A fortune later, AVI pulls the plug on Green Cross

Johannesburg, Gauteng, SA – 13 years and probably upwards of R500 million later, AVI has decided to close what’s left of Green Cross.

Started in 1975 by Heinz Zeppel, a refugee shoemaker from East Germany, and built by him and his sons into a manufacturing-importing-wholesaling-retailing comfort footwear business, it was bought in March 2012 by AVI Ltd, a diverse investment company which had ventured into apparel – predominantly footwear – when it bought retail chain A&D Spitz in 2005.

AVI paid R382.5 million “plus a contingent earn-out payment up to a maximum amount of R35 million, payable in March 2013 subject to certain profit hurdles being achieved”, according to a company statement at the time.

To indicate how well AVI was doing then, and how confident it was about its future in apparel, it said it would “fund the entire purchase consideration from existing cash resources”.

The reaction at the time from many other privately owned footwear manufacturers was that it was an extraordinarily high amount. Now, just that R35 million agterskot might be considered a risky price for any local footwear manufacturer.

AVI appointed new people with corporate experience – presumably with AVI’s blessing and a generous budget – to remodel the business. The first 2 MDs, Robert Lunt and then Greg Smith, enlarged the warehouse and offices, and assembled a new management team, hiring staff away from other jobs. Perhaps the biggest change was to encourage Green Cross design and sales staff, and customers, to view Green Cross not as a comfort brand, but as fashion shoes that were comfortable.

Retail was also affected, with some stores trading under a new name, GX & Co., a literary device to link them to the old brand in ownership but to distinguish them with a higher fashion content, including other footwear brands.
The next 2 MDs, Tracey Chiappini-Young and Roger Coppin, were sent to slash costs and close the factory, and finally to place Green Cross under Spitz.

Fast forward to Monday, 10 March and AVI’s results for the 6 months ended 31 December 2024.

AVI’s food and beverage brands grew 3.1% in revenue and 16.1% in operating profit, but its fashion brands, of which footwear and apparel account for about two-thirds of turnover, saw a 6.9% drop in turnover and a 12.6% drop in operating profit.

They dragged AVI’s overall figures down to a 1.1% growth in revenue and an 8.9% increase in operating profit.

This is what the directors wrote:

Footwear and Apparel (including Spitz, Kurt Geiger, Green Cross and Gant)
Revenue decreased by 7,3% to R1,08 billion largely due to a 18,3% reduction in footwear volumes which included the impact of supplier and global supply chain issues. Selling prices across the range were increased to recover input cost pressures, including higher freight costs incurred to address supply chain delays, and protect margins, however, consumer demand was subdued, and the business was not able to repeat last year’s strong December sales performance. The overall contribution of Carvela and Lacoste brand sales increased compared to last year but were negatively impacted by the later delivery of certain summer stock and supplier challenges on core Carvela ranges. Clothing brands revenue was lower but included some benefit from innovation with the more affordable Signate clothing range and Kurt

Geiger fragrances launched in November 2024 gaining traction.

Gross profit declined, with gross profit margin maintained in line with last year, and selling and administrative expenses increasing by 4,3%. As a result, operating profit decreased 10,3%, from R322,3 million to R289,1 million. The operating profit margin remains healthy, but decreased from 27,7% to 26,8%.

Not a word about Green Cross. Further down in the report, they added:

In January 2025 Green Cross embarked on a consultation process with affected employees following an in-principle decision to close the retail business, in 12 Green Cross and GX & Co. branded retail outlets, and discontinue the majority of wholesale lines. This process has yet to be concluded, with restructuring costs likely to be recognised in the second semester negatively impacting performance with the second half result expected to fall short of last year.

According to the Green Cross website, there are 12 Green Cross and 1 GX & Co. stores left.
AVI declined further comment. S&V was referred to a recording of the results presentation, but didn’t pick up any comment on Green Cross.

What went wrong: An insider’s view
From the time of AVI’s takeover to the closure of the factory, the attitude of many of its comfort/wellness competitors was that AVI had made Green Cross lose direction, and that the overheads imposed by the corporate structure would be impossible for a family-built business to carry.

But someone who was a senior management member (not an MD) in the AVI-owned Green Cross said Green Cross was always profitable and just needed time to convert to a much bigger corporate entity.
“As a former employee, I am very sad to hear of Green Cross’s final demise.  Since AVI’s takeover of the business, Green Cross’s perceived failure was the result of a high initial purchase price which coincided with a downturn in the economy, weakening Rand and high footwear inflation especially for the imported component of the range.  Added to this, AVI spent generously on updating factory infrastructure and compliance, and new executive team.  These revenue, cost and margin pressures put an enormous strain on AVI’s ROI expectations and tested its shareholders’ patience. The business was still able to generate healthy cash operating margins, but these were unfairly stacked against an insurmountable wall of corporate debt.

“4 Managing Directors in the first 6 years did little for consistency in leadership and direction and the Brand itself suffered from a clumsy attempt to reposition itself in the market by alienating an existing loyal customer base and not making quick enough gains in targeting a new, more fashion-conscious consumer.

“AVI never fully grasped how integral the factory and shoemaking was to Green Cross’s DNA, and demonstrated the difficulty in transitioning from private to corporate ownership.  40 years of passion for shoemaking, a factory’s community of people and an iron-grip on revenue and cost, gave way to a mechanical methodology born outside of the industry, and brand mispositioning, that confused management and consumers alike.”

Said another footwear competitor this month: “I don’t really pay too much attention to them. Their wholesale business seems a shadow of their former selves and their current pricing model doesn’t seem to put too much pressure on our business.”