THE GREAT NEW ZEALAND CARPET BAG COMPANY A KIWI SUCCESS STORY?

Patrick was standing in Barts office on the 12 th floor on the prestigious Plaza Tower Centre. He had his back to Bart and was looking out of the large picture windows at a flotilla of yachts with rainbow coloured sails passing under the Auckland harbour bridge. It was another beautiful clear day totally out of keeping with the way he was feeling. He turned to Bart and said We have come a long way in five years, dont lets fall out now. Bring in this consultant of yours and lets see what we can salvage out of this mess.

THE BEGINNING Five years ago Patrick Chong, a newcomer to New Zealand, had joined in partnership with his next door neighbour Bart Simpson. Bart had been the manager of a small branch of the Bank of New Zealand but had recently taken voluntary redundancy. Bart had $200,000 which he wanted to invest and was looking for a business opportunity. Patrick had been a manager of a factory making hand bags in Beijing and, although he had little capital, he also was looking for a business opportunity. Bart had no manufacturing experience, but believed that he would be a good sales person. Bart had for a long time had an interesting idea of using off cuts of carpet to make hand luggage. He had explained this idea to Patrick when chatting together over the back fence. They decided to pool their strengths and to manufacture and sell hand luggage made out of carpet. Thus the Great New Zealand Carpet Bag Company was born.

After some investigation and preliminary planning they had leased a large disused warehouse at a very cheap rental in Huntly. Huntly is 100 kilometres south of Auckland and is on the bank of the Waikato River. Huntly was originally a coal mining town but mining ceased some years ago and today it is a very pleasant clean rural town. It is also the home town of the Maori Queen. The local borough council were keen to attract new industry to Huntly so as to offset high unemployment and to arrest the tendency for

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young people to move north to the metropolis of Auckland. The advantages of locating in Huntly for Bart and Patrick were cheap rent and energy costs, location on the main trunk rail way line, and plenty of labour. For Patrick the extra advantage would be cheap housing and a good small town life style for Ting Ting his wife and their children. Bart decided to stay in Auckland where his children were already established in schools and of course Peggy his wife was not keen to move from her golf and bridge clubs.

From the start it was agreed that the partnership would be equal in all ways but for each man to have clearly defined responsibilities. Patrick was to arrange all the resources required for the factory including purchase of plant and equipment and recruitment and training of labour. He was also responsible for liaison with the local authorities. Bart was to be responsible for marketing and selling and for the negotiation with suppliers of materials from contacts he had made in his banking days. He was also responsible for accounting and tax returns etc. To begin with they started with a staff of six people besides themselves; four machinists and one cutter in the factory with Patrick, and one administration assistant working with Bart from an office in his home.

THE FIRST TWELVE MONTHS In the first twelve months the Great New Zealand Carpet Bag Company grew at a rate that completely bemused both men. They were both working twelve hour days and both were thoroughly enjoying the challenges and excitement.

Once the first dozen or so bags had been made Bart took samples to several large department stores in Auckland and across the Tasman Sea in Melbourne and Sydney. The store buyers were most enthusiastic at the novelty value of carpet as a material, and impressed with the obvious high quality of the bags and the price. (Bart had purposely set the price at 10% below the wholesale price of other comparable bags). Large orders were received in the first month of operations and Patrick had to gear the factory up accordingly. The partnership had to go into debt to finance from the buyers.

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On the strength of the forward orders Bart had no trouble in convincing his old bank to provide the funds required.

Some of the early problems were: Suppliers were not always reliable Some machinery proved to be light weight and had to be replaced The factory could not keep up with demand Bart in his enthusiasm promised early deliveries without consulting Patrick Bart committed the partnership to large expensive offices in down town Auckland without consulting Patrick. Patrick leased new machinery through a finance company without advising Bart. (Bart could have arranged a far better lease deal with the bank).

Despite all these problems, most of them brought on by the need to react quickly to get things done, at the end of the first twelve months the partnership was working remarkably well and both men and their families were still good friends.

Due to the unreliability of suppliers the factory developed a practice of stock piling raw materials. Patrick also aimed to build up a stock pile of finished goods (in fact it was three years before he achieved this). Patrick and Bart both agreed that quality could not be compromised and Patrick trained workers to accept responsibility for the quality of their work. Patrick was however continually frustrated with the erratic delivery of materials from local suppliers. He kept suggesting that they import materials even though this would mean longer lead times and even bigger stockpiles. Bart however refused to do this, he steadfastly retained the responsibility of negotiating suppliers and prices. Bart believed in loyalty to his supplier friends.

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The suppliers claimed to Bart that they did their best but; Orders received from the factory were frequently by word of mouth. Orders were always panic orders. Often the factory did not clearly state what they wanted (specifically colour, quantity and delivery dates). When they tried to ring the factory to clarify what was required Patrick would become excitable and was often hard to understand and further misunderstanding would occur.

Bart maintained his original policy of keeping the price below the competition, however he was a little concerned to note that The Great New Zealand Carpet Bags were actually being retailed at a price higher than the competition, this was especially so in the Australian stores.

THE RISE AND FALL OF THE CARPET BAG The initial demand and success of the carpet bags exceeded all the expectations of the partners. By the end of the first three years the operation had expanded to the extent that the factory employed 120 people. New equipment had been leased including state of the art laser cutters. The factory was still housed in the original warehouse, but extra space had been leased for storage. Patrick was still working long hours and was still battling with the suppliers. The good news was at last the factory had cau ght up with demand and he was now able to supply orders from stock. Patrick was so busy that he hadnt visited head office for over twelve months, but once a month Bart dropped in to see him. The accounting and administration was still done in Auckland where the office staff now totalled 80 people, Patrick wondered if all these people were really necessary, but Bart assured him that they were and hinted at exciting new developments for year four.

The 80 office staff includes the Marketing Manager Jude Nye, the Sales Manager Tracey Simpson (Barts daughter), The Accountant Charlie Chong (Patricks oldest son), the

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Human Resource Manager Hinemoa Henare, the Information Technology Manager Zinzan Fitzpatrick, and the Purchasing Manager Freddie Starr. The office staff are young, friendly and enthusiastic, and like to entertain clients and the major suppliers. Towards the end of year three Bart was only dropping into the office for a few minutes each day. On Fridays Bart and Peggy would join the Head Office ma nagers for drinks and dinner at one of the more fashionable cafes. The Great New Zealand Carpet Bag Company always paid for the bill.

Despite the Head Office extravagances the business showed a healthy profit for year three. During the year the bank had been happy to increase the loan to partnership. Although the interest rate was higher than Bart would have liked he had no real option but to accept the banks terms.

In year four the demand for the carpet bags levelled off and towards the end of the year there was a noticeable drop in orders. During this year The Great New Zealand Carpet Bag Company opened six of its own retail ships in the main cities of New Zealand and Australia. It transpired that this was the big thing which had been hinted at by Bar t to Patrick. The retail stores were not as successful as hoped but they did manage to breakeven for the last month of the year. Also during year four the factory, at Patricks initiative and to use up spare capacity, began manufacturing conventional lug gage (not using carpet). Again the emphasis was on high quality and in keeping the price below the competitors. This new line was reasonably successful. By the end of year four there were still 120 people working at the factory, buy unlike previous years no overtime was being worked. The finished goods store had an estimated six weeks of stock on hand. The office (due to the need to manage and market the retail stores) had grown to 95 people, and the number employed in the retail stores totalled 25. The profit for year four was less than in year three.

For the first six months of year five the retail stores continued to stutter along; some months a small profit others a small loss. Also during this period the demand for carpet

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bags almost dried up, but this was to some extent offset by the steadily growing demand for the conventional luggage. Patrick was beginning to get worried. Had now had a large stock of carpet bags, and had ceased making them, he also had at least one months supply of conventional luggage. The factory obviously now had an over capacity in people but he was reluctant to lay anyone off. Instead he had reassigned some workers to painting the factory, and had begun a process of closing parts of the line for overhaul and maintenance, although in his heart he knew that the work being done was not strictly necessary.

Then in the seventh month Patrick was amazed to find a container outside the factory full of carpet bags returned from a department store chain in Australia. On contacting Bart he was shocked to learn that all sales to the Australian stores were on a return basis. Bart explained that the deal he had made (when the business was just beginning) was that stores only paid when they had sold the goods and they had the option to return the goods if they hadnt sold after three months. He believed he had done a good deal because the Stores had agreed to pay the return freight. Over the years he had seen no need to change the arrangement.

In the first year of sales obviously there had been no problem with this arrangement as demand was outstripping supply and cheques were being received at regular intervals from the stores. No one had foreseen that the Carpet Bag was a novelty item and that the meteoric growth would be followed by an equally meteoric decline.

In months eight, nine and ten of year five, further smaller consignments of carpet bags were returned. However the demand for the conventional luggage was still slowly but steadily increasing and Patrick was still building to stock. Apart from the large number of carpet bags on hand and a small supply of raw materials for carpet bags, he now had two months stock of finished conventional luggage with about one month of raw materials. Spare staff were being employed to landscape the grounds in which the factory and store were set. Factory numbers due to natural attrition were down to 108.

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THE CRUNCH It is now the last month of year five. Bart has just told Patrick that the Bank is pressing for the repayment of the loan. Patrick is shocked to find that the amount owed is $2,000,000. Bart says the bank is prepared to agree to an arrangement of repayment over two years providing $500,000 is paid within seven days. He suggests that they both mortgage their homes to do this. He is confident that they can trade out of the situation and he has hired a consultant to look at the company and to advise them on what they can do to turn the organisation around.

Patrick turns away from the view of the bridge, the yachts, and the sparkling Auckland harbour and says We have come a long way in five years, dont lets fall out now. Bring in this consultant of yours and lets see what we can salvage out of this mess.