Adidas shoemaker in trouble

Press, 19 December 1985, Page 1

Adidas shoemaker in trouble

A fashion change has helped to push the Christchurch shoe manufacturer, M. O’Brien and Company, Ltd, into severe financial difficulties. O’Briens has written to shareholders warning of a loss of at least $1.35 million for the year ending June, 1986. A cash advance from its biggest shareholder, Lane Walker Rudkin, Ltd, will ensure continued trading.

The firm which employs about 220 people at its Burnside factory, blames high interest rates, import competition, and the tight economic conditions which have caused liquidity problems for the whole footwear industry.

Industry Development Commission recommendations that more footwear be imported has stiffened com-

petition when interest rates cut retail demand as shops reduced stock. In addition, O’Brien’s has been caught by its concentration on sports running and leisure shoes. It has relied heavily on its production of the German Adidas sports shoes under licence.

Overseas, and now in New Zealand, young people are turning away from sports shoes and sneakers for leisure wear.

The shrinking market for this type of shoe is now much more competitive than when O’Brien’s launched Adidas on the New Zealand market. Other overseas brands are being made under licence: Nike, New Balance, Converse, and Puma. Other brands, or special lines, can be imported direct. A New Zealand brand, Laser, devel-

oped by the Lydiard family, has also been successful.

Running enthusiasts still want such brands, although fewer of the shoes are being worn for general leisure. O’Brien’s, which moved out of traditional leather shoes to concentrate on the sports lines, has lost machinery and much of the specialist labour to change its production back.

On November 6, the O’Brien directors decided not to pay an ordinary dividend because of trading conditions and profitability. The position has worsened. The directors say the pretax loss for the first half of the year will be at least $850,000, and they see no improvement in the second half.

“In the light of the current Government philosophy freeing up imports, your

company will have to seriously consider becoming a major shoe importer and wholesaler, without giving up all manufacturing,” says the directors.

“It is the belief of your directors that given the above actions can be undertaken with urgency, the company has a good chance of returning to profitability in the 1986-87 year. “We must, however, further acknowledge the seriousness of the situation and we will need the continuing dedication of our loyal staff to achieve this objective.” A spokesman for the Footwear Manufacturers’ Federation, Mr Bruce Marler, said in Wellington yesterday that the footwear industry was “a crunchpoint,” with a danger of job losses among the 32,000 people directly employed. Mr Marrier told a Well-

ington reporter of “The Press” that a review of the industry study was due out early next year. This, he hoped, would end the present period of uncertainty. “But I am concerned in the light of the Government’s policies which are unfailingly directed towards the free-market policy.” He said the Government’s economic policy package last week showed that it was determined to reduce tariffs in areas such as the steel industry, and that policy might be the fate of others such as the shoe industry. It is likely that in addition to reducing tariffs, the Government will increase access from countries such as South Korea and Brazil, which have low labour costs against which New Zealand manufacturers cannot compete.