Jan. 5 (Bloomberg) -- On Australia’s Gold Coast, a 22-mile-long (35-kilometer) stretch of beaches named Surfers Paradise and Rainbow Bay, Neil Rech opened a surf shop in December and unwittingly disturbed the peace.
His store, Sedition Surfboards, sells Chinese imports for A$250 ($258), one-third the cost of some Australian-made boards that competitors are offering. Rival retailers averse to discounts and upset about local job losses questioned his patriotism, and even threatened violence, he said.
“It’s quite heavy,” Rech, 34, said of the backlash. After teaching for two years in China before opening a store in Coolangatta, Queensland, “I realized how cheap you can actually get these boards so I thought it’d be a great opportunity to bring them here and sell them to the public cheaper.”
Inexpensive imports from Asia, coupled with a 55 percent jump in the local dollar since October 2008, are delivering a double dose of pain to one of Australia’s most iconic industries. The struggles at surfboard makers are playing out at manufacturers across a country where China’s demand for iron ore and fuel has spurred a mining boom while leaving non-resource businesses behind.
Manufacturers are on the wrong side of a divide in Australia’s economy, which has avoided a recession since 1991 and boasts an unemployment rate of 5.3 percent, about half the level in Europe. While the number of mining jobs soared 21 percent to 242,400 in the fourth quarter from a year earlier, manufacturing employment slumped 4.4 percent to 953,500 and retail positions sank 2.2 percent to 1.21 million.
The nation’s currency has climbed 1.3 percent this year. It touched an all-time high of 80.15 euro cents today.
“Australia is certainly an economy in transition,” said Adam Carr, a senior economist in Sydney at ICAP Australia Ltd., a unit of the world’s biggest interdealer broker, who formerly worked at the Australian Treasury. “We can’t compete at the lower end of the chain.”
From Bells Beach to Brisbane, Australia’s board builders are facing a choice: close down, or try to preserve local designs and branding by applying them to products made abroad.
“We have to adapt,” said Michelle Blauw, co-owner of Currumbin, Queensland-based D’Arcy Surfboards and president of the Australian Surf Craft Industry Association. “You can’t always point the finger and blame everybody else for the situation that you’re in.”
Manufacturers across Australia are grappling with rising costs and a strong currency that’s making their products less competitive overseas. BlueScope Steel Ltd., the country’s biggest steelmaker, said in August it would stop exports, shut a mill and a blast furnace, and fire 1,000 workers. Its shares slid 79 percent in 2011.
Weaker consumer spending is adding to the pinch, as the slowing global recovery hurts sales at companies including surf-accessory retailer Billabong International Ltd. The Gold Coast-based surf-clothing maker’s stock plunged 78 percent last year. By comparison, Australia’s benchmark S&P/ASX 200 Index lost 15 percent.
D’Arcy sold its Gold Coast board-making facility in December after sales slowed because of the rising currency, cheap Asian imports and consumers’ belt tightening, Blauw said. The business is still running from her garage with two employees, down from a peak of 11, she said.
Born in beach towns in the 1950s, the backyard nature of Australian surfboard manufacturing has become part of the challenge, according to Blauw. In a nation where a tenth of the 22.8 million inhabitants are recreational surfers, producing world surfing champions such as Layne Beachley and Mark Richards, there aren’t official statistics monitoring the board-making industry’s size, she said.
“Surfing is almost our national pastime,” Blauw said of the birthplace of the three-finned “thruster” surfboard in 1981, which changed maneuverability and revolutionized the sport. “But small manufacturers like ourselves are shutting down left, right and center.”
While the sale of board shorts and other surf wear has propelled companies such as California’s Quiksilver Inc. and Australia’s Rip Curl International Pty into global brands, many Aussie board makers haven’t been able to match that growth.
To protect Australia’s brand in the global market, Blauw is trying to organize manufacturers and craftsmen to push for mandated country-of-origin labeling so Australian-made boards are distinguishable from imports.
Australian board maker Ron Wade had a glimpse of the future when he saw Chinese boards six years ago.
“I went, ‘Mate, if this is what’s going to come out of China, our industry’s stuffed,’” said Wade, 66, who started his company in Mona Vale, New South Wales, in 1967. “In the next 10 years, there will be a few factories around but they will be few and far between.”
Blauw said some Gold Coast board designers have recently gone to work in the mining industry in search of more income. Board companies that are staying afloat say the country is seeing the twilight of a cottage industry that reflected Australia’s reputation for laid-back lifestyles.
“The local manufacturers are losing some of that mystique,” said Mark Kelly, managing director of Global Surf Industries, who estimates that the global surfing-goods industry has grown to A$6 billion to A$7 billion a year. His Manly, New South Wales-based company sells more than 50,000 boards annually, including 15 brands that are made in China, Taiwan, Thailand and New Zealand. “It’s not a hobby anymore; it’s a real business.”
In Coolangatta, Rech said that while it may take time for his competitors to adjust to lower price tags on boards, Australia’s economy will be better off in the long run as the imports will benefit consumers.
“It’s like sticking a fat man on a treadmill,” he said. “First he doesn’t like it, but then he gets into it.”
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