Volcom, Inc.

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Volcom, Inc.

1740 Monrovia Avenue
Costa Mesa, California 92627
U.S.A.
Telephone: (949) 646-2175
Fax: (949) 999-1253
Web site: http://www.volcom.com

Public Company
Incorporated: 1991 as Stone Boardwear, Inc.
Employees: 171
Sales: $113.2 million (2004)
Stock Exchanges: NASDAQ
Ticker Symbol: VLCM
NAIC: 315223 Men's and Boys' Cut and Sew Shirt (Except Work Shirt) Manufacturing; 315224 Men's and Boys' Cut and Sew Trouser, Slack, and Jean Manufacturing; 315228 Men's and Boys' Cut and Sew Other Outerwear Manufacturing; 315232 Women's and Girls' Cut and Sew Blouse and Shirt Manufacturing; 315239 Women's and Girls' Cut and Sew Other Outerwear Manufacturing; 315299 All Other Cut and Sew Apparel Manufacturing; 315991 Hat, Cap, and Millinery Manufacturing; 315992 Glove and Mitten Manufacturing; 315999 Other Apparel Accessories and Other Apparel Manufacturing; 339920 Sporting and Athletic Goods Manufacturing; 512110; Motion Picture and Video Production; 512120 Motion Picture and Video Distribution; 512220 Integrated Record Production/Distribution; 448110 Men's Clothing Stores; 448120 Women's Clothing Stores

Volcom, Inc. makes popular clothing and accessories for snowboarders, skateboarders, and surfers. The firm's wares are sold in the United States at independent surf and skate shops or chains including Pacific Sunwear and Zumiez, and in 40 countries abroad through licensing agreements. Volcom also operates a small Los Angeles retail outlet and music and film divisions, and sponsors board sports teams and professional athletes including surfer Bruce Irons, skateboarder Geoff Rowley, and snowboarder Shaun White. Cofounder and CEO Richard Woolcott and his father, chairman Rene Woolcott, own a sizable minority stake in the company, which went public in June 2005.

BEGINNINGS

Volcom was founded in 1991 by Richard Woolcott and Tucker Hall to make clothing for surfers and snowboarders. Both were avid participants in the sports, Woolcott having joined the Quiksilver, Inc. surfing team at 14 and later gone into marketing and producing videos for the clothing manufacturer. After breaking his neck on a Quiksilver-sponsored surfing trip to Mexico he spent a year slowly recovering, and then decided to study business at Pepperdine University, where he earned a B.S.

In March 1991 Woolcott and Hall went snowboarding at Tahoe, and the experience had an unexpect-edly profound impact on both of them. Shortly after-wards Woolcott quit his job, and he and the already unemployed Hall decided to found a company that would make t-shirts for boarders, while they surfed and snowboarded on the side. To start the business they borrowed $5,000 from Woolcott's father Rene, who headed investment firm Clarenden House Advisors. The company would officially be called Stone Boardwear, Inc., and use the brand name Volcom.

Working with McElroy Designs, they created a distinctive diamond-shaped "Volcom Stone" logo to use on the company's products. Knowing little about the clothing business, they stuck to t-shirts at first, but added shorts after a year. The tiny firm was headquartered in Woolcott's bedroom in Newport Beach, California, and sales were handled out of Tucker's place in Huntington Beach. At first they were only marginally engaged by the business and spent much of their time on boarding trips, and as a result sales for the first year totaled just $2,600.

As funds began to run dry, the senior Woolcott decided to step in. As Richard Woolcott later recounted to Transworld Business magazine, one Saturday morning he got a call from his father, who said, "Son, looking at your numbers, if you don't get your act together, you're going to be out of business in less than three months. I'm not going to help you or bail you out. So you better figure it out." The company had no inventory and was basically out of money, and the suddenly chastened duo began working to get it back on track. As they took the business more seriously, its financial picture began to improve.

In 1993 Volcom released a film called Alive We Ride. The company's first video production featured footage of surfers, skaters, and snowboarders from around the world, and a new unit, Veeco Productions, was formed to market it. Two years later another new division, Volcom Entertainment, was founded to produce music CDs. By this time the firm had begun sponsoring surfing and skateboarding teams, as well as an amateur surfing competition called the Volcom Starfish Summer Surf Series, and its clothing was being sold in a number of independent surf shops in Southern California.

In 1995 Volcom designer Neil Harrison introduced the Featured Artist series of t-shirts, which were printed in four colors and used imaginative designs. They would go on to become one of the company's most popular offerings. The next year saw Volcom reach an agreement for its clothing to be produced and sold in Europe under license by an outside firm, which would pay a royalty on each item. In 1997 the company bought a 49 percent stake in the licensee, Volcom Europe, and also reached an agreement for another firm to make and sell its clothing in Australia and New Zealand. Volcom subsequently acquired a small stake in the latter as well.

PACIFIC SUNWEAR ADDING VOLCOM SHIRTS IN 1997

In 1997 major boardwear retailer Pacific Sunwear (PacSun) began selling Volcom's t-shirts at a few of its stores. They sold well, and several months later PacSun added the company's shorts, and then began stocking Volcom clothing at all of its outlets. At the retailer's urging, in the fall of 1998 Volcom also introduced lines of cargo pants, jeans, and other trousers, and the company's sales soon shot through the roof.

By 1999 Volcom, whose motto was "Youth against establishment," had become one of the hottest brands among boarders, ranking in the top five "coolest t-shirts" in the boarding category, according to the 1999 Board-Trac WaveRider Survey. The firm's primary market continued to be Southern California, though its products were also sold in other areas where board sports were popular.

COMPANY PERSPECTIVES

We are an innovative designer, marketer and distributor of premium quality young men's and young women's clothing, accessories and related products under the Volcom brand name. Our products, which include t-shirts, fleece, bottoms, tops, jackets, board-shorts, denim and outerwear, incorporate distinctive combinations of fashion, functionality and athletic performance. We were founded in 1991 by Richard Woolcott and Tucker Hall in Orange County, California, the epicenter of board-sports culture. Since that time, Richard has led a committed and talented management team to create one of the leading board-sport brands in the world.

Volcom's staff came largely from the board sports community, and its distribution facility had a half-pipe skateboard ramp onsite. Promotional efforts were similarly unconventional. The firm used tactics including sending a battered sailboat emblazoned with the Volcom logo up and down the beach during a surfing competition, or having a large Volcom-sponsored recreational vehicle "break down" in traffic in front of the U.S. Open of Surfing after which staffers emerged to hand out Volcom gear until the police arrived. Company President Woolcott even got into the act, showing up at a skateboard competition dressed in a banana costume.

In 1999 Volcom's surging sales made it necessary to move from the 10,000-square-foot space it had been sharing with several other businesses into an 86,000-square-foot site that had most recently been home to Woolcott's former employer, Quiksilver, Inc. The new location would serve as a combined headquarters/distribution facility, as most of the company's clothing was manufactured in such countries as China and India and only t-shirt screen-printing was done in the United States.

In 2000 Volcom's Totally Crustaceous Tour debuted. An international surfing competition that allowed amateurs to participate without a registration fee, it also included music performances and many product giveaways. For the year, the firm recorded sales of $36.6 million and a profit of $1.5 million.

In early 2001 Volcom signed a deal with MCA Records to create a new joint venture record label. The company's music activities also included sponsoring a stage on the annual Vans Warped Tour, which was popular with the boarding crowd.

VOLCOM STORE OPENING: 2002

The year 2002 saw Volcom open a retail outlet in Los Angeles, which would carry clothing, music, videos, and limited-edition items including a boxed set of jeans and a t-shirt that was priced at $110. The 1,200-square-foot store on La Brea Boulevard was set up in consultation with Billy Stade, owner of a sportswear retailer that sold Volcom products, and it quickly became popular with the young, mostly male surfer crowd. Several other Volcom stores had earlier been licensed to operate overseas at surfing hotspots in France and Indonesia.

As the company grew, its management took pains to ensure that its clothing never reached mass marketers, which could cause it to lose its status as an elite brand. Volcom's clothes were seen by boarders as "core," or a part of the hardcore boarding lifestyle, but if they started to be seen on "wannabe" surfers, the party would soon be over. Hot brands including Jimmy-Z and Mossimo had expanded into mass-market outlets and quickly lost their cachet among their primary audience, then found it difficult to regain momentum or lost it altogether as a result. To steer clear of such problems, Volcom limited sales to independent surf and skateboard shops, such select surfwear chains as PacSun, and such high-end retailers as Nordstrom.

The firm continued to operate in a grass-roots way, using its own 26-person design team and doing advertising in-house to keep it consistent with the look of its clothing.

Founder, President, and CEO Richard Woolcott (known to many as "Wooly") showed little sign that he was now a successful corporate executive, and continued to live in a trailer near his favorite surfing spot, though he was drawing a salary of several hundred thousand dollars per year. Partner Tucker Hall had retired (though he retained a small stake in the firm), and Rene Woolcott served as board chair, with father and son owning controlling interest in the business. Despite the idiosyncratic nature of the company's founder and the firm's anti-establishment image, Volcom was known within the industry as one of the best-managed firms of its type, with a strong reputation for on-time shipments and a well-regarded ability to build and protect its brand.

With sales continuing to grow dramatically, in 2004 Volcom recorded a net profit of $24.4 million on revenues of $113.2 million, a jump of 49 percent from the year before. Menswear was outselling women's by a factor of close to two to one, and top customer PacSun accounted for 27 percent of total sales. Volcom products were now available in nearly 3,000 stores, representing 1,100 separate clients. Some 85 percent of sales took place in the United States, with Canada and Japan accounting for most of the remainder.

KEY DATES

1991:: Richard Woolcott and Tucker Hall found Stone Boardwear, Inc. to make t-shirts.
1993:: Video division Veeco Productions is launched with film Alive We Ride.
1995:: Featured Artist t-shirts debut, music unit Volcom Entertainment is formed.
1996:: European licensing deal starts firm's foreign expansion.
1997:: Pacific Sunwear begins distributing Volcom clothing.
1999:: Firm moves into 86,000-square-foot headquarters/distribution facility.
2002:: First company-owned store opens in Los Angeles.
2005:: Initial public stock offering brings firm nearly $80 million.

VOLCOM GOES PUBLIC: 2005

After reaching a certain point in their growth many companies like Volcom sold out to larger firms such as Nike or Quiksilver to help fund expansion, but rather than follow this path Woolcott decided to go public. The money raised would go to pay $20 million owed to existing shareholders; improve infrastructure, marketing, and advertising; and to start bringing the company's foreign sales under its own control. The license to sell Volcom goods in Europe expired at the end of 2006, and $4 million would be dedicated to setting up the company's own operations there. Licenses for other foreign territories would end over the next decade as well, and the firm planned to take those back when they became available.

Volcom's June 29 initial public offering (IPO) was a huge success, with the share price jumping from the offering amount of $19 to $26.77 by day's end. The company took in nearly $80 million for 4.2 million shares, with another 500,000 sold by existing shareholders. A few months later existing shareholders sold another five million shares for $178 million at an offering price of $34. After the IPO the 39-year-old Woolcott and his father would continue to hold a large minority stake in the firm, which had officially become known as Volcom, Inc. before it went public.

The year 2005 also saw the premiere of a new film from Veeco Productions, The Bruce Movie, which featured Volcom-sponsored surfer Bruce Irons. After a free public screening at the firm's headquarters it was made available on DVD. The company offered a total of 14 DVDs and about 40 music releases by such acts as Pepper, Single Frame, and ASG, but entertainment products were a small part of the company's mix and accounted for less than 5 percent of revenues.

Volcom's clothing line included a wide range of men's and women's apparel and accessories, ranging from t-shirts and shorts to socks, underwear, jeans, sweaters, jackets, hats, belts, wallets, luggage, and logo items including keychains and even a ping-pong set. The firm continued to sponsor skateboard, snowboard, and surfing athletes and teams, and some products were endorsed with the names of stars including surfer Irons, skateboarder Geoff Rowley, and snowboarder Shaun White. Growth continued to be strong during its first months as a public company, and in 2006 the firm began laying plans to open several more stores, though a large retail presence was not foreseen.

In just 15 years Volcom, Inc. had grown from a bedroom-based t-shirt company into one of the hottest clothing brands in the surf/skate/snowboard market. Though now publicly owned, it was continuing to follow its own path under the leadership of cofounder Richard Woolcott, and further growth looked certain.