This festive season, 336 people are joining the ranks of those anxious about what lies ahead for them next year. In what has been described as a body blow to footwear manufacturing in Cape Town, Green Cross staff were informed last month that the local manufacturing operation will be closed.
Green Cross MD Roger Coppin announced in an e-mail to staff that the footwear company had made an in-principle decision "to import all products for re-sale through its retail operations and to wholesale customers".
The shoes will be imported from the East and Europe for Green Cross outlets.
Bernadette Brown, who has worked for Green Cross for eight years and is a shop steward of the Southern African Clothing and Textile Workers Union (Sactwu), said: "This news was a shock. People are traumatised and very upset. Our livelihoods are going down the drain."
Of the 336 jobs set to be lost, 249 are those of factory workers, some of whom have worked there for more than 20 years. The company employs 643 people, which includes those in the retail division. The Epping facility can produce about 2,500 pairs of shoes a day. Although machines are used, making each pair still requires 50 pairs of human hands.
Green Cross, founded by Karl and Hildegard Zeppel in 1975 in Cape Town, became a subsidiary of AVI when it bought the company in 2012 for R382.5m. AVI owns consumer brands such as Willards, Five Roses and frozen foods business I&J, as well as upmarket shoe retailer Spitz. Green Cross focuses on comfortable, classic shoes.
Poor performance
Sactwu senior researcher Etienne Vlok said the decision to close the factory was a slap in labour's face. At the recent job summit hosted by the presidency and the National Economic Development & Labour Council, business committed to stop current retrenchments and to create jobs.
"Here you have a business, a subsidiary of a successful company, retrenching staff, which calls into question business's commitment. They are acting as if the South African context doesn't matter to them. Either they are unaware or they are choosing to ignore it," said Vlok.
Coppin said in the November letter to staff that when AVI acquired the company, performance was encouraging. But, he said, despite substantial investment, the company has performed poorly in the past five years, with deteriorating sales volumes and profitability.
He said R125m had been invested to support factory modernisation and efficiency, store growth and improvements to working conditions. Over R60m was also invested in net working capital. Among the factors contributing to "sustained" poor performance, Coppin said, are "rapid expansion of competitive retail offerings", "sustained discounting by big-box retail competitors" and "substantial weakening of the economy".
A former employee, who wanted to remain anonymous, said "the factory is a noose around AVI's neck". The employee said Green Cross management appointed by AVI was not experienced in shoemaking. Since 2012 there have been four MDs of Green Cross: Robert Lunt, Greg Smith, Tracey Chiappini-Young, and Coppin.
Vlok said AVI recognised it had a strong brand in Green Cross. "They are keeping the brand and the retail business, but closing the manufacturing. They are going to extract everything they can from a local brand, but import the product."
Asked for comment, AVI said in a statement issued on behalf of Green Cross that the company's decision followed a detailed review of options available to restore the business to sustainable profitability. The review, it said, concluded it is not possible for Green Cross to successfully compete and grow in the highly competitive comfort footwear market by continuing with the current operating model, which relies on a significant volume of local manufacture.
"Notwithstanding material investment in its manufacturing facility, production volumes have declined to sub-economic levels resulting in significant under-recovery of costs that make it impossible for Green Cross to achieve a sustainable level of profitability. Green Cross trades in a highly competitive segment of the footwear market that is supplied mostly by imported product, and management believe that it is necessary to migrate to a full-import operating model as soon as possible to protect the wholesale and retail businesses."
In the year to end June 30 AVI reported a 2% rise in revenue to R13.44bn and an 8% increase in net profit to R1.67bn. The fashion brands division's operating profit rose 6.2%.
When it released its results in September, AVI said Green Cross had a disappointing year but the business remained profitable and cash generative and the operational changes made during the year would significantly improve core operating performance and working capital levels. But in the November letter to staff about the decision to stop manufacturing, Coppin writes: "The company has now started trading at a loss and is currently showing a loss of R5m for the first quarter from July to September."
When AVI bought the business, Sactwu raised concerns at the Competition Tribunal that AVI was not committed to local manufacturing in SA and would curtail local manufacturing of Green Cross in favour of imports. AVI, at the time, denied that it would retrench employees as a result of the merger, and the tribunal "found no evidence from the filings which contain AVI's business plans for Green Cross that it will".
The Competition Tribunal confirmed this week that the merger had been approved without any conditions.
A Commission for Conciliation, Mediation and Arbitration process between Green Cross and two unions, the National Union of Leather & Allied Workers and Sactwu, begins this week and may be completed by the end of April next year.
'Sad indictment'
Independent business analyst Chris Gilmour said awareness of the Green Cross brand among the emerging middle class was probably an issue. AVI's Spitz, with its Carvela and Kurt Geiger brands, has "huge resonance with this demographic", he said, but Green Cross conjures up images of comfortable footwear, bordering on semi-orthopaedic.
Gilmour said: "It is a sad indictment of SA manufacturing that Green Cross shoes will no longer be made locally but will be imported." Volumes are not large enough to obtain the economies of scale required to continue local manufacture, he said...