Killer Profits In Velcro Valley

It's about respecting the stone, about being absolutely core. The stone, according to Volcom president Richard Woolcott, 33, "represents the buzz from a good skate session or riding a 10-ft. wave at pipe. The stone represents the euphoric state of riding."

Core is core, bro, as in hard-core. Right now, in the Orange County, Calif., coastal-wear industry, the Volcom stone--a diamond-shape logo sewn onto shirts, shorts and pants--is totally core, commanding huge respect within the genre of attitude-drenched brands that cool 15-year-olds crave. "Whatever they put the stone on is gonna rock out the door," says Joe Luzzia, owner of Identity Board Shop in Buena Vista, Calif. "You can tell they're the next big thing."

Here in Velcro Valley, as this ragged patch of the industrial landscape is known, a surfwear or skatewear company that catches the attention of style leaders--the best skaters, surfers or snowboarders in any coastal clique--can in a year swell from $5 million in annual sales to $100 million.

But it's hard to stick around in Velcro Valley. Successful firms have erupted from the Orange County youth-apparel industry to become globally recognized brands--among them, Quiksilver, Oakley, Billabong USA and Stussy. Yet just as many such labels--including Gotcha, Lightning Bolt, Vision Street Wear, Jimmy-Z, Maui & Sons, Mossimo and others--rode huge waves of sales only to wipe out in a few years.

The question for hot companies like Volcom, whose stone T shirts currently hold the honor of being the most ripped-off items from Orange County surf shops, is how to make the transition from small, sizzling firm to legitimate, stable business--and still respect the stone.

Orange County, the sprawling expanse of suburban, upper-middle-class communities south of Los Angeles, is the home of the California life-style. "Orange County is to the youth-apparel market what New York is to the fashion world," says Danny Kwok, co-president of Quiksilver. "We are the epicenter of the youth movement."

Over the years, numerous local surfers and skaters have schemed a way to extend the adolescent life-style of cutting school and hitting the beach into a career of cutting work and hitting the beach. "It's a wonderful industry to be in," says Bob Hurley, 43, founder of Billabong USA and Hurley International. "It's kind of like going to high school forever, and then leaving every day to go surfing."

Hundreds of companies marketing clothes and accessories dedicated to the "board-sports" life-style are operating in Velcro Valley. They range from Oakley, the $200 million sunglasses-and-footwear firm housed in a futuristic, $47 million hilltop bunker, to smaller fry like Black Flys, Split and Volcom, crowded into Costa Mesa and Huntington Beach industrial parks.

To be successful in this market, a company must first be considered core, a catch-all term for unbridled living of the extreme- sports go-for-it ethos. "To be perceived as core is alternative-marketing gold," says James Palczynski, vice president and analyst at Needham & Co. If you are selling skatewear, then you had better be a skate rat, and your company had better sponsor a team of top skateboarders. But core is more than an aggressive, participatory attitude. It's also a vibe, a quasi-mystical, anti-Establishment subtext that has to permeate a firm and come across in marketing and advertising so that it resonates with trend-setters up and down the coast and then across the country.

There is a subtlety to being core. Some companies, including Jimmy-Z, Vision Street Wear, Mossimo and Gotcha, start out core but make a wrong turn. It can be an ill-conceived magazine advertising campaign (Mossimo). Or turning up in J.C. Penney's rather than the local skate shop (Jimmy-Z, Gotcha).

A brand trying too hard to be core, such as Mountain Dew or Nike, is by definition not core. "You can't buy your way in," says Don Brown, 32, vice president of Soul Technology, a growing skateboard-shoe company with $40 million in annual sales. "Look at Nike. They're the best marketing machine in America, and they couldn't buy their way into skateboarding." Ironic that in the pre-nose-ring generation, Nike invented core. Coreness can reach ridiculous extremes. Almost every Velcro Valley firm has erected a half-pipe skateboard ramp on its premises. "We used to have one right out in the middle of the place," says Volcom's Woolcott, "but skateboards were, like, hitting people at their desks." Bummer.

For those who succeed in communicating core, the youth-apparel industry is a wholesome business activity. Teenagers spent $91.5 billion last year, and the men's and women's active-wear markets grew from $69 billion to $73 billion, according to the NPD Group. For leading Velcro Valley manufacturers like Quiksilver, that means a one-year, 37% increase in sales, to $316 million. Smaller firms like Hurley, Split, Girl, World, Ezekiel, Rusty and Shorties are reporting steady growth on sales of anywhere from $10 million to $70 million.