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Industrial Relation Report on Hush Puppies

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Hush Puppies Chile

Company Background

Buildup of the company

[** Hush Puppies was found by three Swett brothers, Alfonso Swett, Ricardo Swett and Juan Pablo Swett]In 1980, through the concerted effort of three brothers, Alfonso Swett, Ricardo Swett and Juan Pablo Swett, Hush puppies began its operations in Chile. In the early 1960s, NORSEG was formed by the three brothers, a start-up company that supplied safety equipment to industrial and mining sites throughout Chile. With the help of rising sales and a healthy cash-flow, the brothers gradually expanded operations to include real state development, several agricultural projects and a 10% equity position in Elecmetal S.A., one of the largest industrial companies in Chile. Over time to time, these operations were organized as separate companies under the family owned Costanera S.A.C.A. Holding Co.

Expansion of Wolverine World Wide

[**Hush Puppies emerged as a major brand and Wolverine World Wide and Hush Puppies had established joint ventures and licensing between them and started doing business in Chile]

In the spring of 1979, an advertising agency, Veritas Ltd. Informed the three Swett brothers that Wolverine World Wide was interested in expanding into Chile. Wolverine, based in Rockford Michigan, controlled a portfolio of footwear brands including Hush Puppies casual shoes, Wolverine work and outdoor boots, Bates uniform shoes, and Brooks athletic shoes. Incorporated in 1954, Wolverine traced much of its initial success in footwear markets to its reliance on the production of casual pigskin shoes. In the mid-1950s, Wolverine developed a new elaborate pigskin tannage technology to take advantage of the characteristics of fine grain pigskin and in 1958 introduced Hush Puppies casual pigskin shoes. So the management team of Hush Puppies Chile thought that if they do business with Wolverine, then it will help their business to grow rapidly in the long run and it works in the future.

During the 1960s and 1970s, Hush Puppies emerged as a major brand with particular strength in the mens segment. The infamous brand became a very widely recognized symbol for quality and comfort. Success in the U.S. was followed by international expansion, initially in Canada and Europe. In the early 1980s, spurred by fears that the U.S. government might lift import quotas on low cost shoes from the Far East and Latin America, Wolverine moved to accelerate its international expansion. By 1992, Wolverine World Wide had established joint ventures or licensing agreements in over 40 countries including most of Europe, Japan and South America. Wolverines management is so competent enough in business so that they have cleverly expanded their business in Chile at the initial time when the U.S. government might lift the import quotas on shoes from Latin American countries and the Swett left no stone unturned to patch up with Wolverine which will help the U.S. economy in the long run.

Current Market Situation in Chile

[** By doing marketing research the Swett brothers came to know that the Chilean people are very much concerned about fashionable, formal and dressy shoes. And by this time Wolverine was looking forward to do business in Chile. So they took the opportunity and came into discussion with Wolverine]

In Chile, Wolverine was looking forward for an agent to import and manufacture Hus Puppies brand shoe under license and in response to that initiative, the Swett brothers commissioned market research studies which revealed that the Chilean shoe market was dominated by formal, dressy products and that no companies effectively met the demand for casual shoes. They did market research on the Chilean shoe market and found out that Bata, a large Canadian-owned shoe company with worldwide operations, controlled an estimated 60% market share in Chile. Like most Chileans, Ricardo, Alfonso and Juan Pablo Swett believed that the open market of 1980 provided an ideal opportunity to start a new business. The brothers were particularly interested in the upper class market in Chile, which by exposure through international travel, was familiar with the Hush Puppies brand, quality and unique designs. Wolverine World Wide also appeared to be an open company; its managers were supportive and personable. The brothers agreed that any venture with Wolverine would succeed.

A Move To Retailing

[** Hush Puppies in Chile started retailing business but arguments stated that it will be better to open their own Hush Puppies chain store.]

In working with Wolverine, the brothers decided early on that retailing provided the best option for getting Hush Puppies into Chile. Renato Figueroa, Commercial Manager of Hush Puppies Chile in 1980 argued that Retailers treated all brands the same, they do not give special treatment to any particular brand. From their point of view Hush Puppies is quiet same as Bata. So he stated to build their own Hush Puppies chain store. Their decision was based on the notion that if they open up an individual Hush Puppies store chain then they can influence and handle the market, they would know who are their customers, what are their desires and what is in their mind. By doing this might enable them to place Hus Puppies in a different place from the rest of the competition in Chilean market.

Negotiation With Wolverine World Wide

[**Negotiations between Swett brothers and Wolverine World Wide held very well and they came into some legislations such as they will invest $2.0 million initially by taking $1 million loan and $1 million from their own pocket.]

After negotiations with Wolverine, Hush Puppies Chile was given exclusive rights to import Hush Puppies shoes and develop retail outlets in Chile. Although no up-front fees were paid to Wolverine, the brothers committed to opening as many as 25 retail stores within three years. Expectations were that the costs for the first five stores, including leasehold improvements, training,

inventories and so on, would total about $2.0 million. Of this amount, about $1.0 million would be borrowed. The remaining $1.0 million represented a substantial risk to the brothers. The Swett brothers took the initial risk for better profit and as they know very well that if they took risk now then they might be faced with high grown in near future. They planned to design their stores as family concept outlets in which both parents and children could find comfortable, casual shoes. The best Hush Puppies shoes will be imported from outside Chile and 80% of them from United States. After doing market research of the wealth of the Chilean people, they found out that these high-income level consumers in Chile considered being the upper middle class and upper class U.S. consumers. But the difference was that wealthy American consumers were generally not targeted by Hush Puppies in the United States.

Roles & Responsibilities of Swett Brothers

[**The Swett Brothers divide their roles and responsibilities among them and they desire to continue with professionalism.]

Stores were situated in large, convenient locations primarily in the Santiago metropolitan area. The sales staffs were extensively trained to better relate to the upscale customers and were well compensated, reflecting the desire for continuity and professionalism. As the management were well aware of the fact that to deliver the customers with high style and well designed shoes, their staffs must have to be skilled enough and they must have to be compensated and motivated well, so the management did focus on the staffs. Shoe prices were set at a 10% premium over average shoe prices and were the same in every store. In distant locations in Chile, the plan was for Hush Puppies Chile to grant franchises to independent retailers.

As agreed upon by the brothers, RICARDO SWETT assumed responsibility as the GENERAL MANAGER of HUSH PUPPIES CHILE. JUAN PABLO SWETT assumed responsibility as the GENERAL MANAGER OF NORSEG CHILE. ALFONSO SWETT was involved in major investment decisions and strategic planning for all family owned businesses as well as some DAY-TO-DAY DECISION MAKING AT HUSH PUPPIES CHILE. By early 1982, Hush Puppies Chile had established seven shoe stores in the greater Santiago area. The brothers divided their works based on different sectors and they assigned the roles and responsibilities by themselves so that they can concentrate on the growth of the business in Chile.

A Move To Manufacturing

[**Chile was faced with serious downturn in their economy which led the Swett brothers to shift towards manufacturing]

After several years of promising economic growth, the bottom fell out of Latin American economies in 1982. Hit by slumping commodity prices, massive

national debt, soaring interest rates, and worldwide recession, the Chilean economy, like every other in Latin America, plunged into a state of depression. In Chile, the GNP fell by 14% in 1982 alone. Between the 1982-1985, unemployment officially hovered around 14%; unofficially, it surpassed 30%. During the same period, the Chilean Peso dropped by 300%, leading to a commensurate rise in import costs.

Due to the economic downturn the company was devastated. Hush Puppies Chile was totally based on imported shoes. Only two options appeared to be possible: either to shut down the company or move into manufacturing. According to Alfonso and Ricardo Swett, they stated that they had firm belief towards the brand; the consumers like it. So as a result they didnt have any choice but to get into manufacturing. As the management was very strong and they also had a very strong belief towards the brand, they knew how they will regain customer value and how to keep the business in the long run.

So based on this phenomenon, the decision