Sunday, April 21, 1991

Pricing skiing back into the market

The subject of pricing has been and remains taboo in our industry. However, addressing it straight on is on the list of measures we'll have to take, if we are to stop the current down-trend.

Conventional wisdom suggests that perception has stronger effects than reality, and as far as skiing is concerned, the overwhelming perception is that the sport has become prohibitive and is no longer beyond the reach of America's middle class. Based on that, attempts to attract new skiers through emotional and slick ad campaign won't suffice for reversing the decline. Bringing ski gear prices down and then demonstrating to the public that skiing is affordable are much needed steps in the process.

What appears to have pushed ski goods prices into the stratosphere prices deserves careful scrutiny. First, most consumers equate ski gear with the rest of mass-produced goods they purchase. While TV's, VCR's, computers, and a host of other consumer goods have seen their prices going down as their features while their features were improving dramatically, ski industry goods improved by minute increments while their prices kept up with and most recently exceeded the C.P.I. index... Over a period of five years, ski goods stuck out conspicuously in a field of competitively priced consumer products.

We sure can try to tell consumers that skiing is a tiny market, with a narrow selling season, and affected by unpredictable currency fluctuations, skiers will hear the plea but won't buy it; that simply goes against the grain... They'll go back to the argument that if the same desktop computer now costs half the price it sold for five years ago, somebody must be doing something wrong, somehow, somewhere in our little industry.

If we look beyond our small size and seasonality, and examine our fragmentation and the excessive number of suppliers, we start to see the roots of the problem. Does the market need 15 brands of alpine boots or 20 brands of alpine skis, which in turn literally "pro-create" and give birth to a 20 or 40 model line? Probably not. Not only does it confuse both consumer and retailer, it also multiplies R&D and tooling expenses at the factory as well as inventory carrying charges at every level of the distribution circuit. This clearly is the most hidden and unnecessary reason for run-away costs in our business.

The eighties have often times produced ski industry executives who thought they could afford to play the multi-model games as it is practiced by true mass marketers like Sony or Honda... They've just forgotten how tiny and vulnerable our ski industry is in comparison.

Rightfit's Bob Shay who operates boot fitting stores in major Rocky Mountains ski areas puts it best: "When it comes to overlap (boots), I only need 4 s.k.u.'s" he said, "men and ladies stiff plus men and ladies soft; that's it." How far have we strayed from the simple and clear cut three-modelLange collection that included "Comp", "Pro" and "Standard"?

The other industry predicament is that no one wants to leave it, no matter how bad the climate becomes. Since the business is so fun and so congenial, many a factory, distributor, rep or retailer will stay at any cost, even if that means starvation, bankruptcy, or any other form of protracted business agony... The existence of lesser suppliers generally supported by social foreign national banks ignited a dangerous trend of leniency when it came to granting the most liberal terms in the retail industry. I strongly believe that out-of-sight dating has become the "opium of the ski business" to paraphrase Karl Marx. When ten month due dates and systematic re-dating become a way of life, it becomes easy for retailers to forget that the money is simply not theirs. Some of them spend it all and can't face the music when the due date finally hits...

Today, this sorry state of affair has created a national addiction for protracted dating resulting in record-breaking industry debt. Soft credit policies are wheat has kept poorly capitalized and marginally viable retailers in business and made the retail business a tough road to travel for many others, business minded retailers. Without a question, extending terms costs an incredible amount to the whole industry. It requires more working capital, augment the impact of bad debt, and adds up somehow, somewhere, to the final price customers must pay.

In this apparent complexity, the solutions for keeping costs under control are painfully simple:

1). Do less things - or more precisely, offer less models, but do them better, i.e. be efficient with less s.k.u.'s, less warehouses, less factories, less molds, less R&D scatter, greater focus. Just do products that are right on the money when it comes to their market acceptance. Examples of successful products that could stand on their own abound: From the Head Standard, the Lange XL-S, the Pre 1200, the Salomon SX-91 to the Rossignol 4-S, Even though their success was often more by accident than design, these successful models show that efficient target marketing works.

2). Go back to normal business credit procedures. Stick to 30 or 60 days payment terms, ship when the goods are needed, not six months ahead of time, offer deeper discounts on close-outs not extended dating (remember the Opium...), cut people who don't deserve to stay in business or can't accept that starting capital and operating funds are essential to running a business.

3). Understand the law of market and stop fooling around with the rule of supply and demand. Enforce cut-off dates during the order taking season, only produce what is ordered then, and count on credit cancellations to account for most of the re-order needs. Run out of product, it will be a sign of a healthy industry again. By the way, suppliers need not worry about what their competitors are doing; by simply applying these principles they'll automatically enhance their desirability factor in the market place and will put the law of supply and demand to work for them.

4). Accept to exit. If there is no more room, if the product sold can't make it on its own, if the supplier, factory, reps are impossible to deal with, or if there is just no money to be made, realize that it's time to move on to greener pastures (no pun intended). Yes, there's life outside the ski industry, and your friends will respect your move. Trust me.