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Takeover of Hurley by Giant Nike Changes the Dynamics

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TIMES STAFF WRITERS

When respected Orange County surfwear maker Bob Hurley split from Billabong in 1998 and launched his own business, the Frog House was there for him.

The Frog House Surfboard Shop, in Newport Beach, immediately opened up rack space for the new brand on the block, Hurley International, which has since mushroomed into a $70-million a year business.

That’s how it works in the surf and skating and snowboarding apparel industry: The shops support the locals and help keep outsiders at bay.

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But on Friday, Frog House owner Thomas Brimer found himself wrestled with a vexing new question: How will he deal with a Hurley brand that’s now owned by Nike Inc., a giant outsider?

“Bob Hurley treated me, as a retailer, really well,” said Brimmer, who goes by the initials T.K. “If we see a substantial change in attitude or business practices, I’m gone.”

Throughout the industry, surfers, skateboarders and business owners were wondering out loud how Nike’s purchase of the Costa Mesa-based Hurley, which was disclosed Thursday, will impact the tight-knit board-sport apparel industry.

For years, Nike had been trying to break in. Now, they seemed to have found the key.

Some said the sale will spark more consolidation in the industry, a process that’s already underway. Others said Nike will move in like a steamroller, using its deep pockets to swipe sales and buy more businesses.

Nike, however, said it will be business as usual at Hurley International, with its founder calling the shots and the same sales force, distribution network and executive team. “Nothing’s going to change for Hurley,” Nike spokeswoman Joani Komlos said Friday. “You’re not going to see their clothing in every storefront. We don’t want to make Hurley as mainstream or big as the swoosh.”

Nike’s acquisition of Hurley is not a first step toward dominance in the surf and skate industry, she added.

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Terms of the acquisition were not disclosed.

“It’s not like we’re coming in to takeover the industry or the world,” she said. “There’s room for lots of companies.”

But Joseph Teklits, an analyst with First Union Securities, said he thinks Nike plans to take on the surf industry leaders such as Quiksilver and Billabong.

“They’re going to put money in Hurley, bulk it up and try to steal market share,” he said. “And they’re going to try to roll over any companies that get in their way.” In five years, Hurley could have sales as high as $300 million, more than four times present revenue, Teklits said.

Nike’s purchase fits in with the company’s strategy of acquiring new brands to fuel growth, said Dennis Rosenberg, an analyst who covers Nike for Credit Suisse First Boston. In recent years, Nike has bought a manufacturer of hockey skates and provided seed money for an Oregon skate footwear company.

But if Nike plans on improving its position in the surf and skate industry through acquisitions, it might find few sellers, especially among hard-core enthusiasts, said Sean Smith, director of marketing for the Surf Industry Manufacturers Assn. in San Clemente.

“A lot of guys are more interested in being able to take off at lunch to surf than in making a ton of money by selling out to big businesses,” he said.

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Komlos did not rule out Nike snapping up other surf and skate businesses in the future.

Insiders differed on how well the two companies will blend.

“The question is, does Hurley bring Nike credibility or does Nike ruin Hurley’s credibility?” said Gregg Steiner, owner of The Greenroom Surf & Skate shop in Newport Beach.

Nike will help Hurley with its planned international expansion, which is expected to begin by the end of the year, Komlos said. Both Hurley and Nike see foreign markets as the biggest growth opportunity going forward for the surf company.

The two companies began talks about nine months ago when a firm representing Hurley contacted Nike about a potential partnership, Komlos said.

But to plenty of Hurley’s admirers, the news was about as welcome as a wipeout.

“It’s horrible,” said Luke Snyder, a Whittier warehouseman who was at Huntington Beach on Friday. “Nike’s like basketball, and Hurley’s like surf. It doesn’t make any sense.”

Certainly, it made sense to some business owners.

“Our industry’s full of lots of the young entrepreneurs,” said Brad Dorfman, president of Vision Street Wear Inc., a skateboard apparel company in Costa Mesa. “Some of them get to catch some air, like Bob did. That’s what they all try and strive for.”

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