Red Wing Shoe Company, Inc

views updated

Red Wing Shoe Company, Inc.

314 Main Street
Riverfront Centre
Red Wing, Minnesota 55066-2300
U.S.A.
Telephone: (651) 388-8211
Toll Free: (800) 733-9464
Fax: (651) 388-7415
Web site: http://www.redwingshoe.com

Private Company
Incorporated: 1905
Employees: 1,770
Sales: $385 million (2005 est.)
NAIC: 316213 Men's Footwear Manufacturing; 316214 Women's Footwear Manufacturing; 448210 Shoe Stores; 316110 Leather and Hide Tanning and Finishing

Red Wing Shoe Company, Inc., manufactures durable, comfortable, handmade footwear tailored to the needs of specific occupational and recreational activities, from farming to hunting and hiking, and for casual use as well. The company's brands include Red Wing, Red Wing Casuals, Irish Setter, Vasque, WORX, and Carhartt Footwear, the latter brand used via a licensing deal with Carhartt, Inc., a retailer of work apparel. All told, the company produces around 200 styles of footwear in a notably wide range of sizes, from a 4B to an 18EE in some models. Red Wing sells more than four million pairs of shoes and boots per year, through a network of 4,500 dealers in the United States and Canada and distributors in 215 countries worldwide. Within the U.S. market, this network includes about 430 Red Wing Shoe Stores (of which about 165 are company owned), plus an industrial sales operation employing a fleet of 180 mobile shoe trucks. Approximately 15 percent of overall revenues are generated from sales outside the United States. Red Wing is notably one of the last companies still making shoes in the United States. In addition to its main factory in its namesake city, Red Wing, Minnesota, the company also operates plants in Potosi, Missouri, and Danville, Kentucky. Around 75 percent of revenues are attributable to its U.S.-made lines; the remaining sales come from less-expensive styles made under license by Chinese contractors. Red Wing Shoe also owns its own tannery, the S. B. Foot Tanning Company, and the St. James Hotel in Red Wing. The Sweasy family of Red Wing has held a controlling interest in Red Wing Shoe since the 1920s.

EARLY HISTORY

Red Wing traces its history to 1905, when German immigrant Charles H. Beckman closed his retail shoe store and organized the Red Wing Shoe Company with 14 other investors. The young company, based in the quiet Mississippi River town of Red Wing, Minnesota, initially manufactured 110 pairs of shoes per ten-hour day. The brand's steady growth stemmed from the booming industries of farming, logging, mining, blacksmithing, and railroading that represented largely untapped footwear markets. Red Wing tailored its shoes to the demands of specific customer groups, offering a wide range of shoe sizes and widths to ensure fit, and a constantly growing line of specialized products with different capabilities.

Red Wing innovation in its early years reflected efforts to shod diverse markets. In 1908 the brand offered welt-constructed shoes featuring a leather strip attached to the shoe upper and sewn into the sole. The enhanced comfort and durability of the shoes particularly appealed to farmers, Red Wing's primary customers at the time. Continued demand justified the construction of a four-story factory with a daily output of 450 pairs, four times the 1906 capacity. Then in 1912, the company added the black and brown "Chief" line, commonly known as "the farmer's shoe." In addition to the traditional welt construction of earlier farming shoes, the Chief featured specially tanned, manure-proof leather for longer durability.

Numerous other shoe designs ensured the company's continued success. Red Wing began fulfilling military needs with the onset of World War I, manufacturing in 1918 the regulation Munson U.S. Army Last, designed to "fit all feet" with maximum comfort and durability. After the war, the Munson remained a top seller and influenced other popular shoe designs for over 50 years. In the 1930s, Red Wing moved into a steel toe line designed to provide added toe protection in high-risk jobs. That line retained its popularity and developed into several models, one of which even became popular during the punk counterculture fad of the 1970s. Also in the 1930s, the company developed an oil-resistant, highly comfortable design named the "Oil King" boot and adopted primarily by oilfield workers. For slightly more elite circles of the era, Red Wing also introduced a men's dress or riding boot dubbed the "Aristo," which served as a model for a women's line of shoes and boots.

Meanwhile, the company's early decades were also marked by significant management changes. In 1911 Beckman retired, with stockholder C. H. Boxrud taking over as president. J. R. Sweasy, who had joined the company as a "cost man" in 1914, was elected general manager in 1918. Two years later Sweasy gained control of the company through stock purchases. After Boxrud died in 1921, Sweasy became president of Red Wing Shoe.

The development of rubber added significantly to Red Wing's success in its early decades. In the early 1930s, Sweasy introduced the rubber cord sole to replace the leather norm. His gamble with the new material proved both lucrative and trendsetting. The Gro Cord soles and Goodyear heels used in Red Wing shoes set the standard for a shoe industry that grew to depend almost exclusively on synthetic materials.

In addition to durability, lowered costs figured into Red Wing's new materials. During the Great Depression, synthetic materials helped produce an extremely cost-effective shoe. Model No. 99, named after its price of 99 cents, kept the factory in production during the financial downswing.

Red Wing continued to grow at a healthy rate, and after World War II the company reached national and eventually international markets. War mandated unprecedented volume, as the U.S. government contracted hundreds of combat shoes manufactured to regulation specifications in 239 different sizes and widths. By 1949, when William D. Sweasy took over as company president following the death of his father, Red Wing had proven its reliability in meeting urgent demand under tight supervision. Sweasy turned that strength to civil ends, introducing a company reorganization to place greater responsibility on department heads and develop teams of management specialists in every department. Sweasy also initiated a new distribution strategy in which Red Wing retail stores would open on the West Coast and move east over time.

COMPANY PERSPECTIVES

Founded in 1905 by Charles Beckman in Red Wing, Minnesota, Red Wing Shoe Company was established so Beckman could offer his customers comfortable, durable and occupations-specific boots. This was something of an anomaly at the time and still is today as Red Wing Shoe Company is the leader in manufacturing footwear for every foot—not just the easy to fit feet. Along with his partners, Beckman made fit and comfort their priority as they began manufacturing their own line of boots. One hundred years later, this is still the priority of the Red Wing Shoe Company.

Reorganization paid off quickly. Record profits were achieved in 1952, largely attributable to the No. 877 Irish Setter Sport Boot, which continued to assure Red Wing a strong position in the competitive boot market. The Irish Setter's landslide success was partly responsible for Red Wing's introduction of its Vasque outdoor division in 1965. That division capitalized on the hiking boot craze of the 1970s and went on to include lightweight hiking boots and walking shoes in the 1980s and 1990s. Meantime, Arlo "Ole" Jensen became company president in 1972, with Sweasy becoming chairman of the board.

SHIFTING FOCUS, NEW
PRODUCTS

After continued growth through the 1960s and 1970s, Red Wing responded to trends in market research, changing many of its marketing strategies and brand lines. In an October 1, 1984, Footwear News article, Tom McConnell, Red Wing product manager, identified three trends affecting the company: a shift from a rural to a metropolitan workplace; the replacement of a blue-collar workforce with a gray-collar or service-related one; and rising numbers of women in the workforce. To service these new markets, Red Wing changed its emphasis and its motto, from "work shoes" to "shoes for work." While the company would continue to offer work and sports boots, product development and marketing efforts in the 1980s increasingly focused on those markets promising the most growth, including footwear for such professions as computer operators, foodservice technicians, healthcare workers, and security personnel.

Red Wing's shift in marketing strategy was paralleled by a new corporate tone prompted by an increasingly younger generation of management. In 1984 William J. Sweasy assumed the role of president after Jensen retired from the post. Sweasy represented the third generation of his family to serve as a Red Wing executive; his father, William D. Sweasy, remained CEO. The 33-year-old president ushered in an era of active strategic planning, greater communications, increased line diversity, and new personnel. "Before, the upper management team operated intuitively; they shot from the hip, so to speak," noted one company spokesperson in a 1986 Footwear News article. The article emphasized that overall company spirit was not critical of the old management, but favored the new approach in light of changed and emerging business opportunities. In August 1989 William J. Sweasy became the first company executive from outside the Twin Cities area elected to chair the Better Business Bureau of Minnesota, representing an honor for Red Wing Shoe Company and its new leader.

New management style and brand image also brought new products to Red Wing. Special attention was paid to women's comfort footwear. While more than 40 million women held jobs involving substantial standing or walking in the mid-1980s, Tom McConnell told Footwear News that "most resources have simply remade men's styles on a scaled-down last." In response, Red Wing introduced Lady Red Wings, incorporating safety toes and lightweight urethane soles in a more feminine, less cumbersome line of shoes. McConnell projected sales of approximately 250,000 pairs, retailing at $40 and up.

In the 1980s, Red Wing also developed its Vasque Outdoor Footwear division, which produced aesthetically appealing walking shoes under the Vasque brand name. While earlier walking shoes had often sacrificed cosmetics for high-tech features used in running shoes—rubbers, bottoms packages, heel counters, and lacing systems—Red Wing emphasized casual, multipurpose walking shoes in attractive designs. Art Kenyon, divisional manager for Vasque in 1988, told Footwear News "the consumer today really is concerned with cosmetically fine footwear, boots that can function and still look nice." In the early 1990s, Vasque also benefited from the renewed popularity of hiking boots, sales of which had been declining since the 1970s. Despite the downward sales trend, Vasque had continued to create heavy hiking boots for wilderness excursions as well as a variety of lighter styles for casual walkers and fashion customers. Discussing the company's ready position at the time of the hiking boot resurgence, Kenyon, who had by 1991 become president of Vasque, observed: "We came from the mountain down to the mainstream," adding that "the others came up from the gymnasium," in reference to competition from such athletic footwear companies as Nike, Reebok, and New Balance.

KEY DATES

1905:: Charles H. Beckman organizes the Red Wing Shoe Company in Red Wing, Minnesota, with 14 other investors.
1920:: J. R. Sweasy gains control of the company.
1952:: Record profits are attributed to the landslide success of the No. 877 Irish Setter Sport Boot.
1965:: Company launches its Vasque outdoor footwear division.
1986:: Red Wing acquires S. B. Foot Tanning Company.
1994:: Red Wing purchases shoe factories in Potosi, Minnesota, and Danville, Kentucky.
1998:: The WORX line of moderately priced work shoes and boots is introduced.
2004:: Company enters into a licensing deal with Carhartt, Inc. to produce a line of mid-priced work boots.

In 1990 Vasque introduced Kids Klimbers, a line of hiking footwear for children, featuring a "variable fit child growth system" to accommodate quickly growing feet for an extra six months on average, and also incorporating children's tastes into shoe design. The division's hiking boot product line became the fastest-growing segment of the Red Wing Shoe Company during the early 1990s. In 1993 Vasque launched its first line of sports sandals, responding to a popular trend during that time.

In the work shoe arena, Red Wing also explored new directions. Following the demands of consumers who often wore athletic shoes outside the workplace, the company introduced steel toe athletic shoes, two safety-style athletic shoes in black and white. In addition, the company moved toward work shoes made from lighter materials and softer leather. "Our consumers are saying, make it soft but tough," explained Andy Thompson, advertising and promotions manager of Red Wing, in a 1988 Footwear News article. Red Wing also developed a group of barnyard acid resistant shoes geared for the farm industry and a "decathlon" sole made from a durable, lightweight, shock resistant, and oil resistant material.

Red Wing's new products were supported with new marketing initiatives. Lady Red Wings appeared in a TV ad campaign that was second only to Acme Boot Co. in terms of market saturation, according to McConnell. Premiering in October 1984, the commercials were computer animated to lend a contemporary feeling to the new line. Red Wing also ran a series of print advertisements featuring a top model in McCall's, Women's Day, and Mademoiselle magazines and promoting the image of an up-to-date, attractive, and fashionable Red Wing clientele.

Red Wing also gained some vertical integration in this period. In 1986 the company secured its own leather tanning operation by acquiring the Red Wing-based S. B. Foot Tanning Company. This company was founded in 1872 by Silas B. Foot, a farmer, inventor, and shoemaker who had moved to Red Wing from Pennsylvania.

In the late 1980s, the company began a restructuring of its retail division in order to gain exposure and market penetration. In May 1986 Wes Thies, retail division manager, outlined a twofold strategy in Footwear News. The company's object was to expand the existing specialty store concept and to introduce three prototypes geared to various consumer demographics. The first prototype was aimed at smaller markets with populations between 30,000 and 60,000. The units were designed with a sales area in front and shoe repair shop in back and targeted Red Wing's blue-collar consumers.

Red Wing also emphasized the use of a company newsletter as a marketing tool. The "Red Wing's Shoe News & Views," published monthly, helped a 40-member sales staff communicate product news and company policies with over 6,000 stores.

While the Red Wing newsletter addressed retailers, the company moved to develop more effective means of communicating brand awareness to the public. With the advent of desktop computer power and database marketing, age-old advertising techniques were losing their effectiveness. Stan Rapp, president of CRC Consulting Group in New York, told attendees of the 1992 All-Industry Marketing (AIM) Conference that marketing efforts had to be increasingly individualized as mass advertising rapidly became obsolete. He noted that shoe companies needed to micromarket and draw consumers into a feedback loop by fostering two-way, relationship marketing. In its own variation on such techniques, Red Wing launched a television campaign in the early 1990s in which it sought to foster a relationship with consumers by providing a toll-free number. The commercial claimed that "our shoes don't wear out," providing consumer testimonials and toll-free purchasing information. In addition, all customers were sent a note thanking them for their business and a form to rate their salesperson. After six months, each customer received another form to rate the shoes' performance, strengthening a personalized, two-way marketing dynamic.

Red Wing's efforts to adapt to changing markets also included greater emphasis on international growth. By 1990 several brands were being distributed in over 80 countries. Despite the intricacies of dealing with currency fluctuations and of identifying elusive, foreign trends, the market for U.S. footwear exports offered substantial growth potential for Red Wing. Palmer Beebe, one executive instrumental in setting up Red Wing's international department, moved on to run Team America, an export business handling footwear for a consortium of U.S. companies. "U.S. footwear is under-exported," Beebe claimed in a July 8, 1991, Footwear News article.

Red Wing faced pressing issues regarding employee health insurance as it entered the 1990s. With medical costs skyrocketing, the company confronted several challenges. In 1992 the company encountered astronomical expenses for worker's compensation insurance, a burden that prompted Red Wing, and other Minnesota companies, to look at other states with cheaper policies for future expansion. Even though Red Wing earned a 25 percent discount in 1992 for the jobclassification quoted rate, for a positive safety record, premiums still increased 41 percent from 1988 to 1992. In an effort to ease such burdens, the 1992 state legislature changed some benefits and gave broad authority to the Department of Labor and Industry to cut overall costs by 16 percent. Later that year, Rich Chalmers, vice-president of human resources at Red Wing, collaborated with Ron Schiemann, a Minnesota entrepreneur, to conceive a healthcare purchasing group designed to improve the delivery of healthcare and reduce costs for ten employers, including Red Wing Shoe, Riedell Shoes Inc., and the City of Red Wing. According to the plan, participating employers would be self-insured for a given dollar amount, beyond which reinsurance would take effect. The Chalmers/Schiemann plan was just one of several healthcare measures that Red Wing considered to best cover its employees.

In 1988 Red Wing Shoe Company moved its company headquarters to the company-owned St. James Hotel/Riverfront Centre, located on the Mississippi River in downtown Red Wing (the St. James Hotel had been built in 1875 and purchased by Red Wing Shoe in 1997 and then closed for a major, two-year renovation project). In 1991 William J. Sweasy added the CEO position to his title of president.

NEW FACTORIES AND
THE WORX LINE

As a whole, the U.S. shoe manufacturing industry produced only one-fourth as many shoes in 1994 as it did in 1968. Bucking this industry trend, Red Wing Shoe continued throughout the 1990s to make most of its shoes and boots in the United States. Some products were made in Mexico and China, with the entire Vasque line produced overseas. When the company sought to expand its production capacity in the early 1990s, however, the company looked outside of the City of Red Wing. In 1994 Red Wing Shoe added to its two production facilities in its namesake city through the purchase of shoe factories in Potosi, Missouri, and Danville, Kentucky. The Potosi plant was earmarked for production of a new Red Wings for Women product line, which was established in 1994. At mid-decade, Sweasy handed the presidential post to Joseph Goggin, remaining chairman and CEO himself. Goggin had been with the company for nearly 30 years, serving as chief financial officer prior to becoming president.

In 1999 Red Wing Shoe restructured into brand-centered divisions in order to better focus on its customers and to aid the company's international expansion efforts. The Red Wing division offered premium work-oriented footwear, including steel toe, rugged work, work casual, service, and women's wear product lines. The Irish Setter division centered on hunting and sports boots, while Vasque focused on the footwear needs of hikers and backpackers. A fourth division, the WORX brand, had been launched in 1998 and offered a line of moderately priced work shoes and boots. The WORX line was produced overseas, and the lower price of the line allowed the company to pursue different markets and distribution channels than that of the flagship Red Wing brand, the handling of which was limited to protect the trade areas of existing dealers. The WORX brand could thus be distributed to a wider range of retailers, sold via mail order, and sold directly to companies.

Also in 1999 the Vasque division entered into a strategic alliance with Marmot Mountain Ltd. that, according to Red Wing Shoe, "will share key operational, logistical, delivery and information-support systems … [to] create broader opportunities in global brand development, increased customer service levels, and progressive information systems solutions." That year also saw Red Wing Shoe open a flagship retail store in the Mall of America, located in Bloomington, Minnesota, and the largest shopping mall in the United States, boasting 43 million visitors a year. The company hoped to educate and ultimately convert shoppers to its premium shoe and boot brands through this store, which featured a multimedia interpretive center with information on the company's history, products, and manufacturing process. Roger Bunn, vice-president and general manager of retail at Red Wing, hoped the store would result in Red Wing converts. He told the Minneapolis Star Tribune, "We feel very strongly that one of the hidden benefits of buying Red Wing boots is the construction, the craftsmanship, the fact that we control all processes in Red Wing. We're not real sure that most of the buying public is even aware of those benefits. We needed to find a way to send out the message that there's a reason why to buy the boots."

By 1999 Red Wing Shoe offered more than 180 styles of shoes and boots and 120 shoe sizes and widths for men and women. The company's two factories in Red Wing produced about 10,000 pairs of shoes daily, with about 12,000 pairs produced in the plants in Missouri and Kentucky. Revenues by this time had reached approximately $325 million.

NEW LEADERSHIP, NEW BRANDS,
NEW MARKETS, NEW SALES
CHANNELS

In April 2000 Red Wing Shoe reached an agreement to acquire the financially troubled Kaufman Footwear, a shoe company based in Kitchener, Ontario, that produced Sorel outdoor recreational footwear and Black Diamond industrial footwear. The deal fell through, however, two months later. That same month, Red Wing's S. B. Foot Tanning subsidiary acquired the Volunteer Leather division of Genesco Inc., owner of the Johnston & Murphy men's shoe stores. S. B. Foot thereby added Volunteer's leather finishing factory in Milan, Tennessee, to its existing plants in Red Wing and Cactus, Texas. Also in 2000, as concerns about working conditions at overseas factories received increasing attention, Red Wing adopted an international code of conduct providing for human-rights audits of its overseas contractors.

Between 1995 and 2000 sales at Red Wing climbed from $293 million to $356 million but profits were eroding. In the difficult economic climate of 2001 sales fell to $342 million. During that year, the company had been forced to turn to temporary, voluntary layoffs in February before cutting 135 hourly jobs in June. The following month David D. Murphy was named president and chief operating officer and put in charge of day-today operations. Murphy had been involved with Red Wing since 1998, when he joined the board of directors. During his career, he had spent 22 years at General Mills, Inc., serving as president of four different divisions, until 1999 when he briefly served as president and CEO of Creative Publishing International of Minnetonka, Minnesota.

Murphy took charge of a company he considered to be in crisis. In May 2005, he told Twin Cities Business Monthly, "Our performance four years ago was the worst in our history." While the downturn could be blamed partly on the poor economy, Red Wing was also beginning to lose business to competitors who had moved all of their production offshore and could therefore undercut Red Wing's prices. The company eventually developed a tiered product offering with what Murphy called "good, better, best" lines of work boots, with WORX at the lower end ($50 to $90 per pair) and Red Wing still positioned as a premium brand ($120 to $225 per pair). For the middle, or "better," line, Red Wing in the fall of 2004 introduced a line of mid-priced ($90 to $130 per pair) boots under the Carhartt brand. This brand was used through a licensing agreement with Carhartt, Inc., a maker of rugged apparel with a history dating back to 1889, when it began making durable working clothes for railroad workers.

Another difficulty faced by Red Wing in this period was that the dwindling away of the U.S. manufacturing sector was cutting into the company's core blue-collar customer base. Red Wing responded by targeting new consumer groups. In May 2005 the company launched a new line of WORX-branded shoes aimed directly at restaurant employees. These shoes met the needs of foodservice workers with, for example, soles made to minimize slips and falls, a primary cause of injury in this industry. Also that May came the launch of a new line of shoes in the "comfort casual" category, carrying the Red Wing brand, designed specifically for workers who spend much of the day on their feet, such as doctors, teachers, casino employees, and airline gate agents. In 2004, meanwhile, the company introduced a line of motorcycle boots under the Red Wing brand. The following year, Red Wing broadened its product offerings still further by launching a line of men's casual shoes. The firm then entered the women's casual shoe sector in early 2006. Overseas, in the meantime, Red Wing in 2002 launched its European-only Lifestyle line, featuring basic boots that had been turned fashionable by dressing them up with more colors and details.

In another new initiative, Red Wing moved into a new sales channel in 2003 when it introduced a line of Craftsman by Red Wing boots at more than 400 Sears stores through a cobranding deal with Sears, Roebuck and Co. Also on the retail side, some of Red Wing's key stores were relocated from dingy industry areas to upscale strip malls in order to attract more mainstream customers, and many of the outlets were remodeled with new lighting and displays.

All of these efforts helped stabilize Red Wing's financial picture, as did cost-cutting initiatives. Between late 2001 and the end of 2004, 400 jobs were eliminated from across the company. Production in Red Wing was consolidated into a single manufacturing facility, with the original factory in that town focused on research and development plus filling special orders. Leaner, just-in-time manufacturing methods were adopted that cut the amount of time it took to make and ship an order of shoes from 20 days to just 36 hours.

Revenues began to grow again, reaching approximately $385 million by 2005, when Red Wing produced more than four million pairs of footwear. That year the company celebrated its 100th anniversary in part by crafting the world's largest leather boot, one standing 16 feet tall, 20 feet long, and seven feet wide. Over that century, Red Wing had ensconced itself in the role of one of the most well-respected brands in its industry. It had also beaten the odds by being one of only two full-service U.S. shoemakers still making the majority of its footwear at home. One rival, however, took legal aim at Red Wing's "American-made" reputation. In May 2006 Rocky Brands, Inc., a boot-maker that no longer manufactured any products in the United States, filed a lawsuit against Red Wing alleging that the latter was deceptively marketing its WORX and Irish Setter brands as being produced in the United States when they were in fact partly or completely manufactured or assembled overseas. In the meantime, Red Wing's international operations continued to expand with, for example, a Japanese office opening in 2006.

Kerstan Cohen

Updated, David E. Salamie