March 17, 2010

PRIME'S TIMEA Berwick tannery has a tough enough skin to dominate the market

MATT WICKENHEISER

— By

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John Ewing/Staff Photographer: Wednesday, February 6, 2008....Prime Tanning in Berwick continues to grow despite the loss of the shoe making industry that once flourished in the state. The companies management team of (from left) Steve and Mike Kaplan, co-chairmen of the company, and company president Bob Moore continue to run the business that was founded by the Kaplan's grandfather, Morris Kaplan, in 1914.

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John Ewing/Staff Photographer: Wednesday, February 6, 2008....Prime Tanning in Berwick continues to grow despite the loss of the shoe making industry that once flourished in the state. Dan Toland and Ron DeCourt grade and sort leather sides at the Berwick plant.

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Staff Writer

ERWICK — When Morris Kaplan expanded his growing Massachusetts tannery business to this town in 1935, it made perfect sense. The shoe industry was migrating from that state into Maine, and Kaplan's leather found a ready market here.

That industry continued to move, though. It slowly dwindled away in Maine, the region and the country, eventually moving off shore to follow cheap labor and inexpensive production costs of the Dominican Republic, China, Southeast Asia and other areas.

Even so, Prime Tanning Co. remains headquartered in Berwick, and much of its product is manufactured here. In fact, Prime has begun to grow.

The company has acquired two competitors in the past year, and it plans to buy more, to further tighten a highly fragmented leather market. Prime, which has teetered between closing and continuing this decade, has emerged as the dominant tannery company in the country.

''Part of it was our stupidity -- we weren't going to give up, it has been the central part of our family for three generations,'' said Morris Kaplan's grandson, Mike Kaplan. He is a co-chairman of Prime, along with his brother, Steve Kaplan.

''The other part was we had a good product.''

Prime actually announced it would close in 2001, but changed its plans. Instead, it shuttered its nearby Rochester, N.H., operations and kept its Maine tannery running.

In August of 2007, Prime announced it would acquire the Irving Tanning company in Hartland, near Pittsfield. And in November, it acquired another competitor, Cudahy Tanning Co. of Wisconsin.

Prime plans to close the Cudahy operations in May, eliminating 90 jobs there. It will hire people in the central Maine town of Hartland to take over the work. About 310 of Prime's 600 employees are in Maine.

Any future acquisitions would follow the same blueprint -- close the facilities, take excess capacity out of the market and move jobs to Maine, said Bob Moore, Prime president and chief executive officer.

''It bodes well for the state of Maine,'' said Moore.

Adding tannery jobs in Maine would certainly buck a decades-long trend. In 1981, 1,950 people were

employed by tanneries, according to the Maine Department of Labor. That number fell to 764 in 2000 and to 416 in 2006.

And, according to the labor department, the merger between Irving and Prime means there's only one tannery business left in the state.

The combined company will have annual revenues in excess of $250 million, said Moore. While the company was profitable before the mergers, the margins improve with the deal, he said.

The company estimates it has roughly 40 percent of the North American market, with about nine competitors. It has the capacity to produce 55 million square feet of finished leather; it estimates the nearest competitor to be at about 15 million square feet.

SUPPLIERS SLOW TO CONTRACT

While leather customers -- mainly footwear companies -- moved operations offshore in past decades, the suppliers have been slow to contract, said Moore. He said the United States, plus two tanneries in the Dominican Republic, have capacity for 150 million feet of leather a year, while demand is at 90 million.

That's made it challenging to make money. Pricing power has diminished, and the low volume of sales led to higher operating costs. Tanneries desperate for orders cut their prices, sometimes below cost.

Prime's strategy is simple: Be the consolidator. Increase Prime's share in a contracting sector while taking capacity out of the market.

''The more we get, the stronger we get,'' said Steve Kaplan.

Consolidation has been the model throughout the industry, said Peter Mangione, president of the Footwear Distributors and Retailers of America trade group.

''We've seen such consolidation in our business, whether it's at the retail level, the wholesale level, the supplier level. This is a trend that's been driving business models in the footwear sector for decades -- every day you see it,'' said Mangione. ''At the supply side, clearly customers want to have strong, well-capitalized, well-managed suppliers that they can rely upon.''

Prime currently processes the hides of 50,000 head of cattle a week, said Moore. The raw hides are first run through Prime's ''wet blue'' facility in Missouri. Wet blue is the basic process that prepares a hide for finishing with dyes, softening, stretching, etc.

The hides are sent from the Missouri facility to the Maine tanneries, and also are sold to competing tanneries. In fact, some of Prime's wet blue customers are possible future acquisitions, said Moore.

In Maine, they take the leather and finish it -- softening, stretching, cutting to customer-specified thicknesses, dying, water-proofing some orders and generally doing everything needed before it's made into an actual consumer product.

About 65 percent of Prime's finished leather is for the North American market, and about 35 percent is exported. Globally, Prime has a joint venture in India, and is looking at expansion into Italy, China and Vietnam.

Mangione noted that Prime is aimed at the higher-end market (with customers including Coach, Wolverine, Timberland, Rocky Brands and Justin Brands), and has access to the U.S. cattle herd for its raw material.

The United States has a large herd that's constantly slaughtered for meat. Ranchers don't use barbed wire here, and the grass tends to be of a higher quality than in other countries, so the overall quality of the leather tends to be higher, said Mangione.

''They have a niche in the market that I think is a compelling niche,'' said Mangione. ''They really focus on the best quality products.''

FACILITY DOMINATES BERWICK

Prime's Berwick facility sits in the middle of the community, a dominating manufacturer. Inside, the earthy smell of leather pervades, while employees toss hides through various stages of finish along the production line.

It was those workers that made an impression in Steve and Mike Kaplan's young minds back in the 1950s and '60s.

They would drive up from Swampscott, Mass., with their father, leaving at 5 in the morning, grabbing a big breakfast in Dover, N.H.

Mike Kaplan remembered the Greek and French-Canadian workers as big, larger than life, working the leather. He was awed by their size and strength.

Some of those workers had come with their grandfather to Maine to start the new tannery in the 1930s, said Steve Kaplan. Morris Kaplan was a Russian immigrant who came to the United States with $40.

Steve Kaplan never met his grandfather, and relished the tales about him -- how he would load up the leather on a steamer and travel with it to Europe, selling it and buying rawhide to ship back to America.

Each summer growing up, they'd work in a different department, learning the business. Mike Kaplan still has scars from ''pulling blue.'' He remembers the shoulder pain from throwing soaked half-hides up onto a screen to be dried and stretched.

BROTHERS STAYED WITH COMPANY

Mike Kaplan evolved into an operations guy, while his brother was drawn to outside sales.

When Steve Kaplan graduated from Colby in 1973, he went back to work full time at Prime. His first job was pushing horses -- big rolling sawhorses covered with hides.

He went to work in sales, and the other two guys decided that since he went to college in Maine, he must know the state's roads. They gave him the Maine territory, and he'd go north and work his way down, hitting shoe factories in Bangor, Old Town, Norridgewock, Wilton, Dexter and other communities.

''We saw it all leave,'' he said.

Tanning was never an easy business, said the Kaplans. It always had its ups and downs, and they were scraping for orders, taking them at any price, ''seems like forever,'' said Mike Kaplan.

CONNECTED SINCE CHILDHOOD

But the decision to stay in business was never black-and-white, strictly about numbers, said his brother. A big part of that is their connection to the workers that began when the brothers were children.

''There were many years, even of recent, when we broke even or lost money. We tried to save jobs, we took orders at break-even or losing,'' said Steve Kaplan. ''We've been in it for life. We were old-school, third-generation. It was our job to continue the tannery -- it was really not in our vocabulary to close the business.''

And now, he added, as the industry finally seems to be maturing and contracting in response to demand, Prime seems primed.

''I feel a lot better than I did a couple of years ago. When we were in the survival mode, you're not thinking globally. We were just thinking about getting by year to year,'' said Steve Kaplan. ''If you don't change, you're not going to be here.''

Staff Writer Matt Wickenheiser can be contacted at 791-6316 or at:

mwickenheiser@pressherald.comB

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Additional Photos

click image to enlarge

John Ewing/Staff Photographer: Wednesday, February 6, 2008....Prime Tanning in Berwick continues to grow despite the loss of the shoe making industry that once flourished in the state. Josh Abbott attaches a side of leather onto a pasting machine which dries and stretches the leather sides.

click image to enlarge

John Ewing/Staff Photographer: Wednesday, February 6, 2008....Prime Tanning in Berwick continues to grow despite the loss of the shoe making industry that once flourished in the state. Employees Johnny McKoy (left) and Lee Hanson grade and conduct a final sorting of leather at the Berwick plant.

click image to enlarge

John Ewing/Staff Photographer: Wednesday, February 6, 2008....Prime Tanning in Berwick continues to grow despite the loss of the shoe making industry that once flourished in the state. Emplyee Tom Crocker stacks sides of finished leather as it comes out of a processing machine.



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