GOLD COAST, Australia — "You'd see them wearin' their baggies / Huarachi sandals too / a bushy bushy blonde hair do," sang the Beach Boys on Surfin' USA, an album that rumbled through the 1960s as surf culture exploded, first in Southern California, then in Australia. For many, surfers were the counter-culture heroes of a chilled-out generation, rebelling against the stuffy values of their parents.

In 1966, Bruce Brown's iconic documentary The Endless Summer brought the first widely disseminated images of surfing style to millions of people, making the golden tan, sun kissed hair and board shorts of its stars the apex of cool.

Surf labels were close behind. Rip Curl came first in 1969, founded by keen surfers Doug “Claw” Warbrick and Brian “Sing Ding” Singer in Torquay, a township in Victoria, Australia. The same year, also in Torquay, Alan Green, an employee of Rip Curl, teamed up with John Law to form a garage start-up making their own board shorts that would later become Quiksilver. Gordon and Rena Merchant set up Billabong in 1973 on Australia’s Gold Coast, cutting and sewing board shorts at home for local stores.

They were cottage industries at first. But their success rode the wave of surf culture’s growing popularity and soon all three brands were available across Australia, moving into the US in the 1970s; then Europe, Japan and beyond in the 1980s and 1990s. In the 1990s, Rip Curl, Quiksilver and Billabong — now widely know as the “big three” surf brands — also followed their core market into other board sports, including skateboarding and snowboarding.

The expansion culminated in two prominent public listings. In 1998, Quiksilver listed on the New York Stock Exchange. Billabong followed in 2000, listing on the Australian Securities Exchange. And by 2005, both Quiksilver and Billabong had grown global retail networks of hundred of stores and were each worth billions of dollars. (Rip Curl remains a private company and operates corporate stores across five continents).

But oh, how the mighty have fallen. Last month, Billabong posted a A$860 million (about $776 million) loss for the year ended in June (following a loss of A$276 million in the previous 12 months) and the company said the 40-year-old surf brand was worthless. The owners of Rip Curl want out, but, last March, abandoned a planned $400 million sale, citing poor market conditions. "I doubt [the sale] is going to happen. The public market looks like a bit of a cesspit at the moment," said co-founder Brian Singer, at the time, going on to predict that both himself and Doug Warbrick would leave the company "at some point in the next few years." Meanwhile, Quiksilver has suffered growing losses for the last five quarters in a row.

Why the wipeout?

POORLY TIMED EXPANSION

From 2005 to 2008, both Billabong and Quiksilver went on a spending spree. They acquired a number of overvalued brands — Billabong bought Von Zipper eyewear, Element Skateboards, Honolua Surf Company, Nixon watches, action sports accessories label DaKine and Canadian action sports retailer West 49, while Quiksilver bought DC Shoes and ski and snowboard company Rossignol — in poorly timed moves that left them with rapidly depreciating assets just as the global economic crisis hit and sales began to nose dive.

“All were bought at a premium and as soon as the global financial crisis hit, their asset value tanked,” Evan Lucas, market analyst at IG Markets told BoF. “They expanded too fast into assets that were overvalued and, in hindsight, underperforming," he continued. "West 49 is the prime example of this failure.”

The financial fallout from these inflated acquisitions was significant: Quiksilver bought Rossignol in 2005 for $560 million, only to sell the company in 2008 for $37.5 million in cash and a $12.5 million note. Billabong bought DaKine in 2008 for $100 million and sold it five years later for $70 million.

What's more, following a period of hubristic retail expansion — Quiksilver and Billabong each launched hundreds of new outlets — overhead costs for poorly performing stores became a significant drain on resources.

In the case of Billabong, “158 underperforming retail stores have been closed to date. The CEO advised that there are an additional 10 to 15 stores that need to close, but we got the impression that there are additional stores that are loss making," said Michael Simotas, an equity analyst at Deutsche Bank.

FAST FASHION COMPETITORS

Of course, if consumers were still flooding stores and snapping up products, the issues of depreciating assets and overhead costs would be more manageable. But the rise of fast fashion competitors like Zara, H&M, Topshop and ASOS, gave the "big three" surf brands a run for their money. "[The decline] was also about the time that Zara, H&M and Topshop really started to ramp up their share of the 14-to-24-year-old youth market," added Lucas.

Indeed, while Billabong is working out how to shed stores, a new Zara outlet opens roughly every day, helping to fuel what amounted to a 22 percent growth in net profit in 2012 for Zara's parent company Inditex. H&M sales were up 14 percent in August and shares reached a record high just a few days ago on September 13th. And though recent forecasts indicate a correction is overdue, Abercrombie & Fitch’s direct-to-consumer revenues grew at an average annual rate of 27 percent in the period from 2007 to 2012.

LOST CULTURAL CREDIBILITY

In addition, and perhaps most importantly, the "big three" surf brands lost the trust of its core demographic: surfers. As Dr Andrew Warren, co-author of a forthcoming book on the surfing industry told BoF: “Quiksilver and Billabong now have a standardised approach to the product that they sell, particularly in terms of their clothing. Surfing culture, of course, has very strong counter-cultural roots. It has a particular way of looking at mainstream commercialism and it’s quite antithetical towards that. You’ve got a situation where a lot of surfers are starting to see brands they have followed for a long time move into Macy’s and other large department stores and it's led to a backlash from the core consumer.”

According to Warren, there is a new pretender to the surf brand throne, a company which started just as small as Billabong, Quiksilver and Rip Curl once were, but has very consciously positioned itself to avoid criticism of "selling out."

"Around Byron Bay [a beachside town in New South Wales, Australia] there's a brand called Afends," he said. "It's some local surfers who started a label that has become hugely popular. They have a really quirky approach to marketing where they've deliberately not sponsored any professional surfers. Instead, they tend to sponsor 'soul surfers' — those who aren't on pro tours and aren't in a lot of the popular magazines, but which have a very close association to local kids and surfers who are aspiring to live that sort of lifestyle as well."

THE END GAME

According to Lucas, the ultimate fate of each of the "big three" will look fairly similar: “They are all in the same boat and you can tell that the endgame is going to be very similar as well. They are going to end up in private equity hands; they are probably going to be stripped down, made very mean and lean, and then going to be floated, but they are certainly not going to be the brands that they were and are not going to have the strength that they had between the late 1990s and the early 2000s, when they were very strong brands.”

But action sports and youth apparel brand Volcom offers a precedent for a more positive outcome, suggested Warren: “Volcom, was acquired by the French group Kering (formerly PPR) and they were delisted in 2011. They acquired them for around $600 million dollars and maintained growth through the financial crisis."

Wary of suffering a fate similar to companies like Billabong, Volcom has battened down the hatches and focused on building a strong and credible brand. "We are tightening up our lines and focusing on a much stronger point of view... We are taking a stance on designing with a clear vision of where we need to be in the future as a brand and how we want to be perceived in the market,” said Volcom’s senior design director Jason Bleik, earlier this year.

In the first half of 2013, Volcom's sales at directly owned stores grew 19.1 percent.

“From when you look at the competition in the market, Volcom held its ground overall in the action sports industry, because it's a strong brand, but also because they can pull on different categories. They have the flexibility to say, 'We're going to attack more of the snow or skate,'” said Todd Hymel, chief operating officer of Kering's sport and lifestyle division.

"I don’t know whether that’s what might lie in store for Billabong. I think there might be a movement —particularly if it’s [acquired by] a US based equity company ­— to delist Billabong and restructure that brand entirely,” said Warren.

This morning, Billabong accepted a refinancing proposal from a group that includes Oaktree Capital Management and Centerbridge Partners. The agreement meets Billabong’s “need for immediate long-term funding certainty and a strong financial base,” the company said in a statement.

Stay tuned.