Shoppers walk past a Spitz shoe shop in Sandton City, Johannesburg. Picture: BUSINESS DAY/ARNOLD PRONTO
Shoppers walk past a Spitz shoe shop in Sandton City, Johannesburg. Picture: BUSINESS DAY/ARNOLD PRONTO

It took food and clothing company AVI just seven years to bring a 44-year-old Cape-based shoe manufacturer to the verge of collapse. Weeks before the 2018 year-end holidays, 336 employees of shoe manufacturer Green Cross were simply told that an in-principle decision had been made to "import all products".

JSE-listed AVI, which owns a portfolio of branded consumer goods including Five Roses tea, Provita biscuits and footwear outfit Spitz, says it had no choice.

AVI argues that the comfort footwear segment of the market in which Green Cross operates is highly competitive and "is supplied mostly by imported product".

It is a familiar complaint and seems borne out by Green Cross’s most recent results, which show wafer-thin operating profit of R6.2m in the 12 months to June 2018.

But the Southern African Clothing & Textile Workers’ Union (Sactwu) isn’t buying it. And, in a novel response, it has approached the competition authorities and asked them to revoke the merger approval granted in 2012 which allowed Green Cross to become part of AVI in the first place. For good measure, Sactwu wants penalties to be imposed on AVI.

It may sound like a desperate attempt at unscrambling eggs, but the move could have some far-reaching consequences.

Sactwu seems determined, and if it’s unsuccessful at the Competition Commission and Competition Tribunal, it is prepared to take this case to the Competition Appeal Court.

Etienne Vlok, the union’s industrial policy officer, says approval for the merger was granted on the basis of an undertaking that there would be no retrenchments. That undertaking had no time limits, he says.

In its submission to the Competition Commission, Sactwu says: "If companies can transgress their jobs commitments with such ease, and are allowed to simply and successfully shift all responsibility for their actions onto external factors — in this case allegedly cheaper imports — then the fact of having public interest-related commitments is rendered meaningless."

The union also isn’t persuaded that Green Cross’s "challenges" are due to external factors over which the company has no control. Instead, it reckons the job losses are a direct result of the 2012 merger.

Green Cross, which was set up by the Zeppel family in 1975, was thriving at the time it was sold to AVI for R382.5m

As Sactwu sees it, the only issue up for discussion is whether the job losses were intentional. If they were intentional, says Sactwu, it would bring Green Cross into line with AVI’s business strategy of importing — rather than manufacturing — brands for local retailing. If they were unintentional, it points to management problems — which might indeed be the case, given that AVI has had no fewer than four MDs since 2012.

Either way, AVI does not emerge well in this matter. As it happens, back in 2012 Sactwu provided a submission to the Competition Tribunal that seemed remarkably prescient.

As the tribunal recorded it at the time, "Sactwu was concerned that AVI lacked commitment regarding local manufacturing in SA and focused more on brand development. The union was concerned that for this reason the manufacturing business of Green Cross would be curtailed and would be substituted by imports, which they allege would affect the employment conditions and stability in Green Cross."

But at the time, AVI successfully argued that Sactwu had no evidence to support this claim. The tribunal then granted unconditional approval for the merger.

Certainly Green Cross, which was set up by the Zeppel family in 1975, was thriving at the time it was sold to AVI for R382.5m. Back in 2012, it was making sales of R315.5m and generating operating profit of R82.6m.

While sales then rose to a high of R371.9m in 2017, operating profit began going in the opposite direction. While operating profit fell marginally to R79.9m in 2013, by 2016 it had plunged to just R27.3m — a third of what it had been four years earlier. But worse was to come, as operating profit fell to just R6.2m by 2018.

In other words, in the seven years that this former thriving family-run business was in the care of one of the largest companies on the JSE, operating margins plummeted from 26.2% to 1.7%.

Vlok says Stats SA figures are at odds with Green Cross’s contention that its problems are due to imports. Why, he asks, have other local footwear manufacturers been able to survive and grow?

A spokesperson for AVI says the decision to close down local manufacturing followed "a detailed review of options available to restore the business to sustainable profitability".

"Management believe it is necessary to migrate to a full import operating model to protect the wholesale and retail business."

But AVI would not comment on why the company had not attempted to sell the manufacturing facilities — an option Sactwu says should be pursued to save at least some of the 336 jobs.

The result was that, shortly before President Cyril Ramaphosa’s inauguration and vow to take action on SA’s largest problems, 336 names were added to the list of intractable problems.