We recently chatted with Heiko Schöller from the Concrete Wave shop in Cologne and he was suggesting to do an article about the current situation skate shops are facing cause some already had to close in the aftermath of COVID and some supposedly will, he assumed. Yeah, we said, that’s definitely an important thing to talk about, but after we started working on it, it pretty quickly turned out that it’s a bit more complex than just that. There’s not just one problem causing the situation, the effects influence everybody in the market, not just shops, and in the end, there is not even something like your typical skate shop anymore. But that only drew us deeper into the topic, so we wanted to find out more. Some of it might sound like old news, but some of it surprised us.
If you are interested in stock market tips on Instagram, you may have heard the term anticyclical (no, it’s not about hating bikes) from a suck-up in a suit and that this is the way you should think. It’s actually astonishing that the situation in the skateboard market over the last three years looks like there might be some truth behind it. First, there was COVID and everybody thought that sales will drop deeper than Bob Burnquist megaramping into the Grand Canyon. But skateboarding (just like any outdoor activity that was still allowed during COVID restrictions) had a booming phase (at least regarding hardware). The demand was high but unfortunately the supply was not there for different reasons (production stopped in China, a ship blocked the Suez Canal, no available oversea containers, etc.). Even big online shops at some point looked like their warehouses got robbed. Then, luckily, it turned: you were able to order decks, trucks, and wheels again – and every retailer did. Cause there was this huge demand and everybody wanted to get a part of the cake. But at some point, the demand was suddenly over. It seemed like everybody who wanted to get a board had one now. And little kids that got their first board from their parents so they were occupied outside the house or an I-used-to-skate-when-I-was-younger-guy that wanted to roll around a bit for fun again don’t need new decks every two weeks. However, shops were still fully packed with stuff since they had just ordered as much as they could get and there were still delayed orders coming in. In the meanwhile, the war against Ukraine started, which brought increased energy costs and inflation. Not the best time for consumers to spend money in general. So we reached out to people and it turned out that not everybody’s business is affected in the same way. Don’t get us wrong, no one is having a good time at the moment (at least economically – as far as you don’t manufacture weapons or sell fossil fuels, which is pretty weird), but for some shops, it’s just normal tough times like it happens when you run a business, while for others it can be a backbreaker. Some skate shops in Germany already closed, like Boneless in Munich, some think about it, some might be forced to do so in the next months. And this applies not only to skateboarding: retail business is facing a challenging time in many ways and everybody is trying to find the way to solve the problem. Maybe thinking anticyclical? But let’s get into it step by step.
Since there are different players involved in this, we also talked to
Jörg Ludewig who runs Urban Supplies distribution and explains the
origin of the current situation: “In 2019, there was an upward trend in
the skate industry and COVID pushed that even more because skating was
still possible despite restrictions. On the other hand, people couldn’t
travel, couldn’t go out for dinner, couldn’t go partying, so they had
money left over to spend. China then stopped production early on and
when they opened up again, the U.S. closed down. So there was a demand,
but not enough goods. This resulted in a hoarder mentality. When
production started up again in the second half of 2020, it was only
possible with restrictions. There were quotas, i.e. you could only buy
what you were allocated. With trucks, that would have meant that if I
only called two big online mail orders, the trucks would’ve been gone
already. So we first called all the small shops and then distributed the
rest to the big ones. That was an unsatisfactory situation. At times,
we were really empty. We didn’t have a single wheel left in the
warehouse, sometimes one truck and a few Zip Zinger boards. When the
deliveries came, it was sometimes only half of what we had ordered. The
dealers understood that they had to order in advance, so that they could
get some of it at all.” Preorders were something that was normal for
soft goods but not for hardware. Till then, you just called the
distribution and ordered the boards and trucks you needed, whenever you
needed to. But when there’s not much stuff out there, you better order
upfront if you want to get at least some of it.
"Demand in hardware in general dropped around 40%"
“At that time, we could have sold every complete board five times over. Then the middle of 2022 was the turning point. The restrictions were gone and people could do anything again. On top of that, the brands haven’t been able to increase production as much as they wanted, which meant waiting times got longer. Also, there weren’t enough containers, so the ordered stuff was forever late. In spring 2021, people were still ordering like crazy because the shops didn’t want to run out of stuff again, but the goods didn’t arrive until fall, and by then, the point had already been reached where everyone who wanted one had their complete board. But you don't know in advance when that point will come. That means the demand was gone, but tons of stuff came into the market, which the shops then had to store. Everybody had that problem, and the problem is not the stock, but what the stuff used to cost – the cash flow problem.” That’s also what Heiko points out. He says that demand in hardware in general dropped around 40% if you compare the second half of 2021 with the second half of 2022, which is dangerous for a lot of shops since their money is not on their bank account anymore but on their shelves, and sadly, they can’t pay their landlord with boards or wheels. For some shops, that’s a bigger problem than for others. Some remembered a similar situation when there was the longboard hype, where skate shops made a nice extra income on those, and all of a sudden, it was over. So this time, they were cautious and didn’t overstock their shop, but you also hear of other shops that have 500-1,000 boards lying around. If you still have enough money to wait it out till they’re slowly sold, cool. If not, you may have to reduce the price, which brings us to…
So there’s too much product in the market and the demand is gone,
which gets everybody in trouble. No matter if it’s brands, distributors,
or shops, like Jörg explains: “I think the differences are bigger
between the individual players in each of these groups than between the
groups. The current situation is not a problem for us, we are liquid
enough to get through this. There are also shops that have been active
for 20-30 years and they have gone through different times and if you as
a company can’t ride out a difficult year, then that’s a problem,
regardless of whether it’s a one-man operation or a large company.” But
the bigger the company, the bigger the problems can get cause their
fixed costs are higher and they’re less flexible and once you’ve reached
a size that you have shareholders, they want their revenues, no matter
what. You hear from warehouses full with thousands of boards from
cancelled orders (How to deal with orders that arrived with big delays
would be a whole new topic and it’s more difficult for soft goods than
hardware, since trucks, for example, don’t really go out of fashion,
while you have a hard time selling shorts in winter. But this article is
mainly about the hardware market.), big layoffs, or the sale of large
numbers of completes way below their value just to get the warehouse
empty and some money in to be able to produce new products. But why, you
may ask, would a brand produce new stuff in a situation like this?
Cause they kinda have to. If you don’t release new stuff, you’re somehow
dead as a brand. However, they adjusted the production to the demand
and Jörg says he’s still ordering stuff, but when he ordered 2,000-3,000
completes from a brand during the boom, he now orders maybe six boards
(which is something you’re hopefully able to do as a distribution and
you don’t have contracts with minimum purchase quantities). That might
cause some more problems in countries like China or Mexico, where boards
mainly get produced, as he explains: “Where producers used to work
three shifts around the clock, they now only need one shift and then
people are laid off. So in the production industry in China or Mexico,
heaps of people will have lost their jobs. The occupational health and
safety laws there are different from those in Germany.” While the
production during COVID couldn’t be high enough, at the moment, it’s not
needed at all.
"I almost no longer even calculate with the stated price with the sale battle going on everywhere"
But what can shop owners do to keep their shops running? A common method to get rid of stuff is to put it on sale, but actually, that’s even increasing the problem right now. (It even got to the crazy situation were online retailers were so desperate that they sold complete boards way below purchase price, so that shops ordered there cause it was cheaper than to order at a distribution.) Martin Schiffl just opened a skate shop in the small town Erkelenz a year ago – perfect timing. His shop doesn’t have the problem with too much stuff, since he opened after the order craze. Still, he is forced to put stuff on sale, as he explains: “I almost no longer even calculate with the stated price with the sale battle going on everywhere. There was a shoe I ordered for 74.90 Euros. Then I googled it and found it at the site of an online mail order for 50 Euros. Sometimes I put stuff in the shop and write the stated price still on it, but cross it out right away.” While back in the days, sales were more regulated and shops competed only with other shops in the city, nowadays, they compete with every shop that is online. Why would a customer pay the full price for anything in your shop when he can order it online for a reduced price and gets it delivered to his doorstep? And not only other shops are doing it, more and more brands themselves push their online business since the margins are higher if there is no middleman and it’s even easier for them to give discounts. Jörg recites a statistic he has seen recently about a big brand saying they are making 50% of their revenue on products on sale (which probably isn’t the healthiest business model). You actually have some big brands that are aware of the importance of shops, which are crucial for them to build their brand image, and they do not undercut them with their sales; and there is also a code of honor between some of the shops not to go on sale too early or too low with the prices. The internet, however, knows no boundaries and if there’s just one website where stuff has a crazy discount, it affects everybody.
While on one hand, there are more discounted prices than ever at the
moment, on the other hand, prices are going up. There are shoe models where the suggested retail price has increased by 20 Euros from one order to another, says Martin,
and board prices are going up as well because of the dollar exchange
rate and raw materials, energy costs, and shipping is more expensive
now. (During the height of COVID, a shipping container that cost 1,500
Euros before, all of a sudden, was at 15,000 Euros. Luckily this at
least is over.) Board prices have been pretty stable for decades, but
with rising costs of living and a sudden raise of 20-30 Euros, which
means that boards from some brands are over 100 Euros now, people will
think twice if they really need a new board or if the old one is good
enough for a few more weeks. At least it could be a chance for local
brands since their shipping costs are lower and there are less middlemen
involved (boards don’t get sent from the producer to the brand in the
U.S. to the distro in Europe to the shop, but from the producer directly
to the brand) although Jörg is skeptical cause “if you sell your boards
only because you are 20 Euros cheaper than an American brand, then your
brand is also not worth what the American brand is worth.”
"We pay 10-15% more than a year ago. We have to raise our prices and in some cases earn even less than before."
But ironically, the problem with rising prices can help solve another problem at least a little bit. If you ordered boards or wheels before the prices went up and have them lying around in the warehouse now, you can sell them for the normal price from before, which now feels like a discounted price to your customers, but you still get the same margin or you can adjust the price and even get a better margin. But talking about margins: on hardware, they have always been quite shit and skate shops never made much money off of it (Instagram business experts would definitely not recommend you running a shop with product that has such low margins). With the rising prices it gets even more difficult, even if distributions try to help, as Jörg explains: “Due to the dollar exchange rate, higher freight rates, and the fact that the brands have increased their prices, it has come about threefold and we have tried to absorb as much of this as possible in order to avoid to completely spacing out with prices.” But it’s not possible to absorb everything, so it’s getting trickier for shops, as Heiko says: “We pay 10-15% more than a year ago. We have to raise our prices and in some cases earn even less than before.” And in the end, the shops get the complaints why everything is getting so expensive although they’re not the ones responsible for the increases.
We’ve learned so far that worldwide economy is a kind of like the
Human Centipede – everything is connected and almost everybody eats
shit. The situation right now affects all participants from the
producers in China to brands in the U.S. to distributors in Europe to
little shops in your hometown. But at the moment, the shops even have
some more stuff to deal with. First of all, wintertime was never great
for selling skateboards, and more importantly, retail has been suffering
for a while now anyway, not just in skateboarding. You probably have
heard about it already. Especially smaller towns have the problem that
their city centers are slowly dying, especially if they’re located near
big cities that are way more attractive for shopping. Martin sees it
around his shop: “The store across the street is closed, and next door, a
bakery and a butcher have closed. This is also pretty extreme in the
bigger town next to us, well, it’s kinda normal everywhere now.” While
skateparks are blooming everywhere, the infrastructure for shops in
Germany is not looking good. Jörg says some rural areas are bled out
already. The number of his customers dropped down compared to former
years and while the order volume was kinda the same back in the days
throughout the shops, today there is a great disparity with a few big
orders and the rest just tiny orders. Also, cities have recognized the
problem and set up programs, so their inner cities don’t look like ghost
towns soon – even if this only treats the effects and not the causes.
However, it was actually why Martin was even able to open his shop.
“There is a development program in Erkelenz in which the city works
together with tenants to promote retail. Anyone who opens a new shop has
the chance to apply for this support, in which the city is then the
main tenant and I am only their subtenant and pay only a share. And the
landlords, for their part, waive part of the rent to the city.”
"In a city of less than 200,000 inhabitants, it is almost impossible to run a shop nowadays. The online business is just getting stronger and stronger, and in the end, it’s just pure Google manipulation. Whoever is the best at it, sells the most."
For him, it was more like an adventure anyway. He needed a break from the job as a youth worker, and he also was able to get the stock and shop interior from another skate shop (that closed in the city next to his) for a fair price. With the lowered rent, his fixed costs were okay to deal with, but still, he says, at the end of the month it’s more or less plus/minus zero. So he didn’t lose money, but you also want to earn some when you are working in the shop day by day. Like many, he always dreamed about having a shop. He had this romanticized idea, but besides the problems that are there now and he kind of calculated with, there are also other problems he hadn’t expected. For example, that he wasn’t able to order certain brands, cause they only want to be in certain shops, or that he didn’t get some footwear brands, cause they have minimum purchase quantities that a small shop like his can’t afford. But if you don’t have the cool brands, you also can’t compete, cause the most important thing for a shop nowadays is to become a cool brand on your own, “so kids feel cool that they bought the stuff from you,” Martin says. Running a shop nowadays needs good marketing, which is a lot about being active on social media and having your online business on point. Even more in small towns, like Heiko says: “In a city of less than 200,000 inhabitants, it is almost impossible to run a shop nowadays. The online business is just getting stronger and stronger, and in the end, it’s just pure Google manipulation. Whoever is the best at it, sells the most.” It’s becoming more and more important to know about TikTok and SEO than wheelbase or truck sizes. Still, shops have one big plus: the service. “We get a lot of beginners who come in for advice. With 80% of all skateboards for children that we order, we first have to change the bushings or wheels until they fit. If you order it online, the kid doesn’t enjoy it, cause it doesn’t turn well and the board ends up in the corner.”
Martin already knows that he’ll get back to his job as a youth worker. He’s not whining about how it went. He admits he’s not a good businessman (what’s quite likeable about him cause he loves skateboarding so much that he has scruples against making money with it) and, for sure, he made mistakes, but he still liked the experience to run a shop for a while and two friends of his will try to continue, to see if they can make it work. But what makes him sad is that he feels like that the shop would also not really be missed if it were to close. For him, it was important to celebrate skateboard culture, to have a couch, a TV with skate videos, a rack with magazines, to do video premieres – but although there is a good scene in his town, only few people have taken up the offer. Sure, the world has changed since the ‘90s, where kids hung out in the shop all day – but doing video premiers where only a handful of people show up is something Martin wouldn’t have thought of before. He doesn’t like to get the best tricks from a video spoilered on Instagram, he wants to enjoy the whole video, but for Generation Z, it’s all about short clips. Don’t get it wrong, it’s not about bashing the kids for not doing it “right,” it’s just the times we live in. Also, Martin admits that he nowadays sometimes struggles to keep up the attention span for a whole movie cause he’s playing around with his phone while watching. Everybody we talked to about this article agrees (to different degrees) that skate shops are not needed anymore in the way they were before. And this is not meant to sound like the cultural pessimism of some old blokes, that’s just how it seems to be. Sure, if you do a good job as a shop in building a scene and keep it active and alive, you’ll have a bigger following. But that’s also easier (or maybe only possible) if you’re located in a bigger city, where brands support you when you do events, premieres, or build spots. Shops in rural areas that don’t get this support sometimes just don’t have the money for this. Although everybody agrees on the problems, nobody really seems to know a solution. Of course, if you’re located in a hotspot, as written before, you have to have the cool brands, get a brand yourself, be on point with your social media, get your online business running, and it should work out. But as you can see for different reasons, that’s way harder to do for shops outside of these areas. And what can customers do to help? Obviously, you can buy stuff there, but besides that? Maybe a like on Insta or a good Google review. That’s pretty much it.
We talked a lot about the challenges that are there at the moment and how the landscape for retail changed, but where is this all leading to? Let’s assume the situation continues like it is, and the already difficult retail situation gets even more problematic due to the current circumstances, that would mean at some point you’ll only have a few shops in metropolitan areas – besides that, there’d hardly be any shops. Martin could be right that people might not actually care too much about it and just order online or consume skateboarding on their phones, but isn’t there more to a shop? Aren’t shops the ones that organize contests, raise money for DIY spots, start petitions for skateparks, organize demos and do signings, give skate lessons, and are the first ones to sponsor young talents and draw the attention of bigger brands to them? This might be all gone then in certain areas if there are no dedicated people who do stuff like that in their spare time. And if there’s less engagement in those areas, there could also be fewer kids starting skating which would also mean fewer consumers for everybody, so to say, and a decline of skateboard culture in certain areas. That would be the worst way it could go. Some also don’t see it that negatively and feel like skateboarding evolved in a direction with too many brands and too many shops anyway, and it might actually be good to have a cleansing thunderstorm after which only the ones survive that are doing a good job and then have the chance to grow. Survival of the fittest is not a chill concept of the social state – rather the opposite – but it might be the harsh truth at the moment. We’ll see what the future brings.