For future success in diversity
Confluence Watersports has been on a fast run since moving to Greenville less than two years ago to expand, upgrade and consolidate its paddle sports manufacturing.
It has become an undisputed world leader in rotationally molded kayaks, surpassing its main competitor in sales, revenue and profits.
With business strong, Confluence is looking to add to the manufacturing space it initially leased at the cavernous TV picture tube plant on Mauldin Road that Hitachi abandoned in 2007.
Its accessory divisions of water-protective clothing, paddles and other water recreation gear are, as with its boats, growing rapidly.
In a strategy that could lead to a larger presence as a headquarters in Greenville, the company is “100 percent” committed to acquisitions to diversify beyond water sports.
Sue Rechner, CEO, said a foothold in other outdoor segments makes sense to capitalize on growing interest in outdoor activities, even out cash flow, make fuller use of production resources and stabilize its investment in a trained workforce.
Looking Beyond Water Sports
“Water sports is a seasonal business; and like they say in Texas, ‘You can only shoot while the ducks are flying,’” said Rechner. “We sell boats all year round, but the real peak in our season is about 16-24 weeks. It is not good to bring someone on, spend a lot of money training them, and then have to potentially release them after the season closes down to the lower point.”
Rechner said the 20 or so potential acquisitions Confluence has done due diligence on so far have not worked out “because they weren’t good matches or we didn’t win because they are typically auctioned.”
As a test, Confluence took two contract jobs for unrelated companies to fill production downtime but found it “too dumb-downed” for the more sophisticated and perfectly finished work it does for kayaks, “probably one of the most difficult, if not the most difficult, to mold.”
Confluence has “the broadest offerings” in kayaks of any company, and 99.6 percent of them are made in the Greenville plant. A small number of composite-material kayaks are made in Eastern Europe, where Confluence moved production from China to get “significantly better” quality for about the same price.
Covering All Sales Channels
“We cover everything from a $399 kayak to a $3,000 kayak, and we cover all functionality from flat water up to class five whitewater and ocean,” Rechner said.
“We service just about every retail channel.” National retailers like L.L. Bean, REI and Eastern Mountain Sports sell Confluence brands. Confluence also makes boats for Bean under its branding.
Independent specialty stores catering to outdoor enthusiasts are major retailers of premium brands built for the particular water types typical to the local geography.
She said North America accounts for “the largest part of our growth … but we’ve seen some really strong growth in Australia and Japan. This past year, we’ve had real good growth in Europe. Given the economic challenges Europe has had, that’s positive.” The company exports about 10 percent of its production.
The company also sees “significant opportunity” for expanding accessory lines. In late 2010, it acquired Bomber Gear, a brand of specialty water-protection clothing that is designed in Greenville but made overseas. In addition, it has a division for paddles and another for “everything from paddles to safety equipment.”
Getting Under One Roof
In November 2011, Confluence moved from three buildings in Easley into the Hitachi building, leasing 300,000 of its 549,000 square feet and committing to spend up to $15 million for new automation equipment and to add 72 employees to its workforce of 425 over five years.
Rechner said Confluence temporarily leases an additional 150,000 square feet in the building during its peak production periods and is “moving toward needing a good chunk of that permanently.”
By substantially investing in automation, Rechner said, Confluence is able to produce more boats with fewer workers, making for a more productive workforce at “roughly the same” level as two years ago.
For example, she said, a new rotational molding oven brought on line late last year does the work of five, each of which had an assigned crew.
In addition to having space for growth and being able to upgrade production, the move is paying off with “intangible benefits of being under one roof” for communications and offering more local amenities for employees, Rechner said.
Outdoing Its Chief Rival
The company, which grew revenue by 5-8 percent annually in the five years before the move, has continued that growth and last year surpassed its major competitor, Johnson Outdoors of Racine, Wis., in size.
Confluence is privately held and does not publicly disclose financial data, but Rechner said Confluence does “substantially better on the top and bottom lines” than Johnson.
Johnson Outdoors, which is publicly traded, reported revenue of $412 million and net income of $10 million in its fiscal year ended Sept. 29, 2012.
“Based on what I know, we are the largest rotomolder of kayaks in the world,” said Rechner. “Johnson and we are the largest, and the next largest is half our size.”
The majority owner of Confluence Watersports is American Capital, a Maryland-based private equity firm. In 1998, American Capital acquired Confluence Holdings of Trinity, N.C., third largest kayak maker. In 2005, it acquired majority interest in Watermark Paddlesports of Easley, second largest, for $19 million, merging the two in Easley.
No National Parks, No Industry
Confluence is a member of the Outdoor Industry Association (OIA) that is active in promoting outdoor recreation and lobbying local, state and federal governments for the protection of outdoor space, including the national park system, which is under siege because of federal budget cuts.
“If we don’t have national parks in 10 years, we won’t have an outdoor industry,” Rechner said. “You don’t want to stop it if it is one of the few things in the world that is growing right now.”
The OIA last year released a first-ever study of the economic impact of outdoor recreation and this year broke it down to show the impact by state.
The report documents consumer spending annually of $646 billion nationally on outdoor recreation, creation of 6.1 million jobs, $399 billion in federal tax revenue and $39.7 billion in state and taxes.
In South Carolina, the industry annually generates $18 billion in consumer spending, 201,000 jobs, $4.7 million in wages and salaries and $1 billion in state and local taxes.
“It is very large, and it is powerful,” said Rechner. “The beautiful thing about this reporting is now it gives us this data to go to local, state and federal representatives to get them to fund supporting outdoor recreation infrastructure.”
She recognizes that preserving and expanding public outdoor recreation space will require a public-private partnership because of the “seismic shift the recession caused” to government resources.
“We are an industry that is growing, and we are still growing, and that bodes very well in the world of finance to have industries and companies that grow despite economic hard times,” said Rechner.
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CEO’s Mission Is to Get Kids Outdoors
Sue Rechner wants to help encourage kids to get off their duffs and get outside to do something.
As CEO of Confluence Watersports, Rechner combines personal passion for outdoor activities with her job for sure, but also as a mission to get kids engaged in outdoor recreation.
“The growth is just not happening on the participation side we would like to see,” Rechner, who is also a board member of the Outdoor Foundation.
The foundation’s “primary mission is to get youths into the outdoors, period, whether it is hiking, biking, hunting, fishing, camping, whatever it is,” she said. It’s a commitment Confluence shares independent of the foundation.
Recognizing that inner-city kids in particular have little or no opportunity to get beyond paved streets, Rechner went to Greenville Mayor Knox White to get “pointed in the right direction” to award $3,000 to a group that could make it happen.
“Within a day, I had five options,” including Live Well Greenville, which led her to the Momentum Bike Club, which is affiliated with Clemson’s Institute on Family and Neighbood Life and its Building Dreams Mentoring Program.
David Taylor, executive director of the cycling club, said Confluence’s Paddle Grant would fund taking 30 underserved children for 30 hours of cycling, hiking, backpacking, climbing and kayaking over a weekend.
The program is still in planning, but Taylor hopes it can take place as early as this fall or as late as spring. “This kind of partnership makes a real difference for underserved kids,” he said.
Rechner said Confluence also would like to “form alliances with the Greenville Health System to help us get more kids outside and reduce the propensity of the growth in obesity.”
