Vans is Looking to Replicate Skatepark Success
Shopping mall owners have more than a few reasons for concern these days, with department store sales down, movie theaters on the rocks and shaky consumer confidence levels.
But Santa Fe Springs-based Vans Inc., which relocated from Orange a few years ago, has hit on a concept that is bringing crowds to malls, where they stay for hours spending money and hanging out.
The concept is skateparks, and their popularity has convinced Vans to undertake a national rollout. Investors, encouraged by the prospects of the fledgling business, have sent Vans’ stock price up in recent weeks.
“When we set out, we thought there was the potential for expansion, but until we got the first one up and running, we didn’t know what to expect,” said Gary Schoenfeld, chief executive of Vans. “We believed in the concept, but we have sort of a walk-before-we-run strategy.”
With the first mall skatepark, which debuted in November 1998 at The Block at Orange, now a verifiable hit, Vans is breaking into a sprint.
Vans, whose primary business has been manufacturing skateboard-oriented clothing and supplies, plans to open six new skateparks in Denver, Atlanta and Phoenix, among other major cities, by the end of the year.
Though mall owners were initially dubious about the concept, the influx of teens,carrying plenty of disposable income,has clearly captured their attention.
“It’s been a great addition,” said Mark Rivers, executive vice president of Arlington, Va.-based Mills Corp., which owns The Block at Orange. “They bring a sense of energy and excitement to the property. Whenever you try a retail concept for the first time, you have some butterflies. But it’s been a pretty solid marriage.”
That kind of enthusiasm has enabled Vans to negotiate more favorable terms on its skateparks.
“In the first project, the Mills Corp. put up about 70% of the financing,” Schoenfeld said. “Since that time, we’ve had some locations 100% financed by the developer. But, more importantly, we’re now getting into markets and malls that were skeptical two years ago.”
The skateparks range in size from 30,000 square feet to 60,000 square feet and cost $3 million to $5 million each to build. Skaters pay between $10 and $14 per two-hour session, or purchase a one-year membership that allows them to skate at a reduced per-session cost, usually between $7 and $9.
“The model is $2 million to $2.2 million in annual revenue for each park, and a 20% operating margin, said Mitch Kummetz, an analyst at investment firm A.G. Edwards.
“And as skateparks become a larger percentage of their overall business, that enhances their overall operating margin.”
While that high-profit revenue stream is impressive, the skateparks contribute much more.
Around the perimeter of each park is an observation deck, where parents, friends and passersby can watch the skateboarders’ swooping acrobatics. “(The parks) have turned out to be fun places for young people to participate, as well as hang out with their friends,” Schoenfeld said.
Vans also is cashing in on the skateparks’ power to draw spectators. It recently inked a three-year deal with NBC Sports to broadcast the Vans Triple Crown Series, which consists of three championship events in various sports, including skateboarding.
Though skateboarding remains a predominantly male activity, the sport’s drastic increase in popularity has not escaped the attention of young girls.
“They’ve found that girls travel in the same circles as the young guys who are skate-oriented,” said Steve Morotta, vice president of equity research at Wasserstein Perella Securities.
Not surprisingly, Vans has already launched a new product line to capture the newcomers. “About a year and a half ago, we launched our strategy into the juniors’ market, which was directly tied to the strategy we had used for our existing men’s market,” Schoenfeld said. “Girls are increasingly participating in and identifying with these same core sports. There was a tremendous opportunity to address.”
Investors are clearly taking notice.
“The stock was depressed for a long time,” said Jeff Van Sinderen of B. Riley & Co. “We’ve had expansion in the retail space for the past few months; money’s been flowing into that sector.”
Vans was founded in 1966 as Van Doren Rubber Co. Inc. in Orange County, originally in the business of casual-shoe manufacturing. It began marketing to skateboarders 10 years later.
Success and profits in the early ’80s convinced the company that it could broaden its product line to include such items as shoes for more traditional sports like baseball and football. High production costs and heavy competition forced the company into debt, and Vans filed for Chapter 11 bankruptcy protection in 1984.
In December 1986, it emerged from bankruptcy proceedings and became profitable shortly thereafter. In February 1988, company co-founders,Paul Van Doren, Gordy Lee and Serge D’Elia,sold Vans to McCown DeLeeuw Co., an investment banking firm.
The new owner expanded the business, garnering recognition across the nation and then internationally. Vans’ current chairman, Walter Schoenfeld, joined the company’s board upon completion of Vans’ public offering in August 1991. He became acting chief executive in 1993, and was succeeded by his son Gary in 1997. n
Dougherty is a contributor to the Los Angeles Business Journal.
