Hillerich & Bradsby remains at the forefront of innovations in the sporting goods industry even after 114 years in the business. The family-owned, Louisville, KY, company prides itself in a unique corporate culture where offices have no doors and even senior-level managers do not work in private. Although some of its divisions have been affected by changes in the industry, others are performing creditably, such as the Louisville Slugger division and the hockey division.
When visiting the Hillerich & Bradsby complex and the adjoining Louisville Slugger museum here, one can’t help but be struck by the smell of freshly-cut wood, a rich sense of tradition and the strange realization that there are no doom on any of the offices. The entire headquarters is dotted with curved walls that form little alcoves where even senior-level managers work without privacy. Employees said it was just one element of a unique corporate culture instilled by president Jack Hillerich. The family-owned company has built an internal reputation as a company where no one ever leaves (a 10-year veteran is considered a rookie, workers boast), while still being at the forefront of many cutting-edge product innovations. Hillerich was out of town during our recent visit, but SGB decided to track him down via telephone and find out just what’s going on through those openings that serve in place of doors.
SGB: I’m sure over the last 114 years this company has had a lot of ups and downs. How has the business been of late?
Hillerich: It’s been the best of times and the worst of times. Our Louisville Slugger division is doing very well. The Power-Bilt golf division has gone through some changes in the industry that have really affected it drastically. The hockey division is doing well in terms of products and sales, but in terms of earnings it’s hard-pressed to find what product line it is and stick with it and develop it as a real profitable line.
SGB: I understand you’re trying to reposition the golf business as more value-oriented but still as a high-end brand.
Hillerich: We think that Power-Bilt still retains quite a bit of appeal. The name we think is still good – now it’s a question of how can we go to the marketplace and say why you should buy Power-Bilt. The answer seems to be so [the retailer] can make money.
SGB: So there’s a margin structure emphasis?
Hillerich: Right. It’s like we know we’re not going to be selling to every Tom, Dick and Harry. We’re sure of that. So we’re saying, Hey, you’re going to have protection in your area. There’s not going to be a guy down the street knocking your margins down.
SGB: That sort of thinking seems to be at play in the diamond sports industry as well. There’s a lot more talk about team dealers getting more closely aligned with the vendors. Is the diamond sports industry facing similar issues to those found in the golf business?
Hillerich: I think it is. With the large mass merchants and the large boxes, you can look around and see that it’s not the same picture it was four or five years ago. And it’s not the same it was for us four or five years ago when growth came from just filling out the big-box supply line.
SGB: You initiated a lowest advertised price policy on your high-end bats at the Super Show. What necessitated that?
Hillerich: We were just getting killed by people saying, ‘Hey, I don’t need to buy that bat. I can’t make any money on it. Everybody has it at low margin and I had to pay a lot of money for that and I don’t want to risk my dollars.’ So they were buying a $110 to $115 bat and selling it for $120, and that just doesn’t make a lot of sense to us.
SGB: The price-slashing, was that led by catalogs or big boxes or both?
Hillerich: It was everywhere. One would start it and then the others would follow, and even the little guys would try to compete on particular items. They’d have to compete on particular items or they wouldn’t get anybody in the store.
SGB: What’s been the reaction from the industry, and the level of compliance?
Hillerich: We’ve seen a lot of our competitors follow us. We’ve seen some reactions from large retailers that they’re not too happy. There are the legal issues that are still maybe untested. We think we’re on very good ground. And then there’s the ‘Well, if we can’t beat you this way we can beat you that way’ mentality. What are you going to do when a dealer keeps the price up but throws in a ball glove with a bat? We just have to face those one at a time.
SGB: Let’s talk a bit about the corporate culture at Louisville. I know it’s pretty unique and cutting-edge in a lot of ways.
Hillerich: Our emphasis and my emphasis has been mostly on how to improve the quality of management within the company. And that includes how we manage, how we put teams together, who’s on these teams, what responsibilities they have and what tools we give these teams to solve problems. So we do an awful lot of teaching. We go to an awful lot of schools all related to what are the good management tools out there. And that’s really been the backbone of what led to how we reorganized our golf department and our hockey areas. It’s putting those tools to use and saying, ‘What is the customer really telling us to do?’
SGB: I know you’re involved in a group of corporations that are studying some Japanese methods in terms of corporate culture and management.
Hillerich: We formed a chapter in Louisville of an organization based in Boston called The Center for Quality of Management. And it’s really large companies – the Xeroxes, the Hewlett Packards, the General Electrics, the Fords – who put this organization together. Basically, they went to Japan. and said, ‘What should we bring back to the States, and how do we improve it or how do we make this work in the States?’ Basically, we learn the tools developed in the Center for Quality Management and we teach them to each other.
SGB: What are some of the internal changes that have come out of it?
Hillerich: What we offer in golf. Everything you see in our current program in golf came strictly from the customer’s voice. The tools that we learned and developed at CQM helped us do this. Ten years ago, we would interview a customer and come out with a few notes. Today, it takes two people to interview a customer and it takes probably a week to untangle what you’ve developed from every single word that the customer said – and we do that with 14 different customers. It’s a very lengthy process, but it’s a tool we didn’t have before.
SGB: Visiting your offices a few weeks ago, I was struck by the lack of doors, your office included. Is that also part of this emphasis on management and corporate culture?
Hillerich: When we asked everybody here three years ago before we built our new complex what it was that they wanted, they said, well we want an office with four walls, a door and a window, and of course the latest computer. We went out and we drew all that up and we had a beautiful beehive of hallways and boxes. And then we selected a vendor and we met with their thinkers, their developers, and their R&D people, and we said, What do we need to do to have teams work better in our company? They showed us some films of their vision of how teams in the future will work – and it definitely wasn’t with doors and hallways and walls. We didn’t know how to explain the theory carefully, so we just came back and said no doors for anybody. It sort of blew them away, but I think they have the idea of what we were trying to create.
SGB: Have you received many calls over the years from larger companies in our industry in an acquisition mode?
Hillerich: That comes and goes. Back in the ’80s and early ’90s it was a big thing. Today people are not just conglomerizing like they did. I had one person who wanted to talk and then called and said, ‘Well I don’t think we appreciate the baseball/softball business. We’re going to back off.’ So I think it’s quite different today. We don’t hear so much about it today.
SGB: There always seem to be rumors going around that the big footwear companies are looking at team sports companies, and then the acquisition never seems to happen. Are you saying that you think the largest players in the sporting goods industry are not focusing their attention on team sports for acquisitions?
Hillerich: I really can’t answer that other than they’re really specific about what they want to target. They want your golf business and not your athletic goods business or vice versa. But to come in and just pick off a Hillerich & Bradsby, we don’t see that.
SGB: If somebody came with the right price, would you ever consider having the company change hands?
Hillerich: You’d have to ask my son or my daughter. I’ve made my commitment to them that it’s their decision.
SGB: We hear a lot of talk that baseball is a sport on the decline. The participation numbers have certainly dropped off, and the whole industry is wondering whether it’s just a cyclical thing or whether today’s fast-moving culture has simply not chosen baseball as its sport. Do you think that baseball is facing a challenge in that area and a potential long-term decline in participation and interest?
Hillerich: Oh, absolutely. I think baseball/softball is in a real precarious position. But when I go to the college level, these kids are as intent – they are as dedicated as I’ve ever seen. So they’re getting more focused because there’s not that many of them.
SGB: Do you think that MLB really needs to improve its marketing and its getting in touch with fans in order for baseball to thrive as a sport in general?
Hillerich: They have so many things to work on that they need to start yesterday. One of the big things that I keep hearing when I talk to owners is, ‘Where’s the talent going to come from? How are we going to handle expansion? We can’t get kids into baseball. They’re going into other things. How do we get these great athletes to stay in baseball?’ So it goes deeper than just the fans coming to ball games. They’re concerned about who’s going to be playing it.
SGB: Looking at the super-alloy bats and some of the technology that has come in, that seems to be the saving grace of the industry over the last two years. What has been the impact of the really high-end technology in aluminum in the bat market?
Hillerich: It’s helped drive profits up. It’s helped drive the competition up. We hear feedback from the players that they love to play the game. They can get an average now. They like playing it. We hear from the coaches that they wish it would go back to wood. The safety issue that was really loud has not proven from what numbers we see as being a problem. I think baseball is still the safest collegiate sport in terms of injuries and accidents. So it’s a whole mixed bag of players liking to get better and coaches concerned about how it’s changed the game. But the college level is as good as it’s ever been. In softball it’s allowed C and D players to really improve their game. I think they enjoy it. It’s probably gotten out of hand as far as the super players when scores are 100 to 96. So it’s been a blessing, but there have also been a lot of problems with it.
SGB: Price points keep going up, but is there a point where this market is going to cap out just became everyone’s already spent a lot of money on 16 inch softball bats and they’re not going to keep updating the bats at higher and higher prices?
Hillerich: Obviously that’s going to happen, but I keep hearing people around here saying there is no number two. You either have the best bat out there or you don’t exist. But I’m sure it’s going to balance out somewhere.
SGB: You alluded to coaches wanting to go back to wood, and obviously the NCAA and various governing bodies have taken a hard look at these products and have been somewhat at odds with manufacturers on them. How big of an issue is that, and what kind of stance has Louisville taken?
Hillerich: We love baseball. We’ve loved baseball for 114 years. And we want to give baseball what it wants. So we don’t have a real stance on whether we prefer high performance or whether you tone it down. It’s whatever the people that really control the game decide they want to be. We can be anywhere in that spectrum. High, low. We’ve been both.
SGB: There’s certainly been criticism that the NCAA has never really stated why it’s so concerned about bat performance and that there isn’t the data to back up a lot of the claims they’ve made. Is there a serious rift going on in the industry?
Hillerich: The manufacturers are really struggling to find out what the true agenda is. I think we should do whatever they want done, but we can’t figure out what it is they want to do. They want to put in rules to reduce the performance, but I don’t see how that’s possible. Whatever you put in there’s going to be someone out there trying to improve upon it. And they can improve upon it. I think if they can figure out what it is they really want to do, we can help them design a product that you can’t cheat with.
SGB: With changes always possible at the NCAA level, how much of a problem does that pose in terms of R&D and inventories – in terms of just planning your business?
Hillerich: That is a big problem. You can’t make a rule today and implement it in six months or even a year without really hurting what the coaches and what the teams already have in play. It would be great for us as manufacturers if they change the rules every year, so that everything would be obsolete. But I don’t think that would please the public.
SGB: Do you have any sense of how it will all shake out?
Hillerich: I assume that over the next year or two we will work with the rules committee as an industry and say, OK, we agree this makes sense. If the rules committee just laterally hands a decree down without really working with the manufacturers, we won’t have any kind of order at all. I go in the direction of order. It just makes sense.
SGB: What does the future hold for H&B? You talk about how baseball is in a precarious situation. How do you envision the direction of the company and its future strengths or weaknesses?
Hillerich: I see us changing our products, maybe significantly. Questioning why are we in hockey? Why are we in golf? What do we need to do there? Where in baseball and what part of softball do we want to be in? How strong do we want to be in protective equipment? How strong do we want to be in gloves? And focusing more on what our customers really want us to do. We have tried, in the past, to determine what our customers want us to do for them without talking to them. Now I think we have a much better set of tools to work with them on building what it is they really want.