How do SME managers compete with the large players? They have to work quicker, smarter and harder, but the satisfaction can be enormous. Cameron Cooper reports.
It is a David and Goliath battle in which the adversaries are wearing ugg boots.
A group of about 20 Australian ugg boot minnows are taking on US manufacturing giant Deckers Outdoor Corporation over the latter’s legal moves to stop rivals using the term ugg in sales and marketing material.
In the mid-’90s, Deckers registered the trademark rights to the name Ugg Holdings, an Australian-owned American company it bought. It has forced one Australian company, Mortels Sheepskin Factory, off the Internet auction site
eBay and has vowed to sue other companies using the ugg name. The threat extends to Westhaven Industries, a small manufacturer in Dubbo, NSW, which employs intellectually disabled workers, and many other companies across Australia .
I’m not going to take it lying down, says Tony Mortel, owner of the family factory in the NSW Hunter Valley and the media spokesman for the Save Our Aussie Icon campaign that is taking on Deckers and alleging that the original trademarks were awarded erroneously.
The Australian manufacturers are part of a cottage industry based on a boot that, according to folklore, has its origins in the 1920s when shearers wrapped sheepskin around their feet to keep warm. The term uggs is said to be an abbreviation of ugly in reference to the once-daggy boots that now adorn the feet of Hollywood stars such as Gwyneth Paltrow and Julia Roberts.
Mortel says the dispute has been a body blow to his company and his father Frank, who first started making ugg boots in 1958.
Before we were kicked off eBay we were selling US$15,000 a week to individual customers, says Mortel.
However, Mortel and his colleagues admit they cannot compete with Deckers’ legal resources.
Financially, we’ve got no chance if it goes to the courts, he says. We’re trying to put it in the public domain to educate the public on what Deckers have done.
Rise of the giant-killers
The ugly battle of the sheepskin boot makers highlights the predicament many small businesses face in uneven markets from the duopolies of Coles Myer and Woolworths in the retail industry and Murdoch and Packer in the media game, through to the Big Fours of the banking and accountancy sectors.
Andrew Reitzer, the CEO of retail wholesaler Metcash, understands the challenge of competing in a sector in which the Coles Myer and Woolworths behemoths garner about 75 per cent of the market share. He argues, however, that such fierce competition has its benefits.
They really force you to be an efficient player, says Reitzer, who estimates that Metcash has a market share of about 15 per cent. Through its three divisions IGA Distribution, Campbells Cash & Carry and Australian Liquor Marketers the South African-owned company has a significant and growing role in Australia . It is concentrating on being a low-cost distributor that slashes prices and ensures that logistics, service and staff strategies are constantly finetuned.
Reitzer notes: I guess if it wasn’t for (Coles Myer and Woolworths) we wouldn’t be out searching every single day of our lives for how we can do it more efficiently, how we can drive the cost down, how we can reduce errors and you just have to.
He concurs with the business school adage that says companies have to be either bigger or different, which has led to Metcash benchmarking its logistics and distribution operations against international measures.
It has cost us a lot of money because you’ve always got to invest to get better, Reitzer says.
In an effort to up the ante with Coles Myer and Woolworths, late last year, Metcash launched an audacious $846 million takeover bid for Perth-based Foodland to create a third supermarket heavyweight. If successful, the deal will give Metcash greater scale and allow the independent supermarket chains it supplies to better compete against the national chains. Supa IGA store numbers would rise from 300 to about 430.
For Reitzer, it makes sense: This is a volume game. We will absolutely go to war for a quarter of a per cent margin. That’s life or death for us. We do compete strongly with Woolworths and Coles right now but we’ll be able to compete even stronger into the future.
At the big end of town in Australia , few are more powerful than the Big Four banks. The Commonwealth, Westpac, National and ANZ collectively represent a $400 billion industry, dwarfing their building society and credit union competitors.
Peter Evers, Managing Director of Australian Central Credit Union, a growing Adelaide-based institution, agrees there is little room for inefficiency when up against the Big Four and other powerful competitors such as Adelaide Bank and St.George.
They’ve got so much scale that it allows them to make mistakes, get away with things that we could never do, Evers says. We have to be sharper and we have to do something different with our business model.
Execution is the key for SMEs, in particular. You can be as large as you like, but there’s always an opportunity for anybody who has an appropriate strategy and a value proposition that consumers are looking for. The challenge is making sure it’s relevant, making sure you are smart at implementing it and making sure that you actually deliver on it.
The Australian Central model is producing results: more than 41 per cent growth in new loans and a record lending result of $664 million in new loans last year.
All the same, Evers admits that marketing is a real challenge in the face of the seemingly inexhaustible advertising budgets of the leading banks.
Australian Central utilises its community links to effect through a community lottery that helps raise funds for South Australia ‘s non-profit sporting clubs and small charitable organisations. It is also a big sponsor of a popular Christmas pageant that attracts hundreds of thousands of people and widespread media coverage each year.
It is another way of getting our brand out into the community in a different way, Evers says. We’ve got to be creative in our branding.
Chad Gates, National Director of Policy for the Australian Retailers Association (ARA), is adamant that small and medium-sized businesses can compete.
However, he says, they must focus on their core customers. They must supply superior service and specialised knowledge. And they must offer product ranges that outdo the generic offerings of larger competitors.
SMEs have learnt to work their customers a lot harder through email and customer databases, which have allowed better communication, says Gates.
Email has really driven small businesses to go online. It’s not necessarily getting web sites or purchasing or selling product it’s email.
A Sensis e-business report in July 2004 confirms that email use is the most popular Australian SME online activity. Gates says small retailers are also learning to leverage off large counterparts the likes of Woolworths, Big W and Target by leasing store space in proximity to giant players so they can benefit from more walk-past traffic.
The other Big Four
In the accountancy and business consultancy world, Deloitte, PricewaterhouseCoopers, KPMG and Ernst & Young enjoy similar dominance to their Big Four equivalents in the banking sector.
Shivani Reiter, principal of boutique Adelaide consultancy firm Real Business Consulting, says the key is not to fall into the trap of always trying to compete with the multinationals. For instance, specialist tax areas might be better left with the Big Four.
Reiter prefers to stick to her core business strengths of leadership development and business coaching.
Yes, we could do some of the other things, but, really, are we diversifying too much? As a small to medium you’ve just got to let some jobs go.
Taking on inappropriate projects, she says, could jeopardise the reputation of an SME, in particular.
I’m not saying it doesn’t with the Big Four, but they are big enough to survive if two or three clients say Well, you’re hopeless’.
RBC is winning plaudits and Reiter was the South Australian Telstra Young Business Woman of the Year in 2002. She attributes the success to a philosophy of over-servicing clients: But not to the point where it is to the detriment of the business.
Reiter argues that collaboration among SMEs, without giving up intellectual property, makes great business sense.
What we are saying is that we are not just interested in earning lots of money as a one-off. We want a 20-to-30-year relationship. And I think the small to mediums have a longer outlook.
People are also crucial cogs in the wheel.
You can have the best systems in the world and the best computers, but if your people are not on side you stand no chance, Andrew Reitzer argues.
At Metcash, staff are automatically part of a share scheme that is the same for the CEO, executives and all other staff. The share offering has transformed the approach of staff and cut out what Reitzer calls toilet and tea issues on the workplace floor; issues such as roster disputes and other niggling complaints. Staff now focus on ensuring positive outcomes for the business.
You change the whole tone of the discussion, he says. It’s all about our common good.
While independent retailers who own Metcash stores are required to adhere to basic guidelines, Reitzer says they are still encouraged to act as individual entrepreneurs. That means each store can cater for the individual needs of customers if they want a special item from the delicatessen, for instance, every effort is made to get it for them.
Reitzer says: People are dying for personal contact and for someone to say How’s your day been?’; and you don’t get that in chains because they are working to the system.
The space race
One other vital issue for SMEs is the price war for leasing store space.
The Australian Retailers Association (ARA) accuses monopolistic shopping centres of pushing out smaller players in their quest for ever-higher rents.
The choice they are given by the centre is Well, you pay this rent or don’t come in’, says Gates.
Disputes over fit-out costs, management fees, reporting of sales figures and relocation expenses are all matters that conspire against smaller players.
In response, the ARA is working with industry and government in an effort to get consistent national tenancy legislation across the country.
Gates offers this advice: Don’t be afraid to object. Make sure that your landlord is complying.
In his Hunter Valley ugg boot factory, Tony Mortel takes that advice to heart. He is confident his ugg boot colleagues in Australia can win the battle with Deckers in what would be a significant win for the little guys.
What irks Mortel most is that the Australian suppliers are in no position to challenge Deckers’s market share in the US . He says, even if all the Australian suppliers banded together and sold into the US market, We couldn’t even scrape together five per cent of their market share, and that’s being extremely optimistic. So why the hell are they bothering us for such a drop in the ocean?
Regardless, he will maintain the fight to be able to call his products ugg boots.
Things are looking good. We are confident. We have had a slander campaign waged against my company, in particular by Deckers. That hasn’t been very nice personally. But we are in the right, Mortel says.
A very ugg-ly fight
In May last year NSW Labor MPs wore ugg boots to Parliament House to demonstrate support for the Australian manufacturers facing ruin because their product, with the widely accepted generic name of ugg boots, was trademarked by a US company. Pictured in all their elegance are MPs Paul McLeay, Kristina Keneally, Trade Minister David Campbell and Karyn Paluzzano.