Confluence finally paddling in smoother and profitable waters

It's official: Confluence has put behind it years of slips, bumbles, hiccups, overstock problems, blem and recall problems, management issues, negative press, bad morale and more. After personally wandering the hallways, design rooms and factory floors of the Easley, S.C., company headquarters in mid-July, and having spoken with numerous retailers around the country to gauge quality control, customer service response and delivery accuracy, SNEWS® can happily report a success story -- still in progress, but a success none the less. Confluence, under new leadership and with new management energy, and a renewed focus on putting the customer top of mind is well on its way to becoming the company its venerable brands deserve.
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It's official: Confluence has put behind it years of slips, bumbles, hiccups, overstock problems, blem and recall problems, management issues, negative press, bad morale and more. After personally wandering the hallways, design rooms and factory floors of the Easley, S.C., company headquarters in mid-July, and having spoken with numerous retailers around the country to gauge quality control, customer service response and delivery accuracy, SNEWS® can happily report a success story -- still in progress, but a success none the less. Confluence, under new leadership and with new management energy, and a renewed focus on putting the customer top of mind is well on its way to becoming the company its venerable brands deserve.

It's been a long, rough-water trip for Confluence, with many, including SNEWS, wondering as recently as 2007 if the company would ever manage to find smoother waters let alone even stay afloat. Just when you thought things were getting better, the Confluence boat would hit another submerged rock that put cracks in the company hull and left too many good staff wasting time bailing water instead of paddling forward.

When parent company American Capital Strategies (ACS) removed acting CEO Bob Sharp and announced Tom Nathanson, head of the ACS Industrial Group, would be assuming control in June 2007, some saw it as a sign of hope but also privately wondered if perhaps ACS had waited too long to make a move. (Click here to read a June 25, 2007, SNEWS story, "Could new acting CEO Tom Nathanson be what Confluence has needed?")

"I did not fully realize just how bad things were when I stepped in," Nathanson told SNEWS® in a recent interview. "Most of the problems were created by ACS and we were not doing right by the industry."

Nathanson told us he spent his first months on the job just listening, and doing a lot of apologizing. "This was a different industry for me. Usually, I don't care what goes in the box. But the outdoor industry is clearly different. It is driven by enthusiasts who care more about the industry and its health than they do profitability -- not that they don't care about profit, but that is an outcome of the first. They want to make sure what you are doing for the sport is right, and we did not have a clear view of that. I think, with Sue (Rechner's) leadership, we do now."

Sue Rechner joined Confluence as the company's new and, finally, permanent CEO, on Dec. 17, 2007. Click here to read the Dec. 7, 2007, SNEWS story, "Sue Rechner named president, CEO of Confluence."

At that time, Rechner told SNEWS, "I see myself in this role as an orchestra leader, taking very talented players and helping them become a cohesive and harmonious organization…Nothing in the next three years will prevent me from building the business properly. When you embrace a long-term approach, which is the only way I know how to do things correctly, you and your retailers are much more profitable."

And so Rechner set about working on seating the orchestra, first spending a lot of time listening to music she didn't necessarily want to hear.

"I heard a lot from retailers all around the country about where we had failed, were failing, needed to do better," Rechner told us during our July visit to Easley. "Some of it was not easy to hear, but it was necessary and vital to moving us forward. First and foremost, we needed to get everyone at the company thinking the same way -- that everything we do must be about the customer. Nothing else matters."



Defining the path to follow


Rechner's first significant hire was Cheri McKenzie as Confluence's vice president and chief marketing officer in March 2008. Like Rechner and Nathanson, McKenzie, who had worked with Rechner previously at Victorinox, said she spent her first few months on the job just listening, often to retailers who gave her sometimes hard-to-hear but incredibly valuable feedback. She told SNEWS it quickly became apparent that the company had to properly define and position its brands before it could put in place an effective production and selling strategy.

"We had to look at and tap into each brand's DNA first to understand that original thinking that inspired the brand," said McKenzie. "We had a team that allowed us to put together a very effective brand differentiation strategy that now drives everything we do from design to production to sales to distribution." That team included veteran reps; Bob McDonough, vice president of design; Shelly Moore, vice president of sales, who was hired in May 2008; and others.

The outcome of that strategy was most evident at this year's Outdoor Retailer Summer Market, where, for the first time, the new team could show off its brand strategy with new boat designs, catalogs, marketing materials and POP collateral.

For Wave Sport, it's targeted to the whitewater consumer only, ages 18 to 24. The catalog is fun and edgy, and includes several stencils that can be used to add branding with spray paint to, hopefully, only authorized places and not public places. (The company does say, "Be mindful of your fellow man as you express your artistic side.") With Wave Sport, the brand wants to own the extreme whitewater performance tag.

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Dagger is focused on moving water, and combines recreational touring and whitewater. It is targeted more to an older, but still young-minded consumer (ages 25 to 45) who is concerned about, well, mastering moving water and enjoying fun, paddling adventures.

Perception is all about the family with recreational kayaks, sit-on-tops, and safe, fun play. One look at the catalog and the images convey the feeling of lightness and smiles. Consumers ages 35-54 with moderate, discretionary income wanting to enjoy family time outdoors and on the water.

Wilderness Systems becomes the Lexus of the brand mix, with a catalog that even screams luxury attitude. The brand is all about touring performance for consumers ages 35 to 54 with higher discretionary income and a desire for premium value and innovation.

Mad River Canoe just screams heritage when looking at the catalog now. The canoe-specific brand is being targeted to consumers ages 35 to 45, either with or without children, to value traditionally inspired designs and timeless ingenuity.

As part of the rebranding strategy, Confluence also looked very closely at its distribution strategy, and as a result, made the move to take distribution of some brands away from various dealers to ensure a specialty focused selling platform.

"Over 70 percent of our business is now being done with specialty, independent retailers," Shelly Moore, vice president of sales, told us.

By putting the focus on specialty, Rechner told SNEWS, the company has actually increased sales. That's proof, she said, that when the brands are properly defined so that each delivers a unique selling opportunity for the retailer, and the right stores are selling the right boats to consumers, everybody wins.

The Kaizen way revamps production

Just a few of the litany of problems that historically plagued Confluence were retailers getting the wrong boats, too many boats, partial orders weeks or months late, and/or receiving boats with numerous blems. Some of the stories shared with SNEWS during 2005 through 2007 were legendary in scope.

And Nathanson knew it. Keith Butdorf joined Confluence in June 2007, around the same time Nathanson took over as acting CEO. Butdorf's job as vice president of manufacturing was to look at the factory and the production processes, then start putting in place systems to streamline production, eliminate overstock problems and reduce waste.

It started with two new ovens, dubbed T1 and T2, with a unique carousel-like contraption that allowed boat molds to be loaded on one end while being spun in the oven on the other. Butdorf told us that 85 percent of all production is completed in these two ovens.

One of the first changes Butdorf made was to implement a change in attitude with demand flow manufacturing. "We put in place an order processing system that took the choice out of what got made when and forced the factory to make what was ordered and the customer wanted now, not just what the factory wanted to make at the time," said Butdorf. "With the demand flow system, we can make various different crafts at the same time. We do not batch process anymore."

Confluence_Factory-2009.jpg

In addition, using the Kaizen methodology of humanizing the workplace and empowering factory staff to identify and solve waste and problems, systems began to emerge that began to show tangible results. Already, Butdorf said, with quality-control processes in place that involved everyone in production with every phase of quality control, over 93 percent of the boats coming off the line now are first run quality (against what SNEWS was told was a dismal 70 percent first quality pre-2007).



Once a boat comes out of the mold, it snakes its way along a production line that is extremely systematic and organized. Only those parts and those tools necessary to produce a particular boat are at that station -- so no inadvertent mixing up of parts. In addition, each worker is tasked with inspecting the work of the previous station, so every boat is checked for quality every step of the production line.

In addition, Butdorf put in place certification courses for his factory team in whitewater boat manufacturing and sea kayak boat manufacturing. The company also now has a boat molding 101 course and certification that workers must pass before they may work the ovens.

"Through investing in our people on the production line, and investing in training, we have both added pride and skills to the workforce," said Butdorf. "Everyone has and truly feels a responsibility for quality here, and that's made huge difference."

Retailers we checked in with during July 2009 told SNEWS that as a result of the revamped factory and production processes, the improvement in delivery accuracy, timeliness and quality has increased phenomenally. You can almost hear the cheers from here.

Reducing waste and boosting efficiency

But improving systems only got the company part way there. Again, using the Kaizen concept, Confluence has created small teams, focused on quickly arriving at solutions to problems of wasted effort and, in some cases, actual waste, that have been identified by the employees themselves.

One of the outcomes to this approach to reduce waste has been to reduce hours. While it may seem counter-intuitive to a company that appeared to be struggling to meet demand, Confluence eliminated round-the-clock production shifts running 365 days a year. Instead, it implemented shorter shifts five days a week and no more weekends.

"As our systems improved and our efficiency improved, we began to notice that with 12-hour shifts, the last three hours were when employees were most exhausted, and made the most mistakes," said Rechner. "It wasn't hard to figure out that we were wasting energy, time, money, resources and burning out our employees."

The result? According to Larry Knust, vice president and COO for Confluence as of June 2009, on average the company can now deliver a boat to a customer within two weeks of receiving an order. Theoretically, he told SNEWS, Confluence could, outside of four months of the year when demand outstrips the ability to produce, deliver a boat within five days of an order.

"But we won't be implementing that kind of promise until we know we can deliver boats that are perfect out of production 99 percent of the time," said Knust. "The most important thing we all think about, and I do mean every person working at Confluence, is that we never, ever want to disappoint a customer."

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Knust, who comes from the furniture industry (only one hire during the last year into the executive ranks has had any paddlesports experience to speak of -- Louis Rondeau, vice president of development and engineering -- pictured right), is now looking to build on the excellent foundation of systems, training and process that Butdorf and his team have built by adding tools and tooling to improve every step of the design and production process.

"We have completed the brute force part of the quality control process and now we are going into the finesse part," Knust told us. "You avoid quality control problems by avoiding errors, and you avoid errors by identifying wasted energy, effort and places where mistakes can be made.

"Through using scientific tools to analyze what we are doing and how, we can identify those smaller, less obvious areas where we can drive improvement, reduce waste, eliminate problems, and ensure our customers and employees are happy and feel valued," said Knust.

Added Rechner, "We aim to be the best in class in the outdoor industry -- not just for paddlesports businesses -- as a company. We want to ensure our people love what they do. There is no doubt in my mind that a healthy organization interfaces with customers and retailers in a much different manner than an unhealthy one."

And, according to CFO Jim Berwick, hired November 2008, the company is well on its way to success. One, it is profitable. Two, it is now achieving an order fill rate in the upper 80 percent range. And three, it has hired a new customer service director, Barbara Tobin, as of June 2009 to lead a fully revamped customer service department.

Listening and responding on the front lines

In yet another of those tales of woe from the 2005 to 2007 years, retailers would tell us of not being able to get through to a human being at Confluence. One Confluence insider even told us he knew of one customer service rep who would only answer email and never the phone because "she was just tired of always getting yelled at and having people swear at her."

Those days are long gone. Now, the company has eight customer service reps and a new phone system that tracks call volume, response time and abandon rates to ensure the team is operating as effectively as possible. And, customer service operates as an extension of the sales department.

According to Berwick, prior to putting the new systems in place, call volume was approximately 80 percent dealers and 20 percent customers. Now, especially with the new company website that launched in May, call volume is split 50/50 between dealers and customers. Some of the reduction of dealer calls, Berwick told us, has been a direct result of the company cleaning up its order processing.

The greatest concentration of consumer calls occur on Monday, when consumers have their product at home and now want more information. The customer service department tracks the questions and answers given and is using the information to create documentation that can be accessed by dealers and consumers as well.

"The ultimate goal is to ensure consumers and our retail customers have no unanswered questions and no issues at all," said Berwick. "And when we are talking to customers, it is always our priority to drive the customer back to our retailers."

Answering emails has also been tightened up. Even though Confluence was avalanched with over 20,000 emails in the first seven weeks of the new website launching, it stuck to its guns mandating every email must be answered personally within 48 hours.

"We can beat that most of the time," said Berwick.

Summarizing success, looking to the future

"The real key to our turnaround was hiring Sue. She had the appreciation for the outdoor retail industry and got what needed to be done from the start. Her personality fit real well with everything and she assembled a fantastic team around her," Nathanson told SNEWS. "With the exception of Bob McDonough, everyone else is new and they are top notch. We have a team that could be running a $500 million company.

"Now we have to start looking broader than Confluence and what is it we can do to bring more children and women and men into the sport. We need to be able to grow the sport to grow the business. That is the right thing to do at this point in time for everyone. We will get our share of that business and everyone else will get their share too which will be good for everyone," added Nathanson.

SNEWS knows that even as recently as two years ago, when Nathanson took control, Confluence was not looking like a good investment to American Capital. But Nathanson confided in us that everyone at American Capital learned something in the process and that they all now believe they have a very good company in the portfolio.

"In the outdoor industry, you have to think more broadly than yourself because this industry requires that to be successful," Nathanson said. "Once we began doing what is best for everyone, and started to manage the company with that view, that is when our business started to improve."

Amen!

--Michael Hodgson

SNEWS® View: Every private equity company either now playing in the outdoor industry or thinking of acquiring a stake in the outdoor industry needs to read and reread the above lesson. This is not just about slapping something into a package and selling it for the best price, best margin and greatest volume possible. This is not just about short-term ROI. This is about a lifestyle. It is realizing that to sell the product you have to first have a company full of employees and a team that believes in the product and what they are doing. And as an investor, you need to believe it, too. You then have to have a product that is well-defined and that retailers can get excited and passionate about. And then you have to be able to invoke that passion in the consumer so they want to not only buy your product, but they want to use it to get active, be active, have fun and smile more. It is ultimately only about play after all. And you can't package that.

This is also a valuable lesson in listening. For too many years, Confluence struggled because its executive team and ACS did not listen to its constituents. Rechner not only listened. She took action based on what she heard, not just what she wanted to hear. And she surrounded herself with an executive team that, as Nathanson puts it, could easily run a company many times Confluence's size. And in only one case -- passionate Louis Rondeau (and we've never seen anyone get so excited about designing a hemp canoe…think French Canadian and wild scientist and you get the picture) -- did any of the executive team have any paddlesports industry experience. And that is a lesson for the rest of us. You DO NOT have to come from this industry to be able to effectively lead and manage a company in this industry. You do have to be able to fully understand this industry, listen well, and be passionate about the outdoors and building great product.

So, to Confluence, we tip a glass of bubbly. This is a story we have longed to write, frankly weary of bad news and seeing the company stumble time and time again despite itself. We trust those days are long behind and that ahead we have the makings of a company that can lead the paddlesports industry -- by listening, and then acting.

--SNEWS® Editors

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