Whatever Happened to Billabong?
I guess not many of us know what a billabong is. Yes, we all know it’s from Down Under and it has something to do with didgeridoos, but what is it? Well, according to Wiki, a billabong is a “stagnant body of water attached to a waterway”. You might ask why anyone would name a dynamic surf clothing business after a body of stagnant water. Sadly though, after a several decades of success Billabong, the now heavily diversified surf-cum-boarding clothing business, has grown to emulate its name and it is now in a sorry, rather stagnant in fact, state. Billabong is not really a name any business would want to grow into.
Shares in Billabong have slumped after it became unclear if one or other of the two private equity companies supposedly bidding for it is in fact going to buy this ailing business. On Thursday its shares were about one tenth of their value two years ago; a direct consequence of expansion into a rather complex and sprawling business that anyone would find hard to manage. Poor old Billabong now seems to be at the mercy of the turnaround specialists who have every chance of getting this overly complicated and diversified business for very little indeed.
Fashion is a fantastic demand generator, so it sustains many great businesses: as long as you can keep up with the zeitgeist an established brand like Billabong can literally surf the wave, but you need to stay on your board, which requires a degree of concentration and focus. If you get yourself distracted by becoming a portfolio brand management business, albeit in a similar market space, you are just asking for trouble as you run the risk of losing that brand distinctiveness that has helped you to become so successful in the first place. Billabong also made the decision to move on from being a purely wholesale business into the more difficult and risky retail arena. It did all this by acquisition and between 2002 and 2010 it acquired more than 10 businesses, in different parts of the world, which further added to the complexity of logistics and management.
Most businesses fail because they just don’t keep up with changes going on around them; they don’t adapt to changing times. This means it is even more difficult for a fashion brand as, by definition, it is social change that is creating and recreating the strong demand that makes this sort of business so lucrative, at least in the short term. Trying to do this whilst diversifying into other brands and taking on retail businesses, internationally, as well is a very risky strategy and for Billabong it just hasn’t paid off for its current shareholders. The only consolation for the investing community is that the next shareholders may get a bargain.
The thing that made Billabong a success in the first place, fashionable demand, should have remained its sole focus and perhaps it should have been content with wholesale too and left the challenging retail environment, let alone international retail dominance, to others. There is no doubt though that at the right price this business could be reinvigorated, with less scope and complexity, perhaps by selling off some of the subsidiary brands it has acquired, so it can get back to where it was ten years ago in terms of market focus.
One of my favourite ideas is that the strongest correlation for business success is not with leadership, or strategy, but with those businesses that have chosen to “jump” into a fast-flowing stream, where there is excess demand, which Billabong did in its early years; sadly though it has drifted out of the main flow and now finds itself in a billabong: how apt.
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