New Balance Athletic Shoe, Inc. - New Balance Falters During the Late 1980s
New Balance Falters During the Late 1980s
The bleakest point during the anemic late 1980s occurred in 1989 when Davis's leading executives urged him to shutter the company's domestic manufacturing operations and move production overseas. The benefits of such a move were easily identifiable. Instead of paying $10 an hour plus benefits to its U.S. workers, New Balance could conduct its manufacturing in Asia and pay manufacturing workers $1 dollar a day or less. Moreover, all of New Balance's biggest competitors had made the move overseas years before and were realizing startling financial growth—companies such as Nike, which was hurtling past the $1 billion sales mark while New Balance was beginning to flounder below the $100 million sales mark. Despite the overwhelming evidence, Davis could not be swayed. He insisted on keeping his production facilities close to the company's headquarters and, in fact, did the opposite of what his management team was prodding him to do. Davis began pouring money into his U.S. manufacturing facilities, entrenching his position as others persuaded him to move abroad. "The sizzle of the 1980s is gone," Davis proclaimed, "and the steak of the 1990s is here. We've never made sizzle. We've always made steak."
Davis reasoned that New Balance's strength was its attention to quality and the company's ability to respond quickly to retailers' needs, both of which would diminish if the company began subcontracting manufacturing thousands of miles away across the Pacific Ocean. His goal, as the 1990s began, was to shorten significantly the time required to roll out a new shoe model, slashing development time from one year to four months. Toward this objective Davis began investing heavily in capital improvements to increase efficiency and lift capacity. "What always sold," he remarked, "were our core running products and our tennis shoes. But we never had enough of them because we had spread ourselves too thin in all these peripheral areas." Accordingly, Davis narrowed the company's focus and began funneling money into its manufacturing facilities in Massachusetts and Maine. In 1991, as sales approached $100 million and profitability returned, Davis set aside $2 million for new equipment, spreading the investment over two years. In 1993 $3 million was earmarked for high-technology equipment such as automated cutting and vision-stitching machines. By the end of 1994 $6 million had been spent during the previous three years on new equipment, including a new computer-assisted design system that, along with other new machinery, enabled New Balance's research-and-development team to cut the required time for new product introduction from one year to four months. In addition, the investment in new equipment helped boost New Balance's gross profit margins from the mid-20 percent range averaged in the 1980s to the mid-30 percent range by 1993, a figure that compared favorably to the 38 percent reported by Nike, whose labor costs were much lower.
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