Outstanding snow conditions so far during the winter season have done little to appease worries about the prospects of the global ski business as Amer Sports, the owner of Salomon and Atomic, unveiled a new reorganization plan for its alpine ski business involving about 400 job cuts over the next 12 months, most of them at Salomon. The Finnish group justified the new measures with a 27 percent drop in its sports equipment sales in 2007 – sharper than the 20 percent decline predicted so far. Amer Sports’ shares took a nosedive on the Helsinki stock exchange, falling by nearly 17 percent on the day.
Under Amer’s drastic plans, Salomon will stop producing alpine skis in France, and perhaps also in Romania, while Atomic will stop making ski boots in Austria and in Bulgaria. The group’s alpine ski production should be consolidated at Atomic’s Austrian plant and with sourcing partners in Romania or Bulgaria. Amer is still evaluating whether it should continue to lean on the Romanian sourcing company used by Salomon over the last years, raising its production there from 170,000 to 250,000 pairs of skis, but the odds are that the plant of Pamporovo Ski in Bulgaria will prevail as the only second source for the group’s alpine skis.
Conversely, Atomic’s production of alpine ski boots in Austria and Bulgaria will be halted and transferred to Salomon’s sourcing partners for ski boots in Romania, which have been more efficient than those that have been making its skis in the country, manufacturing about 1.1 million pairs of boots per year. As for Pamporovo, a profitable company that we have visited in the course of our in-depth research into the Southeastern European sporting goods industry and market (see page 7), it made about 150,000 pairs of alpine skis for Atomic and 30,000 pairs for Salomon last year, in addition to cross-country skis, snowboards and ski boots. It has its own brands, Orion and G-Force, and produces the private label ski line of Alpen in Japan.
The Finnish company said that the restructuring plan should be finalized in the spring of 2008 at a one-time cost of €40 million, which has been included in Amer's 2007 accounts. The company expects that the move will yield annual cost savings of €20 million from 2009, and that the resulting cost leadership should help Amer Sports to raise its market share in the global winter sports equipment business from 30 percent to about 40 percent.
Among the 400 job cuts planned across the group, 284 will hit Salomon in France, which currently employs about 1,100 people at two plants in the Haute-Savoie region. These facilities have already undergone three restructuring plans over the last three years. Noting that Amer Sports had guaranteed that there would be no further layoffs when it took over the French company in March 2005, trade union representatives pointed out that hundreds of temporary employees had been let go already in the last few months.
Salomon’s unit for alpine ski production and Mavic wheels in Rumilly, in the Haute-Savoie, is due to be closed completely, accounting for 250 job losses. The elimination of the remaining 34 jobs in France will affect the Salomon head office in Annecy. Production of Mavic wheels will be transferred to a smaller, as yet undetermined site in the region. Annecy is to become a focal point for the Amer’s development of alpine ski boots, cross-country ski boots and bindings, as well as cycling, apparel, footwear and equipment.
Along with the 284 job losses in France, another 50 positions are to be eliminated in Austria. According to a report that could not be verified, a further 70 jobs will be cut in Romania. The moves fit in with Amer’s plan to raise Salomon’s operating margin to about 10 percent, compared with 3 percent in 2005. Overlaps in R&D, Sales and administrative functions will be minimized under the new plan.
As part of the review, Wilhelm Kerl, director of operations at Atomic, has been appointed as vice president of operations for Amer Sports’s winter sports equipment division, reporting to Michael Schineis, the recently appointed president of the same division. Apart from the establishment of joint production centers for Atomic and Salomon, purchasing and sourcing activities will be further consolidated, but Amer Sports pointed out that development operations for the Salomon and Atomic brands would remain entirely separate.
Salomon has been operating in Romania for 14 years, working with eight contractors at different factories. It has been making there initially only ski boots and hiking boots, and then also ski bindings and wheel rims. Using lean manufacturing methods and equipment and know-how supplied by Salomon, they employ some 3,000 workers and work almost exclusively for the French company. Over the last years, while much of Salomon’s ski production has moved to Romania, the volume made in France has been slashed to about 100,000 pairs out of a total estimated volume of about 450,000 pairs of Salomon skis. The company has indicated that only 75,000 pairs were expected to be made in France in 2008.
Salomon has already eliminated nearly 800 jobs in the last three years in France, where the company was founded in 1947. Coming after tense negotiations with French trade union representatives, the announcement of the layoffs in France caused a shock wave in the town of Rumilly. Some trade union representatives have reacted virulently, and the works council has filed a complaint against Amer Sports and Roger Talermo, its chief executive, for lack of consultation on the plans. Negotiations with the trade unions began after the announcement.
