Business: An Evolving Model

As our third year is coming to a close, I want to share the concepts and principles that we applied into the creation of Black Wing Shoes. This will be a series of topics which will tell the back story of my personal experiences which eventually led to Black Wing. It is not exclusively about shoes since most of the concepts actually revolve around socioeconomic and basic business sense. In writing this series, I am hoping that the stories and topics discussed will help others who are wanting to start their own small scale business endeavors or help in growing the Marikina shoe industry.

I remember saying that one of the goals is to propagate the business model in order to hopefully plant the seeds that will revive the Marikina shoe industry; not for big business, but for shoemakers and people who enjoy shoes. As I tell most of our clients who are curious about our story, Black Wing is a personal experiment which started brewing a little over 15 years ago without me even knowing it. I remember asking myself why Marikina has not been able to mount a successful counter to imports given that enough time has passed since imports have began to dominate the market. I was still a student back then and was more concerned about the money/business side than the socioeconomic impact. I remember predicting, though I missed by a few years, that the informal footwear sector which comprises the majority of the local footwear industry will decline in influence by 2007. That time, though unaware, my constant observation of the informal footwear sector contributed to forming the foundation that will eventually lead to what Black Wing is today.

As times change, so must businesses in order to keep up. Some businesses are more resilient to change than others but that is only for products with high demand but limited supply. The decline in the informal footwear industry was due to a shift in the behavior of the consumers themselves as well as the development of the markets. This can actually be broken down in stages of progression and development which directed on how the business model evolved until it was implemented last 2013.

Model 1: Mass Production Entry Level Wholesale Sandals

During the early stages of observation, my focus was solely on the money making aspect of the industry. Mass production using cheap labor via the piece rate system and acting as a middleman between the backyard manufacturers and retail channels. The labor cost to produce one dozen sandals back then was around Php80.00 using the piece rate system. The wholesale rate would be around Php720.00 per dozen and would retail for Php75 to Php100 per pair at the local markets and bazaars. Under this business model, the fixed profit per dozen is around Php80 to Php100. Not a lot by itself but considering that with proper planning and marketing, a small scale manufacturer can produce and sell around 100 to 150 dozen pairs a week.

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I remember going to Marikina at 3AM when I was in college in order to pick up stocks and deliver them to Baclaran by 5AM and rushing back to university for my 7:15AM class during my senior year. I was a middleman then and was selling roughly 100 dozen pairs a month, which was more than enough at the time to cover for my daily needs as a student. I remember my first successful original concept was the fish shaped sandals which came out around 2002 – 2003. It sparked a short trend where various shapes of objects as sandals were being sold in the market.

The major flaw in this model is that it is prone to price wars. Undercutting is a common practice among small scale manufacturers wanting to make a sale without considering the sustainability of their pricing. This practice led to high design turnovers which cost the original developer capital (monetary and intellectual) only to be undercut by other workshops who replicated the design. Undercutting at this level, even by only Php20 per dozen pairs, can result in a huge loss since profit margins are slim and miscellaneous costs can eat up the workshop profits which then leads to unsustainable production. This is a problem with micro scale manufacturers with little knowledge of proper costing and pricing methods which has kept the majority of these micro producers from scaling and expanding their enterprise properly.

Model 2: Upscale Leather Sandals and Casual Shoes R&D

When I was conceptualizing the workshop around 5 years ago, I was contemplating on making leather sandals as I did my research I created the GOMA Project. The page is still up on Facebook and while it’s shelved right now, I do plan to revive it soon since there still needs to be a mass production base which will cater to more casual but still quality Marikina made footwear. I actually lost money at this stage. We were developing prototypes and retraining our team while trying to find our identity. We developed several models which was actually ready for sale at around Php500 to Php800 per pair. All handcrafted leather sandals and slippers with rubber EVA midsoles and premium “natural”/sugar cane rubber outsoles.

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Local brands such as Outland which are bring sold at malls were one of the inspirations since there is actually a lack of genuine leather sandals in the market. I was a lot harder to introduce a brand for this though since people are either price conscious or brand conscious. We already lost at price point since the market hardly sees value in leather sandals enough to pay an additional premium for them. Brand conscious folk are fiercely loyal and a no brand start-up would find it difficult to overcome justifying the price point even with higher value materials since there is no brand premium.

We also tried designing casual footwear and experimented with using EVA as outsoles for various types of shoes. While it would be easier to brand and market, it is not within our capabilities to produce the volume required in order to make it viable as a venture which will both elevate the craft and give proper compensation to our craftsmen.

Although there are some who are interested, it was not enough to sustain the expenses of the workshop. This led me to look other means of sustaining the workshop with other products and services.

Model 3: Classic Leather Shoe Micro Scale Manufacturing 

This was one of the options presented to me by our foreman since our experiments were taking a toll on our capital. We started making classic leather shoes for bazaar brands to sell. We started with topsiders/deckshoes and oxfords. They were made according to client specs and while maintaining standard Marikina pricing even though our operation model cannot afford the low price being offered for the shoes that were produced. This was a good experience for us in order to get data on how many shoes can be produced by our craftspeople at standard pacing.

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The margins were really low, the costing per pair allowed only for Php120, split among around 5 people, budget for labor (although I was paying my team daily wages) so the actual labor cost for us, just to be fair to our team, ate into the margins of the workshop. By the end of the production period, the workshop broke even and the leftover materials from the production runs were the only “profit” which we got.

This was essentially our dry run. Although the business model was still being formulated at that time, I know what I wanted for the workshop. I was very particular about the compensation model for our craftsmen in order to make the workshop sustainable at the micro scale. Although this could be profitable, this model is prone to worker abuse and would be unfair to the craftsmen if the traditional labor costing was followed. If we were just to look at this from a business perspective, keeping the labor cost low and pegging the margin at those levels (Php120-Php150 per pair).

I have clocked the shoemakers to be able to make roughly 5 pairs per day, while sewers can work on roughly 15 to 20 pairs per day. The average take home pay for a normal shoemaker working on piece rate would roughly be around Php250 t0 Php350 per day over an 8 to 10 hour work day. This model is also prone to contractualization, which basically cripples the craftsmen’s capacity for upward mobility in the name of business profitability.

For this model, in order to be remotely profitable, the workshop has to produce 8 pairs per shoemaker per day which translates to 192 pairs per month per shoemaker. An average micro scale workshop would normally have 3 to 5 shoemakers not including cutters, upper assemblers, sewers, finishing and quality control. This has been the prevalent model but is prone to “bleeding capital” due to low margins and long payment terms from buyers.

Model 4: Own Brand – Straight to End User

To augment what was pretty much a break-even venture, we started offering made-to-order shoes. These shoes are not yet custom fitting but we did work on making the providing the clients with the designs that they wanted. I was actually only able to focus on this after my wedding end of 2013, so we officially started marketing around 2014 already. At first we were only making around 2-3 pairs a week, it was tough but I took this time to learn more of the different business models being deployed by more established brands. We were not the best out there, but we strove to improve our works with each pair that we made. We accepted failure and did not hesitate to treat failed units as “non-reclaimable” to weed out the “we can reuse that for another pair” attitude that is being exhibited by our craftsmen.

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The first pairs that we made, being standard sizing, weren’t fitting our clients properly; sometimes missing by even a couple of sizes. This was due to the use of non-standard sizing by brands like Aldo. Aldo was around 2 sizes smaller (for the standard Filipino foot) than normal because of the slim profile and fitting of their shoes. Standard Filipino feet are wide. We grew up in flip-flops (Islander, Beach Walk, and Spartan), running and playing basketball in them so it was only natural that our feet would develop a wider profile when we grow up. It got frustrating to a point because if we relied simply on our client’s knowledge of what their foot size is based on the size they get from the retail brands, the shoes that we make would come out in the wrong sizes. This made me realize that standard sizing, not unless we include the wide sizing, will only cause us and clients frustration. This is how we decided to get the measurements of clients to ensure a close fit.

It wasn’t as easy as it sounded though. Each fitting had fleshed out on our shoe lasts and it was not as simple as making enough room as we still need to keep the shape in check. Recently, we have updated our process using what we have learned from previous works in order to keep in mind the proportions and effect of the foot profile on the pattern. It’s not perfect but we’re getting closer to making it more “bespoke” than custom fitting.

The absence of a store in a commercial business district meant that we could save on marketing and overhead which translated to savings for our clients. Custom pairs for the price of entry level mid tier imported branded ones carry better value for clients. This is because the purchasing behavior of middle income to high income consumers have now started to shift from getting the best price to finding the best value for their money. We have decided to basically make do without much marketing so we have more to be able to give to our craftsmen. While expansion is the next logical step, we would want to keep our prices as low as possible which is one of the main reasons why expansion has to be planned properly.

Current Stage of Evolution

The straight-to-consumer (STC), custom-fitting model eventually became the best model to use for a workshop which is limited to a team with less than ten (10) members. It is the model which is least stressful in terms of pressure to make enough to break even. It is not as dependent on constantly updating the styling and marketing brands like how it is being a manufacturing subcontractor. We can also be fair to our craftsmen as costing has more allowance to give for labor. Reject pairs, which if you are making hundreds or thousands of pairs, often make or break the profits for the batch but with the STC model, rejects can be absorbed by the system. Charging rejects to the craftsmen affects productivity; although in our model, the reject rate affects their monthly bonus which is additional pay on top of their daily wage.

Most of our processes and strategy are more reactive while just keeping the foundations firmly planted on basic common business sense. We are constantly evolving the concept of Black Wing to keep us flexible to the market environment. This is the reason why sometimes, if you follow us on Instagram/Facebook, I have announced advancing to phases in the business model but never really pushing through. The main reason is that while the plan/strategy looks good on paper, it just didn’t feel right somewhere during the implementation. I rely a lot on my gut feel rather than what is “logical” at times. I guess it’s due to my experience from previous work and endeavors as well as what I have learned from the history of established brands.

I hope that this can be of help for those who are trying to setup their own small business. Remember, there is no one formula for success. What is available though, are the basic business principles which should serve as the foundation/core of your business then you operate within the bounds of the principles. There is a difference between testing the boundaries of which you can move in or simply ignoring the basic principles. Even online retail portals’ strategy are based on knowledge gathered from brick and mortar shops over the years and adapting it to the current consumer behavior. Black Wing is still trying to evolve again as we try new and different strategies in order to develop the local industry. We are currently experimenting with a variation of model 3 which is the micro scale manufacturing by creating a cooperative program for the craftsmen but that discussion is for another time.

I hope that this can be of help and offer some ideas to those who are still trying to find their footing on the micro business front. Do leave a comment here if you have any questions and I would be glad to assist you in any way that I can. =)

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