England’s oldest factory plots survival tactics post-shutdown

“We have been through every up and down you can imagine, both world wars and the Great Depression,” said Ian Maclean, managing director of family-owned clothes maker John Smedley. “At the end of February, we had the largest cash amount ever on our balance sheet. Now we are worried if it’s enough for us to survive.” 

John Smedley runs the oldest continuously operated factory in England, founded in 1784 at Lea Mills in Derbyshire at the beginning of the industrial revolution. Its jumpers and shirts have been worn by King George VI, Emperor Hirohito, The Beatles and Stormzy. But the business has never faced a crisis like this.

Its reversal of fortunes caused by the coronavirus lockdown reflects the difficulties for many UK businesses, which now depend on government assistance but face continued costs such as rent and uncertainty over when demand for their products will recover.

Ian Maclean: ‘Closing down was the easy part. Opening up again could be 10 times as hard’ © Fabio De Paola/Shutterstock

Global high street demand for its high-end knitwear jumpers and shirts has “fallen to zero”, said Mr Maclean. “It’s not like a normal recession. You just don’t know how the economy emerges.”

John Smedley is typical of the “Brittelstand” of companies, which like their German counterparts are of modest size and quiet ambitions, often exporting from the more leafy shires where much of British manufacturing takes place. “We normally don’t make too much noise,” said Mr Maclean. He is part of the eighth generation of the family to run the business since the first John Smedley built a spinning mill along a brook in the Derwent Valley in partnership with the uncle of Florence Nightingale. 

But as the lockdown continues to force thousands of businesses to close, the UK’s often overlooked shopkeepers, builders, growers and manufacturers are finding their voice with pleas for urgent government help. “Its one of the most significant problems we will deal with in our history. But we want to survive it,” said Mr Maclean.

Fabric is prepared at the John Smedley factory in Derbyshire © Chris Ratcliffe/Bloomberg

John Smedley employs about 350 people, generating about £18m in annual sales. At the end of February, the company had £5.3m in cash, which Mr Maclean estimates will last for four to five months “if we have no sales at all”. 

The speed at which coronavirus paralysed the British economy left the company reeling, but he managed to plan for the factory shutdown, cleaning and oiling the machines in anticipation of a long hibernation. Advice from the government had been changing daily, he said, and was “at times unclear and difficult to interpret”.

But the subsequent closure of retailing operations in the UK and across the world has left the company wondering how long its machines will remain idle and how much stock will go unsold — and every month brings trouble closer.

John Smedley’s high-end knitwear is popular around the world  © Veri Sanovri/Xinhua/PA

John Smedley makes about 70 per cent of sales exporting to international retailers. Its biggest market is Japan, followed by Italy, France and the US. This generates about £12m in sales annually. 

The fashion industry still operates mostly on a two-season cycle — spring/summer, autumn/winter — which means the company was able to ship most of its new collection before the end of February. 

“Sadly that stock now languishes on the shelves going nowhere,” Mr Maclean said. “Because so many of the retailers in so many important markets are closed, we just have no idea what the sell-through percentage will be for the whole season.”

If sales are low even when shops reopen — which seems likely, he admits — stock may be returned and retailers may decide to cancel delivery of garments for the next season.

The company has three stores in London’s West End, including on Jermyn Street in St James’s and Brook Street in Mayfair. These normally generate about £2m in sales. “Since we closed the stores at the beginning of the lockdown on the 20 March, [physical] sales have of course been zero.”

The John Smedley store on London’s Jermyn Street © Charlie Bibby/FT

The company typically makes annual sales of about £4m through its website. In late March, when countries were entering lockdown, sales fell by up to 30 per cent compared with the same period last year. But in April, an aggressive promotion campaign has helped bring online sales in line with last year — “a huge relief”, he said.

Nonetheless, the future range — including size, type and colour — has been cut back from 6,200 to 4,600. Reduced textile sampling costs are estimated to save £40,000, but manufacturing will only start in autumn. The company’s Italian supply chain has come to a standstill, he added.

Government rescue schemes have helped support the company. Business rates refunds for its shops will save about £250,000. VAT has been deferred until January next year, saving the company about £75,000.

Rents are still a problem. The Howard De Walden Estate, which owns its shop in Marylebone, offered to take monthly, rather than quarterly, payments. Neither of the other two landlords offered help, he said, including the Crown Estate, which manages the monarch’s property portfolio, on Jermyn Street. He is paying them monthly rents anyway, he said. “None of the landlords have offered a rent holiday of any kind. We continue to pay rent . . . the balance of power lies with them.”

Mr Maclean has spoken to his bank about the government’s small business loans scheme. But “we would not hopefully need to go this far”, he said. 

John Smedley’s jumpers were popular with The Beatles © Michael Ochs Archives/Getty Images

The government furlough scheme is helping to cover the wages of about 320 staff. “Now we have to wait to see when the money comes in,” he said, after putting staff details into the job retention scheme that went live on Monday.

The company’s monthly wage bill is about £650,000, and Mr Maclean hopes to recover £425,000 through the furlough scheme. John Smedley will pay 80 per cent of wages, topping up the coronavirus job retention scheme’s £2,500 limit. Directors took a 20 per cent pay cut to match.

Mr Maclean’s biggest challenge is how the company emerges from the lockdown, and how to match costs, output and demand in an uncertain retail environment. “It is very unlikely we will reopen the factory all at once, we will be more likely to bring people back in phases.”

The Queen and Prince Philip visit John Smedley’s factory in 2014 © John Smedley Ltd

Seven employees have volunteered to start making scrubs for the NHS next week. Health and safety consultants have provided advice for them to return to work, and are working on plans for the safe reopening of the factory. This includes maximising distances between workstations, mapping one-way routes, designing barriers, enhanced cleaning rotas and the provision of protective equipment. 

To help the company recover, Mr Maclean wants the government to stop fighting over a “health vs wealth” approach in deciding future strategy — “it has to be both”, he said, stressing the importance of an economic plan to help companies emerge without lasting damage.

Supply chains are “going to get worse before they get better, and customers are going to naturally be defensive of their cash”, he said.

“My fear is that more businesses could go bust during the restart phase. Closing down was the easy part. Opening up again could be 10 times as hard.”

This is the first article in a series looking inside companies that are grappling with the consequences of the coronavirus pandemic.

Source Article

Next Post

Crude output, demand in focus

A man walks on a path in front of an oil derrick near the Huntington Beach Oil Fields on April 20, 2020 in Huntington Beach, California. Michael Heiman | Getty Images Oil extended gains on Thursday amid signs that producers are cutting production to cope with a collapse in demand […]