Today, the discussion is between Nick V. and Sergio Barange, CEO of Tarrago Brands International, associated with Avel (led by Sergio’s brother-in-law, Marc Moura). Avel is the parent company of Saphir, whose shoe care products are among Styleforum’s most recommended.
Nick V. of B. Nelson Shoes, New York, talks with has been sharing his conversations with some of the biggest names in the footwear business. Check out his interviews with Nick Horween of Horween Leather, Paul Grangaard of Allen Edmonds, Peter Agati of Paul Stuart, or William Church of Cheaney Shoes.
Nick V.: Sergio, please tell us about your background.
Sergio Barange: I was born and studied in Barcelona, Spain. I got my degree in economics and business management at 23, after a year in the army. The university gave me my fundamental life/work basis, and the army gave me strength and order, and (as a reserve lieutenant) taught me how to manage 200 people.
I later studied for a 1-year Master in Financials, and then a2-year Master in Business and Administration. I worked for a bank in Barcelona, and for a European hotel group.
In my 20s and 30s I founded several businesses: laser printer recycling, Natura Organics™ cosmetics and body care, Doctor Clic computer assistance, and other smaller endeavors. With Natura Organics I learned how to create and develop quality products, and Doctor Clic taught me to give good service to people (today this company has more than 150 employees).
I speak six languages, which is very useful when traveling.
Since my 30s, I spend my spare time (not much!) mainly with my three girls; I love skiing and golf, and when I can, I fly a Cessna, as I earned my license recently.
NV: What interested you in the shoe care business?
SB: I have always been a fan of nice shoes. Also my hobby has been the do-it-yourself home and decor activities. (The French company Avel does both lines: Saphir shoe care and Louis XIII DIY products).
Beginning in the 1990s the shoe care and DIY businesses were growing substantially and the opportunity for developing a subsidiary of Avel in Spain was a good challenge. Once I started working with Alexandre Moura, my father-in-law, who was a great business man—our family axis and a unique leader—I realized with no doubt that this was my professional life project.
NV: How did you get involved in the business?
SB: In 1992, my father in law proposed that I come into the Avel family business, by building and managing a subsidiary of the company in Spain. I began to grow the Avel business in several countries.
In 2008, the Tarrago Shoe Care Group, which belonged to the Tarrago family, appeared to be in a very poor financial situation and in general distress. After some conversations with the former family owners, Alexandre, his son Marc, and I, bought the whole group.
Tarrago was not only in financial distress, but had poor management. I have been, since then, improving the management, expanding export sales, reducing cost, improving formulations, modernizing machinery, and updating the whole production processes in our plants.
Today Tarrago Brands is a very healthy corporation with presence in more than 50 countries.
NV: What was the business like when you first started in it?
SB: In the late 80s and beginning 90s, the shoe care business was beginning to open to the Internet. I think this has been the most important fact in the last 25 years. Shoe repair shops and small distributors knew very little about the diversity of brands around the world, and the many opportunities to use different products. Local brands were leaders in their own countries and had little competition from abroad.
Also, the Asian products were coming into European and American markets, with the loss of margins and subsequently a decrease of quality for the domestically made products, because of the need to do price adjustments to be competitive.
Great corporations like Sara Lee or Reckitt & Colman were leading the world sales, and small regional business like Tarrago could not afford to globalize without spending great sums.
Despite this, the high-value-added products that Avel proposed at that time, gave Saphir a presence by the early 90s in more than 25 countries, always considering quality as the main factor to differentiate. The company obtained several prizes and Alexandre was honored with the French Legion d’Honneur Medal, the highest French honor, which the French President gave him.
Other brands, controlled by larger corporations, could not follow these “luxury” criteria, and came down to reduce colors, quality, and items, redirecting sales to big retailers. Progressively, these brands disappeared, or changed production to Asian countries for high volume / low quality, closing local plants. For example, Meltonian does not exist in Europe anymore, since the late 90s, and Kiwi is losing force substantially.
Very few brands have today the critical size to develop world sales. Those who are not large enough, will progressively be bought by bigger industries or simply disappear.
NV: What do you consider the most influential impact you have had in the industry?
SB: In my personal experience, buying Tarrago in 2008 has been the engine that accelerated our family business. Our family business could actually be the second or third in world presence in the shoe care.
NV:How would you describe, differentiate the Tarrago, Avel, and Saphir products?
SB: Avel has two main branches: Do-it-yourself products (care of woods, tiles, metals, paints…) under the Avel and Louis XIII brands; and shoe care products, under the Saphir and Saphir Medaille d’Or brands.
Saphir Medaille d’Or is a high-end luxury brand, with the highest consideration in any market where we sell. The general comment is that this brand has no equal. The best shoe, bags and leather brands in the world use these products.
Saphir is Avel’s French large shoe care line. It is considered as the most quality range ever done for quality shoe shops and shoe repair. Saphir has always put quality before price. This is very important for many clients, as the margins obtained when selling this brand are very good, and customers appreciate so much the security of using such good products. They become confident in the brand and in the shop that sold it.
Tarrago is a high quality European-made shoe care brand. Based in the experience of our family, we have been able to put this brand in a much higher level in image and quality than it was before. Today Tarrago, thanks to the confidence of our distributors, is present on 5 continents, and in more than 50 countries.
NV: In my opinion, the polish and shoe care industry has gotten very stale over the past few decades. The only thing that seems to happen is big companies buy out smaller companies. Then the bean counters reduce available colors and products. It all gets pared down to basics. Your comments?
SB: The last 3 years have been very difficult for the European and American economies. The lack of money to finance business projects is putting Europe in a very delicate situation, where the Asian companies are coming with strength, ideas and money.
This is reducing the traditional stores market, which has always sustained the business. We are seeing many businesses close and we do not see many efforts from governments to protect these entrepreneurs; much more education and support is needed if this economic change has to lead to a successful new economic period. I still believe that the Keynesian theory will result and so governments will help more to get out of this situation; in fact, I do not consider we are in a crisis but in a big change. We must realize this to adapt our business to the new rules coming.
What we must not do is decrease our quality, reducing cost and keeping very little margins. We need to maintain our levels, and reinvest in research and development, new machinery, be stronger and propose valid and high-quality alternatives. Fighting against low prices is no future for a family business or even any developed countries’ brand that wants to survive against low salary countries’ brands. We have recently seen what happened to Tacco Footcare in Germany, where they went into a financial distress last November, because of low prices, offering some Asian production, insufficient margins, and no machinery renewal.
Expansion for the leaders in the shoe care market must come by choosing the best merge or buy-out opportunities that we will surely see in the next months or even years.
NV: Many of the shoe makers see this as an opportunity to introduce their own labeled care products for their leathers. Can you tell us what makers you produce products for?
SB: Shoe makers should make their own brand when they accomplish two goals: they have the size to procure branded products to the MOQ [minimum order quantity] requested by producers, which are high; and they have the management of the shops’ where their products are sold. Many people think than when doing a private label, they should have lower prices, as they ask for “reasonable” quantities. It is not true. For example, when I buy 1 million caps or labels for my shoe cream I get prices that when doing a private label (for smaller quantities), prices are very expensive compared to mine. When I produce my shoe cream, I can do up to 20,000 units in one production turn, in only one color; can you imagine how expensive it is to have to do only 600 or 1,200 units for each color, for a private label? So MOQs the factor that permits gain margins and operating full performance; with private labels, it is difficult to meet those margins, so that is the reason why it has to be sold at a higher price if we want to keep the same quality. Of course, Chinese productions (which have high MOQ by the way), can give nice prices for these private labels, but quality is very low. In Spain we say: “there are no $5 notes that value $4.”
Making shoe-branded products must also be done to the quality that is at the level of the shoes. Cheap shoe care cannot be used for nice shoes. This is something many shoe producers do not look at: when a customer buys a $200 pair of shoes, and the brand proposes a $1 shoe polish, do you see something wrong? I do.
In Saphir, our branded clients are mainly from the leather European luxury items and luxury shoes (English, Italian, French…). Products are done in the art of the highest possible quality.
In Tarrago, we offer a very good quality product for a very tight price, so bigger quantities are demanded. We are not in the battle of reducing quality for cheaper pricing, so normally we only work when client has the necessary MOQ level for doing its own brand, and is interested about quality, not only price. When looking for low prices, we always suggest Asian producers, what is a better choice for that, even though we are very competitive and the price difference is very small.
NV: How many plants do you manage?
SB: Our family business has two factories, one in France and one in Spain. My brother in law Marc lives in France, and I live in Spain.
NV: Their sizes?
SB: The French factory has 30,000 square feet, and the Spanish plant (factory plant and logistics plant) around 15,000 feet.
NV: How many people do you employ worldwide?
SB: Our total human resources are 100 people.
NV: What changes do you see in the near future?
SB: I think we could see how big corporations “discover” that the shoe care is not a great deal for them, and they will abandon this market, which will be led by the big retailers with self-labeled products, done by Asian producers.
By the way, the Asian price gap will not last forever. Prices from Far East will increase every year, so we could see a new economic period where domestic industry could recover, but always with a bigger size, so I come back to my idea of seeing many mergers in our sector.
Concerning the traditional market where we are, as I said before, we will see many mergers and buy-outs, so only a few brands will stay; those selling very cheap will be mismanaged and disappear, as some cheap brands will take the place. But this “cheap” concept will be reduced in the shoe shops and shoe repair, as those wholesalers and shops that do not pay for quality and distinction, could also be in very bad shape in the future, as “cheap” is a natural market for big marts and not for traditional shops.
Quality brands will continue to get bigger; I would say almost one or two in U.S. that will stay for sure, and maybe two or three from Europe.
NV: Where do you see your company 10 years from now?
SB: As is happening already, I imagine our company growing because of our bigger international presence, and also because of the companies we are buying. We have already bought some in the past, and we are negotiating for some others.
We present a great opportunity for intelligent managers. When a company is in distress, the best solution is to merge into a bigger corporation. Unfortunately, to be able to survive in market circumstances, this is the only way to proceed. Or to close. So when the owner or manager of a company in distress, accepts a company like Tarrago or Avel (our group), to take the shares and rebuild the organization, it is a good decision. This permits the manager to keep his work, to keep employees (in many cases), and of course to make its brand to continue to exist!
NV: Favorite reading material?
SB: Fiction books, spy novels and science, but my reading is mainly management and marketing.
NV: Three dinner guests (past and present)?
- My father in law, Alexandre; friend and mentor.
- Any of my distributors in the world, as it is not only a matter of business and already many are very good friends.
- Obama, Sarkozy, and Merkel at the same table, to ask them the truth of what it is all about.