Vans Emulates Mainstreamers By Rifting Into Record Business
By CONOR DOUGHERTY
Staff Reporter
Anti-establishment capitalism.
Vans Inc., the seller of athletic shoes and T-shirts for the extreme sports set, is used to tapping into a consumer generally suspicious of behemoths like Nike Inc. and Reebok International. Now, it’s taking the bet one step further by entering the music business.
If successful, Vans Records could generate a new revenue stream for a business that in recent months has been showing signs of strain.
But the Santa Fe Springs-based company also runs the risk of appearing too “corporate” for its core constituency. Alienating that core could cause the label to fail and, worse, drive loyal customers away from the brand.
Compounding the risky foray are the company’s poor earnings, attributed in part to its efforts to break into the women’s clothing business, another non-core market.
Last week, Vans reported net income of $483,000 for the third quarter ended March 2, compared with $2 million for the like period a year ago and the company warned of a fourth quarter loss compared with earlier forecasts of flat to modestly positive earnings. Revenues were $82.2 million, vs. $80.9 million.
Wall Street quickly reacted to Vans lackluster earnings, also marked by a drop in comparable store sales. Shares were down nearly 10 percent on the news, closing at $11.98 on March 21.
The investment in the newly formed Vans Records is considered modest; analysts place it at $100,000 annually. The division will develop and distribute compilation albums in addition to full-length recordings from artists yet to be signed. Distribution will be handled through the company’s own retail stores, as well as at surf, skate and traditional music outlets.
In addition, Vans plans to use the Warped Tour, a youth-oriented music and sports festival that has been touring nationally each summer for eight years, as a medium both to distribute albums and feature bands signed to its label.
“The idea was since we have a lot of infrastructure with the Warped Tour, the Triple Crown series and our skateparks, we could focus on two three or four bands a year,” said Jay Wilson, Vans’ vice president of global marketing.
Extending the line
“I think the whole thing is a good marketing tool for them, with a potential upside if they sign bands that get some momentum,” said Jeff Van Sinderen, an equity analyst with B. Riley & Co.
Wilson compared the record label venture to the upcoming theatrical release of “Dogtown and Z-Boys,” a documentary Vans produced last year. Sony Pictures has since bought the films’ distribution rights and has it slated for an April 21 release.
“Someday, if that label makes a lot of money, that’s great. But they asked me the same question about ‘Dogtown’ and I said ‘I don’t know if we’ll ever make a dime but it’s something that has to be done,'” he said.
Miki Vuckovich, editor of Skateboarding Business Magazine in Oceanside, noted that Vans is not the first lifestyle brand to try its hand at the music business. Earlier this month Hurley International announced it was starting a record label operation in conjunction with Warner Bros. Hurley was purchased by Nike for an undisclosed amount in February.
The acknowledged leader is Volcom, a Costa Mesa-based clothing company that sponsors surfers, skateboarders and snowboarders, and has been releasing records since 1995.
“Vans has probably mulled this over for a while, but you can’t ignore Hurley and Volcom,” Van Sinderen said.
Richard Woolcott, Volcom’s president and chief executive, said that building the company’s record operation a four-band, breakeven project has been slow, but that it’s starting to show promise. About a year ago, Volcom inked a distribution deal with MCA/Universal Music, proving mainstream interest is attainable.
Woolcott said putting Volcom’s bands on Vans’ Warped Tour was an early sales boost.
