Sierra vs. Burton
SierraSnowboard.com just got axed by Burton, the industry’s largest producer of hard and soft goods. There is some disagreement over the terms of the license, and when/whether the retailer is allowed to mark down current year’s merchandise and to what extent, etc. Sierra dropped prices on Burton gear like 40% a few weeks ago, and they’re blowing it all out at 50%. Here’s my initial thoughts on the blowup. I’m trying to remain as neutral as possible here, without pointing fingers at either party, placing blame, or whatever. It’s just my perspective.
I see a lot of economic on the forums and around the interwebs. I don’t want to get in a pissing match, so I’m going to try and take a level-headed approach as best I can. One error in their logic is the assumption that if Sierra did not discount Burton snowboards, that Sierra would still sell the same quantity of Burton snowboards. This is demonstrably false. They will just have more unsold merchandise even later in the year when it is even harder to sell.
In most industries, the manufacturer sells the product to the retailers at a price which is sure to cover their costs. Then, the retailer sells the products to consumers, makes a nice margin. The manufacturer’s risk is that they produce in advance, and may not be able to move all their inventory on to retail shelves at such a price to satisfy their margins. The retailers’ risk is that they may not be able to sell the merchandise at a price which exceeds their costs (of acquisition, overhead, etc.)
And there is no magic formula for business success—whether you’re a manufacturer, a distributor, a retailer. Nobody knows with certainty how many to make a year in advance. It’s all a calculated gamble. If you overproduce, you’re going to get stuck with a bunch of unsold merch and you’re going to lose money. If your business model consists of “offloading that risk on to our retailers” then you’re not doing right by them, and you’re not doing right by your customers, either.
Now, when the retailer takes a loss in order to cut losses, or sells at a discount in order to move inventory and make room for stuff that will better help him stay in business, the manufacturer has already made their margin on that product at the time it was sold to the retailer. It makes no difference whether the retailer sells the product, if it is stolen from the retail shop, or whether the retailer decides to burns it all to the ground. The manufacturer has already made his margin. If the stuff can’t sell, obviously it might send some signal about what to do next year, but that is the beauty of the price function—it’s only the most fucking important thing in all of economics, so deal with it.
If the manufacturer can’t support marketing of their new models at a market-price (as opposed to “MSRP” which is the economic equivalent of reading tea leaves) then they’re doing something wrong. They’re spending too much on “marketing” and not enough on developing products which give consumers a bigger bang for their buck by leveraging technology to make equipment less expensive (but still profitable) or by developing new technologies at affordable prices.
Look – online and discount sales hasn’t killed any industry yet. But we constantly hear about how it’s going to destroy snowboarding or the music industry or whatever. What it does do is to force change in the way things are done. Dinosaurs don’t like this. Some go extinct, and others adapt to the changing environment. It’s the organizations which are most able to adapt to changing pressures that succeed in the long run.
Further reading at The Angry Snowboarder and Deserts Don’t Snow, and an “open letter to Jake Burton Carpenter” posted at the Burton forums.
Related posts:
- Burton vs. Sierra: A Deeper Analysis
- Update: Sierra Snowboards Bankruptcy
- Why Can’t Retailers Ship Burton Snowboards Internationally?
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The problem with this is what it does to the other retailers. When you sell snowboards, you are already working on a smaller margin than with most products, even skis. After advertising, and everything else that goes into selling a product, you are left with very little profit as it is, let alone when you have to drastically discount it. Don’t get me wrong, discounting is great, but for those who don’t know, Sierra starting breaking discount in early February when the season was still in full swing. When one retailer breaks pricing, especially online, everyone else has to follow regardless of if they were still selling the product well or not. I have been riding for 12 years now, but I am also retailer so I see this from both sides. The last thing I want is for the consumer to pay more than necessary for a product, but also understand that this is an industry like anything else. Retailers have to make a certain amount of profit to still be able to function. Discounting product because you bought too much and are overloaded doesn’t mean that the demand isn’t still there for other retailers. There is a time and place for 40% and 50% off discounts and unfortunately it isn’t in February/early March. It is simple supply and demand, and one retailer going rogue and disobeying a dealer agreement (which is not just Burton by the way, they all have similar discounting rules) screws up the entire market, more than likely for the rest of the year. The vendors have these rules for a reason, and part of it is so that large retailers looking to whore out the market cannot just become loss leaders, mark the product down as low as possible right out of the gates. Yes, they would then sell massive quantities, but they will also low both product image and value.
Anyways, I’m sorry if I am starting to rant, but please keep in mind that whatever Sierra says,posts,whatever this was not their choice, and they were not doing this to “look out for the consumer”. The simple fact of the matter is they bought way too much product and needed to dump it when they realized they were in trouble. It has been a constant battle between retailers who are actually following the rules and Burton this whole season because Sierra has been trying to stretch and break every rule out there.
Plain and simple, Sierra is hurting the industry that they “love so much”. Support real retailers that are honestly in it for the sport, but understand they still have a business to run. The deals and discounts maybe not be ridiculous in February, but will still come, the snowboard market will be able to stay healthy and grow.
Comment by Jacob — March 11, 2010 @ 9:39 AM
Hi Jacob – thanks for stopping by and thanks for the comment.
All the vendors have to do is restrict the amount that they sell to any of the “large” retailers. Problem solved. It’s not like the vendors’ hands are totally clean in this issue
they’re out to make money just like the retailers.
Comment by David Z — March 11, 2010 @ 10:14 AM
And don’t forget that Burton is selling it’s own boards direct. They’d much rather ‘discount’ their boards %20 off retail than compete with Sierra who bought the boards wholesale and is selling them %50 off retail, and probably still being profitable.
Comment by Brett — March 11, 2010 @ 1:38 PM
Exactly, Brett. If you want to enter the retail game and cut out the middleman, then cut out the middleman and open up your own brick & mortar shops in every state and your own website. Otherwise, you’re biting the hand that feeds…
Comment by David Z — March 11, 2010 @ 4:35 PM