The unkindest cut

LWR owner Ken Anderson, shortly after he purchased Auckland textiles and homeware company Pod in 2007. Photo / Simon Baker

There can't be too many workplaces left in New Zealand that can claim to have employed four generations of the same family. Sadly, one of the last remaining ones looks like it has been crossed off the list.

The decision by receivers to lay off nearly 200 staff from clothing company Lane Walker Rudkin last Friday, and to warn them that they were unlikely to get any redundancy or holiday pay, was brutal by any measure.

While it had been apparent to some in the industry for some time that LWR's days were numbered, no one expected the end to come quite so swiftly - or tragically.

National Distribution Union president Robert Reid, who began his career in the now-decimated footwear industry, is a veteran of hard times. His partner, Maxine Gay, is the union's secretary for the clothing and textiles sector, so the couple are used to dealing with bad news.

Nevertheless, Reid - like many of LWR's 470 staff - was reduced to tears on national television as the seriousness of the situation sunk in.

In a clever piece of PR, the union held a cake stall outside Westpac House in Wellington this week, to raise money for a support network for those who have devoted their working lives to LWR but have suddenly, without any notice at all, been dumped on the economic scrapheap.

While there is little public sympathy for bankers right now, Westpac must also be hurting. LWR is believed to have racked up debts of more than $100 million - which begs the question how on earth its problems were ever allowed to grow so large.

According to the receivers, LWR has not made money "for years". Yet it appears the sole owner of the business, Christchurch businessman Ken Anderson, managed to persuade the bank to keep supporting him.

There is speculation that Anderson's private investment company, Stirling Corporation, could also come under scrutiny. Is is understood the main bank involved in that company is BNZ.

While it has yet to be revealed who else has been caught by the receivership, further fallout is likely. LWR is, for example, one of the sponsors of the Canterbury Rugby Football Union, and supplies its Union brand team jerseys.

The future of its Auckland-based textile and homewares business, Pod, is also up in the air. Pod has three divisions which together employ more than 200 staff: merino business Designer Textiles International, fashion distributor Michele Ann, and curtain-maker Mollers Homewares.

Anderson bought the Pod business in 2007, six years after he and his then-wife, Patricia, purchased LWR.

Quite how the Andersons came to own one of New Zealand's iconic companies, along with the Stirling Sports retail chain and the Champions of the World retail outlets (neither of which is in receivership), seems to be a bit of a mystery.

They were unable to be reached for comment for this article.

Colleagues say that although Ken Anderson can be charming and charismatic, he is an extremely private man.

He is, for example, believed to have delayed the publication of a book written to commemorate LWR's centenary in 2004 because he wanted photographs of himself taken out. The book's author, Felicity Price, doesn't recall this happening but says the anecdote is "probably true", as there are no photos of him in it.

The book, LWR: 100 Years in the Making, confirms that Anderson trained as an accountant. He and Patricia owned a farm in the South Island and are believed to have bought LWR as an outlet for their fine merino yarn. According to the book, they also owned a sock business and an underwear factory in Melbourne.

Patricia, who continues to own a handbag business, Florian Leathergoods, helped her husband run the company.

By some accounts the couple appeared keen to make their mark in Christchurch society - notoriously hard to do in a city that values old money over new.

However, staff say the couple often disagreed over management issues, and Companies Office records show Patricia officially ended her association with LWR in 2006.

LWR's receivers, BDO Spicers, have been keen to stress that Pod is not in receivership. Its managers are still running the business and presumably it will eventually be put up for sale, like the rest of LWR's assets.

While Pod is said to be cashflow positive, it is also believed to have a fair bit of debt, and more money has been pumped into it.

"Buying up other businesses is easy and exciting," says an industry rival. "But it's not necessarily the right thing to do."

A former employee also believes the Pod purchase was a mistake, as it added to LWR's already sizeable debt and starved the company of capital that needed to be spent elsewhere. And the way it was handled was typical, he says. LWR staff were initially relieved to hear that some Pod operations were likely to be moved to Christchurch. But the plan was later reversed - jobs were moved up to Auckland instead.

Christchurch businessman George Gould was chairman of Pod when it was sold. At the time he was not an independent director, so was unable to comment on the sale. Now, he says, "I can safely say that I was very, very happy to accept that takeover offer. And now that it's history, I believe the Pod shareholders did well to accept it."

The orthodox view, says Gould, is that the industry will survive tough times and thrive, driven largely by our clever designers.

Personally, he believes only the niche players have a future. Anyone needing to make large volumes in order to make a profit will struggle against competition from Asia, he says.

"The design and innovation, New Zealand does very well at that and that should continue, but it's the production where the big threats are coming from, I think."

While the NDU has cited the bitter break-up of the Andersons' marriage as a contributing factor to LWR's problems, it is well-known that the entire sector is being slammed by intense competition from cheap imports.

In its heyday LWR employed around 4000 staff, and someone once calculated that more than 100,000 people have worked for the company over the years. Brands with which it has been associated include Jockey, Pickaberry, Adidas, Union, Everest and Liberty.

Felicity Price says she was "really sad" when news of the receivership broke.

"Doing the book, you're very aware this is not just a whole lot of iconic brands, but it's part of the history of business in New Zealand. Just about everybody in New Zealand knows somebody who worked there. It was all around the country at one stage."

About the only licences for major brands it is believed to have left are Liberty and Adidas. Several of its most successful hosiery and underwear brands, such as Jockey, were sold to its main rival, Australian-based company Pacific Brands.

Not that Pacific Brands can afford to gloat. In February it announced its own major restructuring, which included slashing 1800 jobs in Australia. Another 100 or so jobs have been axed in Christchurch, Palmerston North, and Auckland.

While Pacific Brands' problems have also been blamed on competition from Chinese manufacturers, the NDU has pointed as well to the private equity funds which owned the company before it was publicly floated in 2004. According to the union, the funds loaded up the company with debt and took out A$100 million in cash.

The union sees similarities with the demise of Feltex. In both cases it was the ANZ Bank which lost patience and demanded radical action, it says.

Which perhaps goes to show that banks are damned if they don't act, but also if they do.

Others believe Pacific Brands got carried away acquiring far too many brands, at too high a price.

Across the Tasman its woes have become a huge public issue, with the Government forced to intervene, and public boycotts of its products. Celebrities and sporting stars have been pressured to withdraw their endorsements.

In New Zealand, All Black Dan Carter continues to endorse Jockey, while its factories have been quietly closed or put up for sale.

Ironically, one of Pacific Brands' factories is on the same premises as LWR in Christchurch. It will close in a couple of months but unlike LWR will pay full redundancy to its workers, is funding a worker-coordinated resource centre, and will pay up to $3000 per person for retraining.

You might expect Peter Rudkin, great-grandson of LWR founder Alfred Rudkin, to be sentimental about what appears to be the possible demise of the family firm. But Rudkin, who succeeded his father as managing director of LWR from 1978 to 1986, says he is surprised the company has lasted as long as it has.

As he sees it, the slashing of import tariffs in the mid-80s spelt the beginning of the end of any sort of bulk manufacturing in New Zealand.

"As far as the name is concerned, it doesn't have any particular issues for me. It's more unfortunate for the people who have lost their jobs and careers."

Peter Rudkin's stewardship of the company coincided with the "Think Big" period in New Zealand politics. Depending on your view of that era, he either brought a breath of fresh air to the business, or was so wildly entrepreneurial that he allowed it to spin out of control.

Under his direction LWR made a deliberate decision not to stick to its knitting and branched out into such diverse activities as salmon farming, deep-sea fishing, meat exporting, and making wetsuits, hats and carpets. As was the fashion at the time, he also bought a company plane.

Rudkin was part of the management team that invited Brierley Investments to take a 30 per cent stake in the company, to repel a hostile raid by Chase Corporation. The move ultimately led to Brierley taking over the company, and eventually breaking it up and stripping out its assets.

There is almost universal agreement that losing its flagship Canterbury brand was its final unravelling, given that it accounted for about 60 per cent of its business.

By the end of the 1990s, Brierley was desperate to get rid of what was left of LWR and was grateful when a New Zealand-born American, David Teece, agreed to take it off its hands. Teece partnered with Hap Klopp and Chris Woodward, two Americans who had founded the North Face outdoor clothing company, to buy the business.

In 2001 Teece onsold the company to the Andersons, but kept the Canterbury business for himself and his partners. LWR continued to make Canterbury teamwear here under licence for a while, but lost the contract at the end of 2004 after a dispute over royalties.

Although Teece is still a part-owner of Canterbury, the company is these days controlled by a Bahrain-based private equity fund, owned by a Kuwaiti bank.

Canterbury's head office is now based in Manchester and the company is heavily focussed on overseas markets such as Europe, Asia, the United States and the Middle East. However, New Zealand and Australia still make up a significant part of the business and a New Zealand connection has been maintained through Kiwi clothing and sportswear company Line 7, which part-owns the teamwear licence for Australasia.

The company heavily promotes the New Zealand connection, marketing the brand as "Canterbury of New Zealand".

There is still much bitterness at LWR over the loss of the brand. In her book, Price suggested LWR was the "rightful home" of the Canterbury brand "and is an orphan without it".

Rudkin agrees. Although Canterbury is still best known for its rugby jerseys, and was once synonymous with the All Blacks, it was at one stage LWR's only clothing brand, he notes. The label was used on everything from suits to underwear.

"I think that to survive against offshore manufacturing you needed strong brands, and that was one of the strongest brands the company had. Losing that was the cornerstone of its eventual demise."

Today, Rudkin is in the financial insurance business. He is pessimistic about the future of the clothing industry here for anything other than very specialist niche players. "Most of the clothing people wear most of the time will be sourced from overseas."

One of his regrets, he admits, is the demise of many of LWR's provincial operations. The company had a deliberate policy of setting up in small towns because it knew it would be appreciated, he says.

And that appreciation paid off in business terms.

"I think that was one of the strengths of the company. It had a very loyal staff. If a factory in one of those little places was making some product that needed to be got out in a hurry, the staff would come in and work weekends, and get their husbands in to help. There was a great mutual loyalty."

Although the Andersons were originally warmly welcomed for returning the company to family ownership, current staff say that mutual loyalty is long gone.

Union officials and industry figures alike agree that Anderson can be "extremely difficult" to deal with. None would talk on the record, for fear of retaliation, but several mentioned that he appeared oblivious to the fact that the apparel industry is a small one, where relationships are easily soured.

One rival, who personally believes the only reason Anderson bought the business was to eventually make money on its valuable real estate, describes him as "very controlling".

Another says he was simply out of his depth.

"The trouble with the knitting industry is if the guy at the top is not passionate and doesn't know the industry well, knitwear companies tend to go down the plughole very quickly... The Andersons had a big chequebook back in 2001 when they bought the company, but they didn't have the experience. They wanted to do the whole process: grow the wool, spin the yarn and knit the garments. You can't be that lateral. Outsiders tend to lump yarn spinning and knitting as all one, but the technology is so different."

The same person, however, notes that Anderson is also a victim of the receivership. No one knows exactly what settlement he reached with Patricia, or whether he had to borrow yet more money to buy her out of the business, but it is widely believed that she got to keep the farm, while he got to keep LWR. Their son Mark, who at one stage also worked for LWR, is said to have sided with his mother when the marriage broke up and according to Companies Office records, is now the sole owner of the Stirling Sports chain.

"To Ken's credit, if he hadn't come along with his chequebook in 2001, LWR may have gone many years ago," says the rival. "There's always a flip side to these things."

Those still working in what is left of the rag trade admit to being punch-drunk, and some believe the situation could get worse before it gets better.

According to Statistics New Zealand, nearly 3000 jobs were lost in the clothing sector between 2000 and 2008.

Fashion New Zealand chief executive Mapihi Opai notes that some local labels, such as Trelise Cooper and Federation, are succeeding against the odds. But for many, the global recession has made the market "extraordinarily tough", she says.

Competing with Chinese manufacturers is difficult even in the good times, says Opai, although some local producers are having success with short runs that enable a quick turnaround.

However there are some signs of hope. As the Kiwi dollar drops and Chinese wages increase, some local companies are even bringing some of their production back home.

Another industry development group, Textiles New Zealand, has recently re-emerged from a period of hiatus, under the leadership of former Labour MP Liz Tennant.

Tennant, who started the job just last week, is in no doubt about the challenges she faces, but is encouraged by some of the more clever companies she has already met.

She is also optimistic about making progress on Government procurement policy. Regardless of ideology, she believes the Government was embarrassed by the fuss over Levin clothing company Swazi losing the bulk of its contract to supply wet weather gear for the army, in favour of a Chinese manufacturer, coming as it did on the eve of the Jobs Summit.

There is "wiggle room", she believes, in the wording of the existing rules to ensure local firms get the Brownie points they believe they deserve.

Robert Reid also notes some positive developments. Contrary to popular belief, one of them has been New Zealand's free trade agreement with China, he says.

On July 1, tariffs on all imported clothing, footwear and carpet will fall to 10 per cent, down from as high as 60 per cent in the mid-80s. They had originally been due to reduce to zero by 2002.

While the FTA with China means all its products will eventually enter New Zealand duty-free, tariffs on its clothing, footwear and textiles will take longer to be scrapped, not finally disappearing until 2016.

The NDU has somewhat controversially refused to take an anti-China stance, and even entered into direct negotiations itself with the Chinese over the issue. Reid was one of the officials involved, and admits he was impressed with some of the facilities he saw while in China.

"I had seen dingy sweatshops in China, and I know there are others than I haven't seen that must be bad, but ones that got described as sweatshops were no worse than ones I've seen in New Zealand and some other places."

The equivalent of Pacific Brands in China is known as Three Guns.

"It almost made me cry," says Reid. "It was next-century, with beautiful surroundings, up-to-date knitting machines, and everything mechanised."

Wages, he says, appeared to be reasonable.

The NDU would prefer to push for higher wages for low-paid workers than to erect trade barriers, says Reid.

"We will go to China; we will attend international union meetings - and not just junkets but to really work at them to put our views forward. And we are engaged in an international union campaign to get the low wages of the world up, because in the end that will protect us, not being racist and being anti-Chinese."

Meanwhile, local manufacturers are waiting to see what National will do about the previous Government's decision to defer the next tariff review until the middle of this year. Last April it was announced that import tariffs would be held at their 2009 levels until 2011, while talks took place with Asean countries and other potential FTA partners.

While many point to innovative Kiwi companies such as Icebreaker, Pumpkin Patch and Untouched World as proof that a new generation of creative rag-traders understands the challenges facing the sector, the transformation of the industry will continue to be painful for a while yet, say veterans.

Icebreaker founder Jeremy Moon admits he pays little attention to the local industry these days, apart from his involvement in the Better By Design scheme, as 80 per cent of his business is now in North America.

Moon doesn't want to sound arrogant, but says he regards his peers these days as the world's biggest and best clothing companies, such as Adidas and Nike. The problem with many New Zealand companies is they still think locally, instead of globally, he says.

Much of what is left of the industry here is still hopelessly antiquated, he believes, although he is also able to rattle off several companies he admires.

Paul Spicer, who used to be head of brands for LWR and who now works for Line 7, agrees with Moon that strong brands are crucial.

"The key problem with LWR really was that it was a giant CMT plant [cut, make and trim] for a number of companies. People like Icebreaker, Kathmandu and Jockey had all used it at some time or other and had moved on, and you can't sustain a business making for everybody else."

Spicer remains concerned, however, that the industry's rapidly crumbling infrastructure is beginning to starve future stars of vital early experience.

LWR is "the last of the dinosaurs", he says, in that it was able to do everything from spinning its own yarn, to making its own fabric, to sewing its own garments.

"As the business goes, as it gets broken up - as it will do - there is nothing like it left. The industry is losing capability if you like. You can't suddenly find a spinning mill or a yarn, all in one hit, and the whole infrastructure goes all around them, so it's quite a tragedy really."

He notes that Moon himself got a lot of help from companies such as LWR in his early days, and wonders who will be there to help the next lot of bright young things.

"There's huge hype about our New Zealand designers and that's wonderful. But every young student coming through varsity with any ounce of design skill wants to be the next Trelise Cooper or Karen Walker. And sadly, I think that's where it backfires, because the vocations aren't there for them because there's not the spaces to put them."

Spicer has worked for almost all New Zealand's major knitting companies, from Swanndri to Tamahine to Norsewear. He got hooked on the industry while still at school, when his sister married someone in the business. It's always been an industry full of "amazing and interesting" people, he says.

"I've had fantastic relationships over the years, from customers to fellow rag-traders.

" It's been a great journey really. It's not an industry that's ever been through huge highs and huge lows, but there's been a lot of severe accidents along the way, and now we're finally getting really pushed and shoved as the market changes."

The only answer, he believes, is for companies to get smart about what they do and stay flexible.

"I'm a bit of a realist. Over the years I've had my own manufacturing - I got hammered. When imports came in, I tried to meet the market. But I was also there before that when it was protected and I think that's really the wrong way to go about it.

"If you take an industry which is not working anyway, I think it would be criminal for the Government to step in and prop them up because it's only a short-term fix. It's a cost to the taxpayer. So we have to be efficient in our own right, because otherwise where do you stop? Do we support forestry and wine-growing too?"

Everyone he knows in the industry continues to have a passion for it.

"I think anyone who has done any good at it is passionate about what they do. But you have to sometimes change the way you do business, or the DNA of what you're doing, and roll with the punches.

"We can't control our dollar. We can't have some sort of false protection. That's not the answer. I think it's sad that we've ended up in an industry that has shrunk so far, but I don't believe in protection either."