEACH, Calif. — It’s the end of an era no matter how the news of Quiksilver Inc. gets sliced.
The struggling company sought shelter in a Chapter 11 motion filed Wednesday that ultimately places one of the action sports industry’s largest legacy brands in the hands of Los Angeles-based Oaktree Capital Management if a bankruptcy judge approves the reorganization plan.
The company reported $826 million in debts and $337 million in assets, according to court documents. Results for the July quarter were expected Wednesday but have since been postponed to no later than Sept. 14.
The pre-arranged bankruptcy plan calls for affiliates of Oaktree and Bank of America to provide $175 million in debtor-in-possession financing. Oaktree would provide funding for the bankruptcy and have its debt converted into company stock to become the majority owner upon the company’s exit from bankruptcy.
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“Oaktree’s financial strength and expertise, deep experience working with companies in situations similar to ours and successful history operating in our industry make them an exceptional partner for us going forward,” said Quiksilver chief executive officer Pierre Agnes.
The plan could be seen as good news for the company given Oaktree’s involvement with Australia-based Billabong International Ltd., a Quiksilver competitor and the company perhaps most similar to Quiksilver in its struggles in more recent years.
Oaktree, along with Centerbridge Partners, emerged victors in 2013 in a drawn-out battle over ownership of Billabong International. The two offered long-term financing to Billabong, which is itself in the midst of a turnaround under ceo Neil Fiske. The company reported full-year results for the 12 months through July during which it swung back to black, something not seen for Billabong since 2011.
The Quiksilver news, which surfaced late Tuesday evening on the West Coast, closes the books on a particularly dark period for the broader action sports industry — loosely defined as those brands inspired by surfing, skateboarding and snowboarding — as they struggled under the weight of their own largesse at a time when the broader retail landscape was contracting with the recession and increased competition.
Layoffs and executive retooling occurred throughout the industry.
Billabong International underwent its own restructure, a bidding war that created uncertainty about the business and the sales of brands such as Nixon and Dakine.
Irvine-based licensing company La Jolla Group, which makes clothing under the O’Neill surf brand, made attempts to diversify its portfolio beyond surf with edgier streetwear brands under a strategy led by former ceo Toby Bost, who was replaced in 2013.
Streetwear brands, which have long taken market share and retail space from action sports companies, themselves have also struggled with shifting consumer behaviors. The Hundreds cofounder Bobby Kim talked growing pains for his own business, of which he said it’s now at the right size, to attendees at an Everlane-sponsored event this year. Lifted Research Group has undergone multiple rounds of layoffs this year.
Quiksilver’s bankruptcy poses the question of a broader debate in the industry, which is whether brands that built themselves on the ideals of counterculture and going against the status quo are ever really meant to become megabrands with $500 million in sales.
It’s hard to say.
It would seem possible looking at a company like Cypress-based Vans Inc., which has plans to relocate headquarters to Costa Mesa. The company, under the ownership of VF Corp., is now a $2 billion brand.
Bob McKnight, who along with Jeff Hakman, founded Quiksilver Inc. and grew the brand in the U.S., launched the first women’s surfwear brand in Roxy and took Quiksilver public. McKnight, who could not be reached for this story, discussed the changed landscape with WWD last month, making it clear the industry, while armed with new strategies to fix the business, still faces an uphill battle.
“[Becoming a megabrand is] a reality if you have time on your hands and you have enough finances to finance through the times and if you go global somehow,” McKnight said during the interview. “I think most of these small companies are correct in following the path of [being a] $30 million [company]. But to do that in today’s world is a real stress on margin, margin, margins. But I think that sort of model, if I started all over, that’s how I would do it. When we started, we never aspired to be more than a two-year project.”
The landscape was also vastly different when Quiksilver started because the industry largely didn’t exist.
“Our world is now not just competition from Billabong, Hurley etc. — our own tribal brands who do what we do in the surf shops, but there’s a whole new crew in town now that’s also competition,” McKnight said. “Hollister, American Eagle, H&M, Abercrombie, Lululemon, Under Armour and then all the bigger chains have their own private label. So everyone’s in the game doing more and more like similar product or similar price points….The [group of heritage brands is] not as special as it once was. Now there’s a ton of competition at all price points. America has been trained to buy on sale.”
The company appeared to be on the right track when in 2013 it sought the expertise of former Disney and Nike executive Andy Mooney to be ceo. Mooney focused on sku count refinement to eliminate cannibalization among the brands and globalized the executive team. It appeared to not be enough and he was dismissed in March.
“He brought in a lot of changes that helped us a lot — globalization and refining what we were doing and getting rid of the non-profitable parts of the business,” McKnight said. “But he started going too far and it didn’t work for a lot of reasons that I won’t get into.”
As for where the industry’s at now, McKnight said there’s growth opportunity for the smaller brands and potential if companies stick to their bread-and-butter product.
“There’s a huge amount of teenagers that love action sports. There’s a certain number of them that are loyal to the legacy brands,” McKnight said. “As we do our thing, we have to adapt and make sure it’s current for core teenagers. That’s why all of us spend so much time on the very best boardshorts [or] the very best backpack. These are core technical parts of our product range that people aspire to have and you need to lead with.”