Heading Downhill? K2, Marker, Völkl, Among Others, For Sale

Update, Oct. 7: Newell Brands responded with comment for this article, stressing that it intends to sell, not shut down, its wintersports brands. According to the company: “We do not plan to shut these businesses down, but rather intend to sell them to a buyer at a full and fair value. We are confident that we will achieve a successful sale of these category-leading businesses to an owner who shares our interest in unlocking their full potential.”

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It wasn’t long after consumer products giant Newell Brands acquired Jarden Corp. in January that Newell CEO Mike Polk began openly talking about jettisoning small and “underperforming” brands from its $16-billion conglomerate. Yesterday Newell made it official (press release below), announcing that its snowsports brands are for sale and will be closed if no buyer is found.

What looks like small potatoes to a giant like Newell are some of the ski industry’s biggest and best known names: K2, Volkl, Marker, Line, Dalbello, and Full Tilt. In ski sales alone, Volkl and K2 still represent roughly a third of U.S. marketshare, according to SIA sales figures for the 2014-15 season obtained by SKI Magazine.

K2’s apparent dismantling began last year with dismissals of key people, starting with CEO Tim Petrick, long the face of the brand, followed by longtime marketer Jeff Mechura, among others. The company was already leaner after a decade or more of budget cuts and infrastructure streamlining. The famous Vashon Island factory headquarters was closed; production of skis was moved to China; offices were relocated to much smaller spaces in Seattle. Meanwhile, the once robust athlete budget was slashed, and well-known athletes were dropped, including Glen Plake in the fall of 2006—which, now looking back, appears to be the harbinger of change at the famous brand—and most recently, Seth Morrison, who’s name still graces a pro model in the 2016-17 K2 collection.

Performance in SKI Magazine’s ski tests also declined; in the 2016 test, no K2 ranked higher than fifth in its category (Morrison’s Pinnacle 118), and only four of 11 models cracked the top 10.

K2 sales have steadily declined as well in its China-made era. Its top seller for the 2014-15 season—a value priced women’s package ski (Potion 76Ti)—ranked a dismal 27th (units sold). The Shreditor 102, a key model that year and its third-best seller, was 44th overall in the U.S. market, according to the SIA numbers.

Though K2 once thrived in the U.S. market, it has always struggled to make gains in key global markets, particularly Europe. In contrast, Volkl and Marker, both based in Germany, enjoy much larger global sales in addition to very strong positions in the North American market. Marker and Volkl sales have held their own—the venerable Mantra was No. 2 on the 2014-15 sales list; the Kenja was No. 7; Kendo No. 10 and RTM 80 No. 11.

Skiers can only wait to see if buyers emerge, which seems likely, given the affected brands’ high profile in the ski world and Newell’s evident eagerness to be rid of them, presumably at whatever price they can get. And the ski industry, not to mention skiers and riders, certainly would like these brands to continue. Their loss would be the industry’s loss.

Historically, dabbling by consumer-product conglomerates in the ever-tumultuous ski business isn’t anything new, and it hasn’t gone well for would-be diversifiers. Benetton, the once-trendy Italian clothing brand, suffered large losses during its time as owner of Nordica in the 1990s. Surf-apparel giant Quiksilver had a similar experience with Rossignol in the early 2000s. Head was once controlled by an Austrian state-owned cigarette manufacturer, Austria Tabak.

It bears noting that Rossi, Head, and Nordica have thrived since being divested. In each case, the distressed brands were sold at prices that gave new owners with more focused expertise in the wintersports world a chance to make them viable again. Whether that can happen again with K2, Volkl, and Marker might be known in the coming months. According to the press release from Newell: “The sale processes are underway and the company hopes to complete the divestiture of the assets held for sale within the first half of 2017.”

Newell Brands press release, Oct. 4, 2016:

Newell Brands Inc. (NYSE: NWL) announced a series of changes related to a comprehensive strategic review of its business conducted since the completion of the Newell Rubbermaid and Jarden combination. Newell Brands will transform from a holding company to an operating company and, with a new set of investment priorities and a sharpened set of portfolio choices, accelerate growth and performance by deploying a proven set of growth capabilities over a broader set of categories and by disproportionately resourcing the business with the greatest potential.

The company will simplify its operating structures consolidating the existing 32 Business Units to 16 Operating Divisions, including the creation of a new global enterprise-wide e-Commerce Division. The company will also focus and strengthen its portfolio by holding a number of businesses for sale, using the proceeds primarily to accelerate debt pay down, and creating a platform for future acquisitions that strengthen and scale the company’s core businesses.

The businesses held for sale represent about 10 percent of the portfolio and include the vast majority of the Tools Segment, the Winter Sports businesses within the Outdoor Solutions Segment, the Heaters, Humidifiers, and Fans businesses within the Consumer Solutions Segment, and the Consumer Storage Container business within the Home Solutions Segment. The total 2015 net sales of the businesses held for sale are approximately $1.5 billion, and include about $100 million of the $250 to $300 million of previously announced exits or assets held for sale.

Jarden’s Outdoor Solutions segment manufactures or sources, markets and distributes global consumer active lifestyle products for outdoor and outdoor-related activities. Alpine and nordic skiing, snowboarding, snowshoeing and in-line skating products are sold under brand names such as Atlas, Full Tilt, K2, Line, Little Bear, Madshus, Marker, Morrow, Ride, Tubbs, Völkl and 5150 Snowboards. The Company also sells high performance technical and outdoor apparel and equipment under brand names such as Adio, Ex Officio, Marmot and Planet Earth.

“Newell Brands new strategic plan establishes a clear set of investment priorities, a new organization design for the company, and a sharp set of portfolio choices that will focus our resources on the businesses with the greatest potential for growth and value creation,” said Michael Polk, Newell Brands Chief Executive Officer. “We will drive growth acceleration over time through more effective and scaled commercial operations, increased investment in our brands and capabilities, and the delivery of bigger, better innovation across a broader set of categories. We will simultaneously expand margins through significant cost synergies and other savings related to the combination of Newell Rubbermaid and Jarden and other cost focused initiatives.”

“The combination of Newell Rubbermaid and Jarden has created a unique platform for transformative value creation and the actions we are taking to reshape the company will unlock this opportunity, bringing greater investment and growth to our highest potential categories like Writing, Home Fragrance, Baby, Food Storage & Preparation, Appliances & Cookware, and Outdoor & Recreation. The choices we are making will strengthen the underlying growth and performance of our most strategic businesses and over time enable us to scale our core categories through external development,” said Mark Tarchetti, Newell Brands President.

The sale processes are underway and the company hopes to complete the divestiture of the assets held for sale within the first half of 2017. Proceeds from successful divestitures will be used primarily to accelerate the pay down of debt, with the goal of achieving the company’s stated objective of a leverage ratio of 3 to 3.5 times EBITDA. At a recent investor conference, the company announced that it expects to deliver $500 million in costs synergies by the end of 2018, an acceleration of cost synergy delivery relative to the original commitment of 3 to 4 years from the completion of the Newell Rubbermaid and Jarden Corporation combination on April 15, 2016. The acceleration of cost synergy delivery is connected in part to the announcement today of the consolidation of 32 Business Units to 16 Divisions. The actions announced today will not impact 2016 core sales or normalized EPS guidance. More details will be shared on the company’s third quarter earnings call on October 28, 2016.