If you are involved in the sporting goods industry, you probably know that there are only a handful of companies that manufacture letterman jackets in the United States. Among the biggest was a company called DeLong Sportswear, headquartered in Grinnell, Iowa. A few months ago, rumors are that DeLong went into Chapter 7 bankruptcy and was scheduled for a liquidation of assets (although some sources say DeLong merely closed its doors and didn’t actually file). The town in which the firm operated for more than 150 years was given virtually no warning and employees were given a day to clean out their work stations at the factory, according to some things I’ve read.
The truth is, my father, who has decades of experience in the sporting goods industry, called Aaron and I and warned us to virtually pull out of all DeLong products nearly six months before the company shut its doors. How did he know something was up with the firm? He and my mom founded and own a company called Chenille Appeal, which is one of the nation’s largest wholesale chenille manufacturers. They focus on selling only to a network of wholesale sporting goods stores (as opposed to my company, which sells to retail customers and team dealers). Anyway, during a call with customer service at the height of the busy winter selling season, the representative mentioned that they would be receiving a new shipment of a particular material in sometime during the week.
Knowing the letterman jacket and varsity jacket industry, my dad realized that a company the size of DeLong Sportswear should be drowning in cash during the winter and if they were unable to afford basic materials during the busy season, they couldn’t survive past another summer. After he told me this, I immediately, and quietly, shifted our sales to some other companies without missing a beat. The only exception were seven or eight orders that caused us a tremendous amount of grief (believe me – if I know about an specific order at the operating businesses, something went very, very wrong or very right.)
Last week, the founder of one of DeLong’s biggest competitors made a trip to our offices to introduce his company and the products. We were impressed because not only are the goods made right here in the United States (this was important to us – there are several major direct-sellers of letterman jackets that literally import their jackets from Pakistan and have them assembled by a few workers then have the audacity to say Assembled in the United States and hope no one knows the difference), but they provide a lifetime guarantee against defect, including dry cleaner error. That could be a huge advantage for us and allows us to provide an even better service to our customers at no additional cost to the firm.
Still, it’s tragic to see a company fail. I’ve been asking around the industry (sales reps, competitors, other retailers) and the rumors are that the owners of DeLong were taking too much money out of the business and making bad capital allocation decisions that caused the company to collapse when the economy fell off a cliff but I have absolutely no idea if that is true or if the people that told me that have ulterior motives. Whatever the cause, it doesn’t make it any easier for those who lost their job. It does remind me that Warren Buffett is absolutely correct when he talks about the importance of keeping enormous sums of cash available at headquarters to protect a business. Most people just drain the family company for cash to buy cars, houses, or expand into unprofitable divisions. I really hope that wasn’t the case here.