The standard global commercial template of the 20th century involved goods being manufactured in China and then exported and sold to consumers in the United States.
In the 21st century, Port Washington-based Allen Edmonds Shoe Corp. is turning that model upside down.
The 90-year-old company is licensing its first foreign retail stores in China. Luxury shoes manufactured in Wisconsin are going to be sold to consumers in China.
“China is growing so fast, and it’s such a sophisticated market already,” said Paul Grangaard, president and chief executive officer of Allen Edmonds. ‘Made in America’ has a really strong reputation there.”
Allen Edmonds signed a 10-year retail agreement with Shanghai-based clothing and footwear sourcing company Talent Creations on Nov. 1. The company’s first Allen Edmonds licensed store is expected to open in late spring 2012 in Shanghai.
Talent Creations plans to eventually sell Allen Edmonds shoes throughout China, Hong Kong and Macau. Under the licensing agreement, Talent will purchase merchandise from Allen Edmonds and finance the retail operations. Allen Edmonds will have control over the appearance of the store and branding, Grangaard said.
While Allen Edmonds already exports to Europe, Japan, Australia and Canada, and is in talks to distribute to South Africa, its retail stores have so far been limited to the United States. The company has 37 U.S. stores and plans to add four more in 2012.
“We’re trying to just bring our stores to where there are large concentrations of Allen Edmonds customers,” Grangaard said.
Taking a risk
So how does a Midwestern shoemaker steeped in tradition appeal to a foreign and contemporary retail market?
Ulice Payne Jr., president and chief executive officer of Brookfield-based Addison-Clifton LLC, a global trade compliance advisory company with additional offices in Chicago and Shanghai, says the Chinese economy has evolved and is consuming more goods.
Chinese consumers have a fondness for foreign luxury brands, Payne said. For that reason, Allen Edmonds’ retail store may be a good fit, he said.
China joined the World Trade Organization and opened its market to foreign goods just 10 years ago, so consumers there are demanding brand names from abroad, he said.
“The biggest risk is that in that market, they’re well known for counterfeiting,” Payne said. “They know what low quality is. So there’s a pent up demand for high-quality goods in China.”
In addition, a class system in China encourages the wealthy to show their luxuries in clothing and products, he said.
“They’ve got the money, and they demand world-class brands,” Payne said. “I think Allen Edmonds is spot on. You fish where the fish are.”
As Grangaard points out, there are a lot of “fish” in China. Twenty Chinese cities have more than 5 million people, and the Allen Edmonds brand tends to perform best in urban areas.
“There are 300 million people in the U.S. and there are (1.3 billion) in China,” Grangaard said. “It’s 1.3 billion people and about 2.6 billion feet.”
Allen Edmonds needs a strong Chinese licensing partner, Payne said. Shanghai Talent Creations Import and Export Co. Ltd. is registered with the Shanghai Administration of Industry and Commerce. It was founded as an LLC in March 2011 with about $1.9 million (in U.S. dollars) in capital and a 10-year track record of operation.
“Licensing allows entry to a market where you’re relying upon the local licensee to basically carry your brand,” Payne said. “Before you jump in yourself, you just authorize someone to promote your quality product.”
Understanding the market
The Chinese market presents a golden opportunity for Allen Edmonds, according to Einar Tangen, a former Milwaukee resident and partner at Jackson, Morgan and Tangen. Tangen now lives in Beijing and is an adviser to Heilongjiang Province, Hebei Province QEDTZ, China.org.cn, China International Publishing Group, Beijing Baotong and DGI DESIGN.
Tangen, who writes the Dispatches From China column for BizTimes, also proudly acknowledges he owns eight pairs of Allen Edmonds shoes.
“In terms of (Allen Edmonds entering the China market), it is about time,” he said. “My sense has always been that they could do well here if they market themselves well.”
While clothing designed and manufactured abroad has a lot of cache in China, Tangen cautioned that the “Made in America” branding is not as popular in apparel as it would be in electronics or medical devices.
“Shoes do not tend to be the first thing people abroad think of when you mention the U.S.,” Tangen said. “In Allen Edmonds’ case, they should market who wears their shoes and that they are a unique cultural icon of American classic fashion.”
Many Chinese are interested in the cultures of foreign countries, particularly American culture, he said. Appearance is also very important in the Chinese culture.
“People in China tend to associate quality of product to the quality of the person who owns it,” Tangen said.
Allen Edmonds has had some high-profile customers. American Presidents Ronald Reagan, George H.W. Bush, Bill Clinton and George W. Bush all wore Allen Edmonds’ Park Avenue shoes at their inaugurations. Foreign dignitaries order the shoes on a regular basis, Grangaard said.
Much of the company’s business comes from repeat customers and word of mouth, Grangaard said. Quality and tradition are key reasons customers are willing pay up to $500 for pairs of Allen Edmonds shoes.
“They would also do well to price at the high end of the market in China, as those buying them for the sake of prestige will not want to see their juniors wearing them — a concept Buick learned when it tried to extend its brand into lower cost offerings,” Tangen said.
Tangen also cautioned that licensing in a lucrative foreign market can be risky, and Talent Creations seems to be inexperienced at retail development.
Economic uncertainty
While China is not in a recession right now, its gross domestic product has been declining, said Sali Li, assistant professor of organizations and strategic management in the Lubar School of Business at the University of Wisconsin-Milwaukee.
“It’s maybe not a very perfect timing to open a store in China at this moment,” Li said.
However, on the other hand, a burgeoning middle class and the “new rich” in China are realizing their consumer power and looking to buy luxury items, Li said.
Quality will be important to a new product’s success in the Chinese market. Even the Chinese knew their manufacturers produce a cheaper product, Li said. If a product is really made in a foreign country with superior quality, it will appeal to Chinese customers, Li said.
A benefit to Allen Edmonds’ plan is the licensee holds all of the risk if the product does not sell as well as expected, he said.
“Licensing certainly will reduce the entry risks,” Li said.
If the expansion goes well, Allen Edmonds will benefit from a higher international profile and increased brand equity, Li said.
Homegrown
Allen Edmonds was founded in Belgium, Wis., in 1922 by Elbert W. Allen as Allen-Spiegel Shoe Company. Allen eventually partnered with Bill “Pops” Edmonds to form Allen Edmonds Shoe Corp.
The company now has 330 employees at its Port Washington facility, including about 130 who have been added since January 2010, and 750 employees worldwide.
Allen Edmonds is owned by the Minneapolis-based private equity firm Goldner Hawn Johnson & Morrison, which acquired a majority stake in the firm in 2006.
The company has branded itself as “The Great American Shoe Company” to appeal to customers across the country.
“I have a strong belief that we should be ‘The Great American Shoe Company’ all around the world in all the metro areas,” Grangaard said.
Allen Edmonds has a manufacturing facility in the Dominican Republic, but the shoes made there are sold as a sub-brand and are of lower quality. The idea, Grangaard said, is to get consumers interested in the footwear and eventually buy the higher-end Allen Edmonds brand.
The company prides itself on the high-quality materials, including premium leathers, used in its shoes.
“Calfskin is probably one of the best leathers you can have for shoes because you can restretch calfskin,” said Colin Hall, senior vice president, chief marketing officer and general manager international.
The company also repairs and refinishes its shoes for its customers. The idea, Hall said, is to have a shoe that molds to the wearer’s foot for comfort and lasts for many years.
The company’s “Made in America” promise also extends to its call center, where the average tenure is 16 years, Hall said.
“They all have great Wisconsin accents,” Hall said. “You’re not calling someone in Pakistan.”
In addition to shoes, Allen Edmonds sells coats, hats, belts, gloves, ties, socks and other men’s accessories.
Continued growth
Grangaard expects Allen Edmonds to open additional foreign retail stores in major European and Asian cities.
“(Europeans and Asians are) willing to spend a higher percentage of their earned income, their take home pay, on shoes and clothing than we are.”
If the Chinese retail operations perform well, Allen Edmonds’ revenue could double in the next 10 years, Grangaard said.
The company has been performing well recently, with revenue topping $100 million for the first time in company history in 2011.
Grangaard expects Allen Edmonds will continue to grow in 2012, adding new employees in the second half of the year.
The recession may have helped the company’s sales, Grangaard said, because the job market has become very competitive, and employees want to look as professional as possible.
“I think customer bases are like clubs. It’s really hard to get new members if the longstanding members are leaving,” he said. “We strongly expanded, by 40 percent, the number of shoes we offer (in 2011).”
Since Grangaard took the helm in October 2008, Allen Edmonds has recommitted to its core customers while working to appeal to a younger generation of men with different tastes.
“We’ve worked hard to develop a creative company so we can anticipate where the puck is going,” he said. “We have the powerful combination of new ideas and deep insights.”
And the company is taking bigger risks, such as opening foreign retail stores, in hopes of reaping the rewards.
“We’ve become much more willing to fail,” Grangaard said.
