Needle Manufacturer Schmetz files for Bankruptcy

The unthinkable has happened. On the first of  October 2010, the needle factory of Schmetz in Germany has filed for bankruptcy. With this act, the needle industry in Germany has completely disappeared. (Groz Beckert gives the impression that their Sewing Machine needles originate in Germany but that is another story.) Just a few weeks before filing for bankruptcy, the Schmetz Special needle factory changed it’s name to an obscure Produktionsgesellschaft für metallische Erzeugnisse mbH -must have been a last ditch attempt to save the brand image of Schmetz.

The collapse has been a slow act for some years now. The reasons are a no brainer -

New competitors like Beissel and Dotec have sprung up who offer top quality needles at challenging prices.

In a bid to catch up, Schmetz (as did Groz Beckert) opened factories in India to reduce manufacturing costs. But, the German overheads continued to be a big burden unlike the Asian rivals who run a tight ship.

The new factories were built with massive investments on borrowed funds which were out of proportion to sales revenues.

While costs kept increasing due to inflation, selling prices plummeted. The published price list has been stagnant since 1995! But discounts kept increasing from 10% in those years to 60% now.

The cost of doing business has gone up. In many countries like India, Schmetz has its own office and its sales team deliver even a few hundered needles and make several follow-up visits over 60-90 days to recover. An unviable business model if there was one.

The 2009 recession was the last nail in the coffin. Sales plummeted and all factories saw layoffs.

Everyone is waiting with bated breadth to see what the future holds. The banks who lent millions of Euros on the good name of Schmetz must be getting fidgety. Official liquidator has already taken control of German factory of Schmetz. Any hope lies in -

a) increasing sales quantity sharply (impossible given the West still struggling with unemployment and recession), and/or

b) whopping increase in sales price (Even maintaining present prices will be an achievement), and/or

c) reducing costs drastically (hardly any scope given that they have two factories spread across thousands of kilometers which themselves are a continent removed from Germany).

Schmetz can take satisfaction from the fact that Groz Beckert or Organ (old friends or old competitors) are sailing very much in the same boat. Organ is groaning under huge debt. Groz Beckert has reduced prices even lower than Schmetz. To boot, Groz Beckert brazenly violates laws of many countries by concealing their sources of origin. This is not a good idea given that Groz Beckert never did manufacture their sewing needles in Germany. You can fool some of the people all of the time or all of the people some of the time but not all of the people all of the time, right? Even in the cut throat world of business, honesty is always the best policy.

More read on this news:

258 jobs at risk

 

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