Smart move

Steamboat's SmartWool a nice fit for Timberland

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Gardner Flanigan's wife, Millie, forbids him from discussing his job in crowded public places such as airports. She isn't about to miss a flight because yet another enthusiastic stranger wants to demonstrate his version of the "SmartWool salute."

Flanigan is director of communications for the manufacturer of fine Merino wool socks, SmartWool. The company is based in a large suite of offices in the former Steamboat Springs Airport Terminal. Late last fall, an agreement was reached for outdoor clothing industry giant Timberland to acquire the company for $82 million.

Life is good at SmartWool these days, but Flanigan has this little problem that is largely of his own making. For more than a decade, like a modern Johnnie Appleseed, he has been growing his company's base of loyal customers one pair of socks at a time. Flanigan has provided countless socks to be given away as premiums at foot races, cycling events, slalom races -- you name it -- he has placed athletic socks there.

The strategy, originated by company founders Peter and Patty Duke, worked. He created an army of impassioned converts. But now, Flanigan has to return the SmartWool salute. And his colleagues have to be careful about mentioning what they do for a living while traveling.

"You'd better not be crushed for time if you talk about it while you're going through an airport," Flanigan said. "Because, instantly, they pull up their pant leg to prove to you that they're wearing the socks. Then they spend at least 5 minutes telling you why they love them. We've started calling it the SmartWool salute."

Of course, Flanigan is thrilled to have to respond to the SmartWool salute. Just the same, it's become an insider joke at the company.

SmartWool is about a lot more than just socks. Its New Zealand wool is used in turtlenecks, sweaters, vests, jackets, gloves and base layer garments such as long johns. The acquisition of the company by Timberland has resulted in a couple of styles of leather shoes lined with SmartWool -- last year's Power Lounger slip-on clogs and this year's "Winter Park." It's a more structured shoe with rugged Vibram soles, Flanigan said.

SmartWool was founded by the Dukes in the 1980s in Steamboat Springs. Former ski instructors from Vermont, they started out marketing knit ski caps but found their true niche in soft Merino wool socks that became as popular for hiking in the mountains as they were for skiing.

A Philadelphia-based holding company -- RAF Industries, together with The Stripes Group -- acquired a majority interest in the company in 1995. They brought an infusion of cash and management acumen that helped the company grow. RAF acquired the remaining interest of the Dukes in January 2003.

SmartWool took an aggressive step to stabilize its relationship with wool producers in 2004 when it signed a $30 million contract with the New Zealand Merino Company. The agreement calls for SmartWool to purchase about 400 metric tons of Merino wool annually for seven years. The deal assures SmartWool of an uninterrupted supply of the special wool that has the consistency of fiber quality needed for its products. The wool wicks moisture away from the skin and is softer to the touch than synthetics that offer the same performance.

"There's lots of great Merino wool in the U.S.," Flanigan said. "But it's not as big an industry, and it's difficult to get it to the specifications and quantities we need."

Flanigan said the contract is helping New Zealand farmers fend off development and keep their land in wool production.

When it was announced in November 2005 that Timberland intended to purchase SmartWool, SmartWool President Chip Coe offered reassurances that the sale didn't signal the end of the company's days in Steamboat. Timberland grasped the importance of Steamboat Springs to the SmartWool brand, he said. The company had about $42 million in sales in 2004 and employs 50 people here.

"They love the fact that we give them a Western presence," Coe said. "Timberland made it a condition of the deal that our current management team stay together."

The location of Timberland's corporate offices in a small New Hampshire town lends credence to the idea that it will allow SmartWool to continue to grow in the Yampa Valley.

Although it has offices in Europe and Asia, it continues to make its headquarters in Stratham, N.H., population 7,000. Clearly, SmartWool isn't allergic to small towns.

However, the company announced this spring it would move its design center and product development staff to Boulder. Flanigan said the change, which has been contemplated for years, was undertaken to give the company access to a bigger pool of design talent. The move, as yet unscheduled, means six jobs based in Steamboat will be shifted to the Front Range. All but one of those six current employees are "OK" with the move, Flanigan said.

SmartWool also is unusual among publicly traded companies (New York Stock Exchange ticker symbol TBL) in that its CEO, Jeffrey Swartz, is a descendant of company founder Nathan Swartz. Nathan Swartz got his start in the business as an apprentice boot stitcher in Boston in 1918.

The company prides itself on supporting community service projects undertaken by its more than 5,000 employees, and on improving the quality of life in communities where its manufacturing plants are located.

Coe said Timberland's culture of ethical conduct is one of the reasons it was deemed suitable as a purchaser for SmartWool. That's right, SmartWool pre-qualified possible buyers.

Coe said that after the company detected an increasing number of "fly-by" companies sizing SmartWool up for acquisition, its board of directors retained an investment banking firm to handle the interest in a proactive way. Instead of simply putting out the word that it would entertain offers, SmartWool's board asked Wachovia Securities to develop a short list of would-be suitors. SmartWool hand-picked three or four that it felt could bring value to the smaller company and provide a good fit.

Flanigan has begun experi--encing Timberland's commitment of corporate responsibility firsthand. He is one of the company's 24 "global stewards."

"I've been so impressed with how much this is part of Timberland's DNA," Flanigan said. "They pulled out of a huge factory in China that was (contributing to) $6 million in sales, because (factory managers) would not improve. That's a big hit. But that's what they believe in."

Flanigan said he had an opportunity to ask Swartz about the company's commitment to corporate responsibility and the CEO replied that after the birth of his first child, he came to the realization that his time on earth was short, and he wanted to lead the company further down the path of global citizenship.

In his new role, Flanigan visited the Dominican Republic where Timberland has 10 factories and 1,600 employees.

Observing the poverty that prevails in the Dominican was "shock therapy, a little bit," Flanigan said. For Dominican workers, employment at Timberland may not make them upwardly mobile, Flanigan added, but it affords them a living wage and a good working environment.

"The factory I visited was clean and well lit," he said. "They were using water-based adhesives, which are safer for the employees and for the environment.

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