Catching a Wave of New Consumers

By Leslie Earnest

May 16, 2004 12 AM PT

Times Staff Writer

Shanghai —

Mainland China’s first Quiksilver Boardriders Club sits between an Adidas store and a Starbucks coffee shop on Huaihai Middle Road. The street is the Champs-Elysees of Shanghai, a city where shopping is the No. 1 sport and half the population is under 30.

For Quiksilver Inc., the Huntington Beach company that helped popularize the surf-wear craze in the United States and made millions exporting it around the globe, cosmopolitan Shanghai was the obvious place to introduce board shorts to a country of more than 1 billion consumers.

Riding a tidal wave might have been easier.

The Quiksilver brand’s cachet is linked to its close ties to surfers, snowboarders and skateboarders. But most kids here have never seen a snowboard or ridden a skateboard. And surfing?

“I know it goes up and it goes down,” says a teenager shooting hoops at Shanghai Stadium. Might he and his friends like to give it a try? “I’m afraid to die,” one of his buddies replies.

In the year since it announced a mainland joint venture with Glorious Sun Enterprises Ltd., a Hong Kong retailer, Quiksilver has learned that the surf, snowboard and skateboard culture that helped it make money selling clothes and sports gear in other parts of the world doesn’t translate so easily here.

Quiksilver initially announced plans for as many as 10 Boardriders Club stores in Shanghai by early this year. The one on Huaihai Middle Road opened in February; Quiksilver now says it’s set to open one more store in Shanghai in 2004 and one in Beijing in 2005.

“We’re just realizing this is going to take ages,” says Quiksilver Greater China co-managing director Nicolas Giannoli. “Just ages.”

Ad Challenges

When the company moves into a new market, it usually advertises in magazines that target surfers, skateboarders and snowboarders. There are no such publications in China, so the joint venture has plastered surfing and skateboarding scenes on two city buses and sent text messages offering discounts on caps and T-shirts to cellphones, which many Shanghai teenagers wear as pendants.

But there was no way for Quiksilver to get marketing mileage from its relationship to such star athletes as surfer Kelly Slater, skateboarder Tony Hawk or snowboarder Danny Kass, names that typically draw blank stares here.

“Who is he?” says Ma Bin when asked about Hawk.

Basketball, Ma knows.

“Yao Ming, Shaquille O’Neal,” the 26-year-old hotel baggage supervisor says, knocking his fists together to illustrate the head-butting between the rival centers from the Houston Rockets and the Los Angeles Lakers. “Kobe,” he adds, with an exuberant thumbs up.

For all that, Quiksilver figures it’s equal to the challenge of China. With an economy exploding at an annual rate of 9.1%, the country is hard for a growing company to resist.

“There are more teenagers in China than there are people in the United States,” Chief Executive Robert B. McKnight Jr. told shareholders at their recent annual meeting. “That, to me, is a clear example of where we can take our company.”

Early on, Quiksilver zeroed in on a spot to stage surf contests: Sanya, a resort town on Hainan, a tropical island in the South China Sea with blond beaches that is beguiling enough to have snared the nickname “Chinese Hawaii.”

There’s one pesky problem: “No big waves,” says a taxi driver, zipping along a two-lane road that cuts through Hainan’s rice paddies. “You might want to try a different sport.”

Although surfers can occasionally be spotted on the island, local motorboat instructor Wu Yuning says Sanya’s waves are generally wimpy unless there’s a typhoon. And he says the problem is bigger than Hainan.

“I’m very familiar with China’s beaches,” he says. “From my point of view, I don’t think there are any beaches in China suitable for surfing.”

In 1987, Surfer magazine sent a group of surfers to China, in conjunction with the Chinese Olympic Committee. The committee wondered whether it could “churn out surfing champions,” and the U.S. team wondered whether there were any big waves, Sam George, the magazine’s editor, recalls.

“They really didn’t find much surf,” George says.

The naysaying doesn’t deter Giannoli, 39, a French-born non-surfer who managed Quiksilver’s European operations before taking on China.

“In Hong Kong when there’s a typhoon day, everybody’s in the water to surf,” he says. “So maybe someday that will happen in Hainan.”

In It for the Long Haul

Giannoli, like Quiksilver, takes the long view.

The company envisions itself sketching a blueprint for success in Shanghai, a port city where the sea mingles with mud instead of sandy beaches. It’s working now to create a skateboarding park and hopes to start a snowboarding school soon. Eventually, the company says, it imagines sending Chinese youth to Australia to teach them how to surf.

The company is looking at other ways to whip up interest in surfing, perhaps by staging a “beach party” or setting up a surfing school this summer at Shanghai’s Dyno Beach water park, which features a wave-making pool, Giannoli says.

Although Quiksilver has no shortage of ideas, setting them in motion is no easy matter. It can be maddening to secure a commitment or even figure out who’s in charge in this country’s famously mind-bending bureaucracy.

“If I were to write a book about China, I would name it ‘Patience,’ ” says Ryan Hollis, a surfer from Villa Park who moved to Shanghai to become Quiksilver’s China marketing director. “If you’re not patient, you’ll go crazy.”

Breaking the Ice

Not far from the water park is Yin Qi Xing, an indoor skiing site that Quiksilver believes might fit neatly into its plans. With no ski resort anywhere near Shanghai, Quiksilver says, it could use the site to stage snowboarding events or give lessons. Within a year, it could have a snowboarding team, it says.

The four-story snow park attracts as many as 2,000 people on some weekend days. But on a recent weekday, the gently sloped mountain covered with fake hard-packed snow was empty, save for seven employees scooting around on skis, not snowboards.

Skateboarding holds the most immediate promise for Quiksilver, which estimates that there are a few hundred enthusiasts in Shanghai, a city of 17 million.

The company put one of them on the payroll this year after seeing him perform tricks on his board at Shanghai Stadium. Jiang Xiaobin, also known as “Ken,” has “invaluable knowledge about the skateboarding scene in Shanghai” and is one of the country’s best skaters, Giannoli says.

On full-time duty now, the 29-year-old arrived at Quiksilver’s Shanghai office recently wearing a T-shirt, faded jeans, a black Quiksilver cap adorned with skeleton and peace sign pins, four tiny stones in his left earlobe, a spike bracelet on one wrist and a skateboard tattoo on the other.

“Our final purpose is to advertise and educate people,” says Jiang, who didn’t start skateboarding until he was 19.

The new recruit is charged with helping Quiksilver stage skateboarding events and build a skateboarding team. So far he has found three takers for the team.

In an encouraging sign, a skateboarding contest in Beijing last month attracted nearly 1,000 people -- a huge showing considering the sport’s novelty, Ryan Hollis says. Quiksilver, which helped sponsor and organize the event, flew in top skateboarders from the United States and France, who performed at the contest and on the streets of Shanghai, drawing crowds as they did flips, spins and grinds with their boards.

Skateboarding is dicey business in Shanghai, where the streets are perpetually clogged with buses, taxis, cars, bicycles and motorbikes, and an every-man-for-himself driving style prevails. So skateboarders generally keep to the grounds of Shanghai Stadium or People’s Square in the center of town.

Sometimes they are nabbed by police or security guards, who apparently aren’t charmed by the sport. When a Quiksilver skateboarder was approached by a police officer, Giannoli says, he dazzled the officer with tricks. The officer said: “This is amazing.... OK, you can go.”

Despite the sizable obstacles, retail experts say, Quiksilver has picked the perfect launching pad in Shanghai, a breeding ground for international brands.

Coffee vendor Starbucks Corp. ventured into this nation of tea drinkers and opened its first China store in Shanghai four years ago. It now has 42 in the city, plus outlets in Shenzhen and Guangzhou. Nike Inc.’s swoosh is everywhere.

“They’re just basically selling America,” says Donald Straszheim, president of Straszheim Global Advisors Inc. in Santa Monica. “I think it’s a reasonable thing to do,” because Chinese seem to have a penchant for “everything Western.”

A China Strategy

Quiksilver predicts that it eventually will have hundreds of stores in China.

The company, which has stores in 27 countries and three in Hong Kong, hasn’t divulged how much it’s spending to move into mainland China, but analysts speculate that it’s probably a relatively minimal investment for a business that racked up more than $1 billion in sales in the last 12 months -- perhaps less than $500,000 for the first couple of years.

The shortage of board sports enthusiasts shouldn’t be a deterrent, given that Quiksilver has appeal as a “casual, beachy, California lifestyle” company, says Jeffrey Van Sinderen, an analyst with B. Riley & Co. Still, he says, it’s wise to “start small and then build,” as the company is doing.

Shares of Quiksilver have risen 24% in the last year. They closed Friday at $20.52, up 32 cents, on the New York Stock Exchange.

Giannoli’s counterpart from Glorious Sun sounds confident. The company is, after all, parent to 800 Jeans West stores in China.

“We know the system; we know how it works,” says co-managing director Tony Lau, 51. “It will be a success. But, obviously, you enter a new country, it’s going to take a little time.”

On a recent weekday, a steady stream of young men and women wandered in and out of the 1,200-square-foot Boardriders Club in Shanghai, which opened precisely at 9:30 a.m. Feb. 27, the most propitious moment, according to a feng shui master hired by Glorious Sun.

Some customers browsed among board shorts selling for about $50 and T-shirts for $20. Others strolled past, ignoring the surfing video playing in the window and the surfboard on display inside.

“I don’t know this brand,” says Lee Gao, 25, an interior decorator from Anhui province wearing tan pants, a purple Timberland shirt and slip-on shoes, who bypassed the store. “Nike and Adidas are my favorite brands.”

Quiksilver hopes to make its own brand more familiar to Shanghainese by persuading local musicians and TV personalities to wear its clothes. So far it has signed on the male co- anchor of a popular travel program. To hedge its bets, Quiksilver is reaching out to female shoppers ahead of schedule. It stocked the store with Roxy brand clothes for juniors last month, something it hadn’t planned to do until at least next year. It’s also renting “corners” in department stores to sell its clothes, a common practice here.

There are promising signs, Giannoli says. The Shanghai store’s revenue has been steadily increasing -- even the sale of skateboards, which go for about $120 each, or about 7% of the average Shanghai worker’s annual income of $1,800.

If Quiksilver cracks the code in China, Giannoli predicts, the rest of the action sports apparel industry will move in this direction too.

“They will follow, for sure,” he says. There’s a lot of potential in this country, even for surfing, he figures. “There must be waves somewhere.”

(BEGIN TEXT OF INFOBOX)

Quiksilver at a glance

* Headquarters: Huntington Beach

* Chairman and Chief Executive: Robert B. McKnight Jr.

* Number of employees: 3,400

* 2003 annual sales: $975 million

* One-year sales growth: 38%

* 2003 net income: $58.5 million

* One-year net income growth: 55.6%

* Brands (percentage of sales): Quiksilver (58%), Roxy (32%), others (10%)