Bricks and mortar retailers need unique products to compete. 

Watch this interview and learn how one small business is leveraging off this trend.

Who wants a shoe that looks like the rest? Nobody wants a mass produced product anymore. Customers demand a footwear experience.

This means retailers have to step up and deliver.

In this video you will learn effective strategies to leverage off these ideas and apply possibly apply them to your business.

Video below. Transcript to follow.

 

Daniel:  Well, Andreas, thank you for joining us today, you’re from Shoe Architecture.  Tell us a little bit about Shoe Architecture and what does it do.

Andreas:  Well, thanks for inviting me, first of all.  The Shoe Architecture, the company we founded in 2009. And we saw that there is, that there is a gap in the market, involving shoes and developing shoes using different components. Using different, different or different technologies that are behind those.  And so what we’re trying, coming obviously from the footwear background, we’re looking at getting into that and trying to see if Australian clients or Australian retailers would, like to take the concept over, or take it on. So, yeah, we’re literally focused on developing shoes with a very international supply chain for the Australian market.

Daniel: What are the key ingredients in your business that is working for you right now?

Andreas: Probably one of the main thing, or, the key components, really, for us at the moment, are we’re manufacturing out of Indonesia, where very few suppliers that actually do that. And we’re focusing on building that more and more.  With the increasing price pressures from China, or from India, and the labor costs going up and labor shortages particularly in China in shoe factories, that is playing a significant role for us, in helping us in Indonesia, actually getting a few orders just based on that alone. On top of that, our fit. We develop in Europe, so our fit, we really, we really have a very European fit, and it goes back to the fact that we don’t, we don’t copy, we don’t develop them locally in Indonesia or here, we really do them, do those [last] and control the fit in Europe.  And probably the other component is that we have access to components.  Two shoe components from Italy. And we have a collaboration or a collaborative agreement, for example, with Hugo Boss or where we can use components that they find are very classical, that they find very classical, find that they’re not very specific for their brands, that we can actually and access and use for the market here.

Daniel:  So you’re dealing with some larger retailers here in Australia.

Andreas: Larger retailers, yeah.

Daniel:  Why are they going with you, versus, for example, developing the shoe in house?

Andreas: A lot of it is, obviously, associated to, cost, and experience, and the market’s accessibility.  So again, it goes back to us being able to, them being able to access Indonesia through us.  Them being able to access to our expertise when it comes to a specific type of product that they probably are not capable of doing, or they haven’t been done, they haven’t been doing before.  These are all factors that play a role.  We are not the cheapest.  And we will never be based on, our business model that we actually use, componentry for example, from Europe, or we develop our fit in Europe, just those little few parameters will never put us into a position where we, we will be the absolute cheapest.  But when you put that into the whole, when you combine it all, and when you go through all your costing, and when you extract, let’s say, you save then on people traveling around and fixing mistakes, of your staff being in a factory for three weeks, and controlling every shoe.  Well, we don’t need to do that. It comes, it comes automatically. We have inspection points in certain, certain stages, but, like, troubleshooting is not very, is not very it doesn’t have, it never has . . .

Daniel: Your pricing is very nation specialized.  How do you, how do you market a business like yours to new retailers?

Andreas: That’s very hard. Because we sometimes, we’re probably even restricted to in getting additional client that sits within the competitive environment of the client that we already have.  So we have to be very careful not to cross the line and say, for example, I don’t know, “We’re supplying to Kohl’s.  Should we supply to Woolworth?” We don’t supply to Kohl’s, but as analogy, as an example, how should we deal with a scenario like that? I guess when it comes to the marketing point, the market is very small.  Everyone very much knows, who does shoes, how they work.  You know when you’re industry, you meet people all the time. You actually know everyone and everyone knows you. So if I, if I join as a new supplier to a certain group or a certain retailer, it goes, it goes very quickly all around the market and everyone knows.  Actually, you’ll have a supplier and not even a [goal]. No one really talks about it a lot, but they’re aware and they hear your name.  And that’s part of, I guess, that’s part of the industry.  It’s always been like that.  That you kind of need to know, and you want to know who’s there, where’s it, where’s he manufacturing, where’s it coming.

Daniel: Is that a lot to do with green retailers that are trying to differentiate themselves from each other and from the online competition, very much that, the retailers they want have a unique product? Is that right that I want the same suppliers? Why they’re a little bit sensitive about it?

Andreas: I guess yes,I guess that’s one, definitely one aspect of it.  The other one is really the, a plain competition when it comes to a certain type of shoe.  So, for example,  they want you, they want you to develop a specific [brogue] or a specific [darby], or a specific heel, and they don’t want the other competition to have exactly that item, or a similar item like that. A construction. Sometimes it’s just, that, that they found out that construction, they got a really good deal, a really good price. So they don’t want you to offer that supply chain or that product that is associated to that supply chain to someone else.  And that’s alright with us. I mean the market is not the biggest in Australia.  And it feels sometimes that it is very, very cost sensitive and very sharp. So, we tend to focus on the clients that we have and grow with them and provide them our best possible service, rather than focusing on too many and putting too many risks on that.  Because it takes time to build a supply chain from scratch for a client with their own specific demands and requirements. It takes time, it won’t happen within one season.  You need to, in particular, the market it like, like in Indonesia, that where you need to bring in a lot of raw materials externally, it takes time.

Andreas:  Do you think that your model is, I mean, it’s not a new model obviously, but do you think that’s the way a lot this, your sort of industry is going to go?  The retail space?

Daniel:  Providing an external design and development service to, to retailers is, for Australian retailers, is fairly, fairly unique at this stage. Providing a sourcing service is out there, everyone can do that. But actually, locally designed ideologue components, shoes, products, as for example, as an industrial designer, or as a footwear designer, to clients in Australia is fairly unique. And we’re working on a project at the moment for a larger group in Melbourne.  And I’m sure it hasn’t been in a way that we’ve done it, engaging international people and working as an international team on delivering something for the Australian market. I don’t think that has been done very often so far.  But, going back to your question, if it is something that Australian or Australian companies should consider, it goes down to actually, if you incorporate all the costs into your development and production stages, you will find that building all the capability in house creates a lot of risk and takes a lot of responsibilities onto you, onto your own company. Where as if you can outsource something, you share the responsibility, you can say “I don’t like the designs. We’ll start over again. We won’t bill you for that part.”  You know, like, there’s much more flexibility and responsibility in that concept that can be shared.  And that way we find, that works very well.  It works very well in Europe, we’re very well aware of it.  And we’ve been working on that.  A lot of companies make use of that, just primarily because it is very expensive to employ technician,  a few designers, all your design equipment that you actually need to do that, to develop that.  It becomes very, very expensive.

Daniel: If you could start the business again, starting in 2011, if you could start that business again, what are the things that you would do differently?

Andreas:  The environment that I, I was used to working, were supplying to Europe, into European grade, I was working with European retailers.  And, environment is very different, compared to the Australian. So I probably would have been more sensitive towards, towards the commitment, towards the support that we give, going into a new relationship. Sometimes I feel like, you know, our model is, in a way, not really appreciated and that’s just based on, you know, not, not our, some of our clients, not taking the time with some of our potential clients.  Just not taking the time to really understand it, and use our capabilities to the full extent. But again, that is a challenge in itself. Because Australia, the retail environment that we’re in, everyone is, everything has to be very quick.  Everyone is looking at margins and there is very little room for you to move when it gets, you know, when you try and convince that this is a good product,  this is very superior. How do we, you know, how can we resolve the financial differences. So, probably, probably being more transparent, or being, pushing that collaborative environment with the client a little bit more before committing to something and going in full speed, would probably be something I would enforce, if I had the chance.

Daniel: Yeah.

Andreas:  If I had the chance to do it again.

Daniel:  We touched, sort of danced around the quality aspect before on your product.

Andreas: Yeah.  Yeah.

Daniel: How important is it in your game?

Andreas: When it comes to shoes, it’s the most important bit.  You put it on, it doesn’t fit, you don’t like it. You can like a shoe, and you can love it, but you put it on and something is not right with it.  You’ll feel it.  You just won’t buy it.  It’s undoubtedly the most important, the most important part for us.  Because we’re producing shoes that don’t sell for $30-$40.  We’re in, you know, we’re in the mid-range, and our shoes that we produce, costs somewhere from $160 all the way up.  So, it is very important part for our clients, a very important part for us.  And we do come across mistakes.  Everyone does in the shoe trade. I haven’t heard of anyone who is faultless. But, we’re here, we will not run away from our responsibilities and we will certainly address those. But, in the end, the model that we work in allows us to actually control the biggest part of the shoe ourselves.  And I think that’s what the factory appreciated, and that’s what the clients appreciate. Because, if we, you know, if we purchase the leather, we purchase the saws, or if we develop the lot, well, the factory has the chance to say, “ Hold on. You’ve purchased it.  Don’t out that mistake on us.”  We have the chance to say, “Alright. We provided the leather.  If something comes in, you know, if something is wrong with the shoe, well, these are the areas that could be your fault.  These are our areas.  These are your responsibilities.” So, really, it allows us to define the responsibilities very clearly, so we don’t find ourselves in an environment where, I say the factories are responsible for everything, and if something is wrong, everything is their fault. It allows us to control it together, to our best ability. And I think that is what the factories appreciate, too. And that’s what, that’s what kind of works for us.  Because then we can, you know, we can ask them to take their financial pressures off a little bit, and we can ask them for support when they’re light. Or we can ask them for support if we, you know, if we have an issue. They know we’re here, we’ll resolve it together.

Daniel:  Gotcha. You’ve got suppliers in, obviously, globally.  You’re open throughout Asia.  How do you choose the best suppliers?

Andreas: We work with, probably only, only 3 or 4 factories in Southeast Asia. Really depending on the construction, on the type of shoe, on the quantities. The raw material side, that’s, that will be determined by the style, by the color, by the design, by the material that is required to be purchased for that item. But, all in all, really, we only work with 3 or 4 factories are specialized in that area.  So, they do kid’s, we work with them on a kid’s item.  They do heels, we do heels with them.  They do darby’s, or brogues, or leather out-soles, which require a completely different technical setup, than, for example, synthetic out-soles We work with them only on leather outsoles. So, that it’s very, we don’t get, we don’t mix them. The people in the factory have a specific skill, and that skill, obviously, is adopted to the machinery that they have available to do their jobs.  So, if you want to change that, you have to retrain that. I don’t really trust people in Asia getting retained to a specific machine.

Daniel: Yeah.

Andreas: And then changing and swapping materials. They know how to deal with a leather sole, we give them a leather sole.

Daniel: Yeah.

Andreas: They know how to glue and cement a rubber sole, we give them rubber sole items. So that’s how, that’s how we really work. We don’t travel all around the world, looking for a cheaper factory here or there.  We picked Indonesia because it’s close by.  Our transport costs are very minimal.  I can go there, within 6 hours, barely have a jet lag when I go.  I can be very effective. And, you know, the prices.  When it comes to the prices, the prices go up everywhere.  It’s not that there’s one country like Bangladesh or India or Vietnam, that the prices are on halt. Prices go everywhere up, all across the world.  The question is, to what speed? Which country are they going up quicker, which country are they going up slower?  And that’s what determines where the big players are going to manufacture their shoes.  And so China has started rising much quicker than India or Bangladesh or Vietnam. So, everyone is shifting.  For us, dealing with those quantities that we’re dealing with, and working within our model, we stay where we are.  We don’t risk. We worked way too hard to build our supply chain to now turn around and go and find something else. Because there are risks involved in doing that. So, that’s how we manage it, really.  We try and stay where we are.  We try and develop a strong relationship. Because, there will be a lot, a lot of times when you need to rely on your suppliers, your suppliers need to rely on you. And that’s what we’re trying to achieve. When it comes to raw materials?  Yes.  We buy them from all over the world. Wherever we can get the best, the best hide or the best skin for the best price. Or, there might be some creative parameters that we need to adhere to. You know, there are things that we have to consider that work best for us. And sometimes the client specifies. You know, we want.

Daniel:  Yeah, yeah.

Andreas: It from that supplier. And we get it from there. So, that always remains very, very flexible, and I guess that’s part of the shoe trade. It’s very, it’s a very international kind of business.

Daniel: One more.  One more final question before we finish.  How important are trading terms across the board? Within your supply chain. With, firstly your suppliers, and then with your customers.

Andreas:  Probably the most important part.  Like, it, it really determines everything.  With being, when I started working in shoes, we had handshakes and a million dollars used to be great, and shipped out goods, and no one would actually bask in the past, and you would be paying a factory in 90 days. And, that’s unheard of now.  That’s, that’s completely over.  So, you are in a very sensitive environment when it comes to your payment terms, and your terms of trade. That’s absolutely. We have to manage it very carefully.  We have to manage risk with those. And we have to have, you know, we have to try and understand the factory side of it, and give them the security and make them comfortable that they actually feel that we’re managing their risk at the same time that we’re managing our risk. Because, at the end, the client set the payment terms, and there will be only a very little room to move left or right.  So, we will have, we will have a guidance that will be set by the client, and then we will have to adopt ourselves, and make it work together with the factory.

Daniel: Yeah.

Andreas:  But in most scenarios, as always, you’re working internationally.  You’re sending out something internationally, into another country. To another legal system.  So whenever that happens, someone wants to have the security of actually getting paid before goods are shipped. So, that’s something that we’re finding is obviously the case at the moment.  And that’s something that we, that we have to adhere to. And that’s where you guys come into place. But, I would say that, when you are in the, when you are in the position where you try it more and more with a specific supplier, and the trust is being built, you can, you can move and you have the ability to become more flexible.

Daniel:  Yes.  Certainly.  I think, when we’ve been dealing with the factory for a while, we get a little..

Andreas: Yeah, exactly.

Daniel: You know, when we realize they can deliver a quality product.

Andreas: Yeah.  Exactly.

Daniel: It makes all the difference.

Andreas: Yeah.  Yeah.

Daniel:  OK, Andreas.  Thank you very much for sharing your story.

Andreas: No, thank you! Thanks for having me.

Daniel: Yeah. You’re welcome.