Your company’s main product is an optional accessory for an expensive leisure activity. How do you weather a major economic downturn?
That’s the problem that Ken Garelick, president of Garelick Manufacturing in St. Paul, has wrestled with for the past three years. The company, which Ken co-owns with cousin and company senior vice president Rick Garelick, designs and manufactures ladders, seats, and hardware for pleasure boats.
Ken and Rick have run the company since the late 1980s; their fathers founded the firm just after World War II. The senior Garelicks built something that they hadn’t been able find: a double-hook, floating boat ladder. They began selling it from a hardware store, where the stable, unsinkable new product quickly found favor with recreational boaters.
Over the years, Garelick branched out into niches including upholstered seats and medical products such as walkers—a product line the firm sold off about 15 years ago—and roof rakes for snow removal. All was well until early 2008. Then revenues began to sink, falling by half from 2007 to 2009.
“We’re in a discretionary market, so we’re first to feel a recession’s effects and the last to recover,” Ken Garelick says. In early 2008, the company began to see reduced demand from boat builders, because few customers were buying new boats. Those with older boats stopped upgrading what they already owned, pushing the company’s aftermarket business down as well. At the same time, the cost of metal went up, further pinching margins.
Garelick Manufacturing responded by changing its sales forecasts—a job helped by the intelligence gleaned from strong relationships with boat builders and wholesalers—and shrinking inventory.
Then the company reduced operating costs. “We went line by line over expenditure requests,” Ken Garelick says. “Nothing was sacred.” Garelick Manufacturing laid off about half its work force, going from 155 employees in 2007 to 75 in 2011. Workers who kept their jobs worked shorter weeks; the company also closed entirely for several weeks in 2008 and 2009.
Everyone took pay cuts. Employees gave up negotiated raises, 401(k) account matching, and profit sharing arrangements. The employee union, IUE-CWA Local 1140, was a cooperative partner in the changes, Garelick recalls: “Our workers really rallied.” At the same time, suppliers worked with the company to keep prices down, and the company’s banker “stood by us and understood our situation, helping us through a rough patch,” he says.
“They were transparent and passionate about their plan, and we were convinced that they would be able to execute that plan, and they did,” agrees Rich Ogle, vice president at Edina-based Fidelity Bank. “They did everything they said they were going to do.”
Responding to the support, Garelick staff innovated and implemented Lean manufacturing methods. Some components, for instance, used to travel a mile and a half through the factory, but now the same items travel three blocks within a streamlined flow that keeps materials at workers’ fingertips. “In these tough times, customers can’t afford to pay more, so becoming more efficient inside has helped,” Ken Garelick says.
Diversification has helped, too. Garelick Manufacturing has seen good sales from its roof rakes, which have blade rollers that prevent the blade from touching (and damaging) shingles. A related line of telescopic extension poles, which provide window, paint, and maintenance workers with longer “arms,” has been a hit.
“We’re also very big into custom upholstered products that we sell to boat builders,” Ken Garelick says, products that appeal to the top end of the luxury market, which bounced back in 2011. In 2012, Garelick plans to begin shipping seating and hardware for commercial boats such as law enforcement vessels, tugs, and working harbor boats. The firm also hopes to expand its export business.
Solving problems with new designs and tweaking older products may keep the company in safer waters, but Ken Garelick doesn’t expect a huge recovery on 2011’s P&L statement. “2011 wasn’t as strong as we’d hoped, but we’re holding our own,” he says. “We’ll finish 2011 in probably as good a position as we had in 2010, and that’s an accomplishment.”
St. Paul Park
2011 revenue: $16 million