Casual beach footwear, one of surf-wear’s fastest growing retail segments, is a hot new product for Vancouver companies.
The Surf Industry Manufacturers Association (SIMA) released statistics in May that revealed overall U.S. surf-wear retail sales fell to US$4.6 billion in 2010, down 13.5% compared with 2008. Footwear accounted for US$1.5 billion of those sales, which is an increase of 8.2% over 2008.
Higher beach-footwear demand helped return Holey’s to growth. So has new venture funding from a silent investor who wanted the Vancouver-based foam-plastic sandal-maker to focus more on the home and garden market. Meanwhile, funding from investors such as Ritchie Bros. Auctioneers CEO Peter Blake and former Vancouver Canucks CEO Chris Zimmerman helped launch Flip Flop Shops two years ago. The retailer now has 40 franchised locations across North America and the Caribbean.
The company’s Vancouver-based president, Brian Curin, told Business in Vancouver that he expects another 35 stores to open by the end of 2011. Another 25 locations are in development.
The key to Flip Flop Shops’ success has been its focusing not only on the beach-wear market but almost exclusively on the iconic flip-flop sandal style. Its B.C. stores include one in Kelowna and one on Fourth Avenue near Burrard Street in Vancouver.
Curin said the company plans to open stores in Nanaimo and in Langley in June. Other planned Canadian openings include two stores in Toronto and one in Calgary by year-end.
Curin recently signed a master franchise agreement with Langley businessman Doug Kingston, who has committed to open 30 Flip Flop Shops within the next 10 years, either on his own or by sub-franchising to others who are willing to spend a $30,000 one-time fee and pay 5% of gross sales as a royalty. Unlike opening a restaurant, launching a new Flip Flop Shop requires relatively little initial capital. Curin estimated that the cost of opening one of the stores is well under $200,000.
“Our franchisees average about $400,000 in sales spread out through the year,” Curin said. “Our peak season is actually the holiday season in December. That surpasses spring and summer mainly because more people are shopping and looking for gifts. People in climates such as Vancouver’s are also often getting ready to go on a vacation somewhere warm.”
Flip Flop Shops’ bulk-buying power leverages bigger discounts for its franchisees from Holey’s and other suppliers. Curin said many of its suppliers also give Flip Flop Shops preferential credit.
“The nice thing is that because of our relationships with distributors of the brands, they’re not going to open any stores of their own. So, franchisees who open a Flip Flop Shop know that they’re not going to see a direct competitor, who sells only flip flops and sandals, open in their area because that competitor wouldn’t be able to get the product.”
For example, Holey’s co-owner Joyce Groote has no plans to open her own chain of retail stores. However, other Flip Flop Shops suppliers, such as Crocs Inc. (Nasdaq:Crox), have retail stores on Robson Street and elsewhere. Crocs is at least 10 times bigger than Holey’s, but the two companies have been following similar growth curves over the last few years.
Groote said her company, formerly known as Holey Soles, generates “tens of millions” of dollars in annual revenue. Compared with 2009, it had a rough 2010, but it’s on track to have a strong 2011.
Crocs sales dipped 10.5% to US$645.8 million in 2009 and jumped 22.3% to US$789.7 million in 2010. Analysts expect sales to rise a further 24.2% this year to US$981 million.
“Crocs focuses on fashion,” Groote said. “We focus on functionality. We have a new boot line, and we’re really starting to target the home and garden market.”
Niwot, CO
CEO: John McCarvel
Employees: N/A
Market cap: $1.9b
P/E ratio: 23.45
EPS: $0.94
Sources: Stockwatch, globe investor