Cavalier’s new chief executive Greg Smith barely had his feet under the desk when American-owned competitor Godfrey Hirst took legal aim at its Bremworth carpet brand.
Godfrey Hirst, among other things, demanded Bremworth withdraw a number of claims in its marketing campaign which promotes New Zealand wool as a more sustainable alternative to synthetic carpet fibres or face legal action under the Fair Trading Act.
It said Cavalier and Bremworth had “demonised” synthetic carpets with false and misleading references to single-use plastic bags and microplastics, and by laudingenvironmental benefits of wool carpets, without acknowledging the full environmental impacts of wool carpet manufacturing, including livestock farming and wool scouring chemicals required for insect-resistant treatment of wool.
In response, Cavalier said in a statement released to the NZX that it would not shy away from promoting the virtues of wool.
Smith, who came to Cavalier from merino wool-based outdoor clothing firm Icebreaker, said the legal threat was a distraction and an attempt to stifle legitimate competition and consumer choice.
For Smith, the synthetic versus natural issues were familiar given his experience with Icebreaker, the Kiwi firm founded by Jeremy Moon in 1995.
It’s not the first legal challenge from Godfrey Hirst, a former Australian company bought by New York Stock Exchange-listed global flooring manufacturer, Mohawk, in 2017.
In 2016, the Court of Appeal dismissed Godfrey Hirst’s appeal against earlier decisions by the Commerce Commission and High Court to allow the merger of NZ Wool Services International and Cavalier’s 50 per cent-owned Cavalier Wool Holdings’ scouring operations.
In its heyday, Cavalier was an investor favourite with a reputation for strong earnings and generous dividend payouts.
Cavalier, founded by the late Tony Timpson and Grant Biel, become an archetypal Kiwi success story, its flagship Bremworth brand becoming a household name.
Biel – a staunch supporter of the move back to wool – plans to retire from the board at the next annual meeting in November after 57 years.
The rising tide of synthetics eroded Cavalier’s profitability over the decades to the point where it too joined the club.
The latest controversy stems from Cavalier’s move last year to return to its roots and get out of synthetic carpets altogether.
It was a bold move because consumers appear to have a preference for synthetics, which carpet layers also find easier to work with.
But Smith says the consumer feedback had so far been positive.
Icebreaker’s fame and fortune came from fine, merino fleece, and ran counter to the trend towards synthetic outdoor clothing.
He said Icebreaker, which was sold to New York Stock Exchange-listed VF Corporation – the company behind The North Face – for $288m in 2018 – had made a good fist of capitalising on the natural product angle.
Now, he says, Bremworth, is well on its way to doing the same.
At Icebreaker, Smith took up an “omni” sales channel role for New Zealand and Australia.
He had set his sights on becoming the next chief executive but was pipped at the post by the then outgoing Air NZ chief executive Rob Fyfe, who was appointed in 2014.
Once over his wounded pride, Smith said that working under Fyfe “was the best training he could have asked for”.
When Smith eventually became chief executive his first job was to scout around for a potential buyer of the company – a precarious position to be in as a CEO.
He stayed on at Icebreaker for three years under VF’s ownership.
Before Covid, Icebreaker’s sales were hitting $300m a year.
Feet under desk
“Whenever you challenge the status quo, there are always going to be people who don’t really appreciate it – who feel that you are impinging on their status,” Smith says.
“From my perspective, I am very confident in the natural fibre strategy and the way that we are trying to reach our consumers,” he said.
“I’ve tried not to let it (the legal threat) become too much of a distraction.
“I have got a company to run.
“I’m trying to do the right thing which is trying to find a more sustainable way of making carpet and educating consumers to that way,” he said.
“It’s Bremworth’s history – 100 per cent wool is where we started.”
Cavalier had flirted with synthetics but finally worked out that it didn’t want to be there any more.
“For some people that may have been a little bit confronting or hard to face, but for us it was the right decision.”
Smith acknowledged that there was a consumer preference for synthetic carpet.
“If you looked at the numbers, then yes, clearly consumers have embraced synthetics, as they have done in lots of different industries.”
The exact same dynamic applied to clothing.
“The biggest companies in the world make a lot of money from selling synthetic clothing and the same applies to carpet,” he said.
Nevertheless, the decision to swim against the synthetic tide was a difficult one.
“Yes, because there are always revenue implications when you give up a slice of your business to go down a different path.
“However, Bremworth wants to be famous for being natural because it’s where our roots lie and it’s where we belong.
“As far as I am concerned, it is a natural fit.”
Smith, pointing to the ban on plastic bags and the levy on utes introduced in the latest Budget, says the consumer landscape can change quickly.
“These things are all happening because consumers and probably voters want a more sustainable future,” he said.
Perhaps unwittingly consumers had, over the decades, embraced a throwaway culture.
Now, natural solutions are becoming more “normal”.
He cited Amazon’s purchase of Whole Foods- a US supermarket chain known for its organic merchandise – as an example of consumers and companies seeking out more natural solutions.
“It’s why Icebreaker was bought for $300m – because people were starting to care more about what they were putting on their bodies.
“Now, we are saying that we believe that people are starting to care more about what they are putting in their homes.”
Was there any pushback on the decision to go natural?
“No, quite the opposite. There has been an embracing of the strategy right from the moment that is was launched in July last year.
“From what we can gather through our data we are thrilled with the response from the consumers- not just in sentiment but also in actual sales results,” he said.
Cavalier last year sold its Auckland property to Manukau Industrial Holdings Limited for $25.5m to bolster its balance sheet.
The company will lease back the property for a 14-year term, with a further right of renewal for six years, from the new owners.
In February, Cavalier said there had been a lift in profitability as it benefited from higher woollen carpet sales, the sell-down of its synthetic carpet stock, and a gain from the Auckland property sale and leaseback.
Its first-half net profit after tax increased strongly to $4.3m, up $5.5m on the prior year, with a $3m improvement in underlying business performance.
Smith said Cavalier may follow the Icebreaker example of introducing supply contracts for farmers.
Icebreaker introduced the concept of wool supply contracts for farmers and it may well do the same for cross-bred wool for carpets and Smith said Cavalier would look at doing something similar for crossbred wool growers, who for years have suffered from low returns.
Merino contracts had put farmers in a better position in 1995.
“[Merino] farmers were losing money.
“Some years were good and some years were bad.
“Fortunately Jeremy introduced long-term contracts culminating in the first 10-year contract in the primary sector – which really gave farmers that surety.
“If we look to the supply future, I’m interested in models like that that support the industry, which in turn supports Bremworth.
“If you want to run a sustainable business – it’s not just about the products themselves it’s about the kind of model that you have.”
As it stands, New Zealand and Australia are the company’s main markets but it also has a small presence in Europe, the UK, Canada and the United States.
Where to from here?
According to Cavalier’s strategy from here, Smith said the board made it clear that it wants Cavalier to become a global leader, not just an Australasian player.
In natural wool carpets, Cavalier has just under 50 per cent of the New Zealand market.
Its market share in Australia is in the single digits.
In New Zealand, Smith estimates the company has just under half of the woollen carpet market.
Looking ahead, Smith’s first priority is to improve that.
“We are not winning the market share battle in New Zealand- that’s number one.”
The second one is competing in Australia in a far more meaningful way.
Thirdly, Cavalier wants to explore more opportunities in the US, being mindful of the fact that it had “lost its shirt” more than once in that market over the last 60 years.
“We will take a very measured approach in that growth strategy and will focus first and foremost on these two [Australasian] markets.”
Smith fully acknowledges that wool still has an environmental footprint on the farm, and then there are the chemicals used in the wool scouring process.
Wool is not perfect
“With all those elements were are trying to look, in a logical fashion, to minimise the environmental impact.
“We are certainly not shying away from the fact that there is a downside. We just want to minimise that downside.”
Cavalier, the former market darling founded on the virtues of New Zealand wool, has come off second best in its battle against synthetics – a fact not lost on Smith.
“We know what to do and we know how to do it, so we are on that journey again.”
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