Volcom revenue hit by wholesale shortfall in 2016 despite direct sales growth

By

Olivier Guyot

Translated by
Nicola Mira

Published
Feb 22, 2017

Kering's leading sport/lifestyle brands seem to have had a mixed year in 2016. While Puma is in buoyant health, US label Volcom went through a more troubled fiscal year, recording an 8.4% sales decrease before exchange rate adjustments (-13% after them), down to €242 million.

Volcom sold the Electric brand to its management early in the year, and was sorely hit by the problems experienced by US specialised retail chains such as Pacific Sunwear, given that North America still accounts for 65% of its global business. "Within this context, Volcom has continued to implement the strategy first deployed in 2013, aimed at limiting margin erosion, improving its distribution and bolstering the consistency of its range," stated Kering in its annual report.

The problems for the board-sports and Californian alternative culture brand came from the wholesale business, where sales fell by 13.9%. The 19.8% rise in Volcom's direct consumer sales, which currently account for more than 20% of its business, were not enough to compensate for the wholesale shortfall. Despite declining on nearly all its markets, Volcom did however enjoy growth in western Europe, though current operating income was in the red, down from a €2.4 million profit in 2015 to a €3.4 million loss in 2016. EBITDA too fell, from €10.3 million to €2.8 million.

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"Throughout the year, Volcom has continued to implement policies designed to cut costs and minimise the shortfall in results, stated the Kering group. These measures counterbalanced the depreciation and organisational costs which weighed on the fiscal year's current operating income."

Volcom's gross operating investment grew from €6.5 million in 2015 to €7.7 million in 2016, as the brand is clearly relying on the expansion of its direct retail operations: both e-tailing, with online sales up 43.1% last year, and also its own-store network. As of 1st January, the latter has 70 retail outlets, after store openings in Switzerland, Australia, Japan and at Orlando's Disney World in Florida. Volcom now also operates directly its retail corners in European department stores, and is about to open a flagship store in Paris. Will these efforts be sufficient to put the US label back on a growth track?