INSIDE THE STORM
For starters, Mountain Buggy will give them a powerful contemporary case study showing how what can go wrong, sometimes will go wrong. Mountain Buggy doesn't export to Ireland, but at times Murphy's Law was the only law in town.
The financial failure is also an example of how the recession throws up opportunities—in this instance for Mountain Buggy's new owners, phil&teds.
Mountain Buggy had looked destined for a bigger and brighter future under Tritec ownership. In 2007, Tritec reportedly doubled Mountain Buggy production and sales to 45,000 units, taking revenue to about $30 million. It had already picked up exporter awards, international design honours and rave reviews from customers.
Ask Tritec management what happened, and you'll hear a recessionary tale. It starts with the most basic of business priorities: cash flow and balance sheets. Tritec managing director Charlie Fairbrother says debt and falling cash flow were the "most significant part" of his company's financial failure.
Clouds began to gather when Tritec identified problems with its Netherlands-based European distributor, which Fairbrother believes wasn't representing the brand properly. The decision was made to buy the troublesome distributor, but Fairbrother says Tritec didn't realise just what it was getting. In particular, Tritec didn't know how much stock remained unsold—"three times as much as we thought".
Fairbrother says the true size of the inventory was picked up two weeks before settlement, when Tritec was doing due diligence on the distributor. It was also looking to buy its United Kingdom distributor, and decided to go ahead with the sale. Fairbrother says it did have the option of abandoning its purchase of the Dutch distributor, "but if we did that we would have had to buy the [unsold] stock anyway".
Then, after it took up ownership, Tritec found the Dutch distributor had flooded key European markets with heavily discounted Mountain Buggy product in an effort to reduce stock levels. Now they had a discounted brand, a faltering market and a lot of buggies to sell. "We had a situation where the retail channel was full, on top of which we had more inventory than we thought," says Fairbrother.
Although Fairbrother says the sum Tritec paid for the actual distributorship was small—"most of what we paid was to get the stock back"—it was an expense the company hadn't anticipated, and came at a time when sales were starting to sink. In the end, the purchase was a large part of the company's $22 million debt.
In early 2008, the storm arrived with a vengeance when Mountain Buggy sales in the US took, in Fairbrother's words, a "significant dive". Again, distributorship woes played a part. Fairbrother says Tritec wanted to pitch its buggies into a higher segment of the market, away from the intense competition of mid-range product. The US distributor, he says, "struggled to do that".
Now Mountain Buggy's two main export markets, Europe (especially Scandinavia, Belgium and Luxembourg) and the United States, were tanking. Fairbrother says his company was getting an early taste of the global recession. By now, Tritec's bank would have been getting nervous.
Then the real recession hit. Tritec, already struggling to meet debt payments from its rapidly falling cash flow, found itself under intense pressure with little hope of sales picking up any time soon. In December 2008, the company reported that Mountain Buggy sales were down by a third on the year before. A month later the bank pulled the plug.
THE RETROSPECTIVE
But people who know Mountain Buggy well—and have no axe to grind with the company, although they declined to be identified—say there's more to the story. One source told Idealog the company got into strife because it had too much of something that many Kiwi companies sadly lack: ambition.
It also had a critical shortage (this time shared by many Kiwi companies) of management ability to keep up with the company's aspirations.
Mountain Buggy's owners—a group of managers including Fairbrother who bought out a failed manufacturing company in 1998, adding Mountain Buggy in 2004—were determined to grow their company. At various times Mountain Buggy projects included buying the European distributorship, international market development, streamlining production at the Lower Hutt factory, reviews of strategy and systems, and a major rebranding exercise. It was also involved in business support programmes such as Better by Design and Manufacturing Plus.
The source says that while Tritec's plans were textbook export stuff, trying to do all the projects pretty much at the same time overwhelmed the small under-resourced Kiwi exporter.
Fairbrother agrees this did put a strain on the business, "but it wasn't anything we shouldn't have been able to handle".
"Mountain Buggy's main export markets were tanking. Fairbrother says his company was getting an early taste of the global recession. The bank would have been getting nervous. And then the real recession hit"
Yet attention was needed elsewhere. Managing distribution in markets on the other side of the world is a perennial problem for New Zealand exporters. Getting the right distributor is crucial. Tritec inherited its European distributors from Mountain Buggy's previous owners.
Fairbrother says one lesson for other Kiwi exporters is "not to take on someone just because they're there".
The situation Tritec found itself in also highlights the importance of having staff in the market, on the ground. If Tritec had a permanent presence in Europe, it's more likely to have been aware of the real inventory and retail problems.
Several people spoken to by Idealog are also critical of Mountain Buggy's rebranding project, saying it created a disconnect between the essential New Zealandness of the brand and what the company was actually selling. The original branding, encapsulated in the Mountain Buggy name, was steeped in New Zealand's international image as a home to an active outdoors lifestyle. Designing and building the rugged go-anywhere buggies in New Zealand was a key part of the brand.
But in the middle of 2008, a press release announced that "worldwide research to better understand what consumers are looking for" had inspired a whole new brand identity, based on design, safety, engineering, trust, ease of use and versatility.
Under the rebranding, Mountain Buggies were pitched as more versatile, catering for any lifestyle—"Whether you're walking in the park, browsing shops or power-walking on the beach," the brochures promised. Some believe the new message undercut a key part of the Kiwi brand story.
Fairbrother dismisses this criticism, saying the market research found the brand was "too masculine and turned off women—the mothers who are the primary decision makers in buggy purchases".
As is typical with marketing issues, it's hard to get a handle on how much this switch cost the company in terms of sales, if any, but our sources believe it hurt a lot.
Finally, it appears Tritec did not pay enough attention to product development. When Idealog suggested to one source that the company was 'design-led', the term was vehemently disputed.
By signing up to the Better by Design programme and doing the rebranding, Tritec indicated it was aware of this shortcoming, but perhaps didn't solve it quickly enough. Like the branding issue, it's one companies may get away with in the short term and in good times, but when sales go flat, fresh products can be the difference between a sale or bust.
Again, Tritec is not alone in this deficiency. The words 'design-led' get thrown around a lot, but many Kiwi manufacturing exporters concentrate on what's going on inside their factory (what they enjoy and know) and don't pay enough attention to what's going on in the minds of their customers (which is hard because of distances involved and usually not the natural focus of manufacturers).
MADE IN NEW ZEALAND
Tritec has always been a fiercely proud New Zealand manufacturer. At the time it announced its doubling of Mountain Buggy production, it said it was determined to keep its manufacturing base in Lower Hutt, at least till it came down to a choice between a factory in China or company failure.
Tritec receiver John Fisk told the Dominion Post that distance from the company's markets was an issue. "Certainly freight is a big cost when you are on this side of the world and a lot of the markets are in Europe and in America. There are pros and cons of manufacturing here, but there is a cost in producing things from New Zealand."
It's something Fairbrother acknowledges: "It means we have smaller margins than our competitors." But Tritec believed there were compelling reasons to stay in New Zealand. First, New Zealand-made was a key (though perhaps weaker after the rebranding) way of setting the company apart in a crowded world buggy market.
Second, Fairbrother says having the manufacturing operation in New Zealand meant the company could keep tabs on quality. It does, however, import some components such as fabric from China. "We moved to outsource where it makes sense," he says.
There is evidence that a niche focus like Mountain Buggy's can help small New Zealand manufacturers offset our exporting obstacles such as distant markets, difficulties in keeping tabs on market trends and distribution hurdles. As shown by Mountain Buggy's initial success, a little formal marketing effort, word of mouth and the occasional media coup can be enough to sustain a niche manufacturing exporter in New Zealand.
Across Wellington harbour in Wellington city, Mountain Buggy's new owner, phil&teds, has taken a different approach. In chief executive Campbell Gower's words, rather than "import a whole lot of steel and fabric from Asia into New Zealand, trying to add some value to it here, pay the freight into and out of New Zealand then send it back to Europe," phil&teds manufactures in China. It also outsources logistics and distribution.
Marketing, design and production engineering, Gower says, are its core competencies. "We used to manufacture, so we know from experience that we are not good at it," he says.
"There is no shortage of factories, but there is a shortage of ideas."
The contrasting approaches are there for everyone to see in the very names: Tritec Manufacturing and phil&teds Most Excellent Buggy Company.
A tale of two buggies
A champion of the New Zealand-made exporting goes into receivership and is bought by a competitor that makes its products in China.
Significant?
Not surprisingly, Campbell Gower, the chief executive of Wellington buggy company phil&teds, is guarded about what—if anything—his company's purchase of Mountain Buggy signifies for New Zealand manufacturing exporters.
The two brands are at opposite poles of the approaches that New Zealand companies take to exporting manufactured products. Phil&teds sees itself as New Zealand-based design, engineering and marketing enterprise. Its buggies are made in China. Mountain Buggy saw itself as a manufacturer and an avowedly Kiwi one at that.
One exports IP, the other products (albeit with Kiwi IP embedded in them).
Gower, speaking a few days after sealing the purchase, didn't want to get into the merits of local versus offshore manufacture, and was circumspect about the future of Mountain Buggy production in New Zealand. He says the decision, scheduled for later this year, will be based on what works for phil&teds and what keeps the company internationally competitive. "I'm open-minded."
He points out that making Mountain Buggies in New Zealand is—or was—a key part of the Mountain Buggy brand, and says his company is not wedded to the idea of having to offshore its manufacturing activities. Roof racks made by its automotive accessory business, Hubco, are made in New Zealand, though its supply chain is international. Content for the Mountain Buggies mainly comes from New Zealand suppliers.
However, in the past Gower has been sceptical about importing materials from Asia, adding value here, then exporting the finished product to Europe.
It's not clear how far this international competitive disadvantage pushed Mountain Buggy towards receivership. The receiver has indicated it was a factor, but prior to some mistimed business decisions Mountain Buggy appeared to be a successful and sustainable business.
Yet it failed. So is the New Zealand-made model broken?
Phil O'Reilly, chief executive of Business New Zealand, believes it has a bright future, as long as the manufacturing sector stays focused on what it's good at. "The big danger for New Zealand manufacturing is not India or China; it's taking our eyes off innovation and skills," he says. "If we stop investing in these areas, we will have a problem."
O'Reilly, who took part in the Manufacturing Plus exercise aimed at developing a vision and a strategy for New Zealand manufacturing, says an overlay of New Zealand branding can be a powerful force on world markets. "Among the world's wealthy consumers, who many of our exporters are targeting, there would be very few who don't know of New Zealand."
He says these people have very positive images of New Zealand. "They dream of us. It's an incredible brand we have."
