Billabong the Surfwear Industry Comprises

Billabong

The surfwear industry comprises three major competitors, five minor competitors, and a large number of niche players. The customer base ranges from hardcore surfers to those with a casual interest in the culture. One of the key competitive forces in the industry is branding. One reason is that surfwear as a segment blurs with other segments such as skatewear and casual athletic wear. The difference between these segments sometimes boils down to the use of clothing rather than its appearance. Thus, branding is a key means to differentiate surfwear from other segments. Additionally, surfwear has a specific image associated with it - young, anti-establishment, and fun-loving. Maintaining that image is essential to a surfwear brand retaining credibility, which is one of the key sales drivers.

Another important competitive force is distribution capability. As the largest firms in the industry increasingly cross over to into a more general casual athletic wear category, they require significant distribution capacities. Whereas a niche player can operate within a limited geography, firms at the top end of the industry need to have global distribution capacity to reach their target markets.

Each of the major players in the surfwear industry uses brand and distribution to drive sales. They all have found ways to differentiate themselves using subtle differences in these two key areas. Therefore, both brand and distribution are vital competitive forces.

2) at the corporate level, Billabong has primarily stuck to its focus in the surfwear industry. They have built a roster of several hundred lines in each of their core markets, and utilize both branded stores and secondary retailers to distribute their goods. Billabong outsources 80% of production, so is essentially a marketing firm, aside from the surfboard business, where they have retained their own manufacturing capacity. The company has attempted to move into other apparel lines. Their first major move, the purchase of DC Shoes, has resulted in a legal imbroglio, temporarily restricting this strategic thrust. Their operational structure has remained simple, facilitated by the relatively narrow focus of their product line.

At the business level, Billabong employs several tactics to reinforce their position as a leading surfwear marketer. Their human resources practices focus on employees with a dedication to surf culture. This helps to maintain the credibility level of the brand, which is one of the key drivers in the industry.

Moreover, it allows them to maintain their standards of trendiness, an essential component of any company marketing apparel to youth. Their human resources practices are viewed a key component of their value chain for this reason.

Their use of their own shops in key markets is also a strong business level strategy. This reinforces the credibility of their brand and assists with their marketing strategy development. At a more structural level, maintaining a surfboard division is also a critical business level strategy. This division establishes Billabong as a surf company, rather than simply an apparel company. Additionally, boards are high margin items, and give the company a strong presence in the key Australian market.

3) One of the most significant economic forces in the industry is the strength of the global economy. The industry suffered analyst downgrades as the economy looked to slow. This is because Billabong's target market is relatively affluent, and economic downturns typically impact high-end merchandisers the most. There are widely available inexpensive substitutes, and customers can reduce their purchases in tighter economic times.

Another economic driver in the industry, and for Billabong especially, is the foreign exchange rate. Large surfwear companies rely on international operations in order to achieve their scale. Billabong, for example, is exposed to exchange rate risk in several ways. It sells product in 60 countries, and those sales must be translate back to Australian dollars. Moreover, the company is exposed to the same risk on the production side, since they outsource most of their production.

These forces will impact long-term profitability. As a premium-priced marketer, Billabong is sensitive to the strength of the global economy, or two localized economic downturns in any of their key markets. Long-term exchange rate disparities can impact Billabong's production strategy by reducing the margins on outsourced good; or by reducing the value of non-Australian sales.

4) the power of buyers is moderate to high. The target market is fickle. They have demonstrated both an ease of switching and a propensity to do so. Firms in the industry have, however, sufficient power to command high prices, achieved through differentiation from other forms of apparel. The power of suppliers is low. The larger firms in the surfwear industry are larger than their suppliers and can thereby use that leverage to drive down prices. Moreover firms in the industry are more concentrated than their suppliers, inputs are not differentiated and there are low switching costs.

Barriers to entry are moderate. The larger firms enjoy significant economies of scale, but niche players can enter because the market supports high price points and exclusivity in branding. There is little threat of retaliation from competitors, because that would decrease their own brand credibility. The learning curve is low and access to inputs is high. There is a moderate threat of substitutes. Amongst hardcore surfers, similar casual and sport apparel is not a viable substitute, due to the high value of surfing credibility in that subculture. Among ordinary consumers, the threat of substitutes is high, as there is little differentiation besides brand from other forms of casual athletic apparel.

The degree of rivalry in the industry is moderate. Industry concentration is moderate, with eight large firms and a number of niche players. Fixed costs are low, although for many firms surfwear is their only business, making exit costs high. There is limited diversity amongst the largest rivals and a strong emphasis on brand identity.

Overall, the surfwear industry is attractive. The basis of rivalry is largely differentiation based on the brand. The quality of the goods does not vary much, and there is minimal price competition. The brand defines the product as in the surfwear segment, and subsequently sells the product. If the brand erodes, Billabong would be forced to shift the emphasis of its competition away from the surfwear sector to the general athletic apparel sector. Its brand strength would be less valuable there.

5) Billabong's current strategy has been successful. The firm has become the second-largest player in the surfwear market. Billabong has the largest market cap, and has doubled its share price in the two years since it went public.

Billabong has been able to continue its growth because it has been able to protect the integrity of its brand. The company's strategy of hiring mainly surf enthusiasts has helped it keep in touch with the fashions. It has also helped Billabong maintain its appeal while simultaneously achieving strong growth.

Billabong's merchandising strategy has proven successful in 60 countries. They have been able to launch 2000 products in the Australian market, and over 1000 in other key markets. This strong growth trajectory has been matched by profitability. Billabong has emerged as a dominant force in the surfwear industry, and has established the building blocks for expansion outside of the industry.

At this point, Billabong has successfully recognized the key driving factors of the industry and leveraged them to grow the business. The company has in past been successful in exploiting growth opportunities internationally as well. Aside from the DC Shoes legal battle, they have made few missteps and are well-positioned within the industry.

6) There are several options available to Billabong to secure its long-term success. The first is to expand beyond surfwear. The company has well-established international production and distribution networks. They have a strong name in the surfwear industry. They can leverage these two strengths to establish different lines in related surf equipment and apparel segments. There is significant opportunity in the casual athletic apparel industry, and in the footwear industry. With the significant amount of crossover between surfwear and other casual apparel wear forms, changes in their production and design systems will be minimal. The main risk is brand dilution, so it is recommended that Billabong use a different brand when entering these new segments.