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Thread: Burton - Shutting down NY plant. Reply to Thread
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02-09-2014 12:16 AM
Evizzle
Quote:
Originally Posted by john doe View Post
You might be thinking in terms of mountain central shops. Any shop that carries snowboard stuff that isn't near a major mountain has no choice but to carry Burton. That's the power of the Burton name and by forcing the shops to over buy they keep the cycle going. I don't like that Burton does this but by doing it they will stay on top and sell all the boards they want.
I don't want to come across as simply defending burton, but don't you understand why companies do this? If you can't keep enough of the product in stock, the manufacturer has to fill more, smaller and inconsistent orders. The retail store has less of a stake in the product if they hold less inventory and are more of a risk to the manufacturer.

On the other side of things (large retailer and small manufacturer) has the same problem. If the manufacturer can't produce enough of a product to maintain inventory for the large retailer, the retailer often times can't afford to keep the product on stock because they need to run advertisements, have demo stuff, and want to be able to fulfill customer demand.

Being small in either side sucks. You have problems all around, and you have so much out of your control. The best situation for a small manufacturer is to sell at your own locations. Scaling beyond that is so hard to do. When you are a small retailer, you have to create a reason to come into your shop, and it can't simply be knowledge at this point. You have to be as competitive on pricing as the big guys, you have to be able to get stuff that you don't have in stock in a reasonable time frame, and you need to have a good to great staff. When you are big, you can have price, inventory, an online presence and really not worry about the quality of the staff.

When I went bike shopping, I went local, because of the after purchase benefits (free yearly tune ups, I can bike to the shop) and there was a sale that made me feel like I got a good enough price to not shop around. The staff was great, and I never looked back. When I went board shopping with a bit more knowledge (I snowboarded quite a lot 10 years ago), I went local, had a poor experience (they weren't able to tell me the difference between two boards, not great staff). I ended up doing research on my own, found a board online through REI that was exactly what I wanted at a great price, and had it shipped to the store. They didn't have the color bindings I wanted so I went local and bought clearance boots and got current bindings (same price everywhere). Had REI had the bindings, I may have not gone back to the local shop. It really is tough to be small.
02-08-2014 02:48 PM
jdang307
Quote:
Originally Posted by killclimbz View Post
Unless something has changed, Burton is a privately held company. Basically meaning Jake can do what he wants with it, he is not beholden to share holders. IMO, closing the plant probably means much worse things are in the pipe for Burton and the other big guys. The word on the street is we may see some pretty large brands fail in the next year or two. Kind of like when the small guys went belly up in the dotcom years. This time around, the big guys are going to take it in the shorts. Burton will still be around, but I suspect this is just the beginning of a lot of slash and burn.
Technically all corporations are beholden to their shareholders. Public companies just have a lot more of them. That said, if Jake holds 100% of the shares then he can do what he wants.
02-08-2014 08:27 AM
john doe
Quote:
Originally Posted by linvillegorge View Post
This is why a lot of small local shops don't.
You might be thinking in terms of mountain central shops. Any shop that carries snowboard stuff that isn't near a major mountain has no choice but to carry Burton. That's the power of the Burton name and by forcing the shops to over buy they keep the cycle going. I don't like that Burton does this but by doing it they will stay on top and sell all the boards they want.
02-08-2014 05:03 AM
jtg I like my Cartels, the channel, and heavily discounted last years products. So Burton can stay. Also I heard that Forum was already dead when they bought it, so they didn't just buy it to kill it. Everyone makes up stories on the internet though so that might be made up too, who knows.
02-08-2014 12:12 AM
linvillegorge
Quote:
Originally Posted by Evizzle View Post
If the board retails for $600, the retailer probably buys it for $300. The cost to build and ship the board (cost of production labor, warehouse rent, utilities and shipping) probably costs the manufacturer $200 when they produce at full volume. If you produce at half volume, your labor cost drops by 40%, your utilities drop by 40%, shipping cost per board might even go up a bit. Rent costs the same. Probably costs them $230 per board. Then you have to pay the engineers, the r and d folks, advertising/sponsorships. Those costs don't go down much if you produce less. Unless you scale, they might stay the same.

The manufacturer has to be producing at full capacity or be able to recoup costs by letting someone else use the place, and then you run into the gray market goods problems, but that is another story.

The manufacturer wants demand to be high enough so that retailers sell all of their inventory, and are able to place future orders. Retailers keep the retail price high until the stuff goes clearance, and then try to get as much as they can before they go away. When you see year old boards selling within 10% of each other at multiple locations, it is because the retailers are still wanting to make money on them, and year old boards at $100-$200 off will sell pretty quickly. Retailers that don't follow the rules ruin the product life cycle and make $200 per board from day one, but soon the other retailers and the manufacturer get mad as the brand loses luster, margin shrinks, etc.

As a retailer, you don't want your new product sales to be eaten into by old stuff also, so you generally pull it during new product launches and prime time selling times (holiday for example) and re-release it during slow times (summer and February being the biggest times).

So for the brand to be successful, they need to maintain production, maintain happy retailers, and need future orders. For retailers to be happy, they need to sell enough soft goods and current hard goods to be profitable, and clear out enough old stuff at prices that still make money, don't eat into new product sales, and free up cash to buy new stuff and have a chance at a more profitable sale. Burton is no different in this equation than any other major manufacturer. They don't want unhappy retailers, but they also don't want small shops that can't maintain inventory to be able to put their name on their sign and only get in on the sales when margin is richest, because those are the types of shops that will cut $100 off of a new board, place an order for one, and make $200 by simply having the ability to buy direct at wholesale pricing. By requiring a shop to carry a realistic amount of the product line, plus an inventory of products, they are going to play by the rules and have an investment in the brand. That is the difference.
A lot of truth in this even though you probably pulled the numbers out of your ass.

The problem that firms get into is that they get blinders. They only look at the market from their internal view. Can we produce more? Sure, let's do it! They don't pump the brakes and stop to think what it'll do to the market. They just grow, grow, grow with no long-term viability plan. They think their brand is so powerful that the market will absorb whatever they produce. Then they get to a point to where they've outgrown the market and have gotten themselves way overextended. I've seen it happen time and time again in business. Burton simply outproduces what the market will absorb and then strong arm their retailers into carrying the inventory. The big dealers are willing to do it because of the strength of the Burton brand. They know they probably won't make a great margin on those products, but it gets people in the door and that gives them an opportunity to sell those people additional higher margin products. In the meantime, the value and prestige of the Burton brand gets damaged because a ton of those products end up getting sold well below MSRP in late season and off season blowout sales.

I'm not sure if Burton is in trouble, but if they are in trouble, I'm willing to bet the above is why.
02-08-2014 12:11 AM
lab49232
Quote:
Originally Posted by linvillegorge View Post
This is why a lot of small local shops don't.
Oh I know, I'm just saying there are a lot of poor business people out their enabling the catastrophe and they are as much to blame as any brand. But it's ok because they're the ones who go under after three years...
02-08-2014 12:06 AM
linvillegorge
Quote:
Originally Posted by lab49232 View Post
All very correct so then the next step, maybe shops should stop carrying Burton if they aren't making money on it No need to lock up money in a brand that you're getting bullied by and isn't bringing a return right?
This is why a lot of small local shops don't.
02-07-2014 11:58 PM
Evizzle If the board retails for $600, the retailer probably buys it for $300. The cost to build and ship the board (cost of production labor, warehouse rent, utilities and shipping) probably costs the manufacturer $200 when they produce at full volume. If you produce at half volume, your labor cost drops by 40%, your utilities drop by 40%, shipping cost per board might even go up a bit. Rent costs the same. Probably costs them $230 per board. Then you have to pay the engineers, the r and d folks, advertising/sponsorships. Those costs don't go down much if you produce less. Unless you scale, they might stay the same.

The manufacturer has to be producing at full capacity or be able to recoup costs by letting someone else use the place, and then you run into the gray market goods problems, but that is another story.

The manufacturer wants demand to be high enough so that retailers sell all of their inventory, and are able to place future orders. Retailers keep the retail price high until the stuff goes clearance, and then try to get as much as they can before they go away. When you see year old boards selling within 10% of each other at multiple locations, it is because the retailers are still wanting to make money on them, and year old boards at $100-$200 off will sell pretty quickly. Retailers that don't follow the rules ruin the product life cycle and make $200 per board from day one, but soon the other retailers and the manufacturer get mad as the brand loses luster, margin shrinks, etc.

As a retailer, you don't want your new product sales to be eaten into by old stuff also, so you generally pull it during new product launches and prime time selling times (holiday for example) and re-release it during slow times (summer and February being the biggest times).

So for the brand to be successful, they need to maintain production, maintain happy retailers, and need future orders. For retailers to be happy, they need to sell enough soft goods and current hard goods to be profitable, and clear out enough old stuff at prices that still make money, don't eat into new product sales, and free up cash to buy new stuff and have a chance at a more profitable sale. Burton is no different in this equation than any other major manufacturer. They don't want unhappy retailers, but they also don't want small shops that can't maintain inventory to be able to put their name on their sign and only get in on the sales when margin is richest, because those are the types of shops that will cut $100 off of a new board, place an order for one, and make $200 by simply having the ability to buy direct at wholesale pricing. By requiring a shop to carry a realistic amount of the product line, plus an inventory of products, they are going to play by the rules and have an investment in the brand. That is the difference.
02-07-2014 11:36 PM
lab49232
Quote:
Originally Posted by linvillegorge View Post
You're not understanding how it works. Burton isn't selling those boards at a steep discount. They're selling them at standard wholesale to their retailers. Burton has the power in the industry to force product on their retailers or simply not allow them to be a retailer. You can't carry just a couple of Burton boards in your lineup. You have to carry a shit ton. That's why a lot of small shops don't carry Burton. They simply can't afford to. They can't carry that type of inventory, especially when they know they'll be blowing out a lot of those boards for hardly any profit. Burton can't even really enforce MAP because of this. The only high profile case they've ever forced was against Sierra Snowboards which was just being egregious with their discounting and finally enough other retailers caused enough of a fuss for Burton to pull the plug on them. I actually respect Burton for doing that. They could've kept turning a blind eye due to the volume Sierra did, but ultimately they did the right thing for their other retailers. But ultimately, the discounting isn't so much caused by the retailers, the discounting is a Burton overproduction problem. Those retailers want to make a profit, but they can't just keep hanging onto inventory as it sits around and loses more and more value. But, as long as Burton has the power in the industry to bully retailers, it'll keep happening.
All very correct so then the next step, maybe shops should stop carrying Burton if they aren't making money on it No need to lock up money in a brand that you're getting bullied by and isn't bringing a return right?
02-07-2014 11:15 PM
jliu
Quote:
Originally Posted by linvillegorge View Post
You're not understanding how it works. Burton isn't selling those boards at a steep discount. They're selling them at standard wholesale to their retailers. Burton has the power in the industry to force product on their retailers or simply not allow them to be a retailer. You can't carry just a couple of Burton boards in your lineup. You have to carry a shit ton. That's why a lot of small shops don't carry Burton. They simply can't afford to. They can't carry that type of inventory, especially when they know they'll be blowing out a lot of those boards for hardly any profit. Burton can't even really enforce MAP because of this. The only high profile case they've ever forced was against Sierra Snowboards which was just being egregious with their discounting and finally enough other retailers caused enough of a fuss for Burton to pull the plug on them. I actually respect Burton for doing that. They could've kept turning a blind eye due to the volume Sierra did, but ultimately they did the right thing for their other retailers. But ultimately, the discounting isn't so much caused by the retailers, the discounting is a Burton overproduction problem. Those retailers want to make a profit, but they can't just keep hanging onto inventory as it sits around and loses more and more value. But, as long as Burton has the power in the industry to bully retailers, it'll keep happening.
Yes I agree with everything you said above. By them overproducing, the burden is going to the retailers...they still make the money regardless of what huge markdowns the retailers have to perform to clear inventory at the end of the year...hence their high volume strategy pays for their overhead. Maybe I'm not saying it right...
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