Costa Mesa-based Volcom Inc. has started building a European headquarters in France and hired workers as it readies to take over distribution of its clothes on the continent.
The 34,000-square-foot office and warehouse in Anglet,part of France’s southwest surfing hub near the Spain border,should be open early next year, Chief Executive Richard Woolcott said during a recent conference call.
The project is on schedule, according to Woolcott.
“I feel good about our ability to take control of the territory in 2007,” he said.
The move is part of Volcom’s evolution from upstart designer to an expanding global brand. Huntington Beach-based Quiksilver Inc. and other larger surfwear companies made similar moves during their development.
Volcom, which makes clothes inspired by surfing, skating and popular culture, said last year it planned to store and ship its own clothes to shops in Europe after a licensing pact expired at the end of 2005.
Europe easily is the second most important market for surfwear companies. Expanding there could help Volcom.
The company recently said its biggest customer, Anaheim-based Pacific Sunwear of California Inc., may be cutting back on orders. Pacific Sunwear runs stores in malls across the U.S.
Taking over European distribution is expected to help Volcom boost sales. Business there now is a fraction of the company’s roughly $180 million in yearly sales.
Quiksilver, which counts annual sales of more than $2 billion, gets 40% of its business from Europe, a percentage that could grow with last year’s buy of France’s Skis Rossignol SA.
In 2004, Volcom saw $25 million in sales through a distributor in Europe. Last year, European sales were $28 million.
Volcom clothes are sold in about 1,000 European stores.
Europe is Volcom’s “biggest opportunity,” said Jeff Mintz, an analyst at Wedbush Morgan Securities Inc.
Quiksilver “has shown that there is a place for surf and skate in Europe,” Mintz said.
“It’s a very big business for Quiksilver,” he said. “There’s no reason why Volcom can’t have some of that.”
Volcom said it doesn’t expect a boost from Europe until the second half of next year. The company expects to see higher expenses as it builds its operations there.
The European building is set to cost $5.9 million. Volcom received government grants totaling about $1 million for the project.
Volcom so far hired about 10 people to run things in Europe, including a chief executive, chief financial officer, men’s designer, women’s designer and technology manager.
Last year, Volcom paid $1.5 million for Welcom Distribution SARL, which handled the company’s distribution in Switzerland.
Tough Going
Wall Street wants to hear some good news.
Investors got jittery earlier this summer when Volcom said sales to Pacific Sunwear were expected to fall for the current quarter and be “relatively flat” through Dec. 31.
Volcom’s stock took a hit on the news and has since regained some ground. The company counted a market value of $550 million as of last week.
Pacific Sunwear has been struggling with fashion missteps and poor merchandising. In August, the company reported a big drop in second-quarter profits and warned about the current quarter.
Pacific Sunwear is a “barometer for Wall Street,” Bob McKnight, Quiksilver’s chief executive, recently told Reuters.
When the retailer hits troubles, it impacts all surf-inspired companies, McKnight said.
Volcom recently hired employees to work directly with Pacific Sunwear’s PacSun surfwear chain. PacSun accounts for 30% of Volcom’s sales, Mintz said.
“It’s clearly an issue,” he said.
Volcom remains a “very important customer” to PacSun, spokesman Gar Jackson said.
“We continue to work very closely with them on product development,” Jackson said. “Volcom has historically done well across the board. The relationship is very healthy.”
But Volcom has to explore options, Wedbush’s Mintz said.
“I suspect the response will be to broaden out its distribution,” he said.
Quiksilver, which runs its own stores and sells through a wider range of retailers, hasn’t been impacted as much by PacSun’s issues.
“(Quiksilver) just has a much more diversified revenue stream,” Mintz said.
Volcom’s challenge: broadening sales without losing its edgy cachet.
“That’s always the balancing act with the surf and skate guys,” Mintz said. “Clearly, Quiksilver has dealt with that for years. There is room for Volcom to do more distribution without alienating the core customer.”
Volcom also is selling more through existing stores that handle its clothes. The company rolled out new merchandising displays and racks, which have “been well received and worth the effort,” Woolcott said.
Business at “core” surf and skate shops was up 30% for the quarter ended June 30 from a year earlier, he said.
Volcom’s overall quarterly sales were up about 28% to $46 million.
The company also is looking to new products: a line of sandals and slip-on shoes under a new brand “Creedlers”; a collection of clothes for boys ages 4 to 7; and a women’s swim line.
The boy’s clothes and shoes should be hits, Wedbush’s Mintz said. He’s waiting to see on swimwear.
“Women’s swimwear is a tough business,” he said. “It’s something that has to be done right to be successful.”
And Volcom is opening its own stores.
The company recently opened an outlet store in Central California’s Tulare, expanded its Los Angeles store and opened others in San Diego and Santa Barbara.
Volcom plans to add up to four stores, including a couple of outlets, in the next year, Woolcott said.
“Retail is great because it gets the brand name out there,” Mintz said.
