About three-and-a-half years ago, executives at global surf and skateboard powerhouse Billabong chatted with Sam Baio about a corporate marriage. But the founder of West 49 Inc. Canada's largest extreme-sports retailer, had his hands full folding in newly acquired chains, and took a pass.
Mr. Baio no longer has that luxury. Feeling the squeeze of a crowded extreme-sports market, yesterday he agreed to a deal from Billabong International Ltd. that will see it buy West 49 for about $83-million. The Australian company is preparing to pump up its board-sports profile in Canada, adding stores under its own name and bringing more of its merchandise to West 49 outlets.
"It makes sense today for powerful brands like Billabong to own retail stores," Mr. Baio, who will remain chief executive officer of West 49, said in an interview. "I think we could safely say that we would want to grow the exposure of Billabong stores. We would definitely expand the Billabong concept into markets we're not in yet."
Burlington, Ont.-based West 49 has struggled for years to keep up with mounting competition, outdated purchasing systems and a shifting loonie. With nearly 140 outlets today, the business was fuelled in the late 1990s and early 2000s by the growing popularity of extreme sports among suburban teenagers.
But discounter Wal-Mart and other rivals jumped on the trend, adding cheap rival lines, while global brands like Quiksilver began to dominate the retail landscape with its own stores.
Having helped board-sports go mainstream, West 49 is now tackling more nimble rivals at the mall. It has already worked alongside Billabong, among the top lines stocked in its stores, and runs five standalone Billabong stores in Canada. Now it's set to help Billabong broaden its customer base in what observers say is a still-buoyant extreme-sports market.
"It's about expanding Billabong's brand and reach in the Canadian market," said Toronto youth marketing consultant Max Valiquette, who, at 37, buys Billabong products. "I haven't been on a skateboard myself and I'm wearing a pair of Billabong shorts. They make money off of people like me - aging hipsters who want to feel like they're younger."
Billabong can tap into West 49's marketing flair for connecting with consumers on Facebook and other social media, and at events featuring board-sport celebrities, Mr. Valiquette said.
He predicted that West 49 could eventually double, to 30 per cent, the Billabong merchandise it carries. And he predicted that Billabong could launch as many as 25 stores, five times the current number in Canada, possibly by converting some West 49's existing stores to Billabong.
"It's a good fit," he said. "It's a very good move for Billabong. This guarantees them good distribution of their product here."
Billabong has bolstered its international presence in the past several years through acquisitions, and operates more than 300 stores across North America, South America, Europe, Asia and Australia. As a reflection of how coveted West 49 is for the Australian firm, its bid of $1.30 a share is more than twice West 49's closing price on Tuesday.
Mr. Baio said he has no plans to drop current brands in West 49 stores, and he expects Billabong to be incremental business. But he said he has yet to discuss detailed strategy with Billabong executives, who have said they will keep the current West 49 team intact.
Mr. Baio said the sale, set to close in September, underscores broader changes in the retail market. Local retailers need to gain economies of scale through global partnerships. And producers are using their own flagship stores to showcase their brands. "Brands are becoming retailers and retailers are becoming brands."