China

The iconic New Zealand brand Swanndri has been bought by Christchurch apparel company Longbeach Holdings for an undisclosed sum. Longbeach, fully New Zealand owned, is an apparel supply specialist with operations in New Zealand, Australia, South Africa, UK and China.

It has been working with Swanndri for the past two years including developing new innovations in fabrications and styling.

Swanndri chairman Bryan Pearson, said the board and management of Swanndri had spent the past four years repositioning and growing the business. Two years ago Swanndri, which brands itself "a New Zealand legend,", decided to shut its Timaru factory and manufacture in China for economic reasons. "We all felt the time was right for a major company like Longbeach to come in and take Swanndri to the next level," Pearson said. "Longbeach has the expertise and infrastructure to support further growth of this great kiwi brand in New Zealand and international markets."

Longbeach chairman, Ken Sparrow, said it was a great deal for both companies and the Swanndri.

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CAPTION: NEW HOME: the Swanndri brand, which features designs by Karen Walker, has been bought by Christchurch firm Longbeach.

The future of clothing company Norsewear hangs in the balance, its owners saying they will decide this week whether to sell and sources saying the deal is already done and production may move to China.

The farming and ski wear clothing company celebrated its 40th birthday this year and has stressed in the past that it is a "Kiwi-made" company.  Norsewear exports clothing and many apparel companies, including Swanndri and Wellington-based Icebreaker, have already moved manufacturing overseas because of a high Kiwi dollar.

Norsewear director and managing director of Burleigh Evatt, the company's majority shareholder, Ian Fitzgerald said a final decision would be made this week but declined to comment further.  Sources said the company had been sold and plants in Wanganui and near Dannevirke might be closed and manufacturing moved to China.

Each factory employs about 30 staff.

A National Distribution Union official said it was told an announcement was due tomorrow.

The former owner of Barkers Men's Clothing, Ben Nathan, is understood to be the buyer.  Mr Nathan set up a company called Norsewear Brands in mid-July.

WHEN WE last featured Cambridge Clothing, back in 2001, it planned to keep manufacturing in New Zealand “as long as it makes sense”. Six years on, it makes less sense than it used to. Last year the company had 25% of its output manufactured in China and that figure is expected to rise to 50% this year, due to what Cambridge’s marketing manager Kim Macky calls “the changing shape of the marketplace”.

Outsourcing to China has resulted in its now 250-strong workforce being cut by about a fifth. The good news is the company continues to utilise its Auckland manufacturing plant for its own designs, and also contract manufactures on behalf of others, which now accounts for about a quarter of its output. “All the manufacturing plants in Australia have closed now so our manufacturing plant in Auckland has been very busy although it’s coming down from a high 12 months ago due to the high Kiwi dollar.”

So making some suits in China is a big change but the biggest transformation has come since the clothing company underwent a Better by Design audit in 2005. “That’s fundamentally changed the shape of our business,” Macky says. “Design and branding will play a more significant part in our goals and targets than just being a manufacturer and wholesaler.”

The company has spent the past two years reshaping its management structure, including setting up a head of design, Nicholas Blanchet, a Kiwi who heads the design team based in Australia. Some 65% of Cambridge Clothing’s production is exported to Australia. Although the company has dabbled with exports to other countries it views the Australian market as the most compatible with its Auckland-based business and one in which there is still plenty of room to grow.

Currently Cambridge has ten stores within Australian department stores and as part of its design-led makeover plans to open a number of its own standalone stores across the Tasman in the next year. It has no plans to follow suit in New Zealand, though, because of the smaller size of the market here.

Cambridge is still owned by the Macky and Goodfellow families who founded the Auckland company in 1934. Macky says the company will continue to be based in New Zealand, tailoring its business to premium-priced brands. “We foresee a New Zealand-based manufacturing operation being sustainable for the foreseeable future but what size it needs to be is the question.”

The Engineering, Printing and Manufacturing Union says it will spearhead discussions to find ways of keeping local manufacturers in New Zealand.

It follows Fisher & Paykel's announcement on Thursday that it will shift its laundry factory to Thailand to save an estimated $10 million a year, with the loss of 350 jobs in Auckland.

Sleepyhead, the country's biggest bed manufacturer, is also considering moving its operations to China next year. It employs about 500 people in New Zealand. About 250 jobs are expected to be lost.

The union's national secretary, Andrew Little, says an urgent review of manufacturing policies is needed to prevent a mass exodus overseas.

Mr Little says he plans to assemble representatives from the business community, other unions and the Government to discuss incentives for manufacturers to stay in New Zealand.

Sleepyhead managing director Graeme Turner says high interest rates and a huge array of costs have led it to look at China as a manufacturing site He says the only things that would keep Sleepyhead in New Zealand are a drop in interest rates and a change in government policy.

The Canterbury Manufacturers Association says it is the same situation for many manufacturers and warns that more will either leave or go under. Spokesman John Walley says manufacturers are being abandoned.

The Employers and Manufacturers Association says it makes sense for companies to move overseas because the business environment in New Zealand is not good.

Chief executive Alasdair Thompson says it is a mess for exporters trying to operate in the face of high taxes and other costs.

He says countries such as Thailand and China are offering manufacturers tax cuts and cheap land to help them to get started.

Manukau mayor Barry Curtis believes workers set to lose their jobs at Fisher & Paykel's east Tamaki plant will easily find work elsewhere.

He says "hundreds of jobs" are going spare in the district each month and it is unlikely that his constituents will be unemployed for long.

The Government says it acknowledges the pain many exporters are feeling but says it has an economic strategy to help.

Prime Minister Helen Clark says there is still a place for manufacturing in New Zealand, despite some companies shifting their production overseas She says what is happening in New Zealand is typical of many developed countries where manufacturers are moving their operations to low-cost countries.

Miss Clark acknowledges the high value of the dollar is causing problems for exporters, but points out that the Australian and British currencies are also at 25-year highs against the US dollar.

Minister of Economic Development Trevor Mallard says it is unfortunate some manufacturers feel they are being forced overseas, but the sector is changing. It is difficult to compete against other countries that supply cheap labour and land.

He says options apart from capital gains tax and mortgage levies need to be explored to try to help businesses that are struggling.

Mr Mallard says New Zealand must focus on high-end manufacturing that come from local research and design initiatives. Any wide-ranging change to monetary policy would need to have the support of all the main political parties.

The National Party says the Government should be doing what it can to help struggling businesses.

National finance spokesperson Bill English says the Government needs to stop charging record amounts of tax and change the business environment. He says the Government also needs to rein in its own spending, which would take pressure off interest rates and the dollar.

China has vowed to speed up banking system reform and spur domestic demand, making it a priority this year to cut its trade surplus with the rest of the world, the IMF's steering committee said today.

"Comprehensive steps will be taken to expand domestic demand, accelerate structural adjustment and achieve a rough external balance over time," the International Monetary Fund group said in a statement issued after its semi-annual spring meeting.

The report on plans by the five -- China, the euro zone, Japan, Saudi Arabia and the United States -- noted that China had introduced greater flexibility in the renminbi's exchange rate and that China's "foreign exchange market infrastructure has been significantly improved."

"Exchange rate flexibility will gradually increase, with attention paid to the value of a basket of currencies," said the report.

China also planned to boost household incomes and rural consumption as part of efforts to stimulate demand and trim external balances. Beijing would also change export tax rebate policies in an effort to reduce its trade surplus, it said.

A communique by the steering committee said it agreed that "resolving imbalances in a manner compatible with sustained global growth is a shared responsibility."

The IMF said the plans by the five parties represented "further progress in the implementation" of the Fund's strategy on reducing imbalances.

Big clothing company Pacific Brands has concentrated its New Zealand operations within Christchurch's "apparel hub" as it commits to a larger design team and keeping manufacturing onshore.

Pacific Brands Clothing New Zealand general manager, Mark Jordan ,said the company now had a stronger Canterbury focus and was looking to hire creative people.

New staff were being sought in the design and marketing areas to push brands such as Bonds and Jockey. Pacific Brands employed around 8000 staff globally.

Some of its best-known brands include Jockey, Bonds, Rio and Holeproof.

Two of Pacific Brands' most successful marketing campaigns – the Jockey campaign with All Black Dan Carter and the Liberty campaign had been Christchurch initiatives, using agency Harvey Cameron Advertising.

The New Zealand firm would look at both acquisitions and organic growth of existing clothing and home comfort brands, Jordan said.

Pacific Brands has four divisions: footwear, bedding, apparel and outer wear-sport.

"We're in the type of industry where new product development is important – putting new things in front of consumers."

Pacific Brands' share price closed untraded yesterday, and last traded at NZ357c near the top of a 12-month range of 245c to 365c.

Despite having gone through a period of expansion, the cashflow-based business was not at a point of needing extra capital, Jordan said.

In November 2006 Pacific Brands bought the bedware and merino business of Christchurch firm Arthur Ellis.

Last week it confirmed the purchase of Australasian workwear supplier Yakka Group, which has annual sales of around $300m and was bought for an estimated $A200m to $A250m ($NZ226m-$283.4m).

Within Christchurch the business was retaining its sock manufacturing base in Montreal Street, but had recently rebased its head office to Victoria Street, Jordan said.

Pacific Brands main head office was based in Melbourne, and other business units, including Bonds, based in Australia.

In New Zealand it also had a Palmerston North-based thermal underwear factory, and while most of its manufacturing was out of China "more than a quarter of the product is still locally made".

The company was always looking for acquisitions, Jordan said. "I think the good thing is they've been prepared to invest in the New Zealand market," he said.

Children's clothing company Pumpkin Patch has reported a 6.4 per cent rise in net profit after tax to $15.5 million for the six months to the end of January. Group operating revenue for the half was up 19.6 per cent to $180.6m from the previous corresponding half year.

Despite challenging retail environments across all its markets, especially Australia and New Zealand, sales growth was seen across all segments, the company said today. Strong sales growth was seen in both Britain and the United States from both new store openings and increased sales from more established stores.

Quota costs of $2.2 million were incurred on the imports of Chinese-made products into the US and European Union, up from $0.7 million in the first half of 2006. Excluding quota, net profit after tax would have been up 12.6 per cent to $17m.

Earnings before interest, tax, depreciation and amortisation (ebitda) for the latest half year was up 15.6 per cent to $30.5m. Interest costs were higher than the first half of 2006 as an expanded store roll out programme in Britain and the US resulted in higher total bank debt, the company said.

It expected to carry higher average debt levels as British and US markets were developed.

An interim dividend of 4.5 cents per share was approved, compared to a 4.25cps interim dividend in 2006. Pumpkin Patch shares were down 7c to $4.58 soon after the sharemarket opened today.

While there were some challenges in the short-term, Pumpkin Patch continued its steady growth and its aspirations to be a truly global brand, the company said. Australian and New Zealand markets were expected to remain difficult for at least the rest of this financial year. Pumpkin Patch said it remained a dominant force in children's apparel in those markets and would pursue store growth opportunities to protect its market position.

While concerned at the impact of short-term economic factors on the result, the company was convinced the long-term strategy would remain sound through the economic cycle.

In Britain, the store roll out was expected to continue throughout this year. That might not directly lead to growth in earnings before interest and tax (ebit) in the short-term, but would enhance Pumpkin Patch's position in the market. The US had shown early promise and Pumpkin Patch would continue to trial new stores throughout the year in a variety of formats and locations, the company said. Sales from Australian retail stores rose 2.7 per cent to $A75.8m ($NZ86m).

The company said it believed the Australian retail market had hit the bottom of the economic cycle but did not expect to see any significant improvement for the remainder of the financial year. The company had continued opening stores and although that had an impact on profitability in the short term it provided the foundation for longer term sales and earnings growth.

The six stores opened in Australia in the half year included two outlet stores, and took the total number of stores in Australia to 95 - 84 Pumpkin Patch, 10 outlet, and one Urban Angel. Another six stores were expected to open by the end of July.

In New Zealand retail sales grew 3.5 per cent to $31.1m.

Although an increased sales mix came from the lower margin outlet stores, efforts to protect margins by tightly controlling stock levels and store operating costs led to total margins being maintained, the company said.

A review of the Urban Angel brand's stand-alone store format showed that in lower end mall locations it did not meet required profitability levels. As a result, two stand alone Urban Angel stores were integrated into existing Pumpkin Patch stores.

During the half-year three Pumpkin Patch stores were opened, including one outlet store. The New Zealand total was now 50 stores, with another two expected to open by year end.

In Britain turnover was up 36.4 per cent to £10.6m, or in NZ dollar terms up 53.4 per cent to $30.2m. Ebit was up 73.6 per cent to $2.1m, with ebit as a percentage of sales increasing to 7.1 per cent. During the half year four new stores were opened in Britain, taking numbers to 27, with another six to open before the end of the financial year.

In the US retail store sales were $US7.1m or $10.4m. An ebit loss of $0.6m was generated for the period, compared to a loss of $0.2m for the same period last year. It opened seven stores in the US during the half year, taking the total to 14 with at least another six expected to open before the end of the financial year.

In the wholesale and direct business turnover was up 24.1 per cent to $22.3m.

A switch in market emphasis from the United States to China should help Prime's East Coast sawmill to avoid the fate of a South Island one that closed last week, the owner said yesterday.

Ernslaw One managing director Thomas Song said the company, which has been in Gisborne for two years, was in for the long haul.

The Bright Wood timber mill in Southland closed, citing the high dollar as one of the factors, and Song said he thought the industry was facing a difficult situation too.

Three factors were contributing to the malaise: rising log prices, a stagnant US market and the high-riding currency.

Song said Ernslaw One had carried out a strategic review of its operations, resulting in a switch of focus to China, whose economy was booming.

It was also telling American customers that unless there was a price rise comparable to the cost increase, the company would have to reduce exposure to that market.

Despite the market situation in the US, the response had been positive. The proportion of products going there had dropped from 60 per cent to about 30 per cent.

Song said the important thing to remember as far as he was concerned was that the company was intendingto be here for long term.

It had bought the East Coast forests, then owned by Huaguang, when they were in a poor situation because "we believe we can eventually make this work".

Having access to its own log resources was also a significant factor.

While rising costs made things difficult for an individual sawmill, it was easier for a group like Ernslaw One, whose size gave it flexibility and the ability to move to another market if necessary.

Song said: "We have been in this country for two years and we hope to be here for another 100. We are still confident that business here will grow."

No jobs were under threat at the Prime mill, which employs about 90 staff, although its operational efficiency was under review.

Reports of the demise of the New Zealand outdoor clothing and equipment industry have been greatly exaggerated. Locals are not only thriving, but planning to take on the big guys. David King reports.
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THE road to China is a well worn one for the Kiwi outdoor clothing industry. Kathmandu, Icebreaker, Swanndri and Macpac have all packed their bags and headed to Asia to find cheaper contract manufacturing partners, leaving what's left of the local industry to fend for itself. In their wake they've created one of the great Kiwi business myths: that you have to go to China in order to compete.

The Green Party hitched the $11.5 million Buy Kiwi-Made campaign to the wagon of Swazi, a busy Levin manufacturing business whose outdoor clothing has penetrated deep into what was once Swanndri country. The business employs 84 staff and is owned by Davey and Maggie Hughes. Mr Hughes, who likes to encourage singalongs at work and, while off on a slight conversational tangent, admits he sounds "like a socialist and a dreamer" is nonetheless a successful capitalist who has become the poster boy for Buy Kiwi-Made.

He thinks the Chinese-made Air New Zealand uniforms are a national disgrace and uses the example of a new Ministry of Social Development contract for uniforms to illustrate what's gone wrong.

The MSD -- which includes Work and Income staff -- does not require the garments to be made locally. But Mr Hughes knows that as soon as the economy slows and the dole queues grow longer in Levin it will be MSD staff, resplendent in their new Chinese-made uniforms, who will knocking on his door asking if he has space for a few more workers. "It's like, holy shit, guys, don't you know what you are doing? It's just so ironic."

By contrast the Department of Conservation has put out a similar contract and it stipulates the garments have to be New Zealand-made. He says the Buy Kiwi-Made campaign is the best way to give those left some hope. "No one left in manufacturing wants a handout, because handouts are nothing more than subsidies. "What they are doing is the best way forward."

BUT for all his patriotism, Mr Hughes praises Icebreaker founder Jeremy Moon for doing "the right thing" by quitting manufacturing in New Zealand for China. "For the company, that they want to be in the global market . . . we don't have the manufacturing base left in New Zealand."

Icebreaker has revenues in the region of $100 million and wants to take on the likes of North Face and Patagonia. Mr Hughes wishes him luck. "I don't want to be an Icebreaker but I want to see strong Icebreakers because they are good for New Zealand."

But he thinks Mr Moon could have made at least one concession. "Perhaps he could have said the Australasian markets will still be serviced by New Zealand manufacturers -- wouldn't that be a lovely compromise. "It's not too late to do it, he could be the hero who picks up the wounded mountaineer from the mountain and brings him down."

Swazi turns over about $10 million and Mr Hughes reckons he'd add a $1.5 million profit straight on to his bottom line if he shifted production to China. And surprisingly, he would not rule out some manufacturing there in the future. But "deep in his heart" he could never go to China for any Australasian-market products. Hughes says there is a wide belief that if a firm had not outsourced production to China, then it had had its day.

With just two shareholders to answer to about profitability -- he and his wife -- he is able to keep his head down and keep on working away with his business model. "I was feeling lonely there for a while but the Kiwi-Made campaign came along. "There's enough work out there for us but wouldn't it be great if we could go and build the industry. "Not everyone can be a software programmer or a designer or a journalist. Some people have to work for a living." Ultimately the power is with the consumer who has to evaluate what they buy. "Are they doing nothing more than exploiting low paid foreign workers?"

CHRISTCHURCH'S Cactus Outdoor Equipment in Lichfield St has a great claim to fame -- it is the only pack maker left in New Zealand. It is owned by four former Wellingtonians who have hit on a winning formula of making a combination of technical climbing and outdoor equipment and more prosaic products including thousands of postbags for New Zealand's legion of posties.

Co-owner Ben Kepes says Cactus is profitable and sees a good future in New Zealand. The company employs eight staff at its own manufacturing plant and contracts out work to three other manufacturers in Christchurch and Nelson. Cactus' aim is to be profitable and sustainable and put food on the table for all its stakeholders. "We don't want to be another North Face. We want to provide a good standard of living for our employees and the owners. We want to be sustainable -- financially, environmentally and socially. If that lacks ambition, then I'm happy to lack ambition."

Mr Kepes says it is hard to find skilled machinists because they have been made redundant so many times they feel they have been burned by the industry and give up on it. "It's nice to give recognition to the people who spent 40 years on sewing machines doing a fantastic job and getting very little thanks for it."

Not surprisingly, Mr Kepes likes the idea of the Buy Kiwi-Made campaign, but finds it ironic that Labour has agreed to it at the same time as trying to do reach a free trade agreement with China. Like Mr Hughes, he hopes it makes consumers think about what they are buying. "I think it's really important that people know there are businesses and brands leveraging off the New Zealand thing when they don't have a single percentage point made in New Zealand." He says the decision about where you manufacture is all about your business model. If your model puts mass market appeal and profits first, then it is off to China. "It's a failure of their business model and not a failure of New Zealand manufacturing. "They are trying to compete in a market that everyone is making offshore and they have to get their labour costs down."

He also gives credit to Icebreaker for being a success, but says Mr Moon's headquarters could just as well be in Mongolia as Wellington. What has upset him is a perception that some manufacturers have had no option but to go to China to chase better quality manufacturing. "I would challenge any Chinese factory to make better quality than we can do here. We can do anything. Our manufacturing is as good as anywhere."

Across town in the back streets of Sydenham, the sprawling Lane Walker Rudkin network of buildings is a beehive of activity. The 102-year-old textiles manufacturer is the grandfather of the New Zealand industry with a long history of providing clothing for Kiwi greats, from Peter Snell to the All Blacks. Its Jockey underwear and merino woollens have kept most of New Zealand's nether regions warm for years. LWR, which still employs 1200 staff in Australasia, is on the comeback trail. It has just launched Everest, a range of merino clothing which plays up the company's connection to Sir Edmund Hillary and Sherpa Tenzing Norgay's 1953 expedition.

Hillary wore merino supplied by LWR. Everest is about unashamedly playing the local trump card, and the results so far have been good, with the company selling between 4000 and 5000 items since its launch in the United States. LWR's general manager Mark Anderson says: "It's to claim a bit of that outdoor clothing revenue back, we don't want to roll over and see that shelf space going to Chinese made stuff."

He sees the future in making high- value raw material garments such as merino zip tops with relatively low labour time input costs. This gets around the fact that LWR has to pay workers at least $13 an hour, while a Chinese machinist would be earning about 10 cents. His favourite comparison is a business shirt with its many seams and button holes to a merino zip-up top which is much faster and relatively simple to make.

LWR does end up sourcing goods from China, but they would make up 23 per cent of what it does at most.

While he thinks the Kiwi-Made campaign is "great" and will help the cause, the businessman in him would rather see the money go on lowering ACC levies or tax. What it all comes down to it seems is picking your fights wisely. To survive, you can't try and take the Chinese head on at their own game. "Manufacturing high-quality branded products is the way to do it," Mr Anderson says. "As long as you are careful about your labour inputs you can do it. For every $100 we sell, $100 is coming back to New Zealand."

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SHOULD I STAY OR SHOULD I GO?
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Made in New Zealand
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Locals

Chalky Digits
LWR Everest
Cactus Climbing Equipment
Swazi Apparel
Ground Effect
Earth Sea Sky

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Made in China
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Kathmandu
Swanndri
Macpac
Icebreaker

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CAPTION:
Above: Swazi's Davey Hughes _ `be a hero, Mr Moon'.
Left: Cactus' Ben Kepes _ brands `leverage' off New Zealand `without a single percentage point made in New Zealand'.