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The Drapers Interview: Simon Cotton, Johnstons of Elgin

Back to the future: Simon Cotton, chief executive of Johnstons of Elgin, is getting the balance right between private and own label business to continue the mill’s success.

The name Johnstons of Elgin is synonymous with luxurious cashmere and wool products - soft-to-the-touch scarves and jumpers - and designer labels such as Burberry, Chanel and Hermès. The 200-year-old family-owned business is close to the heart of the British textiles industry, popular with export markets and a stalwart that has survived when most other mills in Scotland have been forced out of existence.

It therefore presented an interesting leadership challenge for Simon Cotton, who joined as chief executive last November from Swiss conglomerate Franke, most recently heading up a group of three of its kitchen-sink manufacturing companies in Scotland. Cotton replaced group managing director James Dracup, who left in April 2013 to join MBA Yarns. Alongside being tasked with moving Johnstons back into profitability - it dipped into the red in 2012 - he was given strict instructions by chairman Ian Urquhart to put in place a strategy that would safeguard the business for another 200 years. “It’s not like when you have private equity owners, where it’s all about the bottom line. It was about securing people’s jobs, in some cases for life,” Cotton explains.

Urquhart married into the Harrison family, which took ownership of the mill from the Johnstons in 1920. The business was originally founded in 1797 by Alexander Johnston and is now the only vertical mill in Scotland. Johnstons takes delivery of the raw materials - merino wool from New Zealand and cashmere from China and Mongolia - and takes them through the entire manufacturing process, including dyeing, teasing, blending, carding, spinning, weaving, cutting and finishing, until it has produced a final product. It employs 450 workers on its Elgin site - which manufactures the yarns and woven products, such as fabrics, apparel and throws - and 250 in Hawick in the Scottish Borders, which focuses on knitwear and accessories.

“Being a vertical mill gives us a lot of control and the ability to give the best quality and to be flexible as far as service is concerned,” says Cotton.

“There is also something special about it being a family-owned company and very much embedded in the community. The workforce is hugely committed to Johnstons; some have been here for generations.”

Cotton joined at a difficult time for the company. In 2012, it made a pre-tax loss of £1.8m, falling from a profit of £2.6m in 2011. “We had a tough year,” he acknowledges. “One of our major customers was reducing stock levels and it was a bad season in terms of weather, so accessories sales were quite light.”

Although he will not provide figures, he says the company will move back into profitability this year despite some ongoing issues with the weather. “We’ve not had nice cold winters since then. We’ve had to introduce more lightweights in the collection, which has helped. Even though last winter was exceptionally mild and wet, which is a bad combination for us, we still had a good season. And we’ve grown in other ways; some of our private label partnerships are extremely strong at the moment.” Cotton will not comment on it, but Johnstons manufactures the iconic Burberry poncho that became an instant hit during London Fashion Week in February.

Generally, the sales split is 25% knit, 65% woven and 10% retail. Among the company’s other fashion clients are Vivienne Westwood and E Tautz. Its private label business comprises 75% of its turnover and when one cancels or reduces an order it can have a big impact. Cotton says: “It’s always going to be a challenge; when you’re a manufacturer you build capacity and then something happens like that. But we’ve been working with some of our private label clients for 100 years and we’re constantly working on those relationships. The stronger they are, the less likely it is that we’ll be taken by surprise.”

The business certainly has a reputation for survival. Many Scottish textile mills have closed with the introduction of greater mass production and a trend towards lighter fabrics than tweed. It is thought the number of people employed in the textile industry in the Scottish Borders fell from around 7,800 to 4,400 between 1981 and 1998. When Pringle closed its Hawick base in 2008, a further 2,000 jobs were lost in the area. Four years later, Chanel saved nearly 200 jobs by acquiring nearby cashmere business Barrie Knitwear after its parent company, 140-year-old textiles conglomerate Dawson, went into administration. Meanwhile Johnstons stayed open.

Kilt and Highland dress manufacturer Kinloch Anderson in Edinburgh employs Johnstons to manufacture some of its scarves and travel rugs. Chairman Douglas Kinloch Anderson says he holds the company in “very high regard”.

He adds: “They are one of the success stories in textiles and there aren’t many of those left in Scotland. They have been immensely successful, largely due to James Sugden [who retired as an executive director at the end of 2013. He is now director of his daughter’s cashmere brand Rosie Sugden among other projects and remains active in the industry]. A lot of people in the textile world in Scotland were slow to move forward and change their product base, but he took Johnstons further into knitwear [around 20 years ago], so they opened up new markets. James Dracup contributed to further progress.”

“I don’t think many people realise how broad our activities are,” says Cotton. “Fully vertical manufacturing brings a lot of activities on its own. There’s the private label work we do for some of the world’s top brands and we’ve got our own brand, which crosses over from knitwear into accessories into cloths, so it’s very broad in that respect. We also retail, with three stores and ecommerce - and we have coffee shops.”

This is part of what attracted him to the role. Prior to running factories for Franke, between 1997 and 2008 he was director of the European division of Russell Corp, the large American textile company that produces corporate and Russell Athletic sportswear out of the US and Scotland. “Johnstons brought a number of things together for me,” he says. “I was very interested in manufacturing, in brand-building and in international business. It ticked a lot of boxes.”

Cotton’s ambition is to grow capacity in Johnstons in a controlled, sustainable manner. “There are challenges we face as a business because we’ve grown and reached capacity - we need to expand. That’s where a lot of focus has been since I started.” However, he faces the same challenge all British manufacturers do: finding enough skilled workers.

“We’d like to grow and add capacity, but we’ve gone through a couple of decades where there wasn’t much pressure on organisations to train. There were a lot of skilled people available, particularly in the Borders, but then a number of companies disappeared and there was no incentive on those remaining to train the next generation, so now we have a demographic situation where the best people we have are approaching retirement in the next five to 15 years.”

Johnstons runs an apprenticeship scheme in Elgin and has just launched a new manufacturing training course based out of Hawick, which is open to other companies in the area. “We’re very aware that if we’re going to have the skills for the next 200 years, we’re going to have to train - and at a much higher level than we ever have done. We’re trying to make that very integral to our DNA as a company; we want to be, and are very quickly becoming, a training and development organisation.”

As well as growing Johnstons’ manufacturing capacity, Cotton is weighing up opportunities to expand the company’s reach in existing international markets, or move into new territories. Just under a third of its sales are from export markets; one of its strongest is Japan, which comprises around 20% of its export business. The company also has offices in Düsseldorf in Germany and in the US in New York, as well as an office in London. A number of its couture clients are based out of Paris.

“I see London continuing to grow,” he says. “We would like to get more growth from the US; it has so much potential. And we’re starting to establish a presence in China - we have agents there [two in Shanghai and Beijing, as well as a long-standing agent in Hong Kong] - and we’re looking for further partnerships. But predominantly I’d like to concentrate on the areas we’re in; I think they’re the right areas. We don’t need to be everywhere. There’s opportunity to go deeper within those areas.”

Cotton sees China as the “next logical step”. The market is maturing and Chinese consumers are beginning to demand more quality craftsmanship and heritage from brands, he adds. Cotton travelled to China in October to talk to potential new partners. He knows it won’t be easy: “Chinese retail is much more based around individual brand stores, so it’s difficult for brands like us (who work with multi-brand retailers) to establish a physical presence in the marketplace. It’s a more challenging prospect, but it will happen over time.”

Johnstons’ own brand has 250 stockists in the UK, including Selfridges, Harvey Nichols and Harrods. Roughly 100 are independents, including Ragamuffin in Edinburgh, Elys of Wimbledon and Cliché in Buckinghamshire. It also has over 100 stockists in Europe, across 13 countries, and is stocked in North America, Japan and Australia. Its US stockists include Paul Stuart and Bergdorf Goodman in New York and Stanley Korshak in Dallas.

Kinloch Anderson suggests Cotton’s international strategy will be crucial for Johnstons. “I think one of the challenges going forward will be assessing where the market is going in terms of product base and where to try and sell. The market balance will be important, as it always is with luxury goods.”

Johnstons’ international growth should be fairly organic, given the appetite for products made in Britain. Cotton is looking at ways to improve and grow the Johnstons of Elgin label, without letting it “dominate” the private label work, which will remain its core business. Antony Wallis, co-founder of manufacturing showcase Best of Britannia, says businesses like Johnstons should be encouraged and supported to make more of their own brand. “I think the new wave of consumer is more intrigued by British manufacturing, but they need to be educated as to what’s out there. Companies like Johnstons can tell that story.”

Wholesale prices for Johnstons’ own label range from £10 for lambswool scarves to £100 for cashmere stoles. Cotton has no plans to venture into new categories but is looking at growing what exists. “There are a lot of peaks and troughs in the private label business and customers we work with have very high expectations. With our own product, we can play around with the dates a lot more [producing products when it suits them, rather than adhering to strict deadlines], which helps us to get some balance in the business. We have some fantastic private label customers, but I see more of the growth coming from our own label.” He emphasises that he is happy with the current 25:75 split between that and the private label business.

Despite the challenges facing him, particularly when it comes to growing the company, Cotton is positive about the future. “At this stage we have a smaller number of textile companies left in Scotland, but they are enjoying full order books and trying to build capacity. It’s a very positive time to be in the industry.” He says there has been a noticeable shift towards British manufacturing, even in the year since he started: “More people are approaching us.” With the company’s accounts back in the black, tongues wagging about its high-profile private label collaborations and everyone that stocks Johnstons raving about its quality, it seems safe to call Cotton’s first year a success.

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