Billabong Case Study

By Melvin Shaw,2014-05-17 05:33
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situational analysis to examine current product range and marketing strategies ? SWOT analysis; Est. the marketing objectives for its marketing strategies

    Billabong Case Study

    Managing Change HISTORY

    ? Australia’s largest surfwear manufacturer, annual sales = $680 million (2003/04)

    ? Core business = marketing, distribution and retail of clothing, accessories and


    ? Sells products under other brand names including:

    ? Element (Skate wear)

    ? Von Zipper (sunglasses)

    ? Honolua Surf Company ? Founded in 1973 by Gordan and Rita Merchant ? Reputation = supplying quality surfwear

    = innovative product design ? Began with boardshorts, within a few years extended to surfboards, wetsuits and t-


    ? 1983 began distributing to US in order to increase sales and establish global


    o this required considerable financial resources and more formal managerial


    ? expanded to NZ (1985) and France (1987)

    ? Now owns retail stores o/s and manufactures many products in East Asia

    ? 70% sales in o/s markets

    ? Billabong has now diversified by selling products under different brand names (see


    ? 2000 Billabong became a publicly listed company … one of Aust’s 200 largest



    External sources of change 1. Economic factors

    ? Rising levels of consumer income has improved living standards

    throughout the Australian economy; which has contributed to the

    growing popularity of surfing

    ? Global scale = incomes in East Asia and South America have helped

    to create new markets and encouraged company’s global expansion

    2. Social factors

    ? Increasing popularity of surfing and surfwear among the broader

    community = growth

    ? Increasing popularity of other sports, such as skateboarding, has lead

    to diversifying of product range and expansion into new markets

    where surfwear sales still have enormous growth potential 3. Financial factors

? Expansion of the Australian financial system in the 1990s was the

    catalyst for Billabong to become a publicly listed company, listing its

    shared on the ASX in 2000.

    ? Resulting in an increase of funding and exposing the

    company to greater instability as sudden shifts in

    investment setiment can lead to enormous swings in its

    share price ? Influenced by fluctuations in the Australian $

    ? Eg. 2003-04 = reduced value of o/s earnings and wiped

    millions of dollars off the economy’s profits

    4. Political factors

    ? Reduction in barriers to trade has made it easier for Billabong to


    ? Deregulation of financial markets = buying of o/s businesses, establish

    o/s production facilities and open retail outlets outside Australia

    ? Benefited from the Australian governments continued protection of the

    domestic clothing and manufacturing industry through the

    maintenance of tariff barriers that increase the price of goods produced

    by Billabong’s foreign competitors

    5. Geographic factors

    ? On a social level the company suggests a no. of initiatives to protect

    the oceans and related natural environments

    ? Products associated with mainstream fashion, but popularity is greatest

    in areas near the ocean, where people regularly surf

    6. Technological factors

    ? Cost of transport affects Billabong’s ability to distribute its products

    between different markets

    ? IT such as cable television and internet has exposed millions of new

    customers to surfing and helped Billabong market its products towards

    a broader customer base.

    Internal sources of change

    1. E-commerce

    ? Simplifying the logistical and organizational difficulties

    associated with operating in a global business

    ? Uses electronic inventory monitoring to track sales and ensure

    stores always have adequate levels of stock

    ? Websites showcase latest products, promote surfing competitions

    and other sports people whom the company sponsors

    2. Internal procedures

    ? Financial management and ER changes due to transformation

    into publicly listed company

    ? Must now publish financial records every year with the

    assistance of professional accountants (auditors) to verify


    3. Business culture

    ? Greatest changes occurred since 1998 = consortium of investors

    led by former CEO Matthew Perrin and current chairman Gary

    Pemberton bought 49% of Billabong assuming management

    control, implementing new processes in the business and

    tightening control over the company’s o/s subsidiaries


    ? Billabong has responded to change in 3 ways:

    1. Expanded into new o/s markets and diversified its product range,

    making the company less susceptible to sudden swings in demand in

    a single market or for a single product.

    2. Expanded its presence in other youth-oriented markets through the

    use of strategic alliances (eg. Billabong Channel [V] tour bus)

    providing thousands of dollars of free publicity

    3. Outsourced much of its production to o/s manufacturers, letting the

    company simply focus on designing new products. Outsourcing has

    allowed Billabong to lower its costs and maintain a competitive

    advantage in this price-sensitive markets


    ? Financial costs of growth and expansion

    ? Billabong’s managers have also hindered the process of change

    - Eg. 2001 = CEO Mathew Perrins unexpected sold $66million

    shares arguing this was done for personal reasons. However as a

    result Billabongs share price fell by 40% approx, making it more

    difficult for the company to raise funds to find further expansion.


    o Identification for the need for change eg. Billabong’s vital edge over

    competitors by expanding o/s in early 1980s and diversifying into sunglasses

    and skateboards

    o By setting ambitious but achievable goals this has encouraged staff to strive for

    success eg in 2004-05 CEO Derek O’Neill expects the company to raise net

    profit by 20% or over $16 million

    o Management team has created culture for change. The introduction of a new

    management team in 1998 = great development of Billabong. Managers served

    as change agents.


    ? Ecological sustainability

    ? Supports a number of social and environmental issues; such

    as the Surfrider Foundation, which promotes the conservation

    and regeneration of beaches and foreshores ? Quality of life

    ? By being flexible with staff and having a relaxed attitude ? Working conditions

    ? o/s operations has a strict ‘no child labour’ policy

    ? Cultural diversity

    ? Employees encouraged to transfer between international

    offices to gain new experiences. Billabong hopes this will

    minimize the possibility that cultural differences will lead to

    workplace conflict


    Many theories have been applied through Billabong’s existence:

    - Behavioural management theory …. In the way they manage their


    - Classical-scientific management theory …. Employed when they went

    into international expansion and decision making became centralised

    - Political management theory …. When CEO Matthew Perrin left

    Billabong in 2002

    Therefore Billabong takes a CONTINGENCY APPROACH to

    management as they borrow elements of each management




    ? primary role of financial planning = determine the company’s immediate financial

    position and identify any potential risks to its financial stability

    ? In the short-run = liquidity is Billabong’s most important financial objective

    ? In the long-run, financial planning has a broader strategic role. Billabong seeks

    out projects that will allow the company to increase its sales, market share or

    geographical reach whilst also achieving efficiency through cost minimisation.

    Ultimate goal = maximize profitability whilst also maintaining an acceptable mix

    of debt and equity funding

    ? Financial management is the continual process of planning, monitoring and

    evaluation. Follows a financial planning cycle:

    1. address the present financial position

    2. determine financial elements of the business plan

    3. maintain record systems

    4. interpretation


    o revenue statement in recent years Billabong’s net profit has risen significantly

    largely due to rising sale revenue, which grew 75% over the last 4yrs

o balance sheet assets have expanded rising by almost 30%. Growth is largely

    due to debt funding

    o cash flow statement recorded consistent cash surpluses from its core operating

    activities, which have been used to pay for it’s investing activities

     How accurate are Billabong’s records????

     As a publicly listed company, Billabong by law is required to provide

     audited accounts at the end of every financial year

     - Auditing systems provide some guarantee that companies

     will provide reliable financial ratios


    ? profitability and return on capital: Billabong’s profitability has increased

    steadily in recent years

    ? net profit ratio (measure of businesses overall financial performance) =

    rose from 11% in 2000-01 to 13% in 2003-04

    ? that is more than x2 the net profit ratio achieved by

    Billabong’s largest competitor, Quicksilver

    ? return on owners equity (profitability relative to its levels of shareholder

    funds) = rising from 8.2% in 2000-01 to 15% in 2003-04

    ? Gross profit ratio (revenue relative to cost of goods sold) = rose from

    45.7% in 2000-01 to 49.8% in 2003-04

    ? Improved profitability reflects:

    o Cost minimisation schemes

    o Achievement of economies of scale

    o Improvements in product range

    ? Also customers increasingly willing to pay higher prices

    for company’s products

    ? Efficiency through expense ratio (operating expenses relative to sales)

    rose from 28.9% in 2000-01 to 30.8% in 2003-04

    ? Marginal deterioration in efficiency reflects increased

    admin. costs. However as profitability has increased the

    marginal rise in the company’s expense ratio isn’t of

    significant concern.

    ? Liquidity traditionally operates with high level of liquidity, as demand

    for surfwear fluctuates throughout the year

    ? Current ratio has risen from 2.3:1 in 2001-02 to 2.8:1 in

    2003-04 = exceptionally high level of liquidity for a large

    business indicating the company should have no

    difficulties meeting its short-term financial obligations

    Increase in current ratio indicates that Billabong is selling more

    goods on credit than previously, and possibly taking longer to

    convert its sales into cash

    ? Solvency funded expansion largely through debt financing

    ? Total liabilities have increased from $134.9 million in

    2000-01 to $322.7 million in 2003-04

    ? Debt-to-equity ratio has increased from 0.26:1 in 2000-01 to 0.56:1 in


    ? Despite sharp increase in Billabong’s liabilities, the

    company’s debt to equity ratio remains acceptably

    relative to its competitors and financial markets do not

    feel Billabong faces any serious solvency difficulties in

    the short-term

    ? Growth

    ? primary financial objective in recent years

    ? great success as sales, profits and asset values have all

    risen in recent years

    ? Yet there is still room for further growth in the future.

    After all, Billabong’s total sales remain only half as large

    as those of its largest competitor Quicksilver Ltd.


    o Largely reliant on equity finance, however in recent years its relied on external

    sources or raising additional funds (ASX)

    o Increased use of leasing as a cost effective means of getting access to assets

    without incurring the expense of purchasing assets outright

    o External funding advantages

    = interest payments are tax deductible, lowering the company’s

    overall tax liability

    = company’s financial obligation limited to sum it borrows plus

    any interest it incurs. Any returns the company generates above

    that amount will flow directly to shareholders in the form of higher


    o External funding disadvantages

    = faces greater financial obligations in the form of interest

    payments, therefore company must maintain a higher level of free

    cash at any given time. Also higher debt levels may lower investor

    confidence in business

    o Increase in debt levels do increase the chances that the company will face

    financial difficulties if sales fall expenses rise in the future


    I. Working capital management

    ? Inventory and accounts receivable levels have both increased in

    recent years a natural outcome of business growth. This

    however is an undesirable trend businesses usually prefer to

    convert their inventory into cash as quickly as possible through


    ? Accounts payable have increased in recent years, as company is

    taking advantage of more generous credit terms offered by

    suppliers, reflecting Billabong’s improving credit-worthiness

    II. Profitability management

    ? Businesses improve profitability in 2ways: either they increase

    their revenue or decrease expenses

    ? Billabong has altered sales mix by expansion into o/s markets

    and launching new products

    ? Also Billabong has continued to modify it’s existing product

    range in order to better appeal to consumer tastes

    Success in strategies evident in increase in sales revenue

    ? Also minimised expenses through cost control measures

    savings have come through outsourcing



    ? Billabong has adopted a marketing orientation

    ? Primary role of marketing = attract new customers to the Billabong brand.

    Achieved through fresh and memorable advertising campaigns and ensures that

    the product range caters to the ever changing demands of consumers. They have

    also expanded into new industries and markets in order to widen its customer


    ? Relationship marketing achieved through sponsoring of pro. surf tournaments

    o Cheaper to retain an existing customer base than to win a new one ? Marketing strategies - aim to maintain the company’s strong position in niche

    surfwear and skatewear markets, while also exposing its products to a broader

    mass market


    ? Early days = word-of-mouth and occasional advertisement were enough to

    drive sales

    ? Now = relies on a powerful mix of product, price, promotion and

    placement strategies


    ? Broad range of products

    ? Product development = continual process. Company employs separate design

    teams in Australia, N. America and Europe to create products that will appeal to

    individual market places

? Product branding est. a brand identity that represents its heritage as an

    Australian surfwear company

    ? ‘wave’ logo widely recognisable ? creating new brands gives Billabong greater freedom to tailor its products to meet

    the needs of specific market segments

    ? Positions its products as high-quality, cutting-edge, fashionable items however

    ultimately product’s positioning is determined by its customers


    ? While charging higher prices will increase Billabong’s revenue per item sold, it

    may lower the overall sales revenue if customers choose to buy competitors

    products. Therefore Billabong operates with a competition based pricing

    method (setting prices with reference to those of its competitors)

    ? Rarely uses pricing strategies such as price skimming or loss leadership to raise

    market share

    ? In the short-term these strategies might have a temporary boost in


    ? Long-term; strategies could have a devastating impact on consumer

    perceptions of the quality of Billabongs products and on the

    desirability of brands


    ? Advertises its products widely in retail outlets, on billboards and in magazines (eg.

    Aust Surfing Life) and on their website

    ? Est. a range of below-the-line promotional campaigns ? organises pro. surfing

    events and sponsors a team of pro. surfboarders and skateboarders

    ? Publicity from the appearance of products in a number of TV shows and movies

    (eg ‘Blue Crush’). Also produces videos (such as ‘Billabong Odyssey’) that

    appeal to they company’s traditional customer base

    ? Billabong does a number of things that reinforce customer perception of the

    company as a socially responsible company, such as:

    o Supporting local surfboard ridding clubs

    o Donated $500,000 to the relief fund for victims of

    the Tsunami is Asia


    ? Products sold in over 2,500 retail outlets in Aust. and throughout the world

    ? Company adopted a selective channel choice, selling its products through

    specialty surf and skate shops, but generally avoiding department stores and

    discount outlets

    - Strategy allows then to sell products through a wide distribution network

    while reinforcing its image as a serious manufacturer of surfwear and


    ? Recently established its own retail outlets

    - Represents a fantastic advertising opportunity in their own right

    - 2005: plans to open flagship store in NY’s Time Square which will raise

    awareness of the brand in the crucial American market

    ? Distributing products on a global scale is a complex logistical exercise. ?

    Billabong = generally efficient


    1. situational analysis to examine current product range and marketing strategies

    SWOT analysis

    2. Est. the marketing objectives for its marketing strategies

    - Billabong may also set quantitive targets for goals such as sales growth 3. Identifying its target market

    - Traditionally = young people who live an active lifestyle and enjoy

    sports such as surfing and skateboarding. Many customers however do

    not fit this description and the company must ensure that it’s marketing

    strategies do not alienate particular market segments 4. Develop markets strategies

    5. Implement market strategies. Then monitor sales levels to gauge the success of its


    ? in addition company conducts market research to determine customer

    impressions of its brands, products and marketing strategies

    ? research = primary and secondary


    ? policies limit the ability of businesses to use marketing strategies to deceive


    ? eg. Trade Practices Act 1974 (CTH) = products must perform the task they are

    intended for. Also cannot force distributors to sell products at a particular price,

    although allowed to specify recommended prices

    Employment Relations


    ? most important stakeholders = company and its employees

    ? external stakeholders = trade unions Billabong is a relatively non-unionized

    workforce; a number of employees are members of Trade unions such as the

    Textile, Clothing and Footwear Union of Aust.

    ? Influenced by governments ? directly through the introduction of the new

    employment relations legislation and indirectly through industrial tribunals

    ? Billabong is not a member of Aust’s largest employer associations; however the

    role these organizations play in lobbying governments to allow more business

    friendly employment practices has a significant impact on Billabong


    o External trends have forced Billabong to reassess its approach to

    employment relations, and modify the strategies it uses to create an

    efficient and successful workplace

    ? Economic development and globalisation

    o Billabong is now a truly global business ? 1,300 employees around

    500/40% offshore

    o Globalisation has increased cultural diversity = fresh ideas and


    = changed employee roles outsources much of its product

    manufacturing = Australian workforce increasingly concentrated in

    higher-value work, such as design, finance and distribution

    o Attracting and keeping staff has been made easier through:

    - Rapid population growth

    - Increasing participation of women

    - Rising use of part-time employment

     Benefited Billabong which traditionally operated with relatively informal and flexible work practices as well as a flat management structure.

    o Government ER laws have effected Billabong’s business:

    - Workplace Relations Act 1996

    - Racial Discrimination Act 1975

    - Affirmative Action Act 1986

    - Also safe workplace legislation OHS


    ? Billabong always sought to maintain a flexible workplace environment to

    increase job satisfaction and productivity of employees

    ? Flat organizational structure = constant flow of information between employees

    and managers

    ? Training

    ? Induction training

    ? Continual education and training programs to help employees

    become multi-skilled and advance up the management chain within

    the company

    ? Important role of communication = ensures industrial conflict is resolved

    quickly and efficiently. Billabong attempts to do this through Grievance


    ? Rewards =

    ? Financial

    ? Wages and salaries

    ? Bonuses of cash and shares used to senior employees

    ? Non-financial

    ? Lifestyle benefits = living on the Gold Coast

    =opportunity to work at one of Billabong’s o/s offices

    =productive but relaxed, workplace culture ? Developed the ‘Since 73 Club’

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