Killer Profits In Velcro Valley

By Karl Taro Greenfeld/Costa Mesa

It's about respecting the stone, about being absolutely core. The stone, according to Volcom president Richard Woolcott, 33, "represents the buzz from a good skate session or riding a 10-ft. wave at pipe. The stone represents the euphoric state of riding."

Core is core, bro, as in hard-core. Right now, in the Orange County, Calif., coastal-wear industry, the Volcom stone--a diamond-shape logo sewn onto shirts, shorts and pants--is totally core, commanding huge respect within the genre of attitude-drenched brands that cool 15-year-olds crave. "Whatever they put the stone on is gonna rock out the door," says Joe Luzzia, owner of Identity Board Shop in Buena Vista, Calif. "You can tell they're the next big thing."

Here in Velcro Valley, as this ragged patch of the industrial landscape is known, a surfwear or skatewear company that catches the attention of style leaders--the best skaters, surfers or snowboarders in any coastal clique--can in a year swell from $5 million in annual sales to $100 million.

But it's hard to stick around in Velcro Valley. Successful firms have erupted from the Orange County youth-apparel industry to become globally recognized brands--among them, Quiksilver, Oakley, Billabong USA and Stussy. Yet just as many such labels--including Gotcha, Lightning Bolt, Vision Street Wear, Jimmy-Z, Maui & Sons, Mossimo and others--rode huge waves of sales only to wipe out in a few years.

The question for hot companies like Volcom, whose stone T shirts currently hold the honor of being the most ripped-off items from Orange County surf shops, is how to make the transition from small, sizzling firm to legitimate, stable business--and still respect the stone.

Orange County, the sprawling expanse of suburban, upper-middle-class communities south of Los Angeles, is the home of the California life-style. "Orange County is to the youth-apparel market what New York is to the fashion world," says Danny Kwok, co-president of Quiksilver. "We are the epicenter of the youth movement."

Over the years, numerous local surfers and skaters have schemed a way to extend the adolescent life-style of cutting school and hitting the beach into a career of cutting work and hitting the beach. "It's a wonderful industry to be in," says Bob Hurley, 43, founder of Billabong USA and Hurley International. "It's kind of like going to high school forever, and then leaving every day to go surfing."

Hundreds of companies marketing clothes and accessories dedicated to the "board-sports" life-style are operating in Velcro Valley. They range from Oakley, the $200 million sunglasses-and-footwear firm housed in a futuristic, $47 million hilltop bunker, to smaller fry like Black Flys, Split and Volcom, crowded into Costa Mesa and Huntington Beach industrial parks.

To be successful in this market, a company must first be considered core, a catch-all term for unbridled living of the extreme- sports go-for-it ethos. "To be perceived as core is alternative-marketing gold," says James Palczynski, vice president and analyst at Needham & Co. If you are selling skatewear, then you had better be a skate rat, and your company had better sponsor a team of top skateboarders. But core is more than an aggressive, participatory attitude. It's also a vibe, a quasi-mystical, anti-Establishment subtext that has to permeate a firm and come across in marketing and advertising so that it resonates with trend-setters up and down the coast and then across the country.

There is a subtlety to being core. Some companies, including Jimmy-Z, Vision Street Wear, Mossimo and Gotcha, start out core but make a wrong turn. It can be an ill-conceived magazine advertising campaign (Mossimo). Or turning up in J.C. Penney's rather than the local skate shop (Jimmy-Z, Gotcha).

A brand trying too hard to be core, such as Mountain Dew or Nike, is by definition not core. "You can't buy your way in," says Don Brown, 32, vice president of Soul Technology, a growing skateboard-shoe company with $40 million in annual sales. "Look at Nike. They're the best marketing machine in America, and they couldn't buy their way into skateboarding." Ironic that in the pre-nose-ring generation, Nike invented core. Coreness can reach ridiculous extremes. Almost every Velcro Valley firm has erected a half-pipe skateboard ramp on its premises. "We used to have one right out in the middle of the place," says Volcom's Woolcott, "but skateboards were, like, hitting people at their desks." Bummer.

For those who succeed in communicating core, the youth-apparel industry is a wholesome business activity. Teenagers spent $91.5 billion last year, and the men's and women's active-wear markets grew from $69 billion to $73 billion, according to the NPD Group. For leading Velcro Valley manufacturers like Quiksilver, that means a one-year, 37% increase in sales, to $316 million. Smaller firms like Hurley, Split, Girl, World, Ezekiel, Rusty and Shorties are reporting steady growth on sales of anywhere from $10 million to $70 million.

These explosive growth rates cause companies to confront the recurring Velcro Valley conundrum: What starts out as a couple of bros silk-screening T shirts and writing invoices on brown paper bags can quickly grow into a multimillion-dollar business. When that happens, it gets a little harder to take the afternoon off to go surfing. "If you want to grow," says Danny Kwok of Quiksilver, "you gotta give away a little bit of your life-style."

Down the street from Quiksilver, Woolcott says he is not interested in growing if it means sacrificing any portion of the life-style, which includes taking off whenever he wants on a surfing safari or snowboarding trip. "Getting bigger is totally secondary," he says. "I don't want to put pressure on what we're doing. I don't even think about getting Quiksilver big." Woolcott's office is festooned with Sex Pistols posters and Volcom's mission statement: YOUTH AGAINST THE ESTABLISHMENT.

His demeanor, as venerably core as it is, is somewhat belied by a business degree and a P&G-like devotion to building his brand. Volcom advertises in all the leading niche sports magazines, and Woolcott further infuses his brand with coreness by sponsoring--for as much as $100,000 a year--alternative-sports stars such as skateboarder Rune Glifberg and snowboarder Terje Haakonsen. As a result, Volcom commands almost universal respect throughout the bro-brah network, as Kwok calls Velcro Valley's web of business connections.

Among the challenges for companies seeking to grow: eliminating shrinkage (inventory theft), endemic to this industry, and moving manufacturing offshore to provide enough supply to satisfy retailers. "We're interested in companies that can keep up with our growth," says Timothy Harmon, 46, president of Pacific Sunwear, a 342-store national chain specializing in board-sports attire. "A lot of smaller companies aren't sophisticated enough to source overseas."

Companies such as Quiksilver, which now trades on the N.Y.S.E., have proved that it's possible to grow up and thrive. Others, such as Mossimo, show that you can grow up and screw up too. For Volcom, the business plan does not go much further than staying core--and respecting that stone. "I'm living the life that I always dreamed of living," says Woolcott. "Nobody's getting rich. Nobody owns a house. But I know that low tide is in about 45 minutes, and I'm gonna go surfing." At 10 a.m. on a Thursday, that's core.