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Sole Survivor
 

One third-generation family business has survived imports, mergers, offshore manufacturing and new technologies.
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Like every other shoemaker, third-generation family business Rocky Shoes and Boots has seen its industry transformed by imports, mergers, offshore manufacturing, and new technologies. Unlike most, Rocky has managed to come out ahead

The years haven't been kind to America's small old-line manufacturers.

Time was, those businesses were the economic heart of small towns and city neighborhoods. Their employees were often longtimers, on a first-name basis with the boss.

The companies provided steady work, steady pay, and the self-respect that accompanies both.

Then came the maelstrom of the past two decades, the imports and the new technologies and everything else that turned the business world upside down. The market's demands grew relentless. A new economy, fast-paced and tumultuous, came into being.

Like beachfront cottages in a hurricane, the old manufacturers were buffeted and battered. Many collapsed. Others were sold off, bought out, combined, and recombined until they were scarcely recognizable. Gone were the original owners. Gone, too, were most of the workers.

But now and then you stumble across a survivor, a small old-line manufacturing company that has stood its ground against the tides of history -- a company that somehow, on the fly, learned to compete in today's turbulent marketplace.

The scene of one such unlikely story is Nelsonville, Ohio, a dot on the map near the West Virginia border. The industry is shoe manufacturing, as brutal a business as you'll find anywhere. The company is Rocky Shoes and Boots Inc., the fellow in charge Mike Brooks.

Brooks, like his father before him, belongs to that uncommon and unheralded breed of American businessperson: the kind who doesn't know when -- or maybe doesn't know how -- to quit.

* * *

Mike Brooks could scarcely contain himself. It was the spring of 1975, and he had taken the phone call at his office in Milwaukee. Now he was excited, antsy. Back home in Nelsonville, Ohio, Dad was buying the William Brooks Shoe Co.

By one reckoning it was a predictable, even inevitable, move. Bill Brooks, Mike's great-uncle, had started the business back in 1932, in the heart of the Great Depression. Mike's dad, John Brooks, worked in the plant full-time since age 17. The company was his whole life.

By another reckoning, though, buying the company was crazy. Shoe manufacturing in the United States had been on a long downhill slope. Great-uncle Bill had announced he was selling the company way back in 1958, and Mike's dad had asked for a chance to match the buyer's price. But Bill had refused point-blank. John, he had said, you have a family to support. The shoe industry has no future. I'm doing you a favor.

So the business had gone to outsiders, a women's-shoe company in nearby Lancaster. John stayed on, eventually rising to plant manager. Mike worked summers at the factory, but he could see it held no long-term opportunities. Nor was there much else to do in Nelsonville, a down-at-the-heels town of maybe 5,000 in the hilly, rural countryside southeast of Columbus. Mike loved the place. But when he left after high school, he never expected to return.

Now, in 1975, the owners were getting ready to unload or shut down the business. And John Brooks was telling Mike that this time, finally, he was really going to buy it.

The next day, Mike walked into his employer's office and resigned. "I told my boss," he recalls, "that my father was buying a business and needed his son back."

Of course, it wasn't quite that simple. Maybe buying a business never is. The company wasn't worth much as a going concern, but it owned plant and equipment worth close to $1.3 million. John had bargained the owners down to 50¢ on the dollar, so the purchase price was $640,000. He had worked for a modest salary all his life and had raised five children. He figured he could put up $500. The rest would have to come from somewhere else. Where, he wasn't quite sure. Mike didn't know, either. The William Brooks Shoe Co. wouldn't be high on anyone's list of hot investments or good loan prospects. Its machinery was aging. Its work force was discouraged. The company had lost money for three years running.

On the other hand, there were dreams at stake here. Mike's father's, certainly. Mike's own, increasingly. And maybe those of his four siblings. Then there were the jobs and livelihoods of the 140 or so people who worked at the company, most of them neighbors or acquaintances of the Brooks family. Mike, the oldest son in the family, had never lacked self-confidence. When college hadn't worked out, he set off for Milan, Italy, and spent a year studying shoe design at the well-known Ars Satoria trade school. His business career already showed promise; it included stints at U.S. Shoe Corp. and at two tanning companies. Now, at age 30, energetic and ambitious, he'd be damned if a few hundred thousand dollars would get in the way of those dreams. He and his father visited banks. They looked into government-guaranteed loans. They began talking about saving jobs. They called their congressman.

Soon enough, the Farmers Home Administration agreed to guarantee 90% of the purchase price. A five-bank consortium would provide the rest. Some of those banks were nervous and showed up at the closing with lawyers, forms to sign, and a barrage of questions. Vic Oakley, president of the lead bank in the consortium, the one picking up most of the risk, was a Nelsonville neighbor of the Brookses'. He arrived late, with no forms or lawyers, just a check. He threw it onto the table. "If John Brooks says he'll pay me back," he announced, "he'll pay me back." Then he walked out.

So the papers were signed, the money was provided, and the William Brooks Shoe Co., occupant of a 1919-vintage brick factory on Main Street, the largest employer in Nelsonville, finally belonged to John Brooks. John rechristened the business John W. Brooks Inc. Then he went back to managing the factory, which was his first love. As for running the business, that would be mostly up to Mike.

* * *

The year is 1975. The United States is emerging from the worst downturn since the 1930s. But the next few years won't bring the kind of swift, sure recovery Americans once could expect. Growth is slow. Inflation threatens to spiral out of control. U.S. manufacturers find themselves attacked by powerful overseas competitors. Imports from steel to semiconductors flood onto American shores, eating up market share.

The Midwest is hit hard. So many plants close that pundits coin the term Rustbelt to describe the region. As for the shoe industry, it has gone from the stagnation of the late 1950s into sharp decline. In 1970 imports accounted for 30% of the market. Ten years later the figure will be 50% and rising. During this decade more than 300 domestic shoe plants will shut their doors -- for good.

* * *

For a while Mike didn't worry much about the economy or about the sorry state of his industry. He had too much to do, and he was having too good a time doing it.

He designed a new product, a good-looking pair of hiking boots with red laces, and hit the road to sell it. He worked with his father to speed up production, thus easing the company's cash needs. He spent time on the factory floor, trying to pep up a demoralized work force. What made the whole proj-ect seem possible, even exciting, was that a couple of other young men, age-mates, were already at the company and were eager to join the fray. Dave Fraedrich, hired by John Brooks right out of college, was the financial guy. Bob Hollenbaugh, a childhood buddy of Mike's, managed shipping and personnel and purchasing. The group became a kind of entrepreneurial troika. Each did a little of everything. After work they'd get together over a beer and plot out their collective future. In their dreams, it was exhilarating. In reality, it was the late 1970s, and no one could ignore the tides of history for long. Mike and his pals might be young and hopeful, but they were caught in the squeeze on margins that was strangling manufacturers all over the United States.

On the revenue side, Brooks's customers were the same big chains the company had always sold to. Sears and J.C. Penney bought 80% of the plant's output. The chains might like new designs, such as the red-laced hiking boots. They might appreciate Brooks's reputation for quality. But what they really cared about was price -- and now, with the growing availability of imports, they could put the screws on. Mike could sell a lot of shoes to those customers. He just couldn't sell them at prices that would keep his company in business over the long haul.

The cost side of the ledger looked equally bleak. All the Brooks shoes were made by union workers at the Nelsonville plant. Manufacturing techniques such as just-in-time and Toyota-style "lean production" hadn't yet made their way across the Pacific. Big corporations in a similar situation might have cut costs by eliminating layers of management. Here, that was hardly an option. Brooks was an $8-million company run by a few managers and their helpers, all crammed into a tiny warren of offices on the second floor of the aging plant. None of them took much of a salary.

One day in 1979, in a meeting with a buyer for Sears, Mike finally understood that he was losing the battle.

At an earlier meeting he had asked the buyer for a price increase of 50¢ a pair. He knew it would be a shock, but he had steeled himself; the company couldn't survive without higher margins. The buyer, an old-timer, wasn't just shocked, he was outraged. He asked Mike if his father knew what he was doing, and demanded to speak with John in person. The next week, Mike drove John, who didn't like to fly, the 400 miles from Nelsonville to Chicago.

At the meeting, Mike felt he was hung out to dry. John, worried about losing Sears's orders, waffled on the price hike. Mike, stubborn, stuck to his guns. "I said, 'Look, we want your business. But we don't want to be at breakeven anymore."

At the end, Mike thought grimly, the meeting degenerated into a good news, bad news joke. The good news: Sears agreed to the 50¢ hike. The bad news: the deal was good only until the big chain could replace Brooks as a supplier, probably with a Korean manufacturer.

"It was a long drive home," recalls Mike, sighing. "We had been promised the increase. But we had only a few months to live."

* * *

The 1980s. The floundering economy is now showing signs of life -- even in manufacturing. America's industrial giants -- some of them, anyway -- begin to learn to compete with the Japanese. Entrepreneurial companies elbow their way into the marketplace.

In shoes, the rejuvenation is dramatic: several upstart companies begin to prosper. Making an end run around the classic margin squeeze, they develop distinctive products, stamp a brand name on them, and charge premium prices. They sell their shoes through new retail channels, not just the old shoe stores and department stores. They advertise heavily. In athletic shoes the leading practitioner of this strategy is Nike. In boots it is Timberland.

But there is no middle ground. Old manufacturers in the Midwest and elsewhere keep going under. The shoe business loses another 300 plants. Grow or die, goes the saying.

* * *

As if by intuition, Mike Brooks had already begun to position his company for success in what was then an unfamiliar new marketplace.

While selling to Sears, for example, he had tacked a name onto some of the red-laced hiking boots. Rocky, he decided, "sounded strong and bold and all-American." He had a new box designed, with a picture of a bighorn sheep on it, and he put the boots in it. Then he took Bob Hollenbaugh out of the factory and told him to start selling. Hollenbaugh knocked on the doors of independent stores in Ohio and nearby states. He made sales at margins far higher than Sears would ever have given the company. In 1983 the company began marketing "occupational" shoes, the kind worn by police officers and letter carriers, under the Rocky brand. The move opened up not only a new market but a new distribution network. Gradually, Mike saw that he had to reinvent the whole business. Like Timberland, his company had to be capable of making a distinctive product -- and then selling it, at comfortable margins, through whatever channels might be most appropriate. The company also had to broaden and deepen its line. You couldn't build a powerful brand with just the four Rocky boots it was then offering.

What Mike didn't know -- couldn't know -- was whether his father, still the company's sole stockholder, would accept the radical changes growth would entail. He knew that the older man didn't like change. What John wanted was to protect the company and the jobs it provided for his family and his Nelsonville neighbors. In John's mind, Mike understood, that meant this: Keep it small. Keep it manageable.

So far, the unusual father-son arrangement had worked out surprisingly well. John ran the plant. He gave Mike his head in other areas. They didn't always see eye to eye, but they rarely argued. Mike made a point of listening to John's advice. John took quiet pride in how Mike managed the business, and let him set the course. And in two critical areas, Mike's new strategy clicked into place perfectly.

For one thing, Mike created a line of products that was innovative and distinctive -- and that couldn't be knocked off the next month in Korea or Taiwan.

The ace up Mike's sleeve was Gore-Tex, the patented membrane that lets moisture escape but keeps water droplets out. Cobbling together some early Gore-Tex boots, Mike and his colleagues had realized they were onto something. Retailers and customers loved the boots. No competitor could duplicate them without a serious investment of time and money. Expanding the Gore-Tex line, Mike developed a close relationship with W. L. Gore & Associates, the material's manufacturer. In 1989 Gore announced that it would thenceforth require all footwear customers to pay $25,000 for a license. Other manufacturers were furious at Gore's audacity. To Mike, it was as if someone had erected a fence around his market, saying, Competitors Keep Out. Arriving on Gore's doorstep with a check, he broke open a bottle of champagne with Bob Gore, the company's chief executive.

The second strategic victory was equally important. In just a few years the Brooks company had created a new distribution network and a marketing strategy capable of selling to it.

Most of the marketing effort fell to Hollenbaugh, now sales manager. Hitting the road, he visited stores and lined up reps. Soon Brooks was selling to hundreds of retailers, mostly hunting and sporting-goods stores, mostly in the Midwest. It was a perfect market. The hunters and outdoorsmen who bought the boots valued their waterproof properties and would pay a premium for them. The fact that the boots carried the "Made in the USA" label was a plus. Hollenbaugh developed catalogs for the retailers. He learned how to do advertising. He masterminded campaigns in outdoor magazines. Sales rose. In 1988 the company passed the $20-million mark.

* * *

The late 1980s. Growing entrepreneurial companies are reshaping industry after industry. Most start with a clean slate -- new technologies, a new work force, a "smart team" of savvy, seasoned executives. Typically, they boast the kind of managerial sophistication that was once found only in the Fortune 500.

Old-line, family-owned companies aren't so lucky. Top executives tend to be blood relatives, which limits the talent pool. Family issues spill over into the business. Can family businesses even compete in this new economy? The answer is murky.

* * *

As the '80s waned, Mike Brooks pushed ahead, one innovation or initiative following hard on the heels of another.

In 1989, for example, the company brought out a waterproof boot made with Du Pont's tough Cordura nylon in a camouflage pattern popular with hunters. Dubbed the Cornstalker, the boot became the company's top seller.

A couple of years earlier Mike even took a step he once would have found difficult: he established first one offshore factory, and then another.

The reasons weren't hard to fathom. One, the Brooks boots, particularly their uppers, required huge amounts of hand labor. Two, the Nelsonville plant was running at capacity. It couldn't easily be expanded, and doing so probably didn't make economic sense, anyway. In 1987, looking for contractors in the Dominican Republic, Mike met Eric Beraza, a Spanish-speaking American and shoe-industry veteran who was running a plant there. Mike proposed that Beraza set up a Brooks plant and train its work force. By late 1987 the plant was up and running. With wages at that time less than $1 an hour there, the cost was competitive with anywhere else in the world. Later Beraza set up another factory, this one in Puerto Rico. Wages there were higher, but products made in Puerto Rico could be stamped Made in the USA. In the occupational-shoe market, that was a requirement.

And yet: the fact was, by 1990, Mike Brooks was not a happy man.

Part of it, he knew, was the gnawing, stomach-churning feeling of never having enough cash. Making a seasonal product like hunting boots, the company had huge amounts of money tied up in raw materials and inventory for months at a time. Worse, every step along the growth path consumed capital. Fraedrich worked tirelessly on the finances, but he could never bring in as much cash as the company needed. Stores were clamoring for more hunting boots? Tough luck: Brooks couldn't finance the additional production. The plant and equipment were old? Live with it: there was no money to replace them.

Then there was the difficulty of coping with crises in what had become a far-flung enterprise. Mike had grown accustomed, for example, to hearing that the power in the Dominican plant had gone off for a few hours. He had bought some big diesel generators and sent them down so Beraza could keep the cutting and stitching machines running. But then, in 1990, oil prices rose. The Dominican government abruptly ended its policy of subsidizing oil purchases. The country's oil supply dropped to a trickle. Mike grew desperate. Without oil, the plant would shut down. He began loading the raw-materials containers that he shipped from Ohio to the Dominican plant with 55-gallon drums of diesel fuel. Was it legal? He had no idea.

All those problems seemed to coalesce in what was an increasingly strained relationship with his father.

For most of the '80s, John Brooks had supported Mike, just as he had in the early years. To be sure, he hadn't always agreed with Mike's moves. The labor-intensive complexities of using Gore-Tex, he liked to say, set shoemaking back a hundred years. He looked back wistfully on the days when you didn't make shoes until you had an order from someone like Sears. But John had given Mike both his blessing and his financial imprimatur. The more the company grew, the more debt it had to take on. John wasn't a rich man, but he had personally signed for every nickel, as the banks required. By the end of the decade, he was on the hook for some $10 million.

When Mike had proposed the first offshore factory, though, John drew a line in the sand. It wasn't that he thought it was a terrible idea; he was willing to let Mike build the Dominican plant. But do it with company funds? No chance. Too risky. For almost the first time, the two men found themselves shouting at each other. Eventually, they found a compromise: Mike, John, and the three other managers, including Beraza, would each put up some money of their own. Mike had to borrow his share from the bank. It irked him that he couldn't spend company funds on a move he thought necessary for the company's very survival.

From then on, the relationship was never quite as smooth. Mike wanted to expand the Dominican operation; John was opposed. Mike talked about taking the company public; John wouldn't hear of it. "I got close to leaving," Mike says now, pausing to reflect. "Very close. Very, very close." He had plenty of opportunities in the industry. But he didn't want to let the family down.

And then, one day in August 1991, it was over. John came into Mike's office. That's it, he said. I'm retiring. I'm giving the business to you and your brothers and sisters. There were reasons. John was then 70. His wife -- Mike's mother -- was ill and needed care. And there was a wrinkle. Since John would no longer be the owner of the company, the banks wanted him off the note. All five siblings and their spouses would have to sign it. The total debt, by then, was $11.25 million. None of the Brooks siblings had significant funds of their own.

* * *

The 1990s. The new economy is in full bloom. Now the issue is who will get to play in it. Over time, entrepreneurial companies sort themselves out. Some stay small, content with tiny niches. Some look for bigger partners and vanish into the mergers-and-acquisitions maw.

But some go for the gold ring. They seek out the capital that will enable them to develop their lines, to expand their markets, to operate nationally or even internationally.

* * *

Looked at coldly, the logical next step for the Brooks family would have been to sell the company. It wouldn't have been hard. Rocky had a well-known brand and a solid niche in the marketplace. It had a well-developed distribution network, not to mention plants and equipment in three locations. But Mike, with his siblings, had just inherited a company -- and he wasn't selling, he was dreaming. By 1992 sales were nearing $30 million. He had just introduced a line of hand-sewn shoes, and he had some ideas about other lines. Put them together, he figured, and you could imagine a $100-million -- even a $200-million -- company.

But without money, it was all just fantasy. And Rocky had no money beyond what was needed to finance the factory and pay the interest. There was only one place to get the capital he needed: from the public markets. Mike and Dave Fraedrich met with potential underwriters. Eventually, they chose J. C. Bradford & Co., out of Nashville, and set in motion the complex mechanisms of an initial public offering.

You have to spend money to make money, Mike told himself. But he hadn't quite realized how expensive and risky an IPO could be. The accountants got busy. So did the lawyers. The corporations that operated the Dominican and Puerto Rican plants had to be folded into the parent company, which was being renamed Rocky Shoes and Boots. By the time the prospectus was drafted and printed, the offering had cost Rocky some $630,000, plus the time and expense Mike and Fraedrich had put into it. Yet no one could know how Wall Street would view an IPO from an obscure little shoe company in Ohio.

As it happened, by late 1992 initial public offerings were back in favor on the Street. Timberland stock was hot -- it had more than doubled during 1992 -- so another outdoor-shoe company looked good. In January 1993 Mike and Fraedrich began the road show.

Like all road shows, it was grueling. After 10 days Mike was played out. At his last meeting -- with a group of eager young analysts from Fidelity Investments, the big Boston-based mutual-fund house -- he hit the wall. They asked questions. Why are you any different from Timberland? How can you make money with U.S. manufacturing? Mike had answered the same questions once too often. "I said, 'Look, guys, we're going to take this company public whether you buy any stock or not.' I said, 'You can buy it at $10 a share, or don't buy it. I don't care." He left for Logan airport in Boston and ordered up a double martini.

Before drinking it, he called his contact at Bradford to apologize for his behavior. Never mind, the Bradford guy said -- Fidelity just ordered 150,000 shares.

* * *

Rocky Shoes and Boots went public on February 3, 1993, netting about $15 million. Ever since, money has been flowing through the parched company like water through an irrigation ditch, bringing dreams to fruition.

The old Nelsonville plant has undergone a metamorphosis. Last fall you could have caught it in midtransformation. Some sections of the plant were dark and dingy. Workers in those areas moved rack after rack of shoes-in-the-making from one station to another, much as they had done for the past 60 years. In the new areas, by contrast, teams assembled a constant flow of shoes under bright lights. Paid by their team's output rather than by the traditional piece-rate system -- and earning from $1 to $1.50 an hour more now than before -- team members scurried to help one another with their jobs. Plant manager Allen Sheets estimated that the new system cut throughput time from 10 days to 3, and that the 3 would soon be 2. Mike figured that the cost of making a shoe dropped by 7%, even with the higher wages. In a business like shoemaking, that was the difference between scraping by and making decent money.

Behind the Nelsonville plant, ground has been broken for a new 12,000-square-foot retail store, a "mini L.L. Bean," as Mike describes it. Nelsonville isn't on anybody's main road, but so many people in this rural section of Ohio stop by Rocky that even the old store last year did $2.2 million. The new one, says Mike, should do more than $4 million. A little ways down the road, out behind the company's offices, is a 60,000-square-foot addition to its already-cavernous warehouse facilities.

How much more the company will grow is anybody's guess. Already it's the largest producer of Gore-Tex footwear in the world. This fiscal year, analysts say, it should top $50 million in sales. Investors are optimistic. Rocky's stock, initially offered at $10 a share, peaked at more than $20 a share last November. As Inc. went to press, it was around $13. To be sure, the footwear industry is still hazardous. By the end of 1993 the IPO money was invested, and the company again was back to bank loans. It had boosted production, but it still couldn't meet existing demand.

For the moment, however, at least a few dreams have been realized.

John Brooks, nearing 73, still comes in every morning at 7:30. He hasn't moved his office down the road, where Mike and the other managers sit; it's still in the plant. On John's wall is a meticulous, hand-lettered chart of the week's production. There are no hard feelings about the disagreements over the offshore manufacturing. Though John divvied up the company among his children, he retained an interest in the Dominican plant. That interest, translated into Rocky stock, was worth about a million dollars. At the IPO, John cashed it in. When Mike gave him the check, John smiled. He said, "Hard to believe, isn't it, son?"

Mike Brooks, 48, has many of his dreams ahead of him. Right now what he feels is responsibility -- for the business, for its employees, for its investors. The payroll now numbers more than 1,000. There are 565 workers in the Dominican Republic, 230 in Puerto Rico, nearly 300 in Nelsonville. The list of investors includes a sizable number of individuals, many of whom are local. "A lot of people are counting on the company to be successful," says Mike. "I feel a lot of pressure."

But he can already point to one accomplishment: the effect his company has had on Nelsonville. Near the Rocky factory is the remains of what was once a brewery. The Rocky plant itself might have become the remains of a shoe factory. Nelsonville might be dying. It isn't. That's because Rocky Shoes and Boots -- and Mike Brooks, who runs the company -- are survivors.

* * *

Research assistance for this article was provided by Vera Gibbons.

Last updated: Jun 1, 1994




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