There’s a new grom in the lineup, that is the global surf industry and they’ve just poached a couple of bomb sets. SurfStitch, through its recent acquisition of both Surf Hardware International (FCS, Gorilla) as well as various digital media portals (Stab, Magic Seaweed), is positioning itself as a global surf company/action sports conglomerate. The company now has reach into manufacturing, control of some major digital media muscle and even flagship retail stores.

This has all left many wondering what the company’s strategy or end game is?

SurfStitch had humble, organic beginnings (as did Billabong, Rip Curl …et al. many decades ago) – it started in the backyard of a northern beaches Sydney home in 2007, founded by two surfers Justin Cameron (financial analyst) and Lex Pederson (surf wear retailer) and grew to list on the stock exchange in Dec 2014 at $1 as an e-commerce surf retailer. But like a grom with a Christmas gift voucher in a surf shop on Boxing Day, the company has been out spending up its new found capital – growing through buying a diverse range of businesses across different sectors (think Garage Entertainment, Stab & Magic Seaweed). And the finance folks have been getting pretty excited about its growth potential – shares trading around $2 – making it now even bigger than Billabong (by equity dollar value – around $500m) – Morgan Stanley even increased their target price by 11% to $2.50 after the SHI buyout.

So the spin goes that SurfStitch, through their digital media platforms, are able to generate e-commerce leads of higher margin and quality, and now with SHI in the fold, will build their “core” image and customer engagement by leveraging SHI’s high profile athletes and shapers (through their media platforms), and in addition – will soon launch three flagship or destination stores (think Apple stores).

All sounds pretty exciting, but the irony hasn’t been lost on some that SurfStitch now boasts a business model not too dissimilar to what Billabong and Quiksilver were operating prior to their spectacular demise – albeit having reached a similar point from different angles. Billabong – as a core surf label before becoming a multi branded, bricks and mortar retail giant, while SurfStitch is a multi- branded online retailer, come core bricks and mortar retailer.

So where does this leave the surf industry?

Listed corporations have responsibilities across the various stakeholders (customers, suppliers, employees and investors), but a primary one being profit generation and a return to shareholders. But investors demand not just profit but growth in profit, which means companies are constantly looking at ways of expanding. During the mid 2000s Billabong looked to grow from its core surf manufacturing roots by buying out retail stores and “core” brands (using debt) just as the GFC hit AND consumers’ purchasing habits were changing – to online… enter Surfstitch. They started as an (online) retailer and looked to grow through digital media engagement and have now moved into “core” hardware, and as a result are moving in many ways towards being a modern day “surf label”. Accordingly, many will now be looking to the new, growing grom in the lineup to start investing back in the industry, as Billabong, Rip Curl, Quiksilver etc. do, through contest and rider sponsorship.

And what about Pete the Punter?

To be honest, not much will likely change for the end consumer experience. Pete can expect to see some more product placement and a ramping up in the presence or exposure they get to SurfStitch products through their various sources of social/digital media exposure. But hey, who has a problem with watching Fanno throw buckets on a clean, open face using a set of FCS Carvers on their Facey feed? It’s true that SurfStitch has a lot of pricing power now (they are making both the wholesale and retail margin on SHI products), but they are unlikely to start discounting online product due to the sensitivity with other retailers.

So other than some additional advertising, product placement and cross selling, the likely impact on the end user is pretty limited – although if SurfStitch have their way and their strategy pays off, Pete will be doing a lot more of his hardware and rag shopping online.

Time will tell as to whether SurfStitch’s growth strategy pays off. They are at least being more conservative in their capital management (using equity rather than debt to go shopping – in contrast to Billabong and Quiksilver) and their acquisition of SHI can be seen as a move to improve their standing and engagement with the core audience – a step in the right direction in regards to investing back in the industry from which they derive their sales.

Dave has 10 years in the finance industry and has been surfing for 20. The author does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article.