Simplicity is the key, according to Fiske

Simplicity is the key, according to Fiske

Simplicity is the key to restoring fortunes at beleaguered surf-led apparel business Billabong, according to new CEO Neil Fiske.

That’s always assuming that the American ex-Eddie Bauer boss is given the task of restoring the fortunes of one of Australia’s most famous apparel brands – his plans, and the financial input of private equity businesses Centerbridge and Oaktree, will need a “yes” vote from shareholders at an EGM early next year first.

Fiske – along with Centerbridge and Oaktree – has the unequivocal backing of the Billabong board and chairman Ian Pollard, who used the company’s AGM to dismiss the bid of rival shareholder Coastal Capital International to appoint its own directors.

“For the first time in at least 12 months the company is in a position where we can confidently say who our CEO will be for the foreseeable future, and we can confidently say who our principal financiers will be for the foreseeable future,” Pollard told shareholders.

“It is also the first time in at least 12 months where the company’s future success will be firmly in the hands of management and their ability to achieve their business goals – rather than the company’s need to respond to change of control or refinancing proposals.”

To say that Billabong has been mired in confusion over the past years would be a huge understatement: private equity businesses and lenders including Altamont, Centerbridge, Oaktree and Coastal have been queuing up to offer the Billabong board their funding proposals and suggestions of how to restore the good times at the business.

When you lost more than AUD850m and recorded a double-digit sales slump in your last financial year, the appeal of the restoration of certainty – in the identity of the CEO, the strategic direction and the security of future funding – can hardly be over-estimated.

But Pollard’s positivity rests on Fiske being the right man for the job, and his strategy being the right direction for Billabong.

The strategic vision he unveiled at the company’s AGM was at once bold and deceptively simple: get back to the basics of what makes Billabong a great business, stop doing the stuff it’s not very good at, and get the cost base knocked into shape.

His assessment of the company’s recent past verged on the brutal: “Quite simply, the business over the last several years has become enormously complex and diversified.

“We have been trying to do too many things – and none of them particularly well.

“Building global brands takes one skill set. Running regional multi-brand retail is something totally different. And being a pure play multi-brand e-commerce business is another thing altogether.

“Then multiply that complexity by a regionalised organisation structure with independent decision-making and different operating structures.”

The result? Loss of focus, organisational confusion and a company that no longer knows if it’s a retailer with brands – or a brand owner with retail.

Fiske, however, is in no doubt, telling the AGM: “I believe the greatness of Billabong lies in the authenticity, heritage and aspiration of our brands. Period. That’s what we do best. That’s what we need to build upon.”

The means to this end will clearly involve huge change for Billabong, and Fiske wasn’t scared to spell it out, adding: “We’re going to have to make bold moves. Get back to the core. Chop the unprofitable branches off the tree. Focus on what we are best at doing. Create a brand renaissance.”

For much of the detail behind this broad-brush corporate vision we’ll have to wait another six weeks, when Fiske and Billabong will provide an update on their complete strategic plan and timetable.

But Fiske was in the mood to offer plenty of hints and teasers, not least his turnaround mantra for the business: Fewer, Bigger, Better.

That, he said, applies to Billabong’s businesses, brands, styles, suppliers, marketing programmes, IT systems and capital investments.

To the three-word motto he added a seven-strand strategy focusing on: brand, product, marketing, omni-channel, supply chain, organisation and financial discipline.

While much of this would apply to just about any corporate turnaround strategy, one or two of these strands particularly leap out in the case of Billabong.

For instance, Fiske highlighted the company’s brand portfolio, which he and his team have divided into the “big three” – Billabong, Element and RVCA – and the smaller, emerging brands.

But he is clearly sceptical of the company’s existing “one size fits all” approach to brand marketing, which has led to each label getting pretty much the same level of marketing investment.

“RVCA is showing tremendous growth,” he told the AGM. “But we’re giving it the same level of marketing as more mature brands – instead of putting our foot on the gas pedal and investing to accelerate growth and market share.”

He’s also critical of Billabong’s “poor” merchandising, where lines that are both too wide and shallow result in popular items being out of stock, while unpopular products languish on shelf, waiting to be discounted.

In the future, Fiske said, expect a cut in the number of lines of at least 25%, and a focus on exploiting more popular, and profitable, products – and inventories that turn four times-plus, rather than the current figure of only 2.4.

With suppliers, too, the emphasis is on “fewer, bigger, better”, amid promises to diversify out of China to keep costs down and mitigate against risk.

It’s a strategy which clearly appeals to the Billabong board and chairman Pollard – but the simple presence of such certainty and drive is another enticing prospect for a company all but ruined by long-term strategic vagueness and corporate uncertainty.