The Pacific blues

Despite CEO Sue Morphet telling us that PacBrands has had a 'solid half year' she couldn't duck a media shellacking over delivering a $150 million loss and sacking nearly 2000 workers as the company winds down its manufacturing in Australia.

The doubling of her salary also came in for some ironical guffaws and harrumphs.

The strange aspect of her announcement was that it was delivered red with a certain amount of theatrical surprise. My goodness, we can't make money manufacturing in Australia. Um, let's go off to China and see what we can get from there.

I wasn't like that at all, of course. By its own admission, PacBrands was already sourcing 75 percent of its goods offshore. The equation Sue would like us to believe is: balance of 25% to go offshore = profitability.

Sue tells us that 20 per cent of the brands (about 40 of the little buggers) bring in two thirds of the loot. That sounds as though you could dispense with about 150 brands without doing too much damage to the sales total and produce a much more encouraging bottom line.

Although this is a dreadful time to be selling industrial real estate, especially in regional areas, the factory buildings will go under the hammer once the employees have been seen off via much union protest.

But hey, I'm not about hammering more nails into unfortunate Sue's coffin. Rather, it is worth a moment of reflection to look upon the monster she is trying to control. Certainly, tight times have not been kind to any softgoods brands but the cracks were in PacBrands well before the economic slide.

The company admits to owning 212 brands. It turns over more than a billion dollars a year and has a list of staggering statistics about the millions of items it sells in certain categories. These numbers are handy for PacBrands executives to include in their Powerpoint presentations when the need arises.

Based on 2008 figures, there have been some admirable increases in some of the brands, but we have to remember much of that came from a euphoric market period. Reality will bite for the calendar year 2009.

Be that as it may, PacBrands is an impossibly difficult company to run, made all the harder because the driving force of garment marketing is entrepreneurial and a large number of PacBrands' businesses are to do with garments.

There have been many attempts in Australia to gather clothing brands under one roof and manage them as a corporation but none has stood the test of time. Post Second World War, the pioneer of such projects was Dunlop, led by Eric Dunshea, who assembled a number of profitable brands under his umbrella only to find the umbrella blew inside out. PacBrands is the latest and greatest of this kind of enterprise and I believe its fate is already sealed. When Yakka (one of its current brands) was owned and led by the founding Laidlaw family the owners were the operators. They gave time and worry and intuition to the cause in a way you can't possibly get from paid employees, no matter how many MBAs they might have. Sure, they care, but not beyond their own jobs.

Admittedly, the closer you can keep to commodity lines like underwear, workwear and active sports uniforms the better chance you have of a corporation being able to control them. And PacBrands has plenty of those; they have enabled it to survive thus far. But without entrepreneurs with their money, their pride and their balls on the line it was always going to stumble.

Wherefore art thou Stephen?

It was not surprising, but nonetheless sad, when one of our last and highest quality knitted fabric producers, DPK Australia, went mahulla recently. Stephen Brender had been battling the odds in Sydney against imports, lack of local customers, problems with water and the cruel export market. He finally ran out of money and tossed in the keys.

While selling the assets of any manufacturing enterprise is difficult enough, who in Australia would buy second hand knitting, dyeing and finishing machines apart from scrap metal merchants or those wanting to create an interesting breakwater?

But there was somebody overseas. A company in Bangladesh was willing to pay above scrap metal price for the stuff - so off it went. That's not the end of the story. Guess who has now set up in Bangladesh? Stephen himself. Assuming he's given his old machines a welcome home, he'll have a chance to become part of Banglaschmuttas, the new darling of Australian importers. He'll have everything he didn't have in Australia: low cost labour, strong local demand, a real opportunity to export and plenty of water - probably a lot more than he wants in flood time.