Caldeira: Tony Caldeira
The St Helens-based cushion manufacturer has bucked the trend and created a thriving business
When you meet Tony Caldeira and look around his St Helens-based cushion-making business, it’s hard to believe he operates in a UK manufacturing sector that appears to be staggering from one slump to the next. The company is, after all, an exception to the rule.
Started in 1991, it has posted annual sales growth figures of 50% or more each year and expects to announce revenues of £6.5m for 2003-04 against a backdrop of industry decimation. Closures and searches for salvation overseas have been commonplace as retailers have squeezed margins to keep prices low in the face of competition.
It doesn’t need this publication to tell you businesses in traditional industries, including textiles, are thin on the ground, and that established ones tend to be in stasis. Others have shifted focus to the Far East, transforming into importers and distributors. Employment hit a record low of 3.5m last year, and the sector is shedding workers at a rate of 130,000 a year.
A pick-up in output, after years of contraction, has fuelled the belief confidence is returning, but as the CBI pointed out, the improvement comes from an extremely low base.
But that’s not Caldeira’s experience. His 160-person company has operated consistently at full-capacity, and its second base in Knowsley, just outside Liverpool, was bought with one eye on the future – an acre and a half of unused land sits behind the 50,000 square foot factory. He’s also combining the use of UK machinists with their Chinese equivalents.
Following a 20 year association with the sector, the man certainly knows his widgets. Still only 33, Caldeira was selling cushions on a market stall at 15 to help make family ends meet. His mother, a single parent, provided for the children by getting hold of fent – the off-cuts of curtains – to make cushions. Initially this supplemented her full-time job. But the fast-talking Caldeira drummed up business so successfully on Great Homer Street, Liverpool’s biggest market, she had to quit to supply sufficient volumes.
This isn’t, however, the oft-told success story of a pubescent entrepreneur using little more than a natural sales patter to get him to the top. Caldeira added an economics and politics degree to his resumé and has employed his learnings since. “At the end of my degree I decided this was a serious venture. And retailers weren’t offering good quality cushions at decent prices.” It wasn’t a testing equation, he says, so to back up his sound assertion he got cracking in a start-up unit, buying his own small factory just over a year later.
Caldeira’s first significant contract came from a prominent high street retailer. The company had been let down by another supplier for a promotion and as any retailer knows, empty shelves mean empty cash tills.
Despite the late notice and high volumes involved, Caldeira stuck his neck out and promised to deliver. After bringing in relatives and friends to fulfil the order, the retailer was suitably impressed. “He was so chuffed we got him out of the mire, he gave us 33% of the company’s cushion business. We then sold more than the firm supplying the other 66%, so he swapped us around, and now we’ve got nearly all their business.”
To date, once Caldeira Ltd has become the incumbent supplier it has tended to keep its position and now names BHS, Matalan, Woolworths and Homebase among its higher profile customers. “We give them the solution rather than the product,” he says. The reason retailers have stuck with Caldeira is due in part to the company’s niche. Unlike bedding and curtains, which come ready made in packs and are easy to import, cushions aren’t so easy to put together into a range for ‘just in time’ delivery. “Our business is a little more complicated, the products sell quickly and are portable, but they are bulky and difficult to merchandise. As well as being functional there’s a fast-moving fashion element too. Consumers would rather spend £10 on a cushion than £1,000 on a new sofa.” He has also taken advantage of the television obsession with home improvement, and when lilac was replaced by aubergine as the fashion colour of choice Caldeira was already there.
His fear of imitation means new designs are kept strictly under wraps as you’d soon discover if you visited the company’s website. “First mover advantage is vital, but it’s only a matter of time before someone takes our product, sends it to the Far East and gets it priced up. We operate in the Wild West these days as far as intellectual property is concerned and, as it costs so much to challenge, there’s not a lot you can do,” he says.
Because the business has doubled in size every 18 months or so, Caldeira undertakes near constant reviews, treating it as an almost entirely new business each time. “In theory the principles remain the same – you work for the customer, find ways for them to make money, make sure you know what you’re doing and do your sums. But purchasing power for sourcing raw materials increases as usage rates double and treble, so there’s regular means to renegotiate terms.”
He’s become good at delegating, having previously busied himself buying fabric, cutting cloth and selling. Now he focuses on working with the retailers on the design and development of products and clinching deals home and abroad to bring the cost base down. He sees these functions as key to manufacturing, as without constantly finding ways to do things cheaper or keep prices static, he’d go the way of other textile firms. “All of our supply base was in the UK when we began, but there’s little of that now,” he admits. “After the UK we looked to Spain and Belgium, then further east to Turkey and now we source in China and all over the world. I understand retailers have got to be ruthless, so we have to be too.” He adds, however, that he won’t put all his eggs in one basket.
Countries that deal in the dollar, such as Turkey and China, make obvious bedfellows. “There’s been a near 50% shift in in the euro to dollar rate in the past year, so at present it makes more sense for us to buy from countries and companies that trade in dollars rather than euros. We’ve got suppliers we are loyal to, but we will look for the best deals.” He made three visits to China last year, visiting hundreds of factories to source partners and says if you can’t beat them, you have one sensible choice.
Initially, Caldeira used UK agents offering Chinese products and people based in China, but now he goes direct to several core suppliers. And while some of Caldeira’s own cushion covers are sewn by a Chinese workforce he has kept every other part of the production line, such as making the cushion inners, filling, weighing, sorting, packing and distributing in the UK. “We will eventually have our own factory out there in addition to what we have here and a lot of the growth of the business will happen from now on in China,” says Caldeira.
One reason for this is the difficulty in getting hold of good machinists in the UK. “People don’t want to slog their guts out when they can sit on a retail checkout for the same money. That’s the paradox of full employment. As a profitable and positive company we are able to attract labour fairly easily in theory, but the difficulty is in finding good quality, available staff.”
Machinists in China also cost a twentieth of their St Helens’ equivalents. “I can’t compete with that and there’s no point in ignoring it. For the cost of three machinists in the UK I could have a factory of 50 in China.” But his UK team remain vital and Caldeira predicts domestic staff levels won’t fall, although there will be a gradual move towards more co-ordinators, sales people, storeroom housing and distribution roles.
Ethically and morally, he is comfortable and insists there is no suggestion of questionable working conditions within his contacts in China. “Like you, I thought it would be kids and slave labour, but the standard of living is rocketing and earning potential has doubled. They’ve lived a subsistence life in the past. It’s comparable to the industrial revolution, except that 100 years of economic development could happen in a decade.”
Keeping down costs
Other cost-cutting measures include the initially expensive outlay on premises, as opposed to pricey leases, and a fleet of vehicles. Caldeira believes transport savings alone have helped to pay the mortgage on the second factory. Apart from a clutch of retailers, who prefer to collect stock from suppliers, Caldeira Ltd controls its own delivery schedules.
Strict stock control and a pre-sell policy means store rooms are relatively clean and space is utilised efficiently. “That’s one way in which we do things differently as manufacturers generally carry excess stock.” It’s a constant balancing act, he says. Retailers tend to only carry the stock they need and rely on suppliers being prepared for orders that may never materialise and tying up their own cash flow. Fortunately, Caldeira Ltd’s big clients tend to be reliable payers and the top six customers account for 80% of business, so it’s rarely left in the lurch.
The company has also benefited from lower rates of interest the more it has borrowed from NatWest. It has used the bank since day one and has a great relationship with it, but the branch manager is fully aware the relationship remains under review. “Only last week we got a foreign exchange quote elsewhere and went with it. We called their bluff. While we’ve not moved our mortgage it keeps them on their toes.”
Inevitably, most of the company’s savings are passed on to clients as without them they’ll go elsewhere, he explains. While turnover rose 30% last year profits didn’t really budge, admittedly this was due in part to a recent investment project. “I was selling packs of seat pads for a tenner a pack over 10 years ago on the market and that’s what you pay in Woolworths and Matalan now. I don’t think we’ve ever put a price up for a customer. It’s frustrating when interest rates go up as inflation on the high street clearly isn’t there and prices are coming down if anything. The government would be doing a lot more by not meddling and allowing us a level playing field.”
The potential for growing the business through cushions is limited. Caldeira feels £10m will be something of a turnover plateau for the company in cushions alone and predicts a slowing growth rate of 30% in the next year or so. Beyond that he plans to grow rapidly through exports – it currently only sells outside the UK to the Republic of Ireland – and diversify into other products made from the raw materials used in cushions, such as throw-overs and ready made curtains. “If the exchange rate changed, exports might have been top of the agenda, not China.” But making decisions based on reality is what’s helped Caldeira thrive while others merely survive.