Fear and loathing in the shoe industry. Notes from a small business. Day 5457.

When sales are strong, then all the cracks are hastily papered over, the misunderstandings forgotten, the inter-personal nastiness justified, imperfect quality product deemed to be?good enough, budgets ignored ('they claimed for a ￡300 bottle of wine in their expenses?!' 'Oh, but just look at their sales figures') and pretty much anything standing in the way of the feel good, strong sales vibes is lightly brushed away and out of site. Because life is good, right?

The ￡300 bottle of wine example is an actual event, expensed in Hong Kong whilst wining and dining a big retail customer. No questions were asked because this was one of the highest performing salespeople. The finance team raised their eyebrows and worried about a profligate culture, but they were shush-shushed by the sales director and told not to be party-poopers. Dinners during buying trips at top Hong Kong restaurants would be commonplace, Aqua-Roma and Felix’ eye watering receipts signed off under the justification of essential business-driving hospitality. A vastly expensive sales office on the Canton Road deemed essential when a larger unit (sans view of Hong Kong Harbour) was available in the less fashionable Mong Kok area. The darker side of oiling the wheels on the order generation machine could look like new televisions and jewelry turning up at buyer’s home addresses, or designer footwear from Gucci, Prada, Louis Vuitton or Ferragamo arriving on their desk, all in their size. To the open secret of a how a buyer on a mid-level salary could afford a million-pound house and a boat. The slightly higher price that was always paid to a favoured supplier, a portion of which that never found its way to the factory balance sheet, instead worming its way back to the buyer through unknown channels, to be squirrelled away into their personal wealth fund. All of which went unquestioned, because life was good.

The other side of the feel-good factor would fall to the supplier. When times were good, the price negotiations were that much softer and more humane. All of their newly developed product was amazing and would be talked about in sign-off meetings in excited exchanges — 'trial it!' 'get it booked!' The product scrutiny would be lighter because of the prevailing Midas-touch of this retailer and how they could not put a foot wrong. Even slightly below-par bulk quality would be met with a blind-eye, because it was selling, right? Huge new retailers arrived to make the old cheap look expensive and force the baseline lower than seemed possible. Their product could literally be falling apart in your hand in store, but it was so damn cheap, and it was selling, right? The quality standard across the supply industry was challenged, ‘We need you make it as cheap as them’ was the siren call. Concerns about industry observed minimum standards were scoffed at. We talked not about?best practice?but instead about being just?good enough. I was asked on more than one occasion, ‘how cheap can you make this style?’ Because driving volume and staying in touch with the baseline-droppers was what it was all about. Feed the beast, drive the numbers, grow, grow, grow!

On many occasions, even within our own business, I watched as strong sales informed a lesser focus on day-to-day cost management and how the race-to-the-bottom changed acceptable standards of shoe making to enable product to be crowbarred into previously unattainable (sometimes laughable) retail selling prices. The end-user wanted an endless conveyor belt of cheaper product, a one or two-time use would often suffice. I watched a customer come into the previously referenced huge retailer, take off their old faux suede desert boots (supplied by us) leave them on the shop floor, put on a new pair and go to the till to pay for them. All for the cost of less than a round of decent coffee. And still the numbers grew.

As the rise in discount retailers grew with a seemingly insatiable public appetite for disposable product and illogical prices, and online fast-fashion retailers burned ever brighter, the collateral effects drove baseline quality levels ever lower, price-point trumped design and the standard of end product being served up the British consumer fell to its lowest standard in decades. But it was still working, until it wasn’t.

It is too simplistic to just point the finger at Covid. But it was at the very least a catalyst for change. We witnessed 75% of our factory base in China go bankrupt in one month after 90% of our order program was cancelled in the same period (suppliers offering sports, sliders, slippers and loungewear fared a lot better) so the ensuing pressures are obvious. Cheap borrowing had allowed many retailers to become dangerously exposed so that when the sales tap was turned-off they just disintegrated. Some retailers were honourable and paid for all cancelled stock, some paid, but not until two years later, long after the factories were gone, and some just walked away without a backward glance.

The melting pot that followed produced a rapid rise in guerilla brands, born out of bedrooms as people worked from home and utilised their time to create something new. This caused an explosion in choice and a permanent change in what it meant to be a footwear brand. Retailers shuffled through mountains of stock and, as the tap started to slowly open, the sheer volume of unremarkable product that they had purchased became apparent. They started to slowly reassess what they were putting out into the public domain. A rapid clear-out of the weaker retailers followed as they quickly fell, leaving a trail of broken promises and factories in their wake. After the initial bubble of spending followed the feel-good buzz of a return to normal, so other factors gradually came into play to spoil the party. A war in Ukraine and a surge in energy prices, a disastrous budget which fast-tracked an impending interest rise spike. Raging inflation off the back of hugely pent-up market and a newly well-informed, much more discerning and review-driven public, were served with a vast amount more choice from which to spend their diminishing disposable income. For the bland faced legacy retailer, things were starting to get sticky.

What followed was a race away from the bottom. In order to address matters of huge public interest including sustainability and transparency, the optics of retail and retail buying would require a sharp adjustment.

A backward glance at the?good times?felt like looking at a world in which we were never a part of. Such was the time-distorting effect of the covid years, and such was the intensity of the cultural shift and the change in consumers buying habits and expectations, that anything pre 2020 seemed as though it has happened ten years ago rather than two. My contention is that we were all guilty of feeding the belly of a malevolent beast, of chasing price over design and quality, of being distracted by low-cost retailers’ commoditization of our industry and of not paying enough attention to the burgeoning landfill sites that we were rapidly filling up. Whatever the reasons for this, the inevitable recriminations followed. A drive on quality was rightly prioritised, some would invest in this, others simply expected more for less. This was a competitive space after all. The good times were firmly not here any longer.

The company sponsoring the Hong Kong jollies was long gone, customers were not taken to Hong Kong at all, dinners instead taking place in a local Chinese hotel if at all. The ￡300 wine budget would cover the total meal for twelve, set around the spinning tabletop with the even number of dishes and the theatrical fish closer. Hong Kong was not visited and there was certainly no large office to visit whilst sipping Pacific Coffee with friendly buyers. As for the new televisions and jewelry, I have no idea as this has never been our domain. I said from the moment I launched my business that if I had to buy anyone’s business I would pack up and go home. Because it is critical for myself and my team to be able to look back on our careers with a sense of pride. There would be things we could have done better and mistakes we wish that we had not made, but there would always be integrity even in our hardest times and even when we were faced with blatant corruption. One example of dark practice took place over a three-month period with a large Northern Retailer. I had been called in to meet the Buying Manager in June to be told that we should prepare to double our business levels due to our great product quality and performance in store. This was the type of meeting we all like to have. We set about communicating this to the supply base and getting all parts in motion for the pending growth. By August however, a new buyer had joined, accompanied by his special supplier. Within that same month we received an email from the Sourcing team telling us that our services were no longer required. No explanation was given, and we were left to speculate that our service offer did not include enough buyer add-ons to merit future trade. I have no idea whether the darker practices still take place within our industry, I would like to think that they would be routed-out by responsible retailers but worryingly, the anecdotal evidence does not support this.

The final reckoning in this not-so-good-times period is the fight over responsibility. There has followed huge upheaval within the teams of the retailers who have fared the worst through covid and its after-effects. The pressure-cooker and inevitable micro-management of the selection and trading process has left many good people exhausted and fleeing the industry. No one wants to work in an atmosphere of finger-pointing, where the work that you were celebrated for yesterday brings sharp criticism and questioning today. New teams with no loyalty to the old teams, and in some cases no loyalty to a previously valued supply base, simply wash their hands of the legacy stock and current benchmark quality levels, ‘what were they thinking of?’ they say as they mock decisions made by their predecessors: decisions that were rightly based on several years of established trading patterns. Decisions that were signed-off all the way up the food chain. Yet decisions that today are retrospectively derided as naive and unfathomable by a new cohort, tasked with change and desperate to distance themselves from any blame for the mess they have inherited.

The opening item on my to-do list on my first day as Managing Director of a large retailer would be to mandate some essential cultural change. The practice of eviscerating the work of the previous incumbent in any given role would be eliminated. It was our company that employed the predecessor, and in the absence of gross misconduct, we should honour their work in which we were complicit. A renewed focus would be placed on evolution rather than revolution. The concept of everyone in the food-chain taking responsibility for past decisions would lead to a far healthier team response to tougher trading periods where previous successes inexplicably stop working. In the same vein, the assessment of long-standing suppliers would be more measured. A supplier may well have become lazy and their relationship with the team may have led to an undeserved swelling of their share of buy, they may be trading on past successes and their quality of output may have gradually tailed-off, unnoticed until it was too late. But often, they are simply part of the old furniture and subject to throwing out. It might be that their quality levels have dropped in line with a trajectory of price depreciation and the once shared goal of seeing how cheap a product could be sourced. This process would be subject to change, the implicitness of our company in building our suppliers would need to be weighed and any future implied business carefully considered. A more robust supplier assessment system would be central to the allocation of budgets and our buying teams would be supported with professional training on how to critique a supplier in a proactive manner, to ensure consistently high service levels. Good buyers and good suppliers do not go bad overnight, and our first focus in navigating periods of duress must be directed towards the mechanism and the culture that sits behind them.

This is not to say that in many cases a department does not require a full refit of all resources, but too often the concept of a collaborative path to improvement is not even discussed. An experienced supply base, due to the shared experiences of good and bad times may, if engaged with openness, respect and a clear sense of direction, have a big part to play in any future plans. The tendency to conflate legacy issues onto an image of a misguided buyer and an incompetent supply base is both lazy and wasteful. We all want the grass to be greener but if we value experience and we are prepared to win and lose together, it might be that we already own the resources needed for success, we just need to learn how to get better at weaponizing them.

A climate of fear and blame is not conducive to growth. For the challenges that lie ahead, we will require all of our collective experience.

If the themes of this article resonate with you, please reach out to us www.phoenixfootwear.co.uk