A long-established suit supply business and concessions in House of Fraser have cemented Berwin & Berwin’s success in the UK.
But managing director Simon Berwin says it is his overseas activities that will move the company forward Relationships between retailers and suppliers have probably never been so strained as in the current tough trading climate, and Simon Berwin knows this as much as anyone.
As managing director of Leeds-based tailoring business Berwin & Berwin he is one of the UK’s biggest suit suppliers, with customers including Next, Ted Baker, Slater Menswear, Speciality Retail Group and Moss Bros. He is also a retailer, with 52 concessions in House of Fraser department stores.
Drapers caught up with Berwin between a series of meetings at the firm’s London showroom, which is bustling with a mix of fabric suppliers and suit buyers. You sense there is some hard talking going on in the building, and when Berwin himself arrives the Yorkshireman does not mince his words.
“Prices have got to go up and consumers have to pay more, otherwise there will not be any industry left,” he says. “Three European suit suppliers that I know of disappeared off the radar last year. They shut up shop, one from Romania and two in Poland. Then there was also the downfall of a large Portuguese supplier. I believe these failings are likely to be just the tip of the iceberg.”
Berwin is the fourth generation of his family to be involved with the business. Berwin & Berwin was set up in 1885 by a Belarus emigrant, and the firm moved to Leeds in 1920.
The company’s manufacturing operation is based overseas, with a joint venture factory in China’s Shangdong province, and three other factories in Hungary, and Berwin is adamant that this is one of the toughest times he can remember in nearly 30 years in the business.
“We’ve got to the stage where I have had to say that if we can’t get the prices we want, we have to be prepared to walk away from some of the businesses we are dealing with,” he says.
“We have to focus on protecting margin, otherwise we are nothing but busy fools. Slowly some customers who have restricted prices for the past two to three years are realising there has to be a change in circumstances.”
Last year, the firm came close to axeing its womenswear division, which accounts for 15% of its supply business, even announcing the move in Drapers, before a major high street customer persuaded Berwin to work with them to keep it open.
Realising that he is starting to sound like the doom and gloom merchants he despises, he tries to be more positive and says: “Everyone is talking about trading falling off a cliff, but I have to stay upbeat. My experience in menswear is that it is casualwear that really suffers in a downturn because it is seen as a luxury, whereas a suit is still considered something of an essential purchase by a majority of men.
“I’m also a firm believer in the old-fashioned maxim that it pays to invest in your appearance in a downturn. At least you look like you are successful, and that is half the battle,” he grins.
Rising to the challenge
In 2006, Berwin & Berwin’s retail concession business and its separately-run manufacturing arm recorded group sales of £48 million and made £1.2m profit. Last year, although sales were up to £55m, Berwin was not prepared to talk of profits. “Our performance wasn’t good enough in 2007, and we can take responsibility for some of that,” he says. “But part of it was due to market conditions that were entirely out of our control.”
It is not just rising costs in a deflationary market that are challenging this family business. The additional problem of exchange rate fluctuations can transform narrow profit margins on a suit into a loss overnight.
So given the challenges it faces, what is the way forward for Berwin & Berwin?
Surprisingly, despite the harsh realities of the supply game, Berwin has little stomach for further developing the retail operation. “Our contract with House of Fraser is not exclusive, but it wasn’t a business that I looked to go into.
In fact, it was HoF that came to us four years ago with the idea. Growth in retail will be organic, based on as and when HoF opens more stores. I’m not dismissing it – I’m exceptionally proud of the fact we are consistently in the top three best-performing men’s concessions at HoF, but we see retail as the icing on the cake for Berwin & Berwin.”
With retail sales now making up 25% of the company’s overall turnover, it seems fair to ask whether he is concerned about a reliance on one customer, HoF, for such a significant chunk of sales, particularly given the department store chain’s recent demands for discounts and longer payment terms.
“We are aware of the danger – that’s why we run it as a totally separate business to the supply arm, to minimise the risk,” he says.
“As for HoF’s latest demands, all I can say is that as far as we are concerned the jury is out. We have decided to stick with the deal. If HoF is to remain credible in the marketplace, it is now up to it to deliver on everything it has promised in terms of store refurbishments, investments in marketing and brand building.”
Berwin sees the branded and private label supply operation as areas where the business can develop. Berwin & Berwin holds the UK suit licences for Ben Sherman, Chester by Chester Barrie, Paul Costelloe and Daniel Hechter, as well as owning the Berwin & Berwin label. These brands make up 35% of sales in the manufacturing arm.
He says: “I want to see the branded business grow to 50% of our manufacturing output. I don’t see the bulk of that growth coming from extending our distribution. We do not sell to many independent retailers, so our main customers are John Lewis, HoF, SRG, Slater Menswear and Austin Reed, and the only way to significantly increase sales is to improve the recognition and profile of our brands among the public.
This is why I recently appointed my 23-year-old daughter Kate as a full-time marketing manager, after 18 months training in the business, to build on this.”
He has doubled the marketing spend for spring 08, and is looking at outdoor advertising campaigns such as on taxis, bus shelters and the London Underground.
Adding a large amount of sales in a tough market through existing customers is a tall order. However, Berwin is convinced that it is achievable. “Everyone tried private label over the past couple of years to increase margins, but I sense that after the appalling experience most UK retailers had in 2007 they are coming back to brands, which puts us in a good position with a stable of strong mid-market labels,” he says.
He adds that the end of YSL’s licence with Marchpole, meaning the brand no longer has a presence at Berwin’s level of the market, should create a real opportunity for Daniel Hechter, while sales increased by double digits at both Chester by Chester Barrie and Ben Sherman last year.
Berwin is in the process of renegotiating the Chester by Chester Barrie licence and is positive the work that Chester Barrie’s owners are doing to rejuvenate the premium mainline can only help his sales.
However, he believes it is too early to say how the Paul Costelloe suiting range will perform. But there was a positive response to its first trial collection in autumn 07, and the business is building on that.
Measuring up for growth
Overseas retail customers are Berwin’s focus for growing the private label business, which makes up to 20,000 suits a week, and he says this new venture has reinvigorated his working life. The company already supplies retailers in France, Greece, Turkey, the Netherlands, Portugal and Spain.
“The best thing about my job has always been the people I meet and deal with,” he says. “I have travelled the world in my career and earned a good living, but I have to say that the past two years with the joint venture in China and dealing with new customers in Europe has re-energised me. I love it.”
The Chinese joint venture, which started in November 2005, is with Nanshan, part of Natsun Holdings, a supplier that owns the second largest men’s fabric mill in China. It gives Berwin & Berwin a 25% stake in the factory and also the sole distribution rights to anything the factory sells in Europe.
“If a Turkish retailer or importer wanted to buy through that factory it would have to come through us,” he explains.
He is proud of the fact that in just 16 months, he and his Chinese partners have created a factory that makes 10,000 suits a week – accounting for about half of Berwin & Berwin’s total output – and does not rule out building another factory with Nanshan.
However, he points out that not everyone wants to buy from China. Many retailers prefer to spread the risks by sourcing from several different markets, and others are realising that the price benefits of buying from China are coming to an end, and have started looking elsewhere for better deals.
“If the Chinese government changes the currency levels this year, China could start to look expensive,” says Berwin.
“We have to keep looking in this industry and keep our options open. The three factories in Hungary give us and our customers extra speed, security and European experience, which enables us to provide a more complex product.”
But Berwin admits he is not sure how much longer his customers will be prepared to pay for that European sophistication.
“If the pound continues to weaken against the euro, as it has over the past three months, the situations could change quite quickly. It will be the economics that drive it; so much is about the exchange rate. You can start with an order on day one that shows a 20% price differential between a suit made in China versus one made in Hungary, but on day 20 that could be a 40% differential. But if everything went pear-shaped in Europe then I have no doubt that our Chinese partners would not hesitate to put up another building.”
When Drapers catches up with Berwin on the phone a couple of days after our meeting, he is pounding the floors of department store El Corte Ingl鳠in Barcelona at 7.30pm, doing a little research before a meeting with the retailer the following day. It is part of a two-day trip during which he also has appointments with Inditex-owned chains Zara and Massimo Dutti, as he bids to expand his business via new European retail partners.
“You ought to finish your article with that,” he suggests in his forthright manner, “because that’s what I call a really exciting couple of days.”
1987 Managing director, Berwin & Berwin
1984 Sales director, Berwin & Berwin
1977 Various commercial roles, Berwin & Berwin
1975 Work placements at Acquascutum and fabric supplier Crowthers
1973 Cloth room assistant, Berwin & Berwin