Magazine article Risk Management

If the Shoe Fits ... What the Insurance Industry and Shoes Have in Common

Magazine article Risk Management

If the Shoe Fits ... What the Insurance Industry and Shoes Have in Common

Article excerpt

In the 1940s, one of the most important and powerful industries in the United States was the footwear industry Along with textiles and apparel, steel and bicycles, the footwear industry was a major employer and was part of our nation's core manufacturing industry. Aided by the war effort, the industry experienced an explosive growth period characterized by large profits, demand outweighing capacity, and large numbers of new entrants into the business because of the low capital requirements. A number of factors helped fuel this growth well into the 1960s--manufacturers were happy, bloated and making the kind of profits which supported the status quo.

A shoe drops

In the late 1960s, a number of economic factors came into play that left U.S. manufacturers highly vulnerable to competition--higher labor costs, lower trade barriers to the U.S. market and decreased tariffs. Foreign governments eager for economic growth and foreign shoe manufacturers observed the changes in trade policy and the opportunities they presented to enter the lucrative U.S. market. At the same time, U.S. retailers anxious to increase profits took note of the lower labor costs of foreign products and recognized that even with shipping and tariff costs, they could buy their shoes cheaper from foreign competitors and increase their profit margins significantly. The response from U.S. manufacturers was predictable--they screamed "unfair trade practices" and railed against their foreign competitors--what they didn't do quickly was change the way they did business.

The other shoe drops

By the '80s, U.S. shoe manufacturers were heading for serious trouble even though the total consumption of shoes rose--astonishingly--by double digits each year. Why? Because retailers were out-sourcing their products wherever they could find the quality they needed at the price point their customers were willing to pay. Competition was fierce Meanwhile back at the factory, U.S. manufacturers continued to scream, but now they knew they had to change their processes and delivery system. Finally, the government granted temporary import relief to give the industry time to do what it said it was going to do--re-engineer.

To help, shoe industry associations were spending hundreds of thousands of dollars teaching their members how to modernize, how to identify their real customers, and how to be more efficient. Fortunately, there were a few firms that were ahead of the game--they focused on what the shoe customer wanted, found the best sources (whether their own or someone else's) and took advantages of efficiencies and economies. During this shake-out period, the U.S. market share fell from 60% in 1982 to 19% in 1987. More than 60% of shoe manufacturing production facilities disappeared. Those that survived were the firms that figured it out--found their niche and moved swiftly. The death rattle of the free market can only be silenced by surviving.

The same old ball game...

Sound familiar? While the circumstances may be different, it is clear that the insurance industry is going through some of the same aging pains that manufacturers have experienced. Regardless if it was shoes, textiles or steel, in each case the industry was forced to deal with a dramatic change in the way it conducted business.

The U.S. insurance industry has long enjoyed its status as the primary provider of insurance products and services to the American public. Competition from foreign products, banks or alternative products was not a major threat to the industry in the 1970s or even the early 1980s. While the industry tolerated cycles in the business, all it had to do was wait out a "soft" market until the cycle turned and prices rose The carriers and their distribution system were in it together. …

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