Justin Hillberg: Yeah, really good. We’re seeing pretty strong momentum in digital retail in general and I don’t see it slowing down, I think it will continue into 2021 and beyond. I think some [online] retailers were held back in 2020 through disruptions in the supply chain, which will work itself out this year. I think our ability to catch up and cater for the growing demand will improve over the next few years. I’m feeling pretty good about 2021 because we’ve got good momentum, I think it will continue.
We’re really all about coastal lifestyle and I think that as a category, it has never been more relevant for us across Australia and New Zealand. People are travelling more locally, we’ve got great beaches on our doorstep and I think coastal lifestyle will be a big play in this particular market.
IR: What was 2020 like for Surfstitch?
JH: It was a pretty crazy ride. We entered into the year in a precarious position. We had bushfires impacting some of our major markets, we didn’t have a fantastic Christmas in 2019, so we were not in the best stock position. We had a lot of work to do. We had a change in leadership and we had a lot of different challenges that we were facing even before Covid hit. We had to deal with some nervous and conservative investors that we have to manage really closely, we had customer expectations to manage and then we had other partners and vendors that we were doubling down on and trying to keep everyone on the same page. It was a really challenging period for us, especially as we were going through all those challenges in January. It was a tricky time.
IR: Where did it go wrong with the previous Christmas season?
JH: It was a combination of things. We had a pretty good November, we just didn’t nail December. I think some of it was internal and some of it was external, but the end result was we expected it to be a lot bigger than it was. We had purchased inventory to get a much higher sales number than we actually did. We opened up last calendar year with a lot more inventory than we needed, which we had to clear through, plus we had the general cashflow constraints of a business that had too much stock. We had to rely heavily on promotional activity to clear through that at the start of the year.
IR: And how are you guys faring now?
JH: Right now, we’re in a position where we’ve never been healthier. We’re delivering record profits back to our shareholders and we’ve never been in the position to do that in the history of Surfstitch. On a revenue level, we’ve taken our main focus off revenue growth and we’re focusing on quality revenue. We’re probably flat from a top line revenue perspective in the past 12 months, but we’re significantly more profitable. We’re more than 300-400 per cent up in net profitability.
IR: What are your thoughts on how e-commerce has evolved over the past year?
JH: I think what we’ve seen through this period is a lot more interest from people exploring digital channels and buying products they wouldn’t normally buy online. For some retailers that are ready to deliver a good experience, they’ll be able to retain those customers. We’ll find that [last year] likely created long-term behavioural changes in spending for some people and that will benefit multi-channel retailers with sophisticated digital channels. It could go the other way. If you’re not set up to deliver a good experience, it’s really easy to lose customers if you can’t back up your proposition.
IR: What are some of the exciting plans you have for Surfstitch this year?
JH: We’re in a really good position where we can talk about innovation, which we haven’t been in that space for a few years. We released a new app which launched at the end of last year. It’s still in beta mode right now, but we’re going to invest in that channel and really use that to create a more intimate dialogue with our core customers. We’re looking forward to that.
We’ve recently gotten into home and body, and we’ll really go hard into those categories. We won’t go crazy and sell rangehoods and barbies, but we’ll explore anything to do with coastal lifestyle, like activewear, homewares, body, wellness. And then we’re keen to launch a loyalty program into next year. We’ve got a lot of passionate Surfstitch fans who have stuck with us for a long time, so we’re in the process of developing a loyalty program that rewards our most engaged customers.
One of our biggest challenges is a good chunk of our customers purchase in summer and we don’t see them until the next summer, so our purchase frequency is lower than some of our peers. One of our main objectives going forward is to increase that and give them other reasons to return and purchase from us at other times of the year.
We ship globally. We’ve got a pretty sophisticated platform that has an international version. Our Australian platform gets translated internationally with real time currency versions and global payment providers to help people shop globally. Australia and New Zealand are our biggest markets by a long way, but we ship into the UK, Europe and we have a growing market in the US as well.
IR: A few years ago, Surfstitch went into voluntary administration. How have things evolved since then?
JH: Even when we were in voluntary administration, Surfstitch always had strong fundamentals. We had a good product offering, a really loyal customer base and we sustained solid growth numbers even while in voluntary administration. Since then, we’ve really simplified the business. We stopped some of the distractions that impacted the global business performance and got back to focusing on providing the best coastal lifestyle product for customers and getting the basics right — offering the right product at the right price and offering really fast, reliable shipping, backed by awesome customer service and delivered on a great technical platform.
I think in the heyday when we were a public company, we got caught up with being the world’s biggest action sports marketplace and we just didn’t focus on good execution. We raised $250 million [in capital] and we did six acquisitions in 12 months; a lot was going on back then. The benefit of being in voluntary administration is being able to simplify the business and going back to our core proposition. We refined our vision, we developed a strong purpose, we have a great culture now and we’ve never been healthier.
It definitely created a lot of clarity for us. When we were coming out of voluntary administration with our new owners, Alceon, one of the first things we did was a strategic workshop and went to ground zero. What does it mean to be Surfstitch? We bunkered down on setting our vision to be the number one coastal platform and we really honed in on that. We locked in our purpose, and it’s been about trying to embody our culture and what we stand for.
We’re about inspiring you to live like it’s the weekend. We don’t take ourselves too seriously. We really encourage our customers to stress less, slow down, get outdoors, get active and super relevant.
We were talking about it in 2019 and we’ve stuck with it. Getting the basics right has put us in good stead. We haven’t necessarily blown the lights out from a top line revenue growth perspective, but we have a clear business proposition and we’re profitable. We’re cashflow-positive and we’re poised now for that next phase of growth, which is exciting.
There are common pitfalls to growing too fast too quickly and one of the pressures of being a listed company is that constant pressure on topline growth as a key metric. Moving into the private equity world with our owners, we now have different priorities. It’s been positive from an overall business health perspective.
IR: I think a lot of people think Surfstitch is about the surf category, but you describe it as being in the coastal category. Tell me about that.
JH: We see it as something a bit different. The surf category was massive in the ’90s and early 2000s and it was a juggernaut in Australia but also massive on the global stage as well.
The surf category has really evolved from talking to surfers to being about surf fashion. It’s talking to a much broader audience and now we really see it as ‘coastal lifestyle’. You have surf brands that talk to the core surfer, but there are a whole bunch of emerging brands that operate within the category that aren’t defined by surf. They talk to customers who surf, but also those who love to fish, get out on the water or the beach. It’s quite a broad category and you can talk to a lot of different sub categories within coastal lifestyle, but surf is a big part of it.
The surf category has had its ups and downs, and we’re probably going through an extended period of contraction within the surf-specific brands that operate within the category, but 2020 was a great year for it.
Surf participation has never been higher, we sold record numbers of surfboards and equipment last year. I think there are some things that bucked the trend through Covid. We had some categories that went crazy — skateboards, wetsuits, roller skate rollerblades — things you wouldn’t have thought of. But when team sports were locked down, people really ramped up their individual sports and surfing is one of them. You can go out, clear your head, you’re out in nature. I think people really gravitated towards that.
IR: You just launched your own 3PL logistics and commerce services business. Tell me about that.
JH: We’ve got a 10,000-square-metre fulfilment centre on the Gold Coast, and for the past two years we’ve been doing the fulfilment for one of our partner brands, Ezi Buy. That’s really now set us up to offer the same service to other partners into the year. We’ve fine tuned it for 10 years, and we’re known for our really good, accurate fulfilment. There aren’t a lot of good direct-to-consumer 3PLs out there, so we think we can offer that to some of our partners.
We’ll do everything from warehousing and storage to picking and packing, dispatching and customer returns management. There are a lot of brands that have seen massive growth in their direct-to-consumer channels, but they don’t necessarily have the backend commerce to keep up with it.
Surfstitch sells more than 300 brands, some with big global teams, others that are small. With a lot of those brands, they’ll have their own site that sells direct-to-consumer, plus a wholesale arm. They want to have a really good partner that they can trust to handle all their photography, product content and consistent and accurate delivery. But you need the right tech, people and processes and there is no rulebook around what that looks like, so often some of the brands learn the hard way. It’s a lot more complicated than it sounds. We have our own in-house photo studio and we do content development. We’ve spent a lot of time getting it right. Rather than brands learning the hard way, they can outsource those services to experts like us.
Often those brands don’t have the resources in those areas because they’re small teams and they’re mostly focused on marketing and designing product, not necessarily backend operations.
We can handle all the backend complexities, which is what a lot of brands stumble on when they’re going through their growing pains.