Industry News

A Newsy Interview with Burton CEO John Lacy

October 27, 2021 | 0 Comments

In partnership with Shop-Eat-Surf

By Tiffany Montgomery | Originally Published October 27, 2021

We talk with John about how the supply chain backups are impacting Burton deliveries, the incredible jump in DTC sales the company has seen during COVID, a major development with Burton’s joint venture in China and much more.

We had a very newsy conversation with Burton CEO John Lacy last week about how the supply chain backups are impacting Burton deliveries, the incredible jump in DTC sales the company has seen during COVID, a major development with Burton’s joint venture in China and much more.

Burton has a big event coming in November: the release of the HBO documentary on founder Jake Burton called “Dear Rider” which debuts Nov. 9.

Supply Chain Update

John said the biggest problem for Burton has been the shutdown of manufacturing in Vietnam.

When we spoke with John on Oct. 20, 14% of Burton’s goods were still on the manufacturing floor. That product is mostly the higher end Gore-Tex merchandise including gloves and some jackets.

“Given that it’s only 14% and it hasn’t started snowing or getting cold yet, it’s not too much of a worry,” he said. Most of that product should arrive by the beginning of December.

About 60% of Burton’s product for this season is already in the company’s distribution centers around the world. “Goods are coming in and going out the door and they have been since summertime,” he said.

In hardgoods, Burton is well inventoried, John said. But there are still bottlenecks, especially in the U.S.

“The ports are clearing the best they can, and now the problem is truckers,” he said. “It’s also a question of do we have enough labor in our distribution centers to receive the trucks? We are competing with other distribution centers like Amazon. So the final mile is becoming more of a hiccup.”

Burton has had to great creative. For the delayed product, Burton is chartering its own planes and having them land in Ohio, close to the company’s distribution center there.

“We had to take a side route because air freight is just as backed up as the ports,” he said.

Typically, Burton likes to ship its wholesale orders in August, September and October. This year, it will be more like September through the beginning of December, John said.

“Is it challenging? Yes, but we’ll manage through this just as we manage through other challenges like a difficult snow year,” he said.

The delays have hurt Burton’s wholesale shipment cadence and thus revenue recognition in that area. But that is balanced by the 40% increase in DTC sales so far this fiscal year, John said.

Last Fiscal Year Results

Considering how much uncertainty surrounded the winter season last year, John is thrilled how the season turned out, especially since Burton was not eligible for PPP loans during the COVID crisis because the company is too big.

While the topline did not grow and was “just slightly off,” profitability came in really strong, he said.

“We ended up paying 70% bonuses to our employees, and we brought back all their pay,” he said. “We were really happy to have such strong profitability in a year that started with so much uncertainty.”

The company has achieved another important milestone, John said. Burton has just renegotiated a new, five-year bank deal that is “extremely favorable.”

“That’s another huge win,” he said.

Because of the robust winter season last year, orders came in significantly higher for this season, particularly in North America and China.

“In North America, we saw single and double digit wholesale increases in a lot of areas, really good healthy growth,” he said. “Some orders were so high though we had to put some controls around them because we don’t want to oversaturate the market.”

Japan and Europe had rougher seasons because of COVID issues, and are in a recovery cycle, John said.

Burton CEO John Lacy and Owner Donna Carpenter – Photo by Jesse Dawson, courtesy of Burton

Big China News

In late 2019, Burton signed a joint venture deal with Hillhouse Capital, an Asian private equity firm owned by Lei Zhang.

Burton just announced internally that Zhang is taking a bigger stake in the Chinese joint venture, and will own 75% of it. Zhang has a seat on the Burton board, and John has a seat on the joint venture board.

“We really lucked out with an incredible partner who’s an extremely savvy business individual but also a passionate snowboarder,” John said. “The whole goal here is to write the history books for snowboarding in China. And he has the means to do it with his expertise in consumer insights, retail, and e-commerce.”

Burton is expanding rapidly in China, with plans for dozens of new stores. The joint venture buys Burton equipment as any distributor would. But they also now have the rights to license softgoods for both snow and lifestyle apparel to create regionally specific items, John said.

“Donna called me and said, ‘John, are you going to move to China?’ I said no. She said, ‘Is Kelly in marketing going to move?’ I was like, no. She said, ‘So we need people in China.’ And we realized, this is the best move for us.”

However, the main Burton company remains family owned, John said.

“Donna and the board agreed they want to keep the business privately held,” he said. “Donna has told the company she is really committed to that. Our new bank deal helps us do that.”

The Big Jump in DTC Penetration

When I talked to John in December of 2019, he said Burton had a goal of getting to 25% DTC.

Since COVID, the company has blown past that previous goal.

“We used to have a 25% plan, and then all of a sudden we started accelerating with the shift to online purchases,” he said. “Our new target was 40%, and that’s where we are now. We do see getting north of 50% in the future. Especially with the China market, we could be close to 60% direct in the next three to five years.”

“So that shift has happened,” he said. “I wouldn’t say it was intentional, but we were just set up to capture it when the consumer showed up online.”

Early Read on Season

Like many in the industry, John believes one of the biggest positive indicators for the upcoming season was the 40% jump in season pass sales announced by Vail Resorts. He’s also encouraged that the border between the U.S. and Canada is opening, which should help Whistler recover.

“Those are really positive signals for us,” he said. “Overall, hardgoods are booming. In boards, we see camber having a lot of momentum.”

“We just launched Step On on Oct. 18, and we had a $1 million day online in the U.S. alone that day. So we’re way ahead of plan and ahead of last year on Step On.”

John said overall, Burton is seeing pent up demand around many different categories.

“I have retailers emailing or texting me asking to send them more inventory,” he said. “We’re seeing that early read for hardgoods and equipment. Outerwear is still extremely strong, we just don’t have enough of it in key styles. Our AK Gore product is usually sought out by the early adopter. There’s just not a lot of that kind of product out there from any of us, because most of us manufacture it in similar places. So there is going to be scarcity for those products overall.”

More About Step On

John said Burton will soon announce another Step On partner, similar to how DC uses the technology for some of its boots.

Burton is working on expanding its Step On offering with new technology in toe clips and some new boot models.

“Most of our retailers just say, ‘Give me more,’ “ John said. “So we’ve worked to widen their assortment.”

“Step On is becoming a huge part of our business,” he added. “We have sights to make it half of our boot and bindings business, and to have those kind of adoption rates is incredible.”

Price Increases

There is lots of discussion in the industry and in the wider world about the need for brands to raise prices given increased costs on labor, expedited freight, containers and more.

Burton opted to raise the retail price for the end consumer this season but kept wholesale prices the same.

“We thought we could pass it on to the consumer, but didn’t want to pass it on to the retailer with no notice,” he said.

But that means Burton will have to absorb the extra expense this season.

“It’s the cost of doing business right now,” he said. “Chartering airplanes, paying for increased labor, the incentives we’re putting in at our distribution centers – it’s all out of pocket expenses.”

Some but not all of the increased costs will be offset by the increase in the higher margin, DTC business.

But for next season, Burton will seek to raise wholesale prices as well.

“We think retailers will benefit in the long term,” he said. “Even as wholesale prices go up, it’s still a greater dollar margin take for them because the percentage remains the same.”

This season, Burton raised retail pricing in the range of 3% to 5%.

For next season, Burton is targeting an additional 3% to 5% retail price increase depending on category, region, and other potential factors.

The Employee Quandary

In addition to supply chain, Burton is grappling with the same problem many companies face – labor shortages.

“Employee engagement in culture is so important to us, and in this COVID era we are navigating through it,” he said. “But we haven’t been immune. People have taken new jobs elsewhere. We’ve hired new people.”

“Donna asks me, ‘What keeps you up at night?’ and I said, ‘My people do. I’m trying to figure out what makes them happy.’ We’re implementing different things to help enhance their pay, enhance the culture. But what’s COVID culture like? It’s different. So we’re spending a lot of time leaning in with employees to get a better understanding.”

John thinks it’s an important topic for the whole industry.

“What are people looking to be a part of? That’s something as an industry we need to understand. We have to make sure we take care of our people,” he said.

Chance to Reset Industry

Given how strong demand is, I asked John if Burton is building any extra inventory so they can chase.

“No, in fact we’ve been hearing frustration from dealers because we are being scarce,” he said. “The whole goal is to not have to think about closeout. We haven’t had to closeout into the wholesale channel with hardgoods for some time.”

With the late deliveries of softgoods this year, John thinks it might be an opportunity to ask retailers if they want the goods after all. “We need to ask if we should hold it until next cycle because if it is just going to find its way into liquidation, that’s not a benefit to the brand.”

In his conversations with other industry executives, John has been encouraged that other companies are also taking a measured approach to inventory even though times are good right now.

“We don’t need to discount,” he said. “Consumers are looking for goods, they’re willing to pay full price, which is really going to help the recovery of specialty retail. We’re already seeing that. I read your articles. There is a roar happening. This is a chance for the best retailers to really float to the top, and I think we all know who they are. And those are the partners that we think that the industry really needs to have.”

“Right now, it’s more about how can we all take advantage of this opportunity to take care of the environment, the climate, our retail partners, the sport,” he added. “We have a really good chance to write the next chapter of the industry’s history.”



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