Turning firms around: a case study
Tim Parker's track record for firing employees as part of corporate workouts once prompted labour unions to nickname him 'Prince of Darkness'. But to shareholders and creditors, he is more like a Prince Charming, especially for his turnaround of luggage maker Samsonite, where he is chairman and chief executive.
When Parker joined Samsonite in 2008, the company was slogging through its worst year, burdened by heavy debt and poor sales. After a year of restructuring that resulted in staff reductions of 50 per cent and 25 per cent in the US and Europe, respectively, the company reported record-high profits in 2009 and 2010. Samsonite was listed in Hong Kong last year and is now debt-free, cash- rich and in the black. It has more than 40,000 sales points worldwide, including many in Asia, which represents half the company's net sales. Parker expects to open 500 new stores this year in Asia as part of a major expansion plan, including 200 in China.
Samsonite started life in 1910 as a truck manufacturer in the US state of Colorado. Parker believes globalisation will lead to more business travel, while Asia's growing wealth will spur more people in the region to travel for business and pleasure. They are factors he thinks bode well for the luggage maker
Parker, a Briton, is no stranger to Asia, having spent some time as a child in Malaysia. He earned a degree in economics and politics in 1977 from Oxford University, and got a masters in business from the London Graduate School of Business Studies in 1981.
After spending a few years as a civil servant in the Treasury in Britain, Parker decided the business world would be a better fit. He joined a conglomerate where he got a chance to be a general manager in a US firm at the tender age of 26. Next, he worked with private equity firm CVC Capital Partners, which led him to CEO positions at the Automobile Association and at car-repair firm Kwik-Fit. Before that, he was CEO of Clarks, a shoemaker, and Kenwood Appliances.
London-based CVC bought debt-laden Samsonite for US$1.7 billion in 2007. Parker, who at the time acted as an adviser for CVC, joined Samsonite as non-executive chairman in November, 2008 to handle the restructuring, and has been chief executive officer since January, 2009.
The South China Morning Post caught up with Parker on a visit to Hong Kong and asked him about the secrets of turning around troubled firms.
When you first joined Samsonite, what did you think was the company's major problem?
When CVC bought in Samsonite in 2007, the company had a number of problems. It had expanded in the US and Europe at expensive locations, which were not profitable. The company wanted to move into premium luxury goods, which had led it to stick to designs that were very difficult to make and at a high cost. It used the same designs for many different markets so the sales were not good.
What did you do to restructure the company?
We closed down the loss-making US stores and the high street stores in Europe. In the US, we cut 50 per cent of headcount and we cut 25 per cent of people in Europe. We kept the Asia business unchanged as that was the most profitable part. We negotiated with suppliers for better prices. We reduced costs and reinvested money in productive areas such as marketing and research and design. The company became leaner and more focused.
We also restructured the company to allow each office in different areas to have full responsibility so that they could have designs of luggage that fitted the local taste. Some people think Asians like similar styles of luggage. But it is not the case - Chinese people like soft-material luggage, while Japanese like hard-material luggage with a frame around the edge. To allow local offices to make the decision is very important.
You turned around the company in a relatively short period of time -what is the key?
For any restructuring, it is best to make the change within six months after you take office because people expect change when you come. Communication is important to make sure people know I have no hidden agenda but I only want to do the best for the future of the company. It also needs teamwork because it needs the people who are specialists, who understand the business, to run the team.
In restructuring Samsonite, we had to cut unnecessary layers of management and cut the number of senior management posts. That allowed reporting lines to be more direct and simple, and people could make decisions much faster.
Then we had to put the right people who know how to run the business on the top levels. We gave them full responsibility so that they could lead their own teams to do their jobs. I did not need to bring in many new people. The company had many experts in the luggage business who have been with it for 20 or 30 years. What I did was to get rid of the unnecessary management layers and removed people who were not right for the jobs and then promoted the right people who knew what they were doing. Then the company was back in good shape.
You were once dubbed 'Prince of Darkness' - how did you like the name? And does it always take big lay-offs to get a company back in the black?
Prince of Darkness - (with a big laugh) I am not as dark as you think! That was a nickname from trade unions from some previous restructuring, and that was a long time ago. I think lay-offs are not always necessary in a restructuring, but in many cases such as Samsonite's, the company may have a long history and inherited an old structure and old business models, which may not fit current markets. The company was making a loss partly because it was employing too many people. Making a cut in staff was to release resources to make it more profitable. It is painful, but creates the potential for future growth.
And how do you keep morale up among those remaining, who may have had friends laid off?
My experience is that people who stay on have a period of mourning after the shake-out, but then they soon get on with their lives.
Even for those who were being laid off, they felt the same. I have met some people whom I had laid off and they told me they were not happy at the time of losing their jobs, but then they found I had forced them to move forwards to find something different. Again, communication is important to explain to people why we have to do the lay-offs.
How do you keep costs down while wages and materials costs in China are all rising?
The labour cost in China is getting more and more expensive, but it is still at a low level, so we can manage it. Rather, the inflation of commodities prices is a key concern. What we do is to use less material and use the materials more effectively.
How would you compare Samsonite with other firms you worked for?
Samsonite has a team full of spirit. It is more international than the other companies I worked at. It is really a company with a global brand.
Do you always use Samsonite when you travel?
After I joined the company, it was impossible for me to use other brands of luggage. I have to use the samples to test if the new products are good, too.
Year the Shwayder Trunk Manufacturing Company, founded in 1910, changed its name to Samsonite