A Conversation with the CEO of Allen Edmonds

I got to meet Paul Grangaard, CEO of Allen Edmonds, maker of US made shoes, on April 16th, 2012 in San Francisco. Mr Grangaard was very friendly, knowledgeable and happy to answer questions.

Golf Shoes

One of the first subjects we discussed was the introduction of golf shoes by Allen Edmonds. He said the idea came from himself and his main marketer who are both avid golfers. They had noted that FootJoy, the last maker of US made golf shoes ceased operations in the US in 2008. There were no longer traditionally made golf shoes being made. They were all plastic, rubber and glue. “Waterproof” means not only water can’t get in, but also water (perspiration) can’t get out which causes shoes to become moldy very quickly. In approaching making golf shoes, the question was: How easy is it to sew a new sole with golf cleats unto their already made shoes. And the answer came back, not too difficult. These shoes are just esquisite, classic beauties. PGA pros love these shoes, they take them home as gifts (the Pros are always getting free stuff) versus stuff they don’t really like which they leave behind in the locker room. You won’t see to many Allen Edmonds shoes on the tour, because the Pros already have contracts with folks like Nike, FootJoy, Addidas, etc, which does not allow them to wear other brands. You may see Greg Norman wearing them, because he has no need for sponsors. And you may see Jack Nicklaus and Ben Crenshaw wear them as they helped design some of the Allen Edmonds’ models. They are hands down the best golf shoes made in the world.

New Ideas & The Advantage of Not Being a Publicly Traded Company

One of Allen Edmonds’ newest ideas are boat shoes. These shoes are great looking and can be stamped with your favorite Baseball team. There is even one model that resembles a baseball, it is white with red seam stitching. The Golf shoes and boat shoes are new ideas not seen with other shoe manufacturers. One of the reasons for this is that Allen Edmonds is not a publicly traded company. They can come up with an idea, and like spaghetti can cook it up and throw it against the wall and see if it sticks. With publicly traded companies, the stockholders all become the bosses, and these bosses always want more profit while downsizing. What we have seen the past 20 years is fewer employees doing more and more, usually meaning worse service for all involved, and when the next quarterly report comes out, there are more cutbacks, and the remaining employees have to more with less. The analogy is that the employees are all hamsters running in the wheel, and then with huge lay offs, there are much fewer hamsters, but running faster, and then the administration comes up with bigger whips causing the anemic number of starving hamsters to run even faster while the hamsters are overloaded, understaffed and burned-out – this is today’s corporate America. It is a far cry from the 1950s and 1960s when the CEO’s made all the decisions, and if their decisions weren’t going to make a short-term profit for the next quarter, then the stockholders were just going to have to lump it, because they didn’t have power. In the very near future, we shall see just how innovative Facebook and Mark Zuckerberg becomes (or doesn’t become) once Facebook goes public.

Why Continue To Make Shoes in the US?

My question to Mr. Grangaard was: Do you feel pressure by other shoe companies to move your operations overseas? His response was no, in fact it is much easier now. It was over the past 30 years where there was a giant sucking of shoe companies going overseas. Now, we are seeing some companies bringing jobs back to the U.S. Mr. Grangaard, a native of Minnesota, took to quoting hockey great, Wayne Gretsky: ” A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” He feels that Allen Edmonds is strategically located in a great place, in the United States. The reason for his enthusiasm was his trip to China and their new found wealth. China does own the world’s largest population and General Motors predicts that by the year 2020, China will account for more than half of all luxury goods and services purchased worldwide.

Will The Chinese People Buy American Products?

It is a well known fact that the Chinese government protects its population from imports and in return, the Chinese people always prefer to buy Chinese products to help their economy and their nation. The new found wealth in China is basically found in pockets of certain city dwellers. The rural population really doesn’t have much buying power. Mr Grangaard was impressed how the Chinese are buying so much luxury items like Coach purses (Coach purses are mostly made in China) and the number of luxury cars like Mercedes, BMW’s and Buicks. In fact, in China, the Buick is the most esteemed automobile.

I Thought I Was Wrong Once, But I Was Mistaken (Quote attributed to Big Mike)

In our discussion, I had expressed reservations that Chinese would buy lots of American made products, but the fact that Mr Grangaard had seen so many Buicks, I was swayed. I was simply looking up how much duty somebody would have to pay in China for purchasing an American car. And you know it is very difficult to figure out because they vary based on the maker of the car. For instance, for a Cadillac or an American made Buick, the duty is 21.8%. But as I was looking up Buicks, I found out almost all of their Buicks are made in China. Many Chevrolets are also made in China. Volvo is owned by a Chinese company, Zhejiang Geely Holding Group. Cadillac which sold only 30,000 cars in 2011, in China (compared to 645,537 Buicks), had not been making any cars in China, but by next year, three models will be built in China. Renault will have cars made in China by 2014.

Duties on Automobiles

As I mentioned, import duty varies by maker of the car plus there can be an additional penalty tax if the Chinese government doesn’t like your attitude. For Mercedes and BMW, taxes and tariffs add about 50% of the value. A Hummer will cost you $200,000. In fact, because BMW, Mercedes and Honda are manufactured in the USA, the Chinese Government feels that these cars are dumped and subsidized and therefore have “substantially damaged China’s auto industry.” So, on top of a 15 – 21.8% import tariff there can be an additional tariff of 2% for Mercedes or BMW, or 4.1% for an Acura TL or an additional 8.9 to 12.9% for GM or Ford. This is one of the reasons that car makers are making cars in China, they are being strong-armed.  So, would the US ever do something similar? Don’t hold your breath. Quite unlike the Chinese government, the U.S. government doesn’t protect its people or its economy, and unlike the Chinese people, the American people do not buy their own (US made) products to help their economy and nation. (This is the subject of an upcoming blog entry ‘Why Americans Don’t Buy American’). If you want more Chinese money flowing to America, one way is to increase tourism. If you could make it as easy as the paperwork that allows corporations outsource jobs overseas and get their tax breaks for doing so, then you could make the VISA paperwork for the Chinese tourists easier as well (which sometimes can take years before an approval just for a vacation).

Mr. Grangaard says ‘Hey’ to John Briggs at americandotnet.

Buy American, don’t expect the Chinese to buy American.

“If you look good and dress well, you don’t need a purpose in life.” -Fashion consultant, Robert Parte


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