Despite coming off one of their fattest seasons in years, snowsports retailers are entering the winter with their leanest inventory ever and leaving brands equally anxious over the credit crunch on one hand and lost sales on the other.
The consensus is that epic snow through much of the country last winter enabled retailers to work through most of the inventory that had accumulated over the prior two seasons.
As of August, retail inventories were down significantly compared to a year earlier (see chart, page 2), thanks in part to conservative pre-season ordering. While brands and retailers report some order cancellations, there are no signs of panic.
“Preseason sales actually have been pretty good and the retailers are doing fine, maybe above expectation,” said David Ingemie, president of the SnowSports Industries Association.
In some circles there is even worry that the lean inventory may mean losing sales if weather conditions are especially good.
“I think there are probably an awful lot of people in the industry who would say wed like to see that happen and live with consequences of that,” said Dave Lampert, who runs Swix USA.
Lampert is among those concerned that smaller brands wont be able to keep funding weaker retailers beyond January if there is a bad winter.
“The smaller mom and pop retailers, the vast majority are undercapitalized and would probably not be in business without financing provided by vendors,” said Lampert. “A good winter helps you get paid on timely basis – 120 vs. 180 days. If this current economic situation does not turn around quickly, folks will be forced out of business.”
Ingemie agreed. “We are concerned about the borrowing capacity for retailers and suppliers,” he said. “We are not worried about The North Face, but about those suppliers in the $5 million range when funding inventory. Snowsports is a 120-day business and banks are going to say its too much of a risk.”
The credit crunch comes even as higher materials and labor costs are expected to increase the borrowing needs vendors will have in January and February as they gear up for the 2009-10 season. “Every supplier Ive talked with has tried to hold back price increases, but next year they cant,” said Ingemie.
Ingemie tempered those concerns with the cautious optimism that comes from knowing that snowsports performs relatively well in recessions. “In the past, if there was a recession it had less of an effect on this demographic,” he said. “In 1991, we had a 5% decrease in retail sales, but participation was flat. That was a big recession. All our research shows that if it snows, we should be all right.
The leanest inventory in years…
The goods news is that retailers do appear to have shown restraint in managing inventory and ordering goods – particularly given that some are coming off their best season in decades. SIA data show retailers are carrying lower inventories going into this season than last year in every single major hardgoods category except for fast-growing ski systems.
At Eastern Mountain Sports, which operates 68 stores from Maine to Delaware, sales of skis, snowboards and snow shoes were up triple-digits for September, but nearly all the gains came from the e-commerce business, said Ted Manning, VP Merchandising at EMS.
“The one thing to watch is the lack of carry-over product,” Manning said. “Last season was so strong. We are all very clean.” In this environment, retailers are likely to hold off discounting as long as possible while waiting for the first snow, Manning predicted. “There definitely will be a game of chicken,” he said.
The ranks of retail have thinned in Eastern Mountain Sports market. Princeton Ski Shop filed bankruptcy last fall and has since liquidated four stores in New York, and Boston-based Ski Market shut down three underperforming locations in Connecticut, Maine and Western, N.Y. As of last week, Ski Market was operating 13 stores and carrying $3 million less inventory than a year ago, said company President and CEO Andy Ferguson.
“Its really too much to ask our suppliers to pay later if the stuff is not selling, so we are gong to rely on re-orders,” said Ferguson.
In addition to shutting stores, Ski Market has also trimmed back its assortments. It has shed summer sports paddlesports and tennis to focus on bicycling and trimmed back its winter gear offerings.
An ad it ran Thursday in The Boston Globe for its Columbus Day sale included bikes for the first time. A new ski/snowboard lease program, which equips kids with all the gear they need for the season for $99, has been driving traffic to the store since Sept. 1.
Stefan Kaelin Ski & Golf, which operates high-end stores in Newport Beach, CA. and Aspen, has canceled a few orders.
“Orders were all placed coming off a good year, hoping wed have another good year,” said Stascha Kaelin, who runs the stores with her husband Stefan. “Then the economy hit.”
The Kaelins carry higher priced European apparel brands, including adiamondinthesnow, Pucci, Hell is for Heroes, KJUS and the German luxury brand Bogner.
“During the summer we have not felt any reduction on high-end items – any price resistance,” she said noting that Aspen sales were actually up slightly. “These high-end people probably have assets in stocks, so I dont how its going to play out.”
On the plus side, the dollar has risen roughly 7% against the euro since she ordered winter goods in February, which gives the Kaelins more wiggle room if they need to cut prices later.
“We are much leaner and closer to what we think we can sell than ever,” she said. “Our buying has been fine tuned. We would rather have less merchandise and be able to pay for it.”
At Skinny Skis in Jackson Hole, WY, Owner Phil Leeds has noticed conditions weaken in direct response to the economy. “The good news is we are expecting snow in Jackson this weekend, which will motivate people to buy warmer clothes, accessories and check out equipment. Were not panicked or anything like that. We just have to be careful about our inventory levels and expenditure.”
Executives said the flip side is that there is a greater risk that vendors will run out of hardgoods if there is a good winter because the equipment side is now dominated by more disciplined public companies.
“Nobody builds on spec any more,” said Ingemie. “If its a good year, then there will be sales left on the table.”
Of course, whats good for retailers is not always good for the brands. Brand executives reached last week said cancellations have been moderate and they dont see any panic selling yet.
“October is a very slow month, so if there is a time to get spooked October is the time for it to happen,” said Lampert of Swix. “From big box guys on down I would say its business as usual. Thats certainly reassuring to us that no one has pushed any panic buttons. The question is, whats next?”
Of course, as a maker of base layers and technical wear for both alpine and Nordic environments, Swix expects to benefit whether people hit the slopes or favor lower cost cross-country and snowshoeing. If in-fill business exceeds projections, Swix will have to wrestle with another problem-how to meet demand quickly without jeopardizing margins. In the past, it air freighted product from Asia, but with shipping and foreign labor costs rising, that has become too expensive.
At outwear maker Nils, pre-season orders were down slightly, largely due to the bankruptcy of Princeton and closing of another store, said President Dick Leffler. Sales to continuing accounts are up modestly, despite a few cancellations. Leffler notes that U.S. skiers are buying much closer to need these days, so he expects to make up the difference with in-season orders if there is good snow.
Nils recently renewed its credit line with Wells Fargo, which has emerged a winner in the banking shake-up. (It reached an agreement last week to buy struggling Wachovia Corp.) Nils books 95% of its sales during pre-season and has shipped 70% of those. As long as its keeps meeting monthly financial projections, Leffler sees no liquidity problems arising.
Key for Nils will be international travel to destination resorts, which generate about 30% of its sales.
Bad news from Vail Resorts
Early indicators from Vail Resorts Inc. are not encouraging for remote destination resorts. On Sept. 25, Vail reported that advanced bookings for its properties were down 13% in dollars and 18% in room nights over the same period last year. Usually 15% to 20% of the companys nights are booked by late September. Season pass sales were down from 1.5% to flat in dollars and 8% and 10% in units.
The big unknown worrying Ingemie is how much of the decline can be attributed to international visitors. “If a big percentage of that is international, its hard to recapture,” he said. “Whereas if its domestic and it snows, people will come.”
Early ticket sales at regional resorts appear to be up over last year, which likely reflects enthusiasm following what was an epic winter in many regions of the country. The bulk of season tickets are sold in the spring.
“From what weve heard from the 20 Alpine resorts in Vermont, season passes are on par if not better (than last year),” said Jen Butson director of public affairs for the Vermont Ski Area Association. “People are actually purchasing earlier and being smarter about prices.”
Nationwide, resorts are well booked for the peak holidays, said Michael Berry, president and CEO of the National Ski Areas Association.
Bookings are up in New England and with gas prices leveling off, “urban-proximate” ski areas are less concerned about driving costs. There is, however, some weakness in the in-fill season. Berry said early and persistent snow will fix that.
“In 1991 and 1987, when we had similar headwinds from an economic standpoint, we were very minimally impacted,” Berry said. “A couple of things can trigger significant business and one of them is when Denver plays Monday Night Football and its snowing. It knocks the phone of the hook. If we have a crappy snow year, we have a double whammy.”
As for the SIAs Ingemie, he will be watching Columbus Day sales closely to get a sense of how the season will go. October, when shelves are full and traffic is sparse, can be a scary time for retailers. If the weekend sales are down as bad as September comps reported last week by other retailers, retailers and brands alike will be spooked.
“If that doesnt go well, that will be the first indication,” he said.
