U.S. shoe firms thrive in high-quality market

Nation's Business, Feb, 1989 by Jane Easter Bahls

U.S. Shoe Firms Thrive In High-Quality Market

The gray-haired shoemaker stretches a piece of leather over a smooth wooden last and nails it carefully to the form. He wears a cobbler's apron, and he takes pride in the painstaking handiwork required to produce a fine pair of shoes.

A scene from a back-street London cobbler's shop a century ago? No, it's a shoe factory in Wisconsin today. In fact, it is the world's most modern factory for the manufacture of welt shoes, which are high-quality leather shoes whose principal parts are meticulously sewn to a leather "welt" for strength and flexibility.

At the Allen-Edmonds plant in Port Washington, computer-aided design means that producing patterns for a full range of sizes in a new style now can be done in hours instead of months. A $125,000 conveyor system moves shoes from each workstation to the next. Machines assist with the cutting, the stamping, and the drying. And yet, completing every pair of Allen-Edmonds shoes requires 212 separate steps. Many involve shaping, stitching, and polishing by hand.

Allen-Edmonds is one of many companies that can derive only limited benefit from high technology as they struggle to remain globally competitive. While the growth of U.S. high-tech industries is widely known, the survival strategies of certain "low-tech" industries such as the manufacturing of high-quality footwear have received far less attention.

The domestic footwear industry has been devastated by a flood of imported shoes priced below domestic products. The imported shoes are cheaper because of low-cost overseas labor and the subsidies for shoe manufacturing in many counties. Moreover, high tariffs in most counties have made U.S. shoes costly in those markets, while imports in the U.S. are not subject to the same tariffs.

Over 80 percent of the shoes now sold in the U.S. are produced in other countries. Hundreds of American companies, including the biggest names in athletic shoes, have most of their manufacturing done in Korea and Taiwan, where production costs are lower.

Lee McKinley, vice president of Footwear Industries of America, a trade association for shoe manufacturers, notes that although the average wage of an American footwear worker is $7.37 per hour with benefits, far below the U.S. average of $13.21 per hour, factories in Korea pay only $1.01 per hour, and those in Brazil pay 72 cents an hour.

"We've made some advances in technology, but it's hard to close that gap," he says. And while most countries exporting shoes to America impose tariffs of 25 percent or more on American imports, their companies have to pay only nominal duties on what they send here.

Nonetheless, certain American footwear companies steadfastly refuse to send their production overseas. Despite the obstacles, they've managed to carve niches for themselves in the world market. Three companies whose shoes are regarded as among the best of their type are the Allen-Edmonds Shoe Corp. of Port Washington; Musebeck Shoe Co. of Oconomowoc, Wis.; and Tony Lama Inc. of El Paso, Texas. Their experiences may prove instructive for other low-tech companies.

When John Stollenwerk and two partners purchased the Allen-Edmonds company from its founders in 1980, its dress shoes for men were said by many in the industry to be the finest to be found. But in an industry in which name recognition helps to sell the product, most consumers did not know the name, and Allen-Edmonds was losing $400,000 a year.

"We decided to go for a market niche, making the highest-quality leather shoes in the world," says Stollenwerk, an outspoken champion of the cause of the American shoe industry.

Stollenwerk updated the factories, increased wages, and gave workers more diversified tasks in order to reduce boredom. He cut costs by eliminating middlemen in his dealings with suppliers. To boost sales, he started running ads in upscale publications such as Gentlemen's Quarterly, Fortune, and The Wall Street Journal. Sales have increased from $9.5 million in 1980 to a project $30 million in 1988.

The increase is remarkable in light of the fact that the company had to start over in 1984, after fire destroyed its main plant, in Belgium, Wis. More than 50,000 pairs of shoes, most of the company's inventory, went up in smoke.

Refusing to close down, Stollenwerk informed his dealers that Allen-Edmonds was still in business. The company borrowed equipment, negotiated with another local shoe company to use its plant on weekends, and 14 days later was turning out 1,000 pairs of shoes per week--below the company's typical production level, but far above expectations for a company those plant had recently burned to the ground.

Aiming for a younger market has helped Allen-Edmonds build a wider base of loyal customers. By upgrading styling and offering new colors and types of leather, the company has reduced the average age of its customers from nearly 60 to under 40.

Stollenwerk attributes the company's current success in part to meeting a growing interest in conservative, handcrafted welt shoes, even though they sell at an average of $190 per pair. "I think the entire world has gotten more conservative," says Stollenwerk, noting what he calls a recent worldwide surge of capitalism. "There's no stigma any more to looking like a banker."