Thursday, 30 April 2015

Rebooting Australia’s footwear business

Five years after footwear tariffs were cut to 5 per cent, two of Australia’s iconic family-owned boot makers are starting to make real headway as exporters … out of Asia.

Blundstone and Baxter Boots still make some boots in Hobart and Goulburn respectively, but most are now made in China, Vietnam and India, and Blundstone has just opened a factory in Mexico for the North American market.

But, to an extent, that’s the story of Australian manufacturing: under the shelter of tariffs, we had factories; now we have brands, which is something at least.

RM Williams and Rossi Boots are still manufactured in Australia, but Blundstone and Baxter are in the process of becoming pure global brands.

The two businesses are vastly different in size — Blundstone is making more than two million pairs of boots a year, heading rapidly towards three million through expansion in the US, while the Baxter family’s operation sells just 90,000 pairs. But each company has a rich family heritage.

Baxter was one of the earliest Australian businesses, full stop, and was certainly the first of the surviving bootmakers. It began as William Teece’s boot business in 1850 in Goulburn, but he went broke and the business was bought by Henry Baxter in 1885.

Henry had made a fortune from clay pigeon shooting, of all things, and bought the boot business before settling down and having eight kids — seven boys and one girl. All of the boys went into the business and became equal shareholders, but back to Baxters in a minute.

Blundstone was also formed out of an acquisition, but in this case the buying family — the Cuthbertsons — decided to use the Blundstone name rather than their own. That’s because there were two businesses in Hobart called Cuthbertson.

The Blundstone family had started making boots in Hobart in 1870 and got into trouble in the Great Depression in 1932. They sold to the Cain family, who also got into strife fairly quickly, and they sold to the Cuthbertsons, who had been making boots for about as long as the Blundstones.

Harold Cuthbertson took over as managing director in 1953 and ran the business successfully for 51 years. It’s now owned by his two daughters, who prefer to stay well in the background, and managed by a 20-year veteran of the business, Steve Gunn.

Harold Cuthbertson actually started exporting Blundstone boots in the 1960s when he had an unexpected surplus of stock. His general manager at the time had some contacts in Papua New Guinea and they shipped some boots up there.

In the 1990s travellers to Australia started buying the elastic-sided work boots as leisure shoes and taking them home, so orders started coming from the US and Europe, but with all production still in Hobart the company wasn’t able to service that demand.

In 2010, the Textile, Clothing and Footwear (TCF) tariff was finally cut to 5 per cent, and with Blundstone under professional management after the death of Sir Harold (as he had become), the firm decided to shift production offshore and go for it.

To begin with, the main contract was with a factory in Thailand, with some production in India and China. The Thai producer has now moved to Vietnam and Steve Gunn says production has begun in Mexico as well.

The business is selling two million pairs of boots a year into Israel, Canada, Europe, Britain, Scandinavia and the US, but it’s the US where Gunn expects to quickly get sales up to three million pairs.

If Gunn can do that, Blundstone should have gone well past RM Williams, Australia’s most successful boot brand, in sales. According to its 2014 annual report, RM Williams’ sales last year were $128.2 million — largely clothing these days — for a net profit of $2.2 million.

By the way RM Williams is now owned by L Capital (which is part of the Louis Vuitton group) and Industry Funds Management, having been sold by Ken Cowley, the former managing director in Australia of News Corporation, which is the publisher of The Australian and Business Spectator.

Gunn won’t tell me what Blundstone’s revenue is in dollars, but it must already be more than RM Williams if it’s wholesaling two million pairs of boots a year that retail for around $150.

As for Baxter Boots in Goulburn, it’s selling 90,000 boots a year for $5 million, and doing quite nicely. Fifteen thousand of them — the higher quality riding boots — are still made in Goulburn and 75,000 are made in China.

These days the business is managed by Marshall Baxter, a fourth-generation descendant of Henry, and owned by him and his two sons, but there have been some ups and downs along the way.

Around the time Harold Cuthbertson took over Blundstone in the 1950s, Doug Baxter, one of Henry’s many grandchildren, took over management with his cousin Brian working alongside him.

Eleven years later, Baxter was producing a record number of boots, but losing money: the product was not costed properly, and the business went into administration.

The administrators — the splendidly named Frank Jacket and John Steel of Yarwood and Vane in Sydney — put Brian in charge, along with his son Marshall.

In 1979 Baxter Boots finally came out of administration after 17 years of John Steel teaching Brian and Marshall Baxter about the mysteries of cost accounting. The two of them had to go up to O’Connell Street in Sydney every month with the profit and loss statement and watch while Mr Steel went through it line by line, barking at them frequently.

“He was a wonderful, but tough, mentor,” says Marshall.

Brian and Marshall also decided that 26 shareholders, as it was then, were too many so they bought the rest of the family out — for $50,000.

Brian immediately got carried away and paid too much for a nursing shoes business in Melbourne called Rampling and Hall, which was going broke at the time. The acquisition never really worked, and so in 1984, Baxter Boots went broke again, this time going firmly into receivership.

Young Marshall, then 27, had to go to Melbourne and sack all the Ramplings staff and auction off the equipment. When he got back to Goulburn there was a $250,000 secured debt to Westpac and $600,000 owed to unhappy, unsecured creditors.

There followed a tough few years. Brian and Marshall worked hard making boots and eventually paid off Westpac in 1986. Two years later they were able to get a loan from Commonwealth Bank to pay the unsecured creditors 30 cents in the dollar, and once again brought the business out of receivership.

“We’ve had more starts than Phar Lap,” laughs Marshall now.

His father Brian died last year and left his 80 per cent of the business to Marshall’s two sons, Toby, 28 and Harry, 25. Toby is a banker in Sydney and Harry has just started working in the business — “starting at the bottom”, says Marshall.

Baxter sells a lot of boots to the armed services in Australia, as well as police forces and emergency services. The company’s traditional market is through the pony clubs and saddleries, and has recently moved into Blundstone’s traditional work boots space.

And the Baxter family is now following Blundstone into the export market, in particular the US.

Marshall says business is still tough, but they’ve got no debt now and are making a decent profit, especially since the dollar has fallen.

The Button Plan in 1980s and the cuts in tariffs and industry assistance in the 1990s and up to 2010 were designed to make Australian manufacturing globally competitive, and for many that’s what happened.

It’s just that they did it by manufacturing somewhere else.
http://www.theaustralian.com.au/business/opinion/rebooting-australias-footwear-business/story-fnp85lcq-1227327822572

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