Volcom: After The Wipeout

A Wall Street rating downgrade has torpedoed the activewear maverick's stock

It was a two-foot curl that spun Richard R. Woolcott's world around. He was off the coast of Mexico's Baja Peninsula getting his photo taken for a surfing magazine in 1985 when the wave slammed him into a sandbar and broke his neck. Woolcott, 19 at the time, had to wear a halo-shaped brace bolted to his skull for three months. Doctors told him only 2% of patients survive an accident like his. "I was at the mercy of the ocean," he says. "It really was the turning point in my life."

His dream of professional surfing over, Woolcott redirected his competitive energy. In 1991, he launched a clothing line with friends. Today, Volcom Inc. (VLCM ) -- a name he made up out of whole cloth -- is one of the fastest-growing brands in the $12.1 billion action sports industry, selling $50 board shorts and hooded sweatshirts to young surfers, skateboarders, and snowboarders. Thanks in part to imaginative marketing, the business has doubled since 2004, earning $29 million on sales of $160 million last year, results that won Volcom the No. 11 spot on BusinessWeek's 2006 Hot Growth list of small companies.

Now Woolcott is finding that Wall Street can be almost as treacherous as the waves off Baja. Volcom's share price plunged 30% on July 28 after Wachovia Securities analyst John Rouleau downgraded the stock to "market perform" and cut his earnings outlook for 2006 and 2007. The drop, to $20, essentially wiped out any gains the stock made since its debut at $19 in July, 2005. While Volcom expects to achieve its goal of boosting sales by 26% this year, analysts such as Rouleau worry that the company's growth is slowing due to weakening sales at its largest retailer, Pacific Sunwear of California Inc. (PSUN ), which is seeing increased competition from rival Zumiez Inc. (ZUMZ )They're also worried that Volcom has maxed out at surf-and-ski shops. The worst-case scenario: Pacific Sunwear drops Volcom in favor of a younger brand or the exclusive line it already carries from Levi Strauss & Co.

Woolcott concedes that sales at Pacific Sunwear will be down in the second half but says the brand remains a strong seller in independent shops. He hired new employees to work directly with Pacific Sunwear, which accounts for 29% of Volcom's sales. New clothing categories such as sandals, boys' clothing, and women's swimwear should help, he adds. He also foresees higher numbers from Europe and more company-owned stores in the U.S. "We're fired up and stoked," he says.

While plenty of businesspeople try to market a lifestyle to consumers, few live their brand quite like Woolcott. The 40-year-old still surfs three times a week and snowboards 25 times a year. Like most of the company's 200 employees, Woolcott pads around Volcom's headquarters in Costa Mesa, Calif., in shorts and flip-flops. Until last December, he lived in a trailer park at the beach and left it only because the park closed. "I loved my double-wide," he says.


Woolcott also knows how to reach his market. The company has produced 15 feature-length DVDs on surfing, snowboarding, and skateboarding. Volcom has its own record label, has bought naming rights to two municipal skate parks, and puts artwork from fans up on its Web site. The company's sponsored athletes -- including snowboarder Shaun White, who gold-medaled in the 2006 Olympics -- are more than just photo ops. Several have put their own artwork on Volcom's board shorts and T-shirts.

And Woolcott has practiced guerrilla marketing to the extreme. In 2004, for instance, Volcom dispatched an RV to the U.S. Open of Surfing in Huntington Beach, Calif. Its crew then pretended to have a breakdown and gave away T-shirts instead of actually sponsoring the competition. "Anybody could start a clothing company, but to bring together that elusive energy, that is the tricky part," says Duke Edukas, co-owner of Surfside Sports in Newport Beach, Calif. At the Volcom-sponsored skate park in Costa Mesa, fans like Seth Prev-ner agree. "It's a cool brand," says the 12-year-old.

By Christopher Palmeri

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