Insider Media Limited

JOHN SMEDLEY
BASED: Lea Mills, Matlock
YEAR FOUNDED: 1784
BUSINESS: Knitwear manufacture
TURNOVER: £313.2m
STAFF: 428

As Drew Walker, managing director of John Smedley, sits me down in the company boardroom, the weight of history looking down on us is almost suffocating.
On all sides staring down from their lofty poses in gilded frames stand pictures of a string of former owners of the business. Most overpowering of all is the one hung up right behind Walker's head, a reflective pose of John Marsden-Smedley, chairman for an astonishing 70 years.
No wonder Walker himself feels a sense of being part of a much bigger story. "What I always feel most strongly is that for the person who sits in my seat, the thing to constantly remember is that they only have loan of something very precious. It is up to the incumbent to try and take the company to the next stage and make it better. In the grand scheme of things, being boss of a company like this for ten years is nothing when the business has been going more than 200."
But sentimentality cannot afford to come into the equation. "History doesn't guarantee anything," Walker says. "Some people think this place is quaint and lovely and I worry sometimes that that is the only perception people have of us. But we're in the fashion industry, one of the fastest-changing industries there is. There's no industry more fickle than fashion. It's an ever-changing environment and if you do not embrace change, you wouldn't be in this type of business.
You're only as good as your last collection."
Walker, a young-looking 56 who I'd put in his 40s, admits sharing a quainter view when he first set eyes on Smedley's factory in Lea Mills, just outside Matlock, in 1994. At the time he was working for Marks & Spencer (M&S) suppliers north of the border. He says: "I thought the factory was in the middle of nowhere - and why on earth would I want to come here? But I missed the trick."
Walker admits not even knowing at the time who John Smedley was. "There are plenty of people today who don't know who we are either," he adds.
We'll come back to how that perception is being changed later, but for now Walker recounts how he was originally attracted to the business by then-managing director Tony Langford. On taking up the chairman's reins in 2002, Langford would hand over day-to-day control to Walker.
When Walker arrived, the days of the family directly running the company had ended a generation before, but their ownership of the business hadn't changed - and still hasn't. Today the seventh and eighth generation of the founders still own 82 per cent of the business. The remainder is shared by a few institutional shareholders and management.
Walker says: "I think the family will continue to keep it. They have always had a real pride in this business, which is one of the reasons for its longevity."
Have people approached him to buy the business? "Yes, there have been lots of overtures, but none ever gets past first base," Walker replies. "The family just aren't interested. There has never even been a one per cent thought process. It's an extremely emotive decision for them."
Once Walker was won around to the business, as well as being attracted by the brand, people and feel of the place, the other thing that appealed to him was being in control of his own destiny.
"We do everything here from the design through to production, sourcing materials, own selling and distribution," he says. "Nowadays it would be called vertical integration. I think we are definitely Japanese in our outlook. We take a long-term, conservative view and have the retained profits to invest back in when need be."
Talking of Japan, the country remains Smedley's biggest single export market, accounting for up to 32 per cent of total turnover. "In many ways our brand is better known there than it is here," says Walker. "A lot of it is to do with the fact that we've had the same distributor since 1968 and have built up the business there gradually. We also play heavily off our made-in-England tag."
Walker admits that some might argue the business depends too heavily on Japan, but he thinks the balance is "about right". Despite the economic downturn in Japan in recent years, Smedley has continued to enjoy steady growth there. The product split in Japan is interesting too. As an overall business, Smedley has a 50/50 split between men's and women's clothes, but in the Japanese market the split is 70/30 in favour of women. In the UK the figure is the other way around. "It just shows what a huge opportunity we have with the womenswear market in the UK," adds Walker.
Leaving the boardroom, Walker takes me on a factory tour, which is a joy to behold. To actually see working machines making high-quality knitwear in a British factory is a pretty rare sight these days.
As if to stress the point, Walker admits that many visitors to Lea Mills don't even realise that the business still actually makes things right here in Derbyshire.
"I think a lot of people think we're some kind of heritage mill, just here for show," he says. "The reality is that we're a manufacturing brand. We're not just a brand name. This is a crucial point for us.
Our business is all about people, the finished product, the design."
Walker takes me first to a row of electronic knitting machines, an investment a decade ago that has proved essential for Smedley's competitiveness. In fact, Walker goes as far as to say that the business probably wouldn't still be around if the investment hadn't been made. Their presence is all the more striking when afterwards Walker leads me next door through to the older knitwear machines which are up to 50 years old and far more labour intensive.
"The only thing not produced here is spinning yarn, because the market is more sophisticated," says Walker. "Other than that everything is done here. The main item we produce is fine-gauge knitwear. If the market wants other things we would go elsewhere to source them, such as hand-knitted products, but at the moment 97 per cent of what we do is done here. And if we can do it here, we much prefer to do so."
Walker says that if the company wanted to expand the brand beyond knitwear, it "could look at that". But he stresses that he would never just launch a new product for the sake of it. All this isn't to say the company has been immune from the great challenges facing its industry. One of the biggest setbacks in recent years was the demise of UK suppliers to M&S as the fashion giant moved production elsewhere.
Walker says: "We used to supply these suppliers with a lot of yarn, and it was a useful top-up income for us." Walker admits he "kind-of saw" the M&S move coming, and Smedley pre-empted it with moves into other areas, most notably when it opened its first retail store in London in 2000. The venture wasn't without risk.
"We effectively replaced a very low-margin, low-overhead part of the business with a high-margin, high-overhead one."
That said, the first store in Brook Street in London was successful and remains so to this day. Sadly, a second one in the capital wasn't and had to be closed down. That closure, twinned with the aftermath of the M&S move, an expensive marketing campaign that failed to deliver and "other issues" which Walker won't go into, combined to put the company into the red in 2002.
The following year the figures got even worse, with the business making a pre-tax loss of £3862,000. Thanks to the business's strong balance sheet and strong retained profits (almost £39m), they were losses it could soak up, but even so it was hardly an auspicious position from which Walker would begin his tenure in charge.
But it is a situation he has remedied.
In the last audited accounts for 2004, the business made a £3151,000 profit and Walker says there was further improvement in 2005, although he won't divulge the figures, simply saying that "the curve is continuing to go in the right direction".
The business is now making 450,000 garments a year and designing 6,000 different styles, while Walker says the move into retail has been a good one, being "a way of displaying the brand - and a shop window to the world".
The plan now is to double turnover in the next five years. Walker says one way will be through emerging markets such as Russia and China, the latter which he describes as a "fabulous" market for Smedley. "The most important thing in China is having a presence in Hong Kong first and getting a foothold there, which is what we are doing," he says.
Another obvious avenue is the internet. "Our consumer tends to be a repeat purchaser, so the internet is good from that perspective," says Walker. "At the moment it only accounts for 2 per cent of sales, but the figure is going up."
However, business wouldn't be business if there weren't other hurdles in the way. Walker is concerned about rising energy costs. "We have a huge, rambling 500,000 sq ft site here and oil cost us £350,000 in January alone," he says.
"Indeed, the biggest threat to profits this year is utility costs.
We're having a good year in sales but gains could be dampened a bit by these extra costs."
Another longer term worry are succession issues. "We have an ageing senior management team here and it does concern us," he says. "We have to do something about it - it's a demographic timebomb. At the same time we find that attracting young people is becoming increasingly difficult. We have to find ways that we embrace technology to make it more attractive."
Walker is hoping some of those barriers may at least be reduced by the company's ongoing Made in England marketing campaign.
As we wind up the interview, I ask Walker whether he thinks the business can last another 100 years. He sees no reason not to think so. "The huge leap forward for this business was based on developing fully-fashioned underwear for men," he says. "As they became commodity products, the business gradually evolved into more sophisticated products. That is precisely what we have to carry on doing."