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Startup Capital Scarce For Sports Apparel, Equipment Makers

“Made in San Diego” is developing a special meaning for Kevin Flanagan, co-founder of The People’s Movement, an “eco-conscious” footwear and accessories maker in Solana Beach.

In business for only a year, Flanagan is already selling his shoes in more than 110 stores, including the Nordstrom store in Fashion Valley and Sun Diego outlets countywide.

His footwear includes recycled plastic in whole or in part, material recovered from beaches in Indonesia, and now he’s adding more products using recycled products — T-shirts made from plastic bags retrieved from the harbor in Oceanside.

The People’s Movement is among 600 plus manufacturers in the action sports cluster, companies that range in size from Callaway Golf Co. and TaylorMade-adidas Golf Co. to mom and pop outfits, including the many one- and two-man shops that shape custom surf boards.

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Other products range from boards to goggles to shoes, as well as swimsuits and T-shirts.

Just the golfing segment of the cluster accounts for more than 27,000 jobs in the county, generating an economic impact of more than $3.9 billion.

‘Hidden Economy’

“When most people think of San Diego, they don’t think of sports apparel and manufacturing companies being based here,” said David Frederickson, audit partner in the local office of accounting firm KPMG, who sits on the advisory board of the San Diego Sport Innovators business accelerator program, the trade group that supports new business formations in the region. “It’s part of the hidden economy that we have here. Everyone knows about the Callaways and TaylorMades, but there are a lot of smaller ones around we don’t hear about.”

Paul Wyandt, CEO of ZOIC Inc. clothing, a privately held concern that designs and makes apparel for mountain biking, moved the business to San Diego from Marin in the mid-2000s when the business was struggling.

He and his partner have since revitalized the brand, and in the process, increased the profile of the company nationwide.

The apparel, designed here, but made in China and Mexico, is sold in more than 750 stores in the U.S., including such national chains as Performance Bicycle, REI and Sport Chalet.

He said the decision to locate in San Diego was a “lifestyle choice,” as well as the availability of graphic and product design talent in the region.

“The resources here include the talent to design the product, well as to help manage overseas production,” he said.

Creativity Cluster

He said he’s amazed at the creativity that’s brought to the new businesses in the cluster.

“I continue to marvel at the number of new products and different angles that people take to new apparel and products, as well as the companies involved in performance, and even the social clubs and race organizers,” said Wyandt. “It’s a very broad-based industry that is not just apparel or skateboarding or cycling.”

Serial entrepreneur John Sarkisian, CEO of SKLZ, a business that help athletes and their coaches perform better, said he wouldn’t be operating in San Diego were it not for the other companies in the cluster that have evolved over the years.

He’s the newly-named industry chairman of SDSI’s advisory board, and in that role, he’s quick to note the sport innovators program is not focused on design and manufacturing.

“We’re focused on team sports, individual sports, endurance sports — an all-inclusive organization,” he said. “We’re also focused on encouraging sports innovation throughout the sports industry.”

To be sure, he said that all components of the cluster are important parts of San Diego’s diverse economy.

“That’s one of the reasons why we are here,” he said.

Dearth of Investors

KPMG’s Frederickson said one consideration retarding added growth in the cluster is the dearth of investors who understand the needs of the entrepreneurs in terms of readying products for market.

“Part of what we’re doing is trying to get investors to understand what it’s like to put money into a sports related company as opposed to a technology or biotechnology company,” he said. “There are some investors, but there are fewer of them than in the other areas of investing.”

“There are fewer costs to get started,” he noted. “You don’t have to wait years for the product to come to fruition like a biotech company.”

But capital is hard to land, nevertheless.

“It’s like having the net below you when you are a trapeze artist,” Frederickson added.

Andy Warren, an audit partner in the local office of accounting firm Moss Adams LLP, said financing is the toughest piece for the entrepreneur.

“The climate here is very difficult,” he said. “When you look at San Diego, one of the first things that come to mind is life sciences, and to some degree technology, and when you look at those business models they’re geared to raise money for those who have a business plan with an idea and a technology.”

“You’re talking about a branded product, you’re talking about what’s different between one shirt or another, which is usually the design,” he said. “The investor sees only a shirt. There’s not technology to invest in; it’s a brand and a completely different industry to invest in.”

He said investors are more interested in getting involved when a company is ready to merge with another, either through a merger or acquisition.

Tony Chen, president and CEO of 17-year-old Carlsbad-based action sports footwear company Osiris Shoes, notes that the shortage of investment capital is not just restricted to San Diego — it’s a problem everywhere for entrepreneurs.

He thinks that other factors can be a downside to starting and running an action sports business in the region.

He said the need to pay competitive wages can be a hurdle, especially considering the high cost of housing and other necessities in San Diego.

“It can get expensive here,” he said.

Nevertheless, Chen thinks the upside to running an apparel business here outweighs the downsides.

He said there is a positive energy in doing business among so many other action sports businesses, including his competitors.

“Southern California is the epicenter of where most action sports originated,” he said. “It’s the cultural heart of the industry.”

“Having a company based here, whether it’s skateboarding, surfing, snowboarding, is really convenient, because what you have is a lot of the various industries here,” he said. “And it’s a benefit because it provides a pretty large pool of potential employees, an experienced talent pool to draw from.”

He also said having media that covers the various sports is also important.

“Being able to go face-to-face to schmooze with the media is always convenient,” he said.

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