The Last of the Big Shoemakers Is it madness to make men's shoes in the U.S. when most plants have closed? Not if the company is Allen Edmonds, with its firm foothold at the top of the market.
(FORTUNE Magazine) – Look down. It's almost a cinch that whatever you're wearing on your feet wasn't manufactured in America. Of the 1.3 billion pairs of shoes sold annually in the U.S., fewer than one out of 20 is made here. If you've just come in from tennis or jogging, it's a near certainty that your shoes are imported. Among the big athletic shoe companies, New Balance is still running some U.S. plants, but even it imports 90% of its shoes, mostly from China. Says an official at the footwear industry's trade association, which counts 775 shoe plant closings in the U.S. since 1967: "Every shoe company in the U.S. is an importer."
There's still a small chance that you're wearing American if you're a male shod in boots, work shoes, or moccasins. A few companies, notably Red Wing and Sebago, make those in Minnesota and Maine, respectively. But when it comes to men's dress shoes and loafers, even a price north of $100 no longer means, as it once did, that they're made in the U.S. Cole-Haan closed its last U.S. plant in 1999. Only one Florsheim model, its classic wingtip, is turned out in the U.S.--though not in a Florsheim factory, the last of which closed more than a year ago. While Johnston & Murphy has a couple of U.S. factories, it imports four out of five pairs sold under its brand name.
At the very top of the market, however, there's a notable outlier: Allen Edmonds Shoe Corp., a Wisconsin company solely owned, rescued from oblivion, and a bit idiosyncratically led by 60-year-old CEO John Stollenwerk. In the face of a stampede of shoes arriving on these shores from, in order of importance, China, Brazil, Indonesia, Italy, and other spots, the company profitably turns out more than 95% of its shoes in either Wisconsin or Maine. The exceptions are a few thin-soled, dressy slip-on styles from Italy. Indeed, Stollenwerk not only perseveres with the seemingly outlandish idea that he can prosper making shoes in the U.S. but is also showing that he can capture a significant amount of export business.
Last year Allen Edmonds shipped around 600,000 pairs of shoes worth some $70 million, including about $10 million in exports. The company also took in $20 million or so in revenues from other sources that include cedar-wood shoe trees and similar items made by a subsidiary, and brand-extending belts, ties, and hosiery made by others. Independent shoe stores and department stores account for two-thirds of Allen Edmonds' U.S. sales; 23 company-owned stores sell the rest. Nine of them are flag wavers on prestige shopping streets in major cities. The rest are factory outlets carrying seconds and overstocks, which are sited a good distance from retailers carrying the line.
Stollenwerk has survived as one of the last to stick to his last in the U.S., not so much by carving out a niche as by creating one at the very top of the market. Though Allen Edmonds once made a brief foray into women's footwear, it now makes only men's shoes--for those with a lot of disposable income. The average retail price of a pair of men's shoes in the U.S. is about $50. A pair of Allen Edmonds loafers can easily set you back $230. The company's dress shoes average $275. Go for the alligators and hit the credit card for $1,600.
Those high prices notwithstanding, Allen Edmonds grew through the 1990s in a relatively flat market and thus appears well insulated from the effects of the current economic slowdown. In fact, it has been expanding. Its five U.S. factories include two about to be replaced by much larger quarters. It differs from rival shoemakers in other ways too. For those that build cheaper shoes, labor is a big part of costs; at Allen Edmonds the big factor is raw materials. Leather alone probably represents about 60% of the "cost of goods," a term that also includes labor, overhead, and depreciation. Labor accounts for about 15%. That's despite average hourly factory pay of around $12 for the company's non-union work force--highly skilled workers get about $16--and a benefits package that is better than average.
The manufacturing process, moreover, is all hands-on. Except during a quick trip through a drying oven, the leather is held and guided by the hands of a skilled worker at each of the some 150 steps involved in making an Allen Edmonds loafer or the 212 that it takes to turn out one of its dress or street shoes. The plants are cleaner, better lighted, and surely far better laid out than shoemakers' plants were decades ago, but at this company it's still just fine leather, skilled men and women, and simple machinery.
That's just how it was back in 1922, when Elbert W. Allen launched the company in Belgium, Wis., to make men's shoes by the Goodyear welt method. In this process the top and sole are separately sewn to a welt, or a thin, folded strip of leather that runs around the circumference of the shoe. The method increases comfort and durability. Allen went a bit further, modifying the process with a then-patented, still-used approach that eliminates both nails and the metal shank usually found in the instep. As a result, the shoe flexes easily and is even more comfortable.
Because of the welt construction, the entire bottom of the shoe can be replaced by simply unstitching it from the welt. In recent years Allen Edmonds has built a profitable sideline, "recrafting" 4,000 pairs of its shoes a month for customers who pay $92.50 to get back a pair close to new. Stollenwerk, ever the salesman, calls this a bargain that goes a long way to offset the high initial price.
After Bill Edmonds became a partner in the late 1920s, the company survived the Depression, World War II, and the post-war accession to management by the founder's sons after his death in 1946. But by the late 1970s, Allen Edmonds was struggling. Quality had dropped, reputation had faded, and profits on what was then about $9 million in annual sales had dwindled. Enter John Stollenwerk, a big man with a ready broad smile who is never so busy he can't find something else to do.
Have a sandwich with Stollenwerk and he'll soon busy himself cleaning up the table while continuing the conversation. Besides running the shoe business, he is a director of five other companies and volunteers at 13 charitable organizations. In his youth, he went to Marquette for a bachelor's and master's in communications arts, and then joined the papal peace corps in Latin America. In time he acquired an export consulting practice in Milwaukee, which led him to Allen Edmonds.
In 1979, Boyd Allen, the last of the founder's sons in the business, decided he needed help with a German trade show and brought Stollenwerk along--and then surprised him over a brewhouse dinner. Recalls Stollenwerk: "He said, 'You're so enthusiastic about this business, why don't you buy it?' " Manufacturing shoes was one thing Stollenwerk had yet to try, so Allen's suggestion was as intriguing as the company was troubled. Discussions went on for nearly a year until Stollenwerk found some partners he would later buy out and got support from a bank that was worried about its advances to the company and welcomed new management. He took over in 1980, determined to rebuild quality, reputation, and sales. Four years later he was beginning to make headway when, on a 25-below, fire-hose-freezing January night, the headquarters plant caught fire and burned to the ground.
Stollenwerk had plenty of options. Allen Edmonds had just rewritten both fire and business-interruption insurance. He could have joined the mass migration by shoe companies to foreign sourcing already under way at the time, encouraged--some would say forced--by a reduction in tariffs on imported shoes. He could also have moved production to an area in the U.S. with lower labor costs; news of the fire had caught the attention of development agencies in other states, which made overtures.
However, founder Elbert Allen had long been quoted as saying that his secret was "I get the best leather I can buy and the best craftsmen I can find." Stollenwerk could get leather shipped to any location. Nowadays Allen Edmonds has to import the calfskin used in most of its shoes from Northern Europe; partly because of the high cost of environmental compliance, the last U.S. calfskin tannery closed in 1993. But Stollenwerk couldn't replace a skilled Wisconsin work force, which includes many men and women who have spent their adult lives making shoes. At that time, for example, the company's payroll included 19 Bittners, all related.
On the Monday after the fire, Stollenwerk gathered his employees together in a small subsidiary factory in nearby Lake Church, where the company has a cut-and-sew operation, in which leather pieces are cut from a hide and sewn into uppers for finishing at the main plant. Because the factory was unaffected by the fire, the company's nearly irreplaceable cookie-cutter-like dies for cutting pieces out of leather had been spared. In the meeting Stollenwerk calmed fears by pointing that out and, after asking employees to raise their hands, noted that they also still had what was most important to the business: those hands and the skills at using them to make shoes.
Stollenwerk was soon running ads promising customers "We'll be back on your feet in no time." By 1986 the current main plant and headquarters office had opened in Port Washington, not far from the original site, and Stollenwerk was back on the road touting quality and his ability to shoe almost any man, regardless of the shape of his foot.
By industry standards Allen Edmonds has a limited line: 87 styles in the current catalog. But nobody offers such a huge range of sizes and widths: 164 size-width combinations, spanning sizes 5 to 18 and widths from AAAA to EEE. Multiply styles by size-width combinations by types and colors of leather, and you get some 22,000 SKUs, or stock-keeping units. No competitor relying on foreign sourcing--and, thus, three- to six-month order cycles--could afford to carry inventories that deep and that long. Allen Edmonds can keep its sizable inventory--about $10 million in finished and boxed shoes--from getting out of hand because the production line ends at the warehouse. It can cover shortages in weeks, not months.
In the 1990s, Stollenwerk found plenty of challenges to satisfy his need to keep busy. The most important was the shift in men's fashions when Casual Friday took hold and then crept back toward Monday. As the market for classic dress shoes started to contract, the company reacted in 1994 by introducing "corporate casuals," slightly sporty versions of its standard product with composition or rubber-lugged soles. It also turned to Maine Shoe in Lewiston, Me., for what the industry calls "hand-sewns," moccasin-style shoes including what you and I call loafers.
Formed like the moccasins you whipped together with rawhide back in Scouts, hand-sewns have a U-shaped piece of leather, a so-called plug, which is the top front, and which is sewn to the sides, or vamp. Unlike all the other steps in the Maine and Wisconsin plants, in which leather is sewn to leather on machines, the plug for true hand-sewns is, indeed, sewn by hand with needle and thread without benefit of punched holes or guidelines. Hand-sewing shoes has a long tradition as a trade in Maine, passed on from one generation to the next along with other cobbler skills.
By 1998, Allen Edmonds was taking so many pairs of hand-sewns that both sides agreed it would be best if it bought Maine Shoe. Then making about 200 pairs a day, the company now has a satellite plant in Wilton, Me., has tripled daily output, and is moving across the street into a larger building.
With the help of corporate casuals and hand-sewns, Allen Edmonds' sales grew some 10% annually through the 1990s. Though the company doesn't disclose profits, Ronald W. Neuman, chief operating officer, says it has posted increasingly higher record profits in each of the past five years. Sales of standard leather-soled styles have recently been recovering. Not that blue suits, white shirts, and conservative ties are recapturing corporate America, but Allen Edmonds and others in the higher-priced men's shoe business, such as Bass and Johnston & Murphy, are profiting from a return to more conservative fashions.
The biggest question now before Allen Edmonds is how to continue to staff, let alone expand, a factory operation in the U.S. that relies so heavily on skilled workers. Those workers' children are going to college or are finding ways to make a living other than standing at a manufacturing station for an eight-hour shift. That Bittner family is now down to eight on the payroll, including Willie, who is 77 and in his 60th year with the company.
Allen Edmonds employs about 800 people in Wisconsin and Maine, including some 500 in manufacturing. More need to be found and trained if expansion is to continue. But until recently the unemployment rate in the Milwaukee suburbs was down toward 2%, and even the city's manufacturing-minded technical community college has long since dropped its courses in shoemaking. Allen Edmonds has dug out the old course materials and plans to start its own classes. And in a 1998 "Mohammed to the mountain" move to get more workers, it opened a satellite cut-and-sew plant about 28 miles away in downtown Milwaukee, where leather parts are cut and sewn into uppers, which are sent to Port Washington.
Cutting is critical. Profits can disappear if maximum use isn't made of each hide, which is supposed to yield enough leather for seven pairs of shoes. But it was the sewing workers who attracted Stollenwerk to downtown Milwaukee. Allen Edmonds had been hiring mostly Hispanic workers in the central city and transporting them to the suburbs in a company van, which it still does. However, it was losing them after training if they found work closer to home. When a garment business in central Milwaukee closed, the company gambled on starting a small plant in the neighborhood to capitalize on the local population's sewing experience.
Progress downtown did not come without pain. An error in sewing cloth can be remedied by pulling out the thread; needle-pierced holes in leather are there to stay. But with time and training, the Milwaukee plant caught on. Having started with 30 workers, it now has 100 on two shifts earning about the same as their co-workers in the suburbs. Convinced that he has found one answer to his labor problems, Stollenwerk has purchased a five-acre brownfield site and a former tallow factory a mile or so from the downtown plant. At a cost of $6 million, the old factory will be demolished and a new two-story plant will open next year. Starting with 150 workers, COO Neuman says, it could eventually employ 200.
Out in the marketplace, things are also changing--and having an impact on production. Independent shoe stores are closing their doors, increasing the importance of first-line department stores such as Nordstrom, which is already Allen Edmonds' biggest customer. To increase those sales, Chris Lanagan, the company's supply-chain expert, is selling the concept of "co-managed inventory." When customers become a bit more computer sophisticated, the approach will morph into "supplier managed," meaning by Allen Edmonds. The idea, now as well as later on, is to get the stores to carry more breadth and less depth--more styles, but fewer pairs in each size and possibly none at all in the odd sizes. As needed, they can fill in directly from the factory's inventory. When the new system was tried at a number of Nordstroms, says Lanagan, "I was looking for a 10% to 15% increase in sales." Instead, sales at some stores jumped by 30% to 40%.
To keep the inventory under control and still be able to ship quickly to replenish store stocks, the factories have had to reduce their cycle times. So far plant managers, who are just experimenting with techniques of lean manufacturing such as cell production, have cut start-to-finish time from 22 to ten days. Response time is a good deal shorter for the special orders Allen Edmonds gets from the White House, Hollywood, and elsewhere.
Stollenwerk hasn't forgotten his early experience with exports. Some years ago, when he learned that the Japanese had invited European shoemakers but not Allen Edmonds to a trade show, he tucked samples under his arm, hollered for help from his trade association and the U.S. State Department, flew to Japan, and crashed the party. The Japanese are now customers, particularly for golf shoes, a line in which the latest hot item is a near copy of a 1930s shoe repopularized by the movie The Legend of Bagger Vance. But it's the Europeans who have been most responsible for a doubling of export sales in the past five years. Germans, the best customers, appreciate a 212-step manufacturing method; the Italians buy for the stylishly solid, macho look.
This spring Allen Edmonds has two problems. One is a looming shortage of quality leather. Skins aren't saved when European herds are destroyed to block the spread of foot and mouth disease. The number of healthy cattle slaughtered is also declining because Europeans, fearful of mad cow disease, are eating less beef. Stollenwerk thinks he'll still get all the fine calfskin he needs. "What will change is the pricing," he says.
That could mean higher prices just when U.S. demand for consumer products is faltering. In a slowdown, will $300 shoes be an easily deferred purchase? "Never," says Stollenwerk. "Do you think we're dealing with people who are gonna start taking the bus?" Besides, he adds, even if customers don't buy a new pair, "they'll send in the ones they have for recrafting and we'll be further ahead. The margins are better."
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