Footwear Execs Brace for Year of Transition

Footwear executives are stepping up their game in 2011.

Faced with global geopolitical and economic pressures, the attendees of the American Apparel & Footwear Association’s Annual Executive Summit in Washington, D.C., said the year will make strong companies and break weak ones.

Rick Darling, president of LF USA, told FN his big takeaway from the event was the importance of strategic partnering in today’s business environment.

“You can no longer go it yourself in a supply chain. It came out very clearly in the discussions that you have to really partner with your suppliers and figure out how to make sure the value proposition is intact,” he said. “This probably means there’ll be fewer players [in the end], and only the strong and those prepared with the intellectual equity will survive.”

Darling, who was also appointed AAFA’s new rotating chairman Thursday night, said 2011 will be a difficult year because the industry is going through a transition, from the China-driven price-deflation environment of the past three years to an inflationary period.

Speaking at Halcyon House near Georgetown University, Darling added that LF USA was well-positioned to take advantage of opportunities in the changing environment because the firm has a varied portfolio driven by the accessory and footwear business. And he made no bones about the firm’s ongoing acquisition strategy.

“Firms that might not have considered being acquired are thinking it might not be a bad place to go now. So lots of good companies are presenting themselves, and we’re pretty busy on the deal side. We’re definitely actively looking,” said Darling.

Other executives shared similar views, after being treated to seminars on topics such as geopolitical risks to business and alternatives to manufacturing in China. Of course, many discussions were tailored to finding solutions to rising costs.

“2011 will be both an exciting and tumultuous year,” said Michael McBreen, president of the global operations group at Wolverine World Wide Inc.

“We all face the same pressures, so where we have the opportunity is in creating something that excites the consumer and at the same time be more innovative in our supply chain,” he said, adding that Wolverine is focusing its energies on growing the top line, from an e-commerce and retail perspective this year.

Mike Brooks, executive chairman of Rocky Brands Inc., also said his strategy for the year is to “grow the business and look outside the U.S. market for retail opportunities in the U.K., Europe and South America.”

“Frankly, I’m looking forward to a little inflation,” Brooks quipped. “In the past, I’ve made more money when there is inflation than when there is deflation, but that’s because we have a branded business. We try to manage both recession and inflationary times. That’s the mark of a solid company.”

Darling’s view is that “until people get their arms around how to take advantage of that change and turn it into an opportunity, it’s going to be a very challenging year. I don’t think the consumer is necessarily prepared to accept a lot of the things we’re asking of them in terms of pricing increases.”

Kevin Donahue, chairman and CEO of North Brookfield, Mass.-based Quabaug Corp., summed it up, saying, “the short-term concern is about pricing, but the long-term concern is about sourcing.”

He added the key idea is that being tied too much to any one country is very risky for anyone. “Many of my better customers are making products around the world — as we are — so we’re positioned to adapt and react better to this situation than some, and that’s very positive,” he said.

For his part, Henry Tan, CEO of Hong Kong-based supply chain firm Luen Thai Holdings, said Indonesia could be the next alternative to China, as monthly manufacturing wages could be as little as a third of that in China.

“Indonesia is already the third-largest garment manufacturing country after China and Vietnam. It has a large population of close to 200 million people and doesn’t have significant industry, so there’s opportunity to grow [into the footwear space],” said Tan.

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