Is success more than a mirage for Billabong?

Under new chief executive Neil Fiske, Billabong International has a much needed refreshed guidance and finally a plan to turn around the struggling retailer.

Fiske outlined seven steps in Billabong’s turnaround strategy at the annual general meeting. Noting Fiske’s history when it comes to retailers, it was no surprise branding took top spot in the hope it will propel Billabong to a wave of profitability once again.

Billabong is most renowned for being a distressed takeover target. This could change if Fiske can pull off the turnaround strategy to rebuild the company. Execution of the plan has the potential to make headlines for being a remarkable turnaround a year or so from now as the measures being implemented today gain traction and bump up earnings.

The task that lies ahead for Billabong is certainly mammoth but the potential execution of this current strategy provides some promise.

Lifestyle retailers across the globe already lap up the dominant three brands of the company: Billabong, Element and RVCA. So the strategy Billabong plans to pursue is going to be focused on potential market share opportunities for existing brands and allocating the marketing budget accordingly.

While an emphasis on branding has previously proven to be a profitable strategy – the likes of Nike and Apple can attest to this - the proliferation of online shopping means global brands are accessible to anyone, regardless of location. In addition, fragmentation of Billabong’s key markets led by a more niche culture mean there are serious challenges ahead. Gaining market share is going to be more difficult than before.

When Billabong was at its peak, cultural trends determined it was a simple choice between lifestyle attire and smart casual. Now the market is considerably more segmented with fast fashion retailers like Top Shop and Zara rapidly snatching market share from traditional players.

A decisive strategy for the future offers a snippet of hope for Billabong. But existing investors will go through another round of dilution in January, providing the placement of shares to existing financiers Centerbridge and Oaktree is approved, adding another headwind for the share price. While there is a rights issue for ordinary shareholders, it still results in some dilution. This is something enduring Billabong shareholders are all too familiar with.

The share price has flat-lined over the past two years but as the outlook for future cash flows begins to improve, the share price could show some form of life once again.