Walking into a brave future

March 2013

By Chris Barron Sunday Times: Business Times September 30 2012 RADICAL APPROACH: John Comley of Eddels Footwear in Pietermaritzburg PICTURE: Thembinkosi Dwayisa

While many local manufacturers cut production and shed jobs in the face of unfair competition from China, Pietermaritzburg shoe maker John Comley has shown that there is another way.

He is the CEO of Eddels Footwear, which makes 2700 pairs of leather shoes a day. He employs 385 people (from 240 five years ago). He is looking to expand production to between 4000 and 5000 pairs a day in the next two-and-a-half years, and create 550 more jobs.

Comley, 53, joined the business in 1987 as factory manager. In 2000, he led a management buyout. Times were already tough: the industry was retrenching to cut costs. Eddels, which once employed 1700 people, was down to 330. Comley decided to stop the job losses by improving efficiencies and becoming more competitive. He empowered workers by making them co-owners of the business.

On the day he took over, he gave the factory workers 5% of the shares. Today they and management, 80% of whom are ex-workers, own 39% of the shares. In addition to the dividend from their shares at the end of every financial year, there is a weekly incentive scheme through which they share whatever operational savings they make every week.

There is division of labour and staff rotation which ensures multiskilling and prevents boredom. There is on-site adult education for staff in basic literacy and numeracy, which happens inside working hours. Not surprisingly, all this has had a marvellous effect on absenteeism (which has dropped to about 2% - the sector average is three times that) and productivity. The time from when an order was taken to when it was delivered used to be 39 days. Now it is seven. Instead of pursuing a lost cause, Eddels responded to cheap imports by changing its business model. We said we're not going to compete on price", says Comley. "We will offer a totally different value equation."

The model can be summed up in two words: quick response.
"Small run, test it in the market, whatever works repeat it as quickly as possible for the retailers," he explains. It is also about forming strategic alliances with big retail partners. Eddels supplies most of the big retail chains including Edgars, Foschini, Markhams and Woolworths.

Comley, who is also the president of the Footwear Manufacturers Association of SA, believes it is a model that "should be replicated by every manufacturer in SA, not just shoes or clothing. If you're not a low-cost producer you'd better be differentiated. That is the most important thing.”

"We say to the retailer, you're going to lose on your initial input margin but at the end of the process my margin and your input margin will look the same. Because with me there'll be no markdowns, less returns, you'll always be in stock so there'll be bigger opportunities for gaining sales. We replenish by colour, by size, by store."

The downside is that it is complicated and takes a lot of work.
"Management has to be on the ball," says Comley. "It's a stressful manufacturing system. Your labour has to be flexible so there has to be solid communication between you and your customers. You've got to be in the top quartile of all the best business practices. But it can work, it does work."

He thinks local manufacturers were spoiled under apartheid when retailers had no choice but to buy from them and have been slow to respond to the challenge from the East.

"We were pretty arrogant. But the wheel turned, we opened our borders and retailers are now spoiled for choice with ridiculous prices and huge margins. We as manufacturers only saw one thing - how do we compete on price?

We didn't take a step back and see that price is only one part of the equation. "We didn't try to flex ourselves to offer a new, different value. Only lately has this started to happen." He thinks there's an urgent need for a change of mindset by both retailers and manufacturers that recognises the South African reality.

"The truth is that our business people have to realise they live in South Africa, and we can't necessarily copy everything we see in Europe or the Far East. We have our own structural, cultural and people issues.

"The only way we're going to get SA out of the quagmire it's in is to employ people who have not been that well educated by giving them jobs and reskilling them." It is in retail's interests to start investing in that, he says.

Instead of being viewed as a lost cause, the local clothing, textiles and footwear industry should be invested in as an engine of growth and prosperity. "Look what happened in the Far East. They used footwear, clothing and textiles to take their masses of poorly educated, unemployed people and bring them into the economy, earning and consuming."
The current MD of Eddels, Deena Moodley, is a chartered accountant whose father used to cut leather in the factory. He earned a pittance but used it to educate his son. Local manufacturers are often themselves a big part of their problem, says Comley. "We don't fight enough for what we want and what we need, we don't lobby the government in the right way and we come up with daft plans."

But retailers have "a huge social responsibility" to support local manufacturers by at the very least asking how they can add value. "When retailers start realising they have this huge power to make a difference to the nation and to our economy by spreading the work a little, we could end up with a winning nation."

Comley describes himself as "a passionate South African. I love this country. I don't want to be part of the problem. I want to be part of the solution." In spite of being a "glass half-full kind of guy", his determined optimism does not blind him to the structural obstacles thrown in the way of local businesses at every turn by the government. "The government is making it extremely difficult to operate in South Africa," he says.

Comley argues that a lack of service delivery, rising rates and taxes, escalating electricity and water charges, an over-regulated labour environment, central bargaining and an avalanche of illegal imports due to lax entry-point controls "create extremely tough conditions for business".

Innovative business models and progressive employment practices can only take local manufacturers so far. For the rest, he says, the government needs to come to the party.
"If we start creating employment, if we give South Africans hope, you'll see a huge change in the way people interact and behave," says Comley. He's seen it. It works.