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Business Observer Friday, Aug. 24, 2018 2 months ago

A case for longevity

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Korchmar’s fourth-generation leadership is positioned to capitalize on any economic condition by doing it the hard way.
by: Andrew Warfield Lee-Collier Editor

In 1972, Michael Korchmar was a 22-year-old recent college graduate when he began his trek to become the third-generation president of his family’s leather goods manufacturing company. Now, just more than a year after marking the Naples-based company’s 100th anniversary, his son, Mike, is preparing to take over as owner and president.

Founded in Cincinnati, Ohio, in 1917 as The Leather Specialty Co., Korchmar is one of only a handful of manufacturers of high-end leather, wax canvas and ballistic fabric baggage and accessories in the U.S., creating all of its 50-some Korchmar-branded and hundreds of other private-label products, all hand-made in Naples and in the Dominican Republic.

“Everything from wallets to wheeled luggage,” says Michael Korchmar of its range of products.

Korchmar makes a luxury product. Its best-selling Garfield laptop messenger bag, for example, costs $405 for the waxed canvas version, $490 for the leather model. In all, the company makes some 50,000 pieces per year, its own Korchmar label available on the company’s website and in hundreds of specialty retailers across the country.

Michael Korchmar credits a century of conservative business principles and a reputation for quality manufacturing for surviving, and most recently thriving, through economic conditions resulting from the Great Depression, exportation of manufacturing, automation, and the malaise following 9/11 and the most recent recession. Declining to disclose revenues, he says year-over-year growth the past three years is 13%, 15% and 18%, respectively.

The company gained strength through the most recent economic downturn, because, he says, “We had more dry powder than anyone else”; the military analogy implying Korchmar was better positioned financially to find opportunity in the recession.

The Naples facility reflects the company’s fiscally conservative approach. There are no elaborate offices for the Korchmars. Their desks are arranged in the same open warehouse space where employees create pieces by hand. The break area is a refrigerator, microwave oven and coffee maker situated along one wall. 

Overlooking a conference table adjacent to the manufacturing floor are photographs of Korchmar founder Max Korchmar and his son, Don, the images of their predecessors serving as constant reminders of the family legacy.

Although he grew up in the business — Michael started performing menial tasks in the original factory in Cincinnati at age 12 — entering the business right out of college was not what he wanted for his own son. After Mike graduated from University of Florida in 2012 with an industrial engineering degree, there was no job offer waiting for him at the family business. So, Mike took a job with Deloitte Consulting.

“My father really wanted me to trek my own path," Mike said. "If this was where I ended up, he wanted it to be because I wanted it and because it was right."

After five years with Deloitte, Mike felt the pull back to the family business. "I knew what life looked like and my heart was telling me I wanted to come back into the business," he said. "I’m thrilled I’ve done it.”

The succession-by-choice strategy proved effective. Mike says his consulting work in helping major companies around the world solve problems equipped him with the necessary knowledge to run his own company, even one he already knew intimately.

 It’s exactly what his father wanted.

“It would have done me a lot of good to go out into the world and learn what corporate America looked like first,” says Michael of his own experience. “I would have had a greater appreciation for sleepless nights during hard times when you’re worrying about making payroll and paying vendors.”

Unfortunate timing

Nineteen years after joining the company, Michael took over as president of Korchmar in 1991. Nearly from the beginning, he faced, and learned from, mounting challenges to domestic manufacturing.

“I had really lousy luck because the business had been on a rocket ride for 25 or 30 years, then the global economy kicked in about three years after I came on board,” he says. “It was baptism by fire, and there were some things you just couldn’t control.”

Among those “things” was intense competition from Asia, with foreign manufacturers flooding the market with products made by automated assembly lines and inexpensive labor. Well-known high-end brands that once made their own products were no longer manufacturing, instead morphing into marketing and distribution operations selling pieces with their own label that were made by others.

Meanwhile, Korchmar’s Cincinnati plant was operating with 350 employees along with another 200 in the Dominican Republic. Materials became more difficult to obtain as domestic manufacturing waned and suppliers either focused their attention on Asian factories or went out of business. 

“Everything made here is like a custom, one-off piece. Some of our runs are so small that every one of these is a handcrafted piece of art. This is not something where you are setting the production line and it just hums. Every one of these requires every resource we have that touches them to be looking at the big picture, thinking about quality and understanding how the materials work together. It requires everyone to be an artist.” Mike Korchmar

By 1999, Michael Korchmar had made the decision to close the Cincinnati facility and move the headquarters to Sanford, near Orlando, because of the proximity to its remaining plant in the Caribbean. In 2004, he moved the company to Naples because, “It seemed like a cooler place to be.”

“The competition from Asia was killing us, and we had to close a plant. We almost had to close both,” says Michael. “So, I had the terrible responsibility of shutting down Cincinnati and laying off all the people who taught me everything I know.”

Prior to 1990, Michael says there were 60 to 70 competing manufacturers in the U.S. Today, he says there are one-tenth as many. As a lone survivor of the mass production trend, Korchmar was positioned to fill a niche high-volume manufacturers couldn’t — the ability to produce lots as small as 25 to 50 of any one product for private label customers.

“The companies we are producing for are also our competitors,” says Michael. “And they are some of the most prestigious brands in the world. They’re making here with us because there is nowhere else to make.”

Among those clients is Indianapolis-based CH Ellis Co., for which Korchmar manufactures Howe brand products in the Dominican Republic, among others. 

The Howe label was previously owned by Korchmar. Former CH Ellis owner and CEO Bob Abel has since sold the company, but remains there as a consultant. He recalls when he and the Korchmar family were direct competitors before CH Ellis acquired the Howe brand from them in 2001.

“We competed through the 1980s and 1990s, but it was a friendly competition,” says Abel. “If I ran out of material, I would borrow from Michael and he would borrow from me. In 2001 his dad (Don) had decided to sell the Howe product line, and they approached us and asked if we were interested. We said yes because it was essentially the same product we made.”

In addition to manufacturing for CH Ellis, Korchmar makes products for other private label clients including high-end brands Allen Edmonds, Filson and Shinola.

“We’ve been his customer and he has been our supplier for 17 years now,” says Abel of Korchmar. “In all that time I can think of maybe one incidence where there was any kind of a quality issue. The leather work they do is absolutely incredible.”

What recession?

Unlike most businesses, the recession that began in 2008 started a boon for the Korchmar. That’s when the company’s fiscal strategy, warehousing of equipment Don Korchmar purchased from companies that went out of business, and the previous downsizing paid off. Korchmar was alone in its small-lot niche, was poised to expand manufacturing with equipment it already owned and had clients with nowhere else to turn for products.

Mike and Michael Korchmar. Photo by Stefania Pifferi

“The recession was really when our big turnaround started,” says Michael. “By that time we had 30 years of doing some of the hardest manufacturing in the world, and that is low-volume runs of high-quality merchandise, and that was because that was all that was left. We were taking the scraps off the table. Everyone else was in China doing the long, sweet jobs and we had to figure out how to do the hard stuff.” 

The recent economic surge, he adds, “Is like someone put our company on speed.”

Greater demand and efficiencies learned during years of operating in survival mode, he says, are resulting in rapid growth now. The company projects to continue its year-over-year gross revenue increases, projecting 20% growth in 2018 over the prior year. 

Efficiencies include warehousing raw materials in Naples, strategically resupplying to ship them to the Dominican Republic only when two containers are filled. Those containers return with finished product as well as kits that are assembled in the Naples plant. 

The 12,000-square-foot Naples facility serves as initial staging and finished product distribution, with the bulk of the manufacturing in the Caribbean. That plant now employs 350 with 20 more working in Naples. Both are growing under the younger Korchmar’s watch.

Michael Korchmar says he expects the succession to be complete within two years. 

What will he do then? Turning his eyes toward his son, he says, “I’ll do whatever he wants me to do.”

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