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Volcom is a cult American manufacturer Strategic Audit

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    Volcom is a manufacturer of Boardsport related clothing and accessories. Based in Velcro Valley – south of Los Angeles – the company’s core values speak volumes about their marketing and sales goals and objectives. The Volcom philosophy, stated as, “youth against establishment”, implies that their aim is, at the very least, different from normal capitalist “Free Trade” established ways and means, and their history highlights the differences. The new Volcom “New Future” initiative is an example of their sales and marketing direction.

    As Derek Sabori, Volcom’s senior director of the department of sustainability and corporate social responsibility says, “Our goals now are for us to go beyond just a product line, or an event or two. We’re striving for sustainability to be truly ingrained into the drumbeat of our business and I feel like we’re on a good path. ” (Whitton, 2012) Volcom’s efforts are focused on three things:

    • Remaining profitable.
    • Not losing track of life
    • Doing so while repairing and not ruining the planet and its ecosystem.

    Their Current Strategies for accomplishing their purposes are:

    • Utilize their ties with the Boardsport culture in order to keep their styles in vogue and high margin
    • Retain these ties through branded events, online marketing, athletic sponsorship, music, and film.
    • Retain perspective by growing slowly
    • Staying focused upon their core lifestyle.

    Volcom has found, or was founded in (and is nurturing) the boardsport niche in apparel and accessories. It does not look to grow quickly, but to take advantage of this niche. It is also expanding the ancillary markets to this niche in both music and video. Music and video have been a small portion of the Volcom portfolio (about 1% of earnings), but based upon the fact that the music and video arenas are wonderful marketing tools – and that they are making, and not costing, profit – they are worth much more than this 1%. Add to that the fact that at any moment a video or audio component to “catch-on” and rise to the top.

    Such an event (or events) would add exponentially to the bottom line. Between profits and marketing, a “star” could mean millions added to the net income. Volcom is also gradually expanding its foreign presence (income from foreign markets up by 125% in the last 4 years). As of December 2008, Volcom owns 13 branded retain outlets and operates 8 licensed stores in strategic locations around the world. It also owns 2 multi-branded Laguna Surf & Sport stores. Volcom products are sold in 40 countries internationally. In 2005 Volcom acquired the distributor of Volcom products in Switzerland – Welcom Distribution SARL.

    In 2007 Volcom constructed a wholly-owned subsidiary in Anglet, France to handle the European market. The only down side to the whole Volcom venture is declining ROI (down by about 25% since 2005). But much of this can be blamed on poor financial conditions and their effect on an “elite” brand. Strategic Posture Mission The Volcom brand was born of the boardsport mentality with a float of higher education in business and parental business highlights. This means that, while profit is important because it is necessary, the lifestyle (“I know when the low tide is and I am going surfing”) is the basis for its existence.

    Perpetuating the lifestyle – some would even say, “defining” the lifestyle – is what Volcom is all about. Objectives Volcom expects to increase revenue steadily but slowly. It does not see profit as an objective, but as the fruit of this objective. The Volcom viewpoint is that if you do things properly, the profits will come as a result of these actions. The focus is the lifestyle Along with continuing the lifestyle, Volcom wishes to complete, and even add to the boardsport lifestyle through its audio and video arms.

    With its audio and video resence, Volcom will portray what is happening within the boardsport culture, and will motivate that culture to remain what it is (i. e. crazy, outrageous, “youth against the establishment”) but to do so in a rational way (i. e. lose the drugs, get fit, stay effective, utilize protection – helmets and other protection, etc. ) Volcom also seeks to bring this lifestyle to the world, but to do so in a way that promotes diversity. This diversity must reflect the underpinnings of the various cultures into which it expand – thus increasing the complexity and the vibrancy of the global boardsport community.

    As this Volcom boardsport mentality grows it will “spill-over” into other sporting arenas (i. e. x-games, racing, etc. ) which will add their own spice to the mix. Volcom will either float into these areas also or will partner with other like-minded but differently focused companies. Strategies The overreaching Volcom strategy is to stay true to the boardsport culture. The “youth against the establishment” theme is maintained throughout the Volcom culture. There will be time for play for all. The earth does matter. Challenges will be met head-on. Having said that, the next strategy is to live the business.

    All members of the Volcom corporate crew must be members or aficionados of the boardsport lifestyle – including the board members. This strategy only makes sense, and makes sense only, because of the product mix. Clothing is a reflection of the person, and in order to maintain the elite image that Volcom must hold in order to market high end product, everyone on the company must buy in. Profit is important, but not as a motive. If the constantly changing fashions of the boardsport lifestyle remain in focus, the product, and thus the profits, will remain on top. This is not to say that business dealings must be footloose and fancy free.

    On the contrary, business dealings, including design, marketing, shipping, and selling, must be practiced in a manner consistent with good business management. As a matter of fact, in order to proceed into the future of Volcom as a viable business, Volcom is changing continuously and tracking and utilizing these changes toward their profitable ends. This modus operandi is seen in both their use of an industry-specific ISP (integrated Software Package) for distribution and sales, as well as their utilization of Licensing, Sponsorship, and Branded Events.

    The fact that Volcom was amed “Manufacturer of the Year” by the Surf Industry Manufacturers Association (SIMA) for the third time in 2006, even though they don’t own or operate any manufacturing facilities, speaks volumes about their strategic alliances with manufacturing firms and their management of these relationships. Policies Volcom’s primary overarching policy is to remain true to their foundation – the boardsport lifestyle. One step at a time, and don’t rush. Keep sight of the art. The business of supplying the boardsport and related social segments supplied with “elite” clothing and apparel is art specific.

    Yes, business includes design, manufacturing, distribution, sales, collection, and reinvestment – but the product is the first and foremost concern. A focus on the targeted social demographic and its artistic and lifestyle moves is paramount. Maintain innovative avenues. By this I mean continue growth in the music and video arenas – along with branded events, sponsored athletes and artists, contests, and such. These are mainstays of innovation. Continue to outsource and to maintain manufacturing flexibility. Avoid long-term manufacturing contracts and choose manufacturing alliances based upon quality, ability to deliver, and lastly, cost.

    Maintain the national sales force of independent sales representatives, collaborations with specialty sellers and management of these forces with the integrated ISP. Pre-book orders in order to maintain sufficient inventories to meet retailer demand. Strategic Managers Board of Directors The company’s seven directors include Chairman, Richard R. Woolcott, the 43 year old founder of Volcom, and six “independent” directors. Most of the independent directors formerly held high executive positions in other sports-oriented companies. One of the six was formerly an executive with an investment firm.

    One of the “independent” directors is Mr. Woolcott’s father, Rene, who has executive positions with many sporting goods manufacturers and associations. Corporate Officers In addition to his position as Chairman, Mr. Richard Woolcott has been the CEO of the company since its inception. All the rest of the executive officers have served in various executive positions with Volcom since the early to mid-1990s. Mr. Troy Eckert, who was the third person to join Volcom, and who, in addition to his duties as VP of Marketing, is intimately involved with the development and ongoing success of skateboarding, surfing, and snowboarding teams.

    Mr. Eckert is also a champion surfer and snowboarder. External Environment  Natural Environment After the sub-prime mortgage debacle of 2006 and 2007, 2008 saw unemployment hit 5. 0% and rising. Consumer confidence is low and governments are having to intervene in financial markets. While this is a bad situation for retail, Volcom has so far weathered the storm. Someone must still supply the youth of the mid to high middle class with fashion apparel, and Volcom, with its slow growth and lean size is poised for that effort. The world is a vast Eco-disaster happening right before our eyes.

    This is not to say that humanity in general is not aware of the situation and doing things to change this course. Volcom specifically has launched many eco-logical, or one might say V. Co-logical initiatives. Volcom introduced its first organic and reusable items in 2005-2006 made from organic cotton. Volcom is promoting the reuse of clothing through the “Give Jeans a Chance” program that donates cloths given back in their stores to homeless shelters. Volcom is a member of the 1% For the Planet movement. Volcom has also introduced their own Give-Back program, where a percentage of the profits from selected styles go to community non-profits.

    Political flashpoints in the Middle-East and Arabian Peninsula are also reducing the market in these areas – and the tensions are spilling over into Europe. The global community is shrinking in size. Communications and transportation are making transactions instantaneous. Societal Environment Economic In these difficult times, Volcom serves to win, and that is why acting “while the iron is hot” is a necessity. In times of economic turmoil big ticket items, such as vacations, large appliances, automobiles, etc. tend to be put “on-hold”. This frees-up what little discretionary income is available for maller, or lower priced alternatives.

    Clothing retainers, even the elite brands like Volcom, are especially blessed with opportunity in times like these. Boardsports enthusiasts will forego exotic vacation spots and tours and stay closer to home. , but with new clothing and accessories. Fuel costs worldwide are rising, contributing to a lessening in profits due to shipping and production costs. This could affect the bottom line by as much as -1. 5%. Europe, especially in the Mediterranean area, is also facing much financial turmoil. What all of this means is a diminished ability to expand the boardsport market into this area.

    Although this has and will affect Volcom along with all other retailers in their market, Volcom’s slow growth strategy will serve to capture the market when it is ready. The long-term slow economic forecast also suits the Volcom strategy. Volcom is poised to grow – but slowly. Even in this economic situation sales have increased by 24% from 2007 to 2008. Technological JIT (Just-In-Time) ordering and shipping have cut retail inventoried across the board, but with Volcom’s exclusive distribution system, this means little but good for the Volcom supply chain. Volcom’s ISP is poised for just such a means of sales and distribution.

    When one thinks of technology, communication, transportation, and manufacturing quickly come to mind. Add to these things specifics, like information gathering. Volcom, with its branded events and athletic sponsorship programs is well situated to gather market essential information and distribute this information company wide in the fastest possible manner – thus continuing its position within the market, which is one of the objectives. Online sales are ever increasing. This is true for both elite brands and discount items, a fact that Volcom can take advantage of in both arenas.

    Even now, online sales are increasing by 10% or more per year. Political – Legal Volcom contracted with 49 foreign manufacturing firms in 2008 with most of the manufacturing taking place in China and Mexico. The economy and political climate in China is opening to foreign trade. Given that 72% in 2007, and 66% in 2008, of product costs came from Volcom’s China manufacturers, Volcom is poised to take advantage of this easing of restrictions. Again, with respect to manufacturing product costs, 13% in 2007, and 14% in 2008, came from Mexican manufacturing.

    Again, Volcom is taking advantage of lessening foreign restrictions – this time due to NAFTA deregulation. After working with foreign firms through licensing and franchising opportunities, Volcom is now taking over many of the franchisees, and buying-up many of the licensees. This is evidence of the policies and attributes of Volcom’s slow growth strategy The fighting and turmoil in oil-rich areas of the world, specifically the Middle-East and the Arabian peninsula, but also in places like Russia and Indonesia make these areas slow growth areas at best. And what is Volcom’s Modus Operandi? – Slow growth.

    Sociocultural Volcom’s entire reason for being is a specific sociocultural niche – boardsport. This niche and its lifestyle have nurtured Volcom’s development. Within this sociocultural niche Volcom controls many cultural references (i. e. events, athletes, videos, etc. ). Volcom is also nurturing this niche, which began in the Velcro Valley, California, throughout the world. Its subsidiary in France, wholly owned distributorships in Japan and Switzerland, and acquisitions of other related companies are all marks of Volcom movement into and around all parts and off-shoots of its natal culture.

    Add to these the Volcom record label (in conjunction with MCI), Sponsored events, book tours (i. e. Hitten Switches), and sponsored athletes and Volcom is not only involved in the boardsport culture, it is defining that culture. Task Environment A couple of things define the current task environment. One of these, competition, is Volcom’s forte. As mentioned above, Volcom is very involved in the definition and development of this ever-changing niche. Another crucial piece of the task environment, the poor economy, is also working in Volcom’s favor.

    This is true both in the fact that, even though the Volcom brand is an elite – high-end distinction (which it is working to maintain), it is small ticket in nature, and in Volcom’s “slow growth” strategy. Because of the economy, market entry is also very expensive for new competitors – not so much in the manufacturing of the product as in the development of distribution channels and the availability of shelf space. Smaller considerations, such as unauthorized or “rip-off” products, are being addressed in a number of ways – the biggest of these is Volcom’s control of its brand.

    Since its inception, the owners and managers have kept the control of the brand in focus throughout all of its dealings. Because of Global Warming, among other things – but mostly Global Warming, and efforts to stem this warming tide (so to speak), energy costs are rising exponentially. 2008 USA Today article says that Utilities across the US are raising prices by an average of 29%. This not only affects sales (through less available income), it affects everything from production costs to transportation and warehouse expenses. Higher Taxes will also affect people’s ability to buy, but this can be seen as a relative problem.

    Every aspect of sales for every product experiences the same tax trends. So Volcom, in dealing with everyday operations, automatically takes this in stride. EFAS Summary The current external environment for Volcom, and its boardsport niche, is made to order for Volcom’s business strategy – or, more to the point, Volcom is made to order for the niche. Economically, Volcom supports a modest crew of about 490 worldwide, while utilizing licensing and contracts to get most of the work, both manufacturing and sales, done. Because Volcom is selling into a niche in which it has taken a lot of control, they can “fashion” their own success.

    Their sponsorships and contests are having a hand in shaping the market. Things are going well in places and poorly in many places, due to hard economic times, wars, ethnic and religious squabbles, and such – but these things affect everyone. Volcom needs mainly to watch its niche. Sure, they must be up to the minute with their knowledge of the world situations, but their niche is their bread and butter. Internal Environment  Corporate Structure Volcom is a relatively small entity in that it has only 490 employees worldwide.

    The board of directors is composed of the CEO, who is one of the two founders of the company, and six other board members who come from executive posts in related businesses, one of these is the CEO’s father. Upper management have mostly been part of the company almost since its inception. This is a very tight knit group. Corporate Culture By focusing on its core principles and “respecting the stone”, which Rick Woolcott says, ”represents the buzz from a good skate session or riding a 10-ft wave at the pipe … the euphoric state of riding,”, Volcom has built an image of the boardsport culture.

    This image is held almost sacred by every member of the Volcom team. Team is a good word here because most of what Volcom does is focused upon athletic endeavors – boardsports. There is also almost a “need” to go slow. This is not to say that this slim athletic corporation cannot adjust quickly to what is happening in their industry, but it means that growth, which is constant, by the way, is taken on in slow, deliberate steps. There is also always an eye toward each individual’s ability to remain a part of the world and not be sucked into the corporate abyss. Corporate Resources

    Products Volcom offers not only boardsport apparel such as: T-shirts, fleece, bottoms, tops, jackets, board-shorts, denim, outer-ware, and sandals – for men, girls, boys, girl’s swim, snow, and footwear; it now offers goggles, T-shirts, bags, hats, belts and other accessories through its newly acquired Electric brand. Another blossoming product line is the entertainment products, both audio and video, being turned out by the Volcom entertainment arm, Veeco Productions. This line is also provides profit while fitting in well with Volcom’s marketing department. Manufacturing

    Volcom does not own or operate any manufacturing facilities, but contracts with manufacturers through short term contracts for each product line – based upon fabric and design requirements. In 2008 Volcom contracted for manufacturing with approximately 49 foreign firms – most of these in China (66%) and Mexico (14%). Distribution Although most of the Volcom strategy and leadership comes from the main office in Velcro Valley, CA, the worldwide expansion efforts are being assisted by multiple offices in foreign lands, especially by the French connection in Anglet and the Swiss Welcom.

    Volcom’s five largest customers provided most of the company’s revenue in the past three years (2008-28%, 2007-33%, 2006-44%) but as Volcom expands the numbers for the rest of its distribution network are evening out. The “big 5” have dropped 16% but profits have increased, which puts less financial pressure on their contributions. Growth is profitable. R&D / Marketing R&D and Marketing are lumped together because they are actually one in the same thing. Volcom markets through its athlete and music sponsorships, branded events, and audio and video productions (and contests) into its distributors and retail spaces.

    But at the same time, it relies on information gathered through these same avenues to supply the sources for its R&D. The company is, in effect, living the boardsport lifestyle while defining this same sales and marketing platform. In the same vein, Volcom is partnering with other related persons and events (X Games, the Olympics, ASP World Champion tour, etc. ) in order to infuse their boardsport brand into these well-known events. HR & IT Volcom’s relatively small size makes it light and “quick on its feet,” and it also poses few headaches for the HR and IT departments.

    Sure, both of these must work in the global market, dealing with distances, languages, governments, and differing social norms, but this is the wave for all retail markets. The fact that Volcom moves slowly and establishes itself in new markets a bit at a time makes these efforts by HR and IT go smoothly (except for the occasional squabble or bug). This is not to say that both of these departments are not necessary – it is to say that they must do their jobs completely and professionally – but that the Volcom strategy works in their favor. IFAS Summary

    Internally, Volcom is just as well off as it is externally. Its “slow but steady” growth stance, along with its focus on core values, set the stage for the design, production, sales and marketing of product into the more and more Volcom defined market. As Rick Woolcott has alluded to in many of his public statements, the lifestyle, the product, and profits rank in that order in the company’s decision making processes and decisions.

    Respect for “the Stone” and the “surf’s up” & “youth against the establishment” attitudes, when separated from the non-positive aspects of these concepts drugs, alcohol, and violence) and handled in a rational and, shall we say, “new” businesslike manner are winning philosophies which put Volcom in a winning position. The business style is “new”, but it has precedents in Disney, Microsoft, and a slew of other entrepreneurial ventures. The future is bright, in an almost, but not quite, laid-back way. Analysis of Strategic Factors Situational Analysis (SWOT) Strengths Strong Corporate Culture – Core Competency

    The strong corporate culture of steady, but slow and focused, growth has kept, and should keep, the company on a path to increased profitability. Because this Core Competency is a big reason that the company is respected so in the youth apparel industry, it plays a vital role in its profitability. Marketing – Brand Image – Distinctive Competency Because Volcom is focused on the boardsport culture (and related lifestyles), its market is smaller than some of its competitors, but it maintains a high level of allegiance from members of this market.

    It is a Distinctive Competency because it helps to define what this market is all about. Integrated Software Package (ISP) – Core Competency The strong corporate culture of steady, but slow and focused, growth has kept, and should keep, the company on a path to increased profitability. Because this Core Competency is a big reason that the company is respected so in the youth apparel industry, it plays a vital role in its profitability. Weaknesses Endorsement Loss

    Even though athlete and musician sponsorships are an integral part of the Volcom strategy, because they serve to both define the product and to evaluate future product, one (or more) bad events by the sponsored personnel can damage the bottom line and wreak havoc on the brand. (i. e. Tiger Woods, Michael Phelps) Event Sponsorship Loss In the same way, a bad accident at a sponsored event, or an incident (stabbing, brawl, etc. ) can completely change the cultural image and mean millions in re-capturing the image. Opportunities Gain Domestic Market Share

    Volcom’s “Youth Against the Establishment” makes change part of its culture. Because of the rebellious nature of the target market, established trends don’t last long. It is easily the most important aspect of doing business in the “board sports oriented” market, while at the same time being the most difficult area in which to establish targets. Volcom is helping to define the market – and thus set the trends. Global Market Expansion World growth in communication and transportation, along with ever increasing technological advances in manufacturing are leveling the worldwide playing field.

    The constancy of this market leveling and Volcom’s expanding international presence relate well to Volcom’s business strategies. Increase Online Sales & Marketing Online sales are gradually taking over the retail environment – and those already stationed to take advantage of the internet potential are on the crest of the wave. Volcom is close, but more work here is needed. Threats Inexpensive Foreign Competition Although transportation costs are rising, less expensive labor and materials in foreign markets pose a threat to merchandise made in the US.

    Because of Volcom’s history of good management and market knowledge, coupled with a strong corporate culture and manufacturing, foreign influence is diminished. Energy Costs (Global Warming) Energy costs are rising in every segment of the world. They affect everything from production costs to transportation and warehouse expenses. Volcom is in the same relative position as most, if not all, other, but steps must be taken now to thwart the future effects of these energy costs. Review of Current Mission and Objectives Mission

    The Volcom Mission, although a bit ethereally stated in the “Mission Statement”, is basically to remain focused on the boardsport lifestyle and to profit by directing this lifestyle in positive avenues. Add to this the fact that all progress must be made in the best interests of the planet, including all of its flora and fauna (including, but not limited to, humans). This mission remains consistent with the Volcom niche, and with Volcom’s profitable expansion of this niche. Objectives Volcom’s strategies of slow, meaningful growth while remaining true to its core values can progress in a few different ways.

    They can maintain their current course, add different systems, or divert to a completely new direction. All of these will align with their objectives, but one direction will work better than others. The strong Volcom corporate culture, coupled with its know-how and industry savvy will play well in any approach that they decide to take – especially because all approaches will be based upon the boardsport lifestyle. Strategic Alternatives and Recommended Strategy Strategic Alternatives Strategic Alternative #1 – Growth – Through Concentration on Online Sales Corporate Directional Strategy

    The Volcom worldwide corporation has just completed a number of acquisitions. A good long (relatively – 1 year? ) break in the action to assess the situation and reorganize is the aim. Growth is still possible, though. Online retailing is a heady brew at this moment. E-Bay, Amazon, Google, and many others are advertising and selling products – and online selling is just developing, so the Volcom “slow growth while analyzing” technique will fit right in. Granted, Volcom already provides internet sales, but concentrating on this aspect involves many new things.

    For instance, will Volcom contract out the internet sales and marketing, or bring the internet division in-house (and protect the brand a bit more)? Business Necessities Study! Study the market and find inroads. There is a possibility that small companies, with great future prospects, may be in need of financial help or even purchase. Where can these companies fit into the Volcom family? According to an Internet Retailer article, “Online retail sales grew 20. 2% in 2007 over the previous year, according to comScore, extending a string of several years in which growth exceeded 20%. (Deatsch, 2009) Find out which directions internet retail is going, and test the waters.

    Functional Follow-through IT The Information Technology department is the obvious first choice for the most important portion of this strategy, but it is actually only one of two equal top positions. IT will be responsible for connection to service providers, distribution sources, customers, and finance. It will also be the department who does the initial choosing of the service providers. Marketing The marketing department is the other half of the top two.

    Marketing to internet sales is a different animal than brick and mortar channels. Sure the brick and mortar marketing efforts will contribute to the internet sales effort, but marketing will have to “step it up a notch” in order to refine internet marketing techniques. HR Human Resources must search out individuals versed in IT, Marketing, and Finance fields where they relate to internet sales. This will either be necessary for management, or for both management – depending upon whether Volcom decides to handle the bulk of the business in-house (brand security) or not.

    Security (and oversight – see finance, below) will cost more in salary – possibly as much as 2% to COGS. Finance Internet finance is pretty cut-and-dried. Transactions take place real-time. There are no (or few) middle men. On the other hand, real-time means constant oversight. The Online Sales Growth Scenario Analysts predict that retail sales will drop even further in 2009. The up side of this is that online sales are still on the uptick. So while the Volcom strategy to date has served, and will serve, them well, the minor spending involved in increasing the internet portion of sales will add much more than it costs.

    Overall – we can expect a minor slowing in regular retail growth, possibly as much as 3% average over the next few years; minor spending in online resources – possibly 2% per year for 2 years; and an upsurge in online sales – as much as 10% per year (on average) for at least 5 years. Pros The growth strategy by which Volcom has grown for the last eight years seems to be working, in large part due to the slow growth pattern. Continuing this pattern and adding internet sales to the corporate structure will increase net income by 226% in 2013 over 2008, or $49000 more in 2013 than in 2008 (in thousands).

    Cons Bringing internet sales in-house may be unacceptable to the current sales and distribution partners. Since Volcom is very reliant upon outside sources for both sales and marketing, this could actually lose the company shelf space and market-share. Strategic Alternative #2 – Growth – Through Increased Focus on the Entertainment Field (Veeco Productions) Corporate Directional Strategy The Volcom Elite brand is solid, mainly because of its “slow growth” strategy. Volcom has not overstepped its retail boundaries – the boundaries set up naturally through the use of supply, manufacturing, and distribution channels.

    To have grown too fast would have caused havoc and weakened the entire network. Because of recent purchases and partnerships, Volcom must take the time necessary to let these new properties find their natural flow within the organization. As this is happening, Volcom can still increase sales by utilizing their sleeping giant – Veeco Productions – more emphasis on marketing of new styles in music and video. Volcom already has a great line on what is happening in the music and video cultures surrounding their brand and their market. It is time now to put that hard earned knowledge and the connections made over time to work.

    Business Necessities First of all, Volcom must insure their various entertainment areas – music production, sponsored musical artists, branded musical events, sponsored athletes, branded athletic events, etc. , are insured against catastrophic incidents. Such incidents in the recent past have caused insurance companies to offer policies covering these kinds of occurrences. Once the insurance is taken care of (at a not miniscule cost – as much as 5% per occasion and 3% of earnings per “star”) the fun begins. This too will not be inexpensive. But the payback will more than make up for the outflow.

    Grander advertising in the mainstream media will cause events to bloom in attendance. Proper security is also a concern. Research into methods and alternatives will take precedence. Functional Follow-through Marketing/HR The marketing department must, of course, take the lead in any such strategy. And in doing so, marketing must work hand in hand with HR. As a matter of fact, there may even be a need to set up a department of HR strictly to find and deal with entertainment and athletic agents. More, top-notch, artists and athletes must be sourced and brought under contract.

    The proper locations and venues must be located and booked. And then the media must be inundated with publicity materials. Advertising with make or break this strategy. Security An entire new division must be organized and staffed. This is not as bad as it seems, because most boots on the ground will be area specific rentals, but the organization and flow of this portion of the strategy is essential – again, one small lapse can be very detrimental. Finance Because of the large amounts of capital involved in any entertainment venture of relatively large size must be closely and minutely managed.

    Good bean counters will be worth their weight in gold – literally. Design The amount of information gleaned from each and every foray into the music or athletic entertainment field will mean hours of sifting through, and organization of, this information. New designs will naturally flow from these well attended “circuses”. The Bigger-Better Veeco Scenario Even in this endeavor, slow growth will be the catch-phrase. The expanded events – both entertainment & athletic – will begin close to home, in Velcro Valley, and expand as knowledge and infrastructure permits.

    The company as a whole must maintain the current strong and viable sales and marketing tact, even while this expanded entertainment push takes off and grows. Initial outflows of cash will be rather large, possibly outstripping income and necessitating borrowing, partnerships, and joint ventures, but after the first year to year and a half, the inflows will grow exponentially. So, years 1 to 1. 5 will pay for the next 5 years of 25% or more profit increases. Pros Entertainment based upon Volcom branded music and apparel will lean heavily on Volcom’s years of experience and focus on their core niche.

    Because of this stockpile of experiential capital, and because of the strength of Volcom’s slowly forged corporate underpinning, Volcom will be able to use their constantly expanding customer base to influence an even greater expansion of the Volcom following. Increased revenue will not only go directly to the bottom line, it will assist sales revenue and help it maintain a steady growth (11% per year) through increased marketing. Cons Capital outflows (mostly Selling, General, and Administrative expenses) of the nature necessary to insure success in a venture of this kind can be precipitously balanced upon untested personnel and venues.

    The cost is such that even a minor misstep could cause disastrous losses. Again (like a broken record), slow growth is the only way to succeed. Strategic Alternative #3 – Retrenchment & Sale Corporate Directional Strategy Volcom is at a point where it can either take major steps and grab more market share, expand the business, and become a major powerhouse in the sporting apparel industry, or it can put all of its ducks in a row, put a shine on everything it is and has made to date, and put itself up for sale.

    This re-generation (for sale) strategy means that all of the recent purchases, acquisitions and partnerships must be solidified and brought into the weave of the Volcom culture. They must become part of a united Volcom – the “Stone”. In order to do this, upper management must take stock of the company as a whole, and integrate everything seamlessly into one package. All foreign connections must be either made strong and solid – or removed. The board must be convinced of the wisdom of this move and must quietly seek a buyer. Business Necessities

    All material parts of Volcom must be scanned for loose ends, missing parts, or extraneous holdings (including personnel). Contracts must be tightened up or eliminated. Longtime partners must be brought into the picture and convinced of their part (and their potential profit) from and change in ownership. They must be part of the plan. A substantial portion of the Volcom employee base has been with the company for many years – and these folks must also see the wisdom of a move “into the future”, and their part in making sure that this move is profitable for all.

    In other words, the stage must be set and the foundation for change must be laid – especially internally. Functional Follow-through HR Employee files must be scanned for the sake of the employees and for the Volcom lifestyle. All attempts possible must be laid out and planning must be started and strategies for turn-over must be considered. It wouldn’t do to have any employees feel used or mistreated by the change. It is inevitable that some will be hurt or feel abused, but it is Volcom’s way to do its best to keep this to a minimum.

    Marketing Not only can marketing be a vital part of the quest for possible suitors (at least upper marketing management), but they must ready the world for the new Volcom. This may be as little as shoring up and stabilizing all ongoing marketing projects or it may mean the development of a whole new persona – but, if so, that will have to await direction. The other end of the marketing spectrum, the Veeco connection, can probably be left until an announcement is in the offing. Finance Books must be spotless, and loose ends must be bound up.

    Business as usual must also progress as it has in the recent past. Granted ROI has slipped precipitously in the past two years, but this was mostly because of acquisitions (and the poor economy). But profits are still positive, and the company is in the best position possible for re-generation. Operations Although most of the Volcom manufacturing and distribution network is conducted on a “for hire” basis, these are other parts of the system which can easily be thrown into disarray by a major move of this sort.

    All steps possible must be made (especially by upper management – both of company owned enterprises, and of contract portions of the operations team) to insure a smooth transition to new ownership. Strategies must be developed, discussed, and fine-tuned to deal with this transition. The Sale of Volcom Scenario Volcom is in the perfect position to offer itself up to the highest bidder. This kind of a step is not often in a positive way for the entire make-up of a company, but with the proper planning and positioning, Volcom has a very ood chance of success.

    All of the groundwork of the past 10 years, the slow but steady growth, the remaining true to the “Stone”, and even the development of sponsorships and branded events – and the music and video offerings, are ripe for change. The original members of Volcom are of a mindset that sets them apart from the “business as usual” world, and they are most likely to be ready for a move of this sort. Sales are on the upswing (even in a poor economic arena), profits are good, and the company is small but strong and tight.

    The stage is set for a change-over that will best suit the company and the employees. After the sale, because Volcom is so compact, most of the Volcom elements will likely remain in place – just under a new moniker. Pros As stated, Volcom is on the precipice of change. It can no longer remain a small player. It has developed a strong position and a large (and growing) following. The elite brand is at its pinnacle. Cons If the right buyer can’t be found, Volcom will continue on in its upward climb, but it will have to do so in a much different fashion.

    Being the small fish in a big marketing pool served the company philosophy well, but Volcom has outgrown this small fish persona and things must begin to change. It will be difficult to maintain the focus on the brand and the lifestyle in such an anti-boardsport world as major retail. The only way to maintain their story (and their following) will be to become the small boardsport part of a larger company. Recommended Strategy Recommended Strategy – Alternative #3 – Retrenchment & Sale For a variety of reasons, the sale of Volcom to another, larger, entity is almost a given.

    Granted, it is not the best proposition for the bottom line, but it is the best for the company as a whole – and for the major players, as well as the little guys. The only way for Volcom to continue in its “small company”, with its “Youth Against the Establishment” philosophy and lifestyle core, is to become a small part of a bigger, hopefully silent, majority. The image of Volcom, the thing that it supports with its designs, and its major point of appeal, is the “little guy” looking up at the big bad world and making it better from the bottom persona.

    Volcom will not be able to be this “little guy” if it expands under its own power. It must become the little “underdog” part of a bigger package. Implementation (see Exhibit 6) Corporate The Board of Directors I would find it hard to believe if the Board of Directors had not had the sale of Volcom in mind for a while – maybe even since its inception as a Delaware Corporation. After all, the slow and steady growth into a small but powerful entity in the boardsport apparel market proceeded steadily to this point under the watchful eye of this Board of Directors.

    Every move was well planned. As a matter of fact, I would be surprised if the Board has not already vetted a number of possible suitors for the company. In any case, it is the function of the Board to find the proper buyer and close the deal. Business Strategy The business must continue to run smoothly and to consolidate and smooth out all straggling pieces – especially in foreign markets. Middle management must work with upper management in order to provide for a possible successor to the Volcom ownership.

    This can be done in many unobtrusive ways in the auspices of company organization. All leases, contracts and agreements must be up to date. Also, any contracts with sports or entertainment agents or personalities must be up to date or re-negotiated to facilitate change of ownership. Functional Sections HR Human Resources insuring that managers and employees have all necessary paperwork in order, that any grievances are settled, and that all raises or reprimands have been taken care of. Finance All contracts must be in order and up to date.

    Accounts receivable must be up to date, and any amounts owed must be current. The company must continue to function smoothly and the finance department must insure that all records are clean and clear of legal encumbrances. Manufacturing / Operations Ops is one of the most vital parts of the company at a time like this. The company must continue to run smoothly and without hiccups. Sales must increase as predicted and profits must remain on track. This cannot be if supply, manufacturing, and distribution do not continue to function smoothly.

    Under normal circumstances, this would not be a problem – but in a probable case where the potential sale of the company becomes known (from any of multiple possible leak areas) every supplier will be tense, and every manufacturer and outlet will be suspicious. They must all be assured that the change will mean nothing in the short term, and great things for the long term. IT The Information Technology Departments of all outlying licensees, contractors, and other non-Volcom associates and partners must insure that communications are stable and smooth.

    This will be no different than normal, so it will not cause eyebrows to raise when systems are checked and reorganized to make them as efficient as possible. Fast, stable communications – especially on the executive level – but actually in all areas will be beneficial when sale the action starts. Evaluation and Control (see Exhibit 6 and 8) Corporate As stated earlier, in order to insure the company’s success it must adhere to its principles and appeal to its target market. In order to do this, it must retain the “Youth Against the Establishment”, David vs. Goliath personality.

    If the company grows too large, it will lose this persona. Add to this the fact that the company top executives are getting a bit long in the tooth and you have the perfect storm of a company ready to be sold. The corporate hierarchy must now figure out what a potential new owner must have in order to be able to purchase all of the Volcom assets (both tangible and intangible) and provide a profit for the owners while keeping the company viable for the remaining employees. Once this is done, a short list of possible suitors must be made, and then narrowed to a manageable few – 3 to 5.

    After these have been vetted by the board and the CFO, they must be informed of their great luck. If they choose to take advantage of this possible windfall, they may bid against each other for the prize. Once a winner has been established – and confirmed by the board and the upper management (the “C” Suite) – the deal can be consummated and the partying started. Business Strategy It is all well and good for the management and the board to decide to sell their ownership in the company, but there are also other shareholders involved.

    All of these must be kept in the loop once the decision has been made public. Prior to this though, there is much work to be done. Feasibility studies must be done regarding everything from how the sale will affect sales to what kind of company will emerge from the sale. Financial date must be gathered, predictions made regarding the economy, sales potential, and expansion (or contraction) of different divisions. At the same time, governing authorities must be contacted or assessed for possible roadblocks.

    Similar sales must also be investigated as roadmaps to success or failure. And the good of the employees must be an overarching concern – after all, the company couldn’t have come this far without them. Alongside all of this “extraneous” mumbo jumbo, the company must also continue to run efficiently and profitably. As a matter of fact, it must run smoother than ever – and any whiff that a sale is eminent must be handled with speed and ingenuity. Functional Sections HR HR must maintain its daily duties while insuring that records are in order.

    At the same time, they must be ready for the inevitable crowds who will be looking over every document during the sales period. Finance Like HR, Finance must insure the smooth operation of daily tasks while readying itself for the inevitable onslaught. The upper folks in finance – the CFO and his or her trusted associates will be an invaluable part of the document preparation, potential owner viability, and asset assessment tasks. They will also be called upon to help insure that all I’s are dotted and T’s crossed as the sale progresses. Manufacturing / Operations

    Operations will also have duties in addition to their normal every-day protocols. But the main task facing operations is the same task that faces them every day – to ensure the smooth running of the company with regard to all the day to day minutia of manufacturing, shipping, and selling of product. IT Let the scouring begin. Without allowing everyone to be privy to private “sale” information too far ahead of time, the poobas in the IT department must, along with the rest of upper management and the board, begin compiling information about other such sales and what pitfalls to look out for.

    They must also put together a possible timeline. And Marketing Marketing must be sure to put the proper spin on everything. Whether it be potential backfire of youth opinion or scowling shareholders, Marketing must be there and ready to jump in and turn the tide. Every aspect of the change-over must be studied, and re-studied – and every potential negative must be turned into a great benefit. In the end, every aspect of this change must be preordained to work, and this can only be done through research, study, and developing the proper strategy for every contingency.

    Things will invariably be overlooked, but with the small relative size of Volcom and its strong internal structure – (i. e. managers capability, ROI, inventory controls, manufacturing oversight, etc. ) the future looks good for all – the current owners, the new owners, the employees and their families, and most importantly the CUSTOMERS – PRESENT AND FUTURE. The tide is almost out – and it is almost time to hit the waves.

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