How’s the week leading into Christmas been for you? Something tells me it would have been better than it has been for the management at Billabong. You might have heard in the news that their stock took a hit… And by hit, I mean it dropped to record lows, losing 44% over a couple of days. Wednesday saw a 10% bump as everyone calmed down a little but it has led to questions about Billabong’s strategy. A lot of articles have blamed the profit downgrade that preceded the stock price fall on the troubles in Europe. Without the detailed financials to back this up, I’m going out on a limb here and say that’s an easy cop out, the problems are much bigger than that.

The first problem is that the surf industry is not cool right now. Kids, you and me, have migrated away from what was once the essential brands to own, off to different styles. The companies have been slow to react and the moves made to compensate for that are so closely tied into faddish styles that they really have no longevity in them. Over time this will come back around but it could take a while.

Another interesting line in one of the articles relates to discounting that Billabong is now engaging in. It wasn’t long ago that their stated aim was to take a hit on their sales but maintain their margins and their brand equity. While other labels could go cheap, Billabong saw value in holding the line and waiting for the storm to pass. No longer – SurfStitch (20% owned by Billabong) is discounting their gear and retailers have said they’re getting some action too. This isn’t an issue in itself, could be a sensible reaction to the conditions at the moment. But the original statement was made when the GFC was in full swing, so the about face now could be an indicator that the strategy was a bit of a fail.

Then there’s the idea that to ease the $600 million debt pile, the company will have to start selling brands they’ve quickly accumulated over the last few years. Who would you offload given the chance? Who isn’t performing? I’d think that maybe Element has seen its best days, RVCA has a limited shelf life (anything that fashionable and tied to one culture has got a pretty short expiry date – just look at American Apparel. It died with the hipsters), selling it now while it is, I assume, still seeing growth might be the smart move. But having to do so is another departure from what has been a very consistent growth-through-acquisition strategy and may slim the retail offering that they can make through their company owned stores.

So, from all that, does the share price fall mean the end for Billabong? Hell no. In my opinion, right now is the time to buy shares. The problems above are nowhere near being company killers, they’re all fixable. The guys who run the place have made some questionable decisions but there’s no doubt they know their shit and have run the most successful of the surf companies since they floated. This is a blip, and not even a serious one. Quiksilver was closer to the edge a few years ago and Bob McKnight dug in and sorted it out – Derek O’Neill and his team are sure to do the same and this price is going to look like a great buy in nine months. These guys have seen far worse come and go but it’s going to be an interesting ride.

Billabong Girls Maldives Clip