April 11 (Bloomberg) -- Dave Murphy, president and chief operating officer of Red Wing Shoe Co., got hearty applause when he announced record earnings for 2010 -- $448 million, up 12 percent from 2009 -- at this year’s shareholder meeting in Red Wing, Minn. But the announcement that got the roughly 150 shareholders out of their seats for a standing ovation was not about dividends or returns. It was the 315 employees the company hired in 2010, bringing head count close to 2,200 today.
In an era of downsizing, offshoring, and outsourcing, this century-old, closely-held shoe manufacturer still buys cattle hides in Nebraska, tans them in St. Paul, and turns them into work boots in Kentucky, Missouri, and Minnesota. Eschewing big box retailers, Red Wing distributes its industrial footwear, hiking boots, and casual shoes through nearly 500 company-owned and independent dealerships: old-fashioned shoe stores with sales people who sit with customers, measure their feet, and fit shoes one pair at a time.
Yes, it is costly to use U.S. products and labor, Murphy says, and with the company’s revenue largely dependent on blue-collar trades such as construction workers, telephone linemen, miners, lumberjacks, and longshoremen, Red Wing felt the pinch during the recession. In 2009, it went to a four-day work week, froze raises, scaled back its second shift, and offered voluntary retirement packages. But sales have rebounded in the past nine months, Murphy says, and the company is doubling down on its service-based strategy, with plans to add 125 new stores over the next five years.
Red Wing does not take a counterintuitive path for tradition’s sake. “There are very good business reasons, that give us a strategic advantage,” to manufacture or assemble 60 percent in the U.S., says Murphy, who was brought on as president in 2001 after a 23-year career with General Mills. The business “considers our commitment to U.S. workers very seriously. We do it this way because it’s the right thing to do.” With 1,100 employees in Red Wing, a city of about 6,500 southeast of Minneapolis, the company is the area’s biggest full-time employer.
SPOTLIGHT ON SERVICE
While Red Wing is a small player compared to its major competitors in the nearly $40 billion U.S. footwear industry, it’s among the leaders in direct-to-consumer retail sales in the occupational and safety sector, which makes up about 5 percent of the total market, says Marshal Cohen, chief retail analyst at the NPD Group, a Port Washington (N.Y.) research firm. He applauds the company’s focus and strategy. While old-fashioned shoe stores may feel “like a relic these days, customer service is going to become the great differentiator” for successful brands, Cohen predicts. “It’s not about making big money through retail, but about the brand association,” an insight that he notes has not been lost on such brand-conscious companies as Apple.
The 285 independently owned Red Wing Shoe Stores are dealerships, from which the company collects no franchise fees, no marketing fund contributions, and no royalties on their sales. “We don’t care about making money off of franchise fees,” Murphy says. “We have retail outlets solely to service our customers. Our goal is to provide great service through great dealers. We don’t want to saddle them with fees that make it harder to do their job.”
Red Wing offers training, financing, and advice to new dealers. It also encourages existing dealers to expand. Esau Fregoso, 46, started as a Red Wing store manager in Southern California 19 years ago and worked his way up to regional manager before purchasing his first Red Wing store in 2008. He used savings and retirement money to buy the $200,000 dealership, with financing help from Red Wing, and now owns three stores in San Diego County. Fregoso, a native of Jalisco, Mexico, says company sales analytics help him purchase inventory, and company-provided online training has been invaluable for his employees.
GOING TO THE CUSTOMERS
Along with the dealerships, Red Wing’s distribution model includes roughly 3,000 independent retailers and direct sales to nearly 2,000 corporations that contract with Red Wing to outfit their workers. The company also operates 200 trucks that function as mobile shoe stores, with a heated fitting area and room for 1,000 pairs of shoes. The trucks visit auto plants, construction sites, and steel mills on a regular schedule, spending four to 16 hours on site, fitting employees for new boots and shoes.
Using the company’s private plane, Murphy travels about three times a month to visit industrial customers -- factories and others that buy thousands of pairs for their employees, ride along with mobile stores, and drop in on dealers, sometimes unannounced. At a recent stop in Denver, he says, he lurked in the aisles as a newly hired Comcast lineman walked in. “Our store manager immediately brought out the shoe the customer needed, and he was able to explain why the shoe fit the requirements for standing on a peg on a telephone pole.”
Because they sell so many different shoes that have specific properties for specific industries, it’s pretty tough to expect non-Red Wing clerks to know every shoe, says Murphy. He says investing in customer service helps bolster the kind of brand image Red Wing wants to build.
Red Wing’s line of casual work boots has become a hot seller in Europe and Japan -- 85 percent of their casual shoe business is done outside North America among white-collar, 18-to-35-year-old men who wear them after work with expensive jeans. “Our overseas clients who want this authentic, American brand look out my office window and see the great Mississippi river, the river they know from Mark Twain, and that is a big selling point for us,” he says.
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