Finding a niche most important
Its product range includes duvet covers, pillow cases, curtains, mattress and pillow protectors, and sheets. It was founded in 1919 and has operational sites in Cape Town and Pietermaritzburg.
"The company had been struggling for a few years prior to me joining to focus on helping with a turnaround strategy. Just as things started to come right, the market crashed in 2008 and placed us against the wall," says Nick Steen, the managing director of Sheraton.
Sheraton was facing liquidation and approached the Industrial Development Corporation (IDC) for assistance. The Textiles and Clothing strategic business unit of the IDC felt that the turnaround plan the company presented was achievable and it saw the potential of Sheraton.
It invested more than R28-million in the company, resulting in an ownership stake of 80%. The rest of Sheraton would be owned by the management team. The move was approved by the competition tribunal and resulted in saving 500 jobs.. This also meant that Sheraton could start implementing the proposed turnaround strategy.
According to Steen, the problems faced by Sheraton are indicative of how the textile industry has been struggling in South Africa since 1994. "There needs to be more government support. In the Far East, companies are receiving subsidies that see them compete far more effectively on a global level than what South African companies are able to do. Having said that, local companies that operate within a niche are doing quite well," he says.
"Another challenge has been the huge amount of illegal activity and under-invoicing that has been taking place. And while customs have been doing a good job in the past 18 months, it is not enough, "says Steen.
He believes that while the IDC has come in with financial support, it realised that it can provide more strategic support to the industry in general.
"We approached the IDC as part of a job-saving exercise. One of the big industry challenges is the massive labour unrest in the country. What Marikana has highlighted is that this unrest is driven mostly by the high levels of indebtedness in South Africa," Steen says.
Across all the manufacturing environments, there is a massive demand for salary increases driven by need and not by the economic reality of the country. Steen believes that there is a mentality of turning to your employer as your only option to survive if you cannot make ends meet.
Too much debt
"Government is trying to work on the level of indebtedness. On the textile side, the question needs to be how manufacturers can operate within niches. South African operations cannot beat the likes of the Chinese at what they do well. But we can compete if we choose to operate in those areas in which the Asian companies are vulnerable. Our challenge has been to find those niches and get good government assistance."
Other things that the likes of Sheraton and other local players have going for them is that, despite the fact that China is very good with uniform products, it is still five to six months away in terms of supply lines. Steen also feels that the Chinese manufacturers are not very good with design or branding.
"Granted, we are poor at branding when compared to the likes of Australia and its Billabong range. Ultimately, brands are what make the difference and we need to work towards establishing those quality names," says Steen.
But government has not been idle. There is a production incentive for manufacturers to retool themselves in terms of equipment and efficiencies. Steen adds that government has come up with great assistance programmes which Sheraton has used to develop new lines and capabilities to develop products that can compete more effectively with China.
"We have moved away from the bottom end of the market and now focus on middle to upper-end lines. Our products are also much more design-centred than in the past. I firmly believe that if we get it right, we can go into exports. If you get the design and branding on the right level, then we will be more cost-effective than many other international markets." But despite these moves, he argues that the local industry has been its own worst enemy with manufacturers trying to cut each other to pieces instead of dealing with their international competitors.
"Another problem is our strong and dominant retail sector that sees most local manufacturers being at the mercy of retailers. The margins that retailers are making versus that which the manufacturers are getting are significant. When one looks at the retail industry, it is not about creating or limiting jobs. It is a cost exercise of just importing from elsewhere, despite the damage it does to the local textile market," says Steen.
For its part, the IDC funding has enabled Sheraton to firmly get on a path of sustainability. The investment it has been able to make on new equipment and processes have proven to be invaluable. But it has also been able to do more outreach projects internally.
"We have a gift bag day that helps people who cannot put food on their tables due to their indebtedness. Sheraton creates internal charities to help its staff," he says.
"But we need to remember that the labour market here is significantly different from Asian countries. For example, in China it is typical for a young girl to finish school, work at a textile factory for two years and send money to her family. She will get married and leave the factory at a young age but will get replaced by the next young girl who joins from school."
Steen says that this creates a continual flow of start-up labour costs. The situation locally is in stark contrast.
"Here we have people who have been at a textile company for 25 years or longer. They cannot afford to leave their jobs because they often support their children who cannot find jobs. Ironically, these long-term workers therefore do not create fresh opportunities for younger workers," he says.
For him, investments such as those made by the IDC will be crucial to help grow the local textile industry.
"We are often a lot more productive than other countries but we lack competiveness. We need more subsidies and we need to work together to grow the industry locally," he concludes.
This article was supplied and approved by the Mail & Guardian's advertisers. It forms part of a larger supplement.