With 2023 now in the rear view mirror and 2024 already in full swing, it’s a natural time for brands to pause, reflect and take stock of where they’ve been and, more importantly, where they’re headed. The hope and optimism we all felt at the outset of 2023 had all but disappeared by the end of last year. But even in the challenging environment that we all experienced last year, surf and skate brands persevered and creatively found ways to keep their businesses marching forward. There is much to be learned from last year. Brands would be wise to pay close attention to what worked and what didn’t as they consider how they will tackle similar challenges in 2024.

Navigating Economic Instability

This time last year, many business owners were feeling confident that they had seen the worst of the post-pandemic challenges and they were cautiously optimistic that the economy would soon stabilize. While there was still hope that the retail sector would regain its footing, that optimism was short-lived. Even though there were fewer supply chain disruptions and logistics issues to wrestle with, most companies spent 2023 trying to right size inventory positions after overzealous predictions early in the year never came to fruition. And now there is an underlying sense among many in the industry that we will not see the upward swing in the retail sector—or in the economy overall—that everyone was hoping for in 2024. And inflation concerns, high interest rates and growing geopolitical unrest are certainly not helping.

In the year ahead, surf and skate companies should consider diversifying their supplier relationships and expanding the areas and regions where they are sourcing products. For some, this might mean broadening the supplier base beyond China, if they have not done so already. With new suppliers in the mix, many are often unwilling to extend credit terms to unknown buyers, so companies across the industry must find ways to get creative. Purchase order financing is one tool that has proven helpful to companies as they transition to new supplier relationships. It can fill in gaps with letters of credit for purchases or cash against documents once goods hit the water. And in situations when a supplier may not be keen on providing terms initially, this can be a great jumpstart for surf and skate brands looking for ways to maintain business operations without any interruptions.

Responding to the Banking Landscape

Throughout 2023, major U.S. banks, regional banks and other financial institutions were busy cleaning house and tightening their credit parameters, which made it increasingly difficult to access capital. While this credit crunch started well before 2023, it’s likely that the impacts will continue to be felt across the retail sector well into 2024. And with ongoing inflationary pressures and a looming recession that continues to keep retailers on edge, many companies would be smart to review their financing and capitalization strategy sooner rather than later. A more flexible working capital debt facility through factoring or an asset based facility can be an attractive option and one that is certainly worth exploring, especially in a shaky economic environment.

Managing the Inventory Mix

Inventory challenges plagued many businesses in 2023 and we expect to see more of the same in the year ahead, but to a lesser degree as companies are more focused on keeping inventories in check in the hopes of not repeating the same mistakes from 2023. Over the past year, brands struggled with managing down their excess inventory, while also introducing the right mix of new inventory through new lines of products or expanding to high-performing or in-demand products—a delicate balance. Staying fresh and continuing to find ways to innovate will be critical to surf and skate brands in 2024. Launching creative and strategic marketing campaigns, finding ways to sell overstock inventory through special programs in off-price channels or bundling top-selling products with excess inventory are all things that surf and skate brands are experimenting with right now. Companies must be able to pivot quickly to meet changing consumer demand and be ready to respond to retailers’ buying patterns as they change too.

One of the most important pieces of the inventory puzzle is forecasting. In the year ahead, brands must take a more active role in forecasting and not merely fall back on retailers to do the bulk of the work. Inadequate forecasting can lead to an increase in order pushbacks, cancellations or even running out of bestselling products. The onus really falls on brands to be proactive and vocal early on with their customers so they can avoid these situations. This will be especially important to surf and skate brands that are preparing to launch new product lines in 2024. In these scenarios, leaning on partnerships with lenders that can leverage both accounts receivable and inventory and are also willing to dig deep into the inventory mix to evaluate down to the SKU-level to provide more availability on strong-performing SKUs can often make a world of difference.

Diversifying the Sales Pipeline

Given the projected economic climate in 2024, there will be a greater need for companies selling to retailers to focus on customer credit and A/R management in the year ahead. Partnering with a non-recourse factor is one way to alleviate this burden. Businesses get credit protection and extended guidelines on the credit profiles of existing and new customers, which then allows the management teams to focus on selling to better customers. Non-recourse factors can also manage, collect and perform cash applications more efficiently, acting as an extension of the operations teams. Because factors are very close to the collateral, companies can often obtain higher advance rates and availability on A/R that banks and asset-based lenders may not be as comfortable with, including international A/R or significant A/R concentration. It’s yet another example of how being nimble and responsive to challenges in this environment can offer brands a competitive edge.

A Fresh Take on Growth in 2024

The notion that surf and skate brands should “grow at all costs” is now pretty much out of the equation. Instead, strategic priorities have shifted away from this more aggressive approach to one that is focused on building a profitable business and a sustainable growth model for the future. For the newer generation of brands that are just arriving on the scene, especially when compared to those from 10+ years ago, a focus on organic growth and earlier profitability will be key to their success. This new approach also requires a different type of financing strategy—one that recognizes the value of working capital (at times, even in addition to equity) that can take a business to the next level. With an overall volatile economic outlook for 2024 and with banks and lenders still deeply divided over whether the U.S. economy will finally enter a recession, brands must do what they can to position themselves for what will certainly be a bumpy start to the year. It’s an uncertain future for sure, but 2024 will hopefully prove to be a better year, as companies are starting off with more realistic expectations of what lies ahead.

Editor’s Note: Maria Contino is the western region sales manager at Rosenthal & Rosenthal, a factoring, asset-based lending, PO financing, DTC and e-commerce inventory financing firm in the United States.

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