Maurice Callaghan CEO Classic Sheepskins talks about the key decision to concentrate on quality over price at the very inception of Classic Sheepskins, his belief in ‘it’s either up to a standard or down to a price’, how they have continually fended off copycat competitors through continual product innovation that launched their Infant Care Range and the global success of Snuggle Feet and how market testing has helped validate innovation before introducing to bigger retailers.
Maurice also shares his thoughts on the temptation to move production offshore and why he chose to keep production in New Zealand despite a forecast cost reduction of two thirds (hint: it’s the 100% Made in NZ label!), setting product pricing globally, the shift to online sales presentations and how online marketing is reinforcing the Classic Sheepskin brand thanks to his son Kieran.
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Ryan: This is the Ryan Marketing Show, and you’re listening to episode 28 of 100. Today, I’m joined by Maurice Callaghan, CEO of Classic Sheepskins of Hawke’s Bay, New Zealand. Great to have you on the show Maurice.
Maurice: Thank you.
Ryan: Now Classic Sheepskin is something of an institution, you’ve been around a long time, what forty-seven years or so now.
Maurice: That’s correct, tannery was started in 1969, and I with two others, was a founding member of the company. We built the buildings ourselves, started the handy work and the wet work and the finishing was all done by the three partners and as production increased and sales increased we took on staff and then allocated different functions to each of the partners. I become the marketing manager, probably cause’ I can talk the most, one of my other partners was an industrial chemist so he took charge of the tanning side of it and the third partner became in charge of the administration side. And it just progressed from there. We grew like top seat, at one stage I had a count up and we had twenty-six additions to the buildings around the properties, we had the fourth site to buy a second property next door to allow for the expansions and since then we’ve bought another two properties across the road and expanded out. Our vicinities over there as well.
Ryan: So during that period of time, you’ve overseen some massive changes in how the New Zealand economy works and the exporting of products, what were a couple of pivotal moments for your business in that period of time?
Maurice: The first thing we made it a rule to concentrate on quality rather than price, we’ve never really tried to compete on price, we felt we would be left at the back door if we did so, and that’s proved to be the case. We have looked at product that no one else is producing, whenever we got into a crisis of having competitors come along and copy our product and then undercut us for price, we went out and sought out new and different products, and we tried to keep ahead of the market by doing that. For example, when I was a kid there was no such thing as a lamb skin rug it was all sheepskins, and I remember selling some seconds to a national company and they sold very well and the man came back to me mainly because of the price. The buyer came back to me and said, I think we could see about seven or eight thousand of these a year but they just need to be a bit bigger. Well of course everybody wants a bigger skin for a smaller price, so I had a look and thought what about some sheep skins and we produce those and they were a real hit. We did about three years of marketing of those and no one challenged that so it got us on our feet and we really started to go forward as a result of that.
Ryan: So you’ve kept your prices at a premium level, enabling you to maintain a quality level that’s superior in the market place, and then re-investing that into innovations and products, is it?
Maurice: That’s correct. We looked at products that the market may or may not want and we tried them out on a small scale and if it worked in some of the boutique type stores, then we approached the bigger buyers with those products and offer them out as soon as we got them accepted in a big company though we would then look for another product because it soon runs out once the big stores run it, it runs it’s course very quickly.
Ryan: Right so market test on a small scale, go to the big retailers, that then means your competitors kind of catch up and you need to then re-innovate again in a different space.
Ryan: And what are some of the products over the years you’ve had the most success with where you’ve created something completely new?
Maurice: Completely new, one of the skins that came on the market some years ago, was lambskin called a beta lamb, the beta lamb is a weight animal that’s sold as a whole carcass into Greece where they spit roast the lamb carcass whole at Easter time at the holy festival and the skins off those virtually had no use to anyone and I had a look at them and thought, what can we use them for? They were very soft but albeit very small, we started making a few products like mittens and hats out of them and then we offered them as a whole skin for prem babies and we do an infant care rug, and our normal size rug was unsuitable for prem babies. So we developed an infant care out of beta lamb skins and it made a real hit, we completely dominated the market we bought entire stock each year from the freezing companies who were only too happy to release them to us because they couldn’t find a use for these skins for the first while. We had probably the march on those for three or four years then the Italians realised the value of these things and used them in their fine leather bases so they went out but that was one that had a very good trop while it lasted.
Another one that’s our Snuggle Feet, these were had crocheted slippers that we turned out. They were a bit of a novelty thing for a start, but they developed a real name we decided we wouldn’t let anyone else get in on these so we copywrited them and we have been selling that product line for over thirty years now. We sell them all around the world, in fact in the UK we have just one company who sells that skin, that product just in it’s entirety. They set up a company just to sell that product, so it’s a case of where you get onto a good market. It’s a bit like one of those brands that you see over seas where it’s unique, this was unique and it still is and we get a good traction out of it.
Ryan: I remember that, the Snuggle Feet in particular, I remember getting a parcel from my parents when I was living in London, of Snuggle Feet for me and my partner at the time and she was over the moon. This is a New Zealand product and going into an English winter over there and having something like that, just for around the house because they don’t tend to have carpets there, is a great thing to and it’s a reminder of home. I think it was only about $135 and I can understand why they’re a hit. So you mention their trade marking, how important is that across the range or is that just for the Snuggle Feet?
Maurice: You can trade mark and copywrite. Copywriting has a little more grunt in as much that you can actually track down companies and hold them to account if they copy them. With the trademark, they can get around by changing it a little in one way or another and with the copywriting of that, because they’re hand crafted, that gave them an edge and the fact that they are, you mention in the UK, because of the different winters in the UK. Most Kiwis and Australians we may buy footwear they like to think, oh we want to run out to the milk box or the clothes line so they have to have a sole on them. Whereas this one is strictly an indoor slipper and when there’s a metre of snow on the ground you don’t run out to the milk box or the clothes line so that’s where they have that advantage. They’re definitely a Northern hemisphere product, we targeted that market.
Ryan: And you mentioned that the products are hand stitched and hand made and is that locally here?
Maurice: Yes, in our hay day, we had up to eighty out workers hand crocheting that product. We had one staff member full time just co-ordination the manufacture of Snuggle Feet.
Ryan: At any time were you swayed or thought about off shoring the labour command, because that for merchandising has been kind of a trend for the last twenty years here, and you’ve kept your manufacturing here, have you ever been tempted?
Maurice: Very much so, I did an exercise on that particular product, the Snuggle Feet and we could’ve knocked the price down by two thirds, if we’d gone into one of the low labour rate countries and at the time we were looking in Fiji and also into China, and the crocheting which takes about an hour a pair in particularly with the minimum wage rate here. So at the time I was looking at it, wage rate was $13 an hour and we worked on an hour per pair, and I could’ve got them made for $2.60 in China, but it would’ve taken away that one hundred percent New Zealand made manufactured aspect that we sold on so we decided against it.
Ryan: I think that was the right choice, there are a lot of American businesses who have off shored to China and have got that additional margin, however now that everyone’s at that point, they don’t have that differentiation so some of the manufacturing has now been pulled back to the US because consumers recognise there’s a benefit for paying that premium.
Maurice: I had one principle customer, two in fact now I think about it, one in the UK and another one in Scandinavia who told us point blank that if we went to China, they wouldn’t be continuing carrying the line so it was choice well made.
Ryan: How do you then go about setting the pricing in each of those markets?
Maurice: Generally, the market finds it’s level, we have been told where there is a cut off point for selling something like a slipper, there is in this country. Anything over $100 for slippers and they just stop dead n the water. You get a little but more in the UK, currently that particular line is selling the equivalent to New Zealand, $125 to $130 dollars a pair, and yes I guess it’s different countries different price levels and it all relates around earning capacity and at Scandinavia you get a little higher as well. So you target the market at the price of what you think the market can be in.
Ryan: And then how does, the online sales play a part of that?
Maurice: Today, it’s got to be a very big part of the business, in fact even when we sell to a whole sale outletter overseas they in turn sell online, so I would ninety percent of all that product is sold online or whether it be from out of this company or through our contacts that we sell to overseas.
Ryan: And I did look online and not only have you got the ecommerce side of it to be able to buy online and then ship, your also one of the first interviewees I’ve had on the show that’s gone all in on Pinterest. You’ve got a lot of your products beautifully arranged in different curated boards, I think I counted up nineteen different curated boards there, is that a big part of the business to get people to know about Classic Sheepskins?
Maurice: Yes it is, you’ve got to keep reinforcing the brand and my son has come on board and he’s really into the IT thing. I’m afraid I’m a little behind the times, I go by the tried and true method of going and seeing a buyer and promoting the product and getting behind it with some advertising. When he’s hitting everything with the IT and making a huge difference, we’ve seen tremendous strides the last two years. It’s the way to go in fact, we are still very much old fashioned if you like and as much around the country we still have commercial reps repping our product, calling on customers. I have one fellow who’s been with us twenty-six years and he’s about to retire and we’ve made the decision not to replace him, we’ll be contacting the customers direct through emails and doing presentations online to them and serving the market that way because I’m firmly convinced that it’s the way to go now.
Ryan: I think that’s one of the most interesting challenges in todays environment is knowing when to make this shifts and who do you get to then look after and I think for example having your son on board, that really helps because he’s got skin in the game obviously. What are some of the hardest decisions you’ve had to make as a chief executive at Classic Sheepskin?
Maurice: Probably, when people become victims of technology. When we were in our hay day and I’m talking fifteen years ago, maybe twenty, when we started to upgrade a in technology and mechanising things, it’s a very labour intensive industry, we estimated skins handled twenty-six times from the time it’s received through the door to the time it’s presented for sale and all that has been manually done. I’m thinking in terms of men throwing skins into bars, pulling them out, putting them through fleshers which is a machine that removes the fat and extraneous matter from the skin, and going through all the single processes. It’s very labour intensive, well by mechanising, now you have pullers where you just lift the skins out and you have false bottoms on baths so you drain them you don’t just throw them up on paddles and things like that so we’ve seen our staff numbers reduce from during our busy period, our season period from around about eighty, eighty-five down to fifty, fifty-two and that’s had a big impact because when you see people who are sort of looking over their shoulder wondering if they’re going to have a job when they see a new machine, and that’s always very difficult.
Ryan: So bringing that technology in that you know will ultimately keep your business going and surviving, means it does trim some of the areas of jobs. Do you find that there’s almost a reticence from some of the employees where they see a new machine, even though they know that that’s going to be doing a better job for the company in the over all?
Maurice: Yes, that would’ve been the case but now we’re almost up to the cycle where we work on a lean machine, pardon the pun, aspect in as much that anything is just going to improve the quality rather than cut down the numbers of people.
Ryan: Now I see you still do the tourist tours, two times a day, 11am, 2pm, six days a week so that’s something that hasn’t changed. Is that mostly New Zealanders going through that or internationals, and what’s your reasoning for keeping that in the marketing mix?
Maurice: It gives brand exposure. We are very open about things, we don’t hide anything, we’ve had competitors comes through and say, boy I wouldn’t show people that. We worked on the theory that if people want to find things out, they’ll find them out so why hide it? In answer to your question whether it’s New Zealanders or overseas, I’d like to think it’s a 60/40 split, 60 percent New Zealand, 40 percent overseas visitors. The figures are a bit skewed by the fact if you get school parties you can get 68, the kids come through at a time and a couple of bus loads and they go through but it’s all really geared around promoting the brand. I quite often sometimes find it a bit gruelling but when I’m being introduced to someone, say oh Maury owns Classic, and people know that and they don’t say Classic Sheepskins or Classic … Classic and particularly around this area, people seem to know it and so I think myself well the brand must be working it if people are associating with just one word then.
Ryan: It’s amazing to be able to do that, as it takes a lifetime to build a brand and you can lose it in an instant when something may go wrong , from here looking into the future, where do you want to see Classic Sheepskins get to, where’s next?
Maurice: When we first started this business we never ever did long wool skins, it was all short wool. The business was set up to propagate a patented idea that we had, of doing an acoustic wall ceiling tile about a sheepskin. So we only did short wool skins, cause’ in order to try and promote this product we made other products and in those days we concentrated on car seat covers cause’ every motor vehicle had a vinyl seat which were terrible things to sit on.
Ryan: That’s right.
Maurice: And so we made car seat covers, short wool car seat covers and we turned out thousands of them, we gradually moved into long wool because people said, why don’t you do some rugs for the tourist industry, and the business quickly started to swing around from one hundred percent short wool to around 50/50. Fifty percent short wool, fifty percent long. I see the trend going back that way given the competition that is coming that we’re facing in the long wool production. When we started this tannery, wool skin tannery, within seven or eight years of us starting it there were thirteen wool skin tanneries in New Zealand. Nine wool skin tanneries in Australia and nine that we knew of in China, there are now two wool skin tanneries in Australiasia, and three hundred and thirty-four in China.
Maurice: And the Chinese, they have a way at looking at your product, looking at your pricing and they’re prepared to go in and sell at a loss for two years just to gain the market and then raise the price back up again, and so I’ve have a long look at this and realised there is a price for some of our specialised long wool stuff. We turn out numbers that are not large enough to interest the Chinese manufacturers and become boutique type tanners. So we will concentrate on long wool and specialty lines, specialty skins in long wool, i.e breeds, natural blacks, that sort of thing, and then short wool products that we can turn out in mass that we do now into the industrial markets for example, where they’re buffing bonnet skins to cover the overheads and then into exotic skins such as deer and angora goat and any other sort of skin that comes along that’s the flavour of the day and it’s only done in three or four hundred lots, but it’s enough to keep this place running and keep it busy and keep it profitable.
Ryan: And those more exotic types, where do you envision them being placed, who’s buying them? Are they going to the homes, or commercial or where do they go?
Maurice: Generally into homes, we’ve noticed a big trend in the last few years where younger people, they need so much for a house and section and they haven’t got the wear with all to put all the elaborate furnishings in for a start, particularly carpet, so they polish the floor and through down a few scatter rugs and maybe a cattle hide but will cover a large bit of nicely grained floor, polished floor, gives it a break. There’s a big market there for that type of skin, goat skins, calf skins, even alpaca skins and I think there’s a big enough market there to keep this place going.
Ryan: I think what I like about your story Maurice is that focus on quality and operating at that premium price level and now that because of the internet and ecommerce being able to give you that direct to market, your quite ideally placed to be able to go and innovate in these very niche level of niche lines and sell just a few hundred at a time and I think for business’ that are going down that route that have a much better chance of surviving against the price driven and volume driven markets like China and I think that differentiation it could be quite exciting for you in the next few years.
Maurice: I sincerely hope so, I work on the principle it’s either up to a standard or down to a price and by keeping to the standard, people buy it from us with confidence, they know that we’ve put the work into it. They pay a little extra, but they get a product that they can rely on. I have people coming into our retail shop, one man just recently came in then and said it’s time to replace my Moccasins, I’ve had this pair of Moccasins for 32 years. It’s the last thing I want to hear from people buying our product, particularly in footwear but I know from my own experience I’ve had slippers that I’ve worn for at least seven or eight years and when you’re getting quality, you get value for money.
Ryan: One more question before we finish up, you’ve been in this business now for 47 years, your son’s now into the business and looking after some of the online side of things, what’s in place for succession planning to bring in the next generation to keep the business going?
Maurice: It’s a very difficult one, it’s become a monolithic establishment, and it’s not like selling a corner dairy. It really needs a lincoln with someone who can provide a raw material product so you have sustainability of production because you’ve got the raw material, that’s the first point. And also, links with companies over seas who can take the surplus stocks that you’re going to turn out. You need to have certain lines that cover the overheads, it’s a business that’s designed to ruin a skin. It’s so harsh when you’ve got water, you’ve got chemicals, you’ve got machinery that rip and tear away at the wool and rip and tear away at the leather so it’s a very fractious business and everyone that tries to get into it wants to get their mark on the planet and they think the way to do it is by cutting the price. I believe that if we can, now that we’re established, in order to keep the thing going, we have still got links with raw material suppliers here, if we can get firm contracts to continue the production lines then this company will be around for many years to come.
Ryan: Well, that’s a fantastic insight and I think to run a business for so many decades and employ so many people over that period of time, you’ve got to be very proud to have built this to what it has got to, and I certainly look forward to seeing where it goes next.
Maurice: Thank you very much.
Ryan: Thank you for your time Maurice.
Maurice: Thank you.