by Judy Hodgson
Once upon a time there were two young couples living in Humboldt County with not much more than a pocketful of dreams. They loved the rugged outdoors, especially white-water rafting. In the summer they hired themselves out as river guides. In the winter, they took whatever employment they could find. Don Banducci, showing early signs of talent in public relations, became a convincing department store Santa. Steve Cole, always the tinkerer, repaired bicycles.
Eventually reality set in and they began searching for a more permanent way to make a living. What they found was a tiny company -- not much more than a workshop in a garage -- in Yakima, Wash., owned by an elderly couple who made foot braces for kayaks, an accessory for white-water rafting, as well as other items for outdoor sports enthusiasts.
"We apprenticed with them for about a month before they agreed to sell us the business," Banducci said in an interview last month.
Then Steve Cole, Don and Maggie Banducci rented two U-Hauls, loaded up the equipment and inventory and headed back to Arcata. Yakima's first home was a rented building at the foot of Eighth Street. Steve's wife Jan joined in the enterprise and that year, 1979, the four of them assembled and sold $80,000 worth of foot braces. A good start.
A year or so later, they decided that to keep the business going, they had to find some new products.
"There was a light-duty roof rack in the line and we decided that would be a good thing to focus on," Banducci said. "It was primarily for canoes and kayaks, but we thought we'd make a little ski mount for it and carry skis and we'd make a little bike mount for it and carry bikes."
And the rest, they say, is history.
Not only did Banducci and Cole pioneer an entirely new consumer
product -- the multipurpose roof-rack -- but they had only one
serious competitor in the world market for the next 15 years,
a Swedish company called Thule.
By the 1990s, Yakima Inc.'s sales grew to more than $20 million a year.
"It was magic. We got to kick ass," Banducci said. "We got to be the American, groovy lifestyle, little-college-town, alternative, guerrilla roof-rack company and they (Thule) were the big, multinational, stodgy, Swedish-design, straightlaced foil to us. It was fantastic!"
Not only did they create North Coast jobs -- 140 of them -- they created good jobs. The average salary today is about $30,000.
In their success, the Banduccis and the Coles very generously spread the wealth to many community causes (the Kinetic Sculpture Race, Jazz Festival, KEET-TV, the county library, schools, and youth sport teams).
So what happened to radically alter the end of this business fairy tale? What motivated the two couples to sell the company in 1994? And why did the new owners shock the community in October by announcing that the assembly and shipping operations were being moved from Arcata to Mexico and San Diego, and that 40 of the 140 employees would lose their jobs? Why was Banducci, who still serves as president of the corporation, not told of the decision until a half-hour before the rest of the company employees?
Banducci, frustrated with the angry public outcry following
the October announcement, approached The Journal and offered to
tell the story of Yakima -- past, present and future. Sitting
in on the interview was a very new key player, Bruce Hamilton,
who joined Yakima in 1990 and serves today as the chief operations
Q. In a Journal interview in 1991, you estimated your gross annual sales to be $15 million to $20 million, a figure you expected to double in five years. Did that happen?
Don Banducci: We got fairly comfortable by 1993 in the $23 million to $24 million range. But the doubling just wasn't going to happen. We had plateaued out in the specialty market. There wasn't a lot of growth.
That's really when these new people came along and wanted to purchase the company. They were pretty savvy people and they assured us that they were going to light a fire in this place and get it to grow, with the idea of doubling it in five to six years from the date of purchase. The idea of selling it -- bringing people in with the resources to bear -- was attractive.
Q. What exactly was the deal?
Banducci: We were completely bought out -- Steve and I. I have incentives for five years to stay on in my position as president. Steve is vice president of engineering.
Q. How are decisions made today?
Banducci: Bruce (Hamilton, who joined the firm in April 1990) definitely took over the reigns of day-to-day management of the company, almost all of the decisions of how this place is going to be run. The shareholders at the time were involved in overall strategy and strategic planning, (but) the power has definitely transferred from me to Bruce.
Q. Does most of the manufacturing take place in Arcata at this
Banducci: We were always vendor-based. The component parts always came from around the country and around the world. The biggest suppliers are in L.A. and Portland -- dozens and dozens of plastics parts, stamped-steel parts are brought here, assembled, riveted, screwed or in some way assembled, put into boxes and bags, warehoused here and shipped around the country and around the world.
Bruce Hamilton: We also have two warehouses in Pennsylvania. When the product is assembled, we split out and ship between a fourth and a third to Pennsylvania by rail car. Then they ship everything east of the Mississippi.
Q. Ship by rail from here?
Hamilton: Out of Oakland.
Banducci: There's no facility here to load a truck-trailer onto a flat car. Otherwise we probably would.
Hamilton: In fact when you come to the question of our move
of the assembly to Mexico, and a move of the finished goods of
warehouse/shipping to San Diego -- they are adjacent, within 10
miles -- freight-in and freight-out is the issue.
It's not that labor is so much cheaper. We have such a small amount of labor in our product because all we do is assemble. All the labor is done at the manufacturer of the parts.
To get the parts to Arcata is considerably higher than the wage bill that we pay to assemble. So really the Humboldt problem of freight-in/freight-out is a significant issue.
We use steel. We don't make titanium earrings. It wouldn't be such an issue.
Q. How many jobs will be lost here?
Hamilton: Of the 140 jobs -- in this building, we have a good 100 of them. These are not only jobs that are going to stay, but are going to grow.
Banducci: Since the announcement in early October, there have been four people absorbed. By the time things are actually shut down here in six to eight months, another four to six (jobs will likely be created).
Q. What types of jobs will remain?
Banducci: Professional, administrative, skilled, knowledge-based.
Hamilton: Everything else, really. Sales, design, engineering,
accounting, drafting, marketing, creative services, warranty department,
customer service department.
We have 95 people in this building who come in to work every day and who are on electronic mail and are working with computers.
The shipping facility is moving to San Diego, but it is our facility -- Yakima. Five of those people will be moving. They didn't lose their jobs. They lost Humboldt County.
Banducci: That's one of the up sides to this. There are people
who never thought they had the skills to leave Humboldt County.
There are those who are excited about the opportunity.
Q: What are the type of jobs that are being lost?
Banducci: Hourly, wage-earning jobs earning anywhere from $5 to $8 an hour.
Right now we have the best product in the world. We probably have the best service and the best organization backing up that product -- if not the best, one of the top two or three. But we are probably the high-cost producer per rack system.
Now, all of a sudden (if) we become the low-cost producer, maintaining the best product and service (reputation), the sky's the limit. We already have the Ford contract.
Q: The Ford contract?
Banducci: The Ford contract precipitated a lot of this. They called us. They shopped the world for racks. They chose Yakima. (But) they said, "You know, you guys have the best product in the world, but God you're expensive. We could have bought something that would do the job for half as much."
And that was the red flag -- or the yellow flag -- to the new owners that things had to change. We had already raised our prices as high as we could. There was nowhere else to go but to tackle the cost side of the business. That was shipping, labor and, to some degree, the fact that we weren't making things ourselves. Everyone else who was making these hundreds of parts was taking a profit.
So with the Ford contract, it was flattering but it was also a signal that we were going to have to grow up and take that next big step to become a globally competitive supplier.
The end result is we are now going to be able to sell to Ford. And where there's one car company, there's another. Subaru is buying product from us. We have Hyundai looking at it. We have appointments with GM and Chrysler. Some of these companies are going to take it to Europe.
Now that these 40 jobs are going to Mexico and our costs are going to be significantly reduced, we expect to double in a short period of time and to replace those jobs. Instead of $5- to $8-an-hour jobs, they'll be $30,000-, $40,000-, $50,000-a-year jobs.
Hamilton: Today the average is about $30,000 for regular, full-time
employees. In four years, we project 131 people and the average
salary is expected to be $41,000, because they're better jobs.
Q. Were you both involved in the decision to move the assembly jobs to Mexico?
Hamilton: Let me address that.
Don's involvement is not as it was for the first 15 years. He's very involved with the product, the advertising, the catalog copy, the image/PR. He's not here daily running the company. You can't do something like this without a day-to-day guy.
I went to San Francisco. I knew about (the decision) for about two months. I had to do a lot of background work. Don wasn't brought into the equation for reasons that the owner decided were his own. He didn't want Don to have to deal with it.
Q. Who is the current owner?
Hamilton: John Bowes. He had sold his company, Kransco, to Mattel. He's in his mid- to late-60s. He has so much money he has no reason to try to make more, but he didn't want to retire. So he's putting together another group of companies and Yakima is the hub, the one that's functioning and generating wealth. And he's already bought a second, small company in Texas.
(Bowes') whole career has been in recreational, leisure activities. He started making things that float in a swimming pool. You've seen the lounge chair with a drink (holder) in it. And he picked up the whole Whammo line -- Hula Hoop, Frisbee, Hackey-sac. They built that all into Kransco. In the end he had Power Wheels, little battery-driven cars kids ride in.
Banducci: So they sold all those assets, made bazillions of dollars and started working on this other group
Q: (To Hamilton) What else did you do during this two-month
period when you were to only one to know? Scout property in Mexico?
Hamilton: No, no. It's more a matter of how much is the freight-in? How much could you save? How much of your freight already comes from L.A.? How much injection moulding -- we've gotta go vertical (with) injection moulding -- do you do? How much could you save if you do it yourself?
There's an inevitability to this (decision). The timing. It probably would have happened in 1998 had not (Bowes') former colleague, Jorgé Dominguez, come to him.
(Dominguez) worked for John for over 12 years, ran the injection moulding plant in Mexico (and continued) to work for Mattel for one year after the buy-out (of Kransco). He didn't like working for Mattel, so he quit and called John up. That's what precipitated the thing.
If I had had to go to Mexico, put an ad in the paper for plant manager, it never would have happened.
(Dominguez) also said, "By the way, my
production manager, my quality manager, my bookkeeping import/export document person -- those three are with me. We're ready."
(Yakima) did not just take our expertise and send it out. We have added a set of people who not only know how to run an injection moulding plant from start to finish, they know John, how he works, they know how to cross the border, rent space...
Q. (To Banducci) How and when were you told?
Banducci: I essentially was told with everyone else. I was informed about a half an hour before.
I had a big problem with it and have been through it with the owner. I think -- I hope -- he would do things differently now. Other decisions he has made, I have raised a fuss. Some personnel decisions, I have jumped in on and slowed things down a little bit -- rightly or wrongly -- and he probably figured of all the issues I would go crazy over, this would be it.
Q: (To Banducci) Didn't you cause a big stink (in 1990) when
Louisiana-Pacific opened a plant in Mexico instead of in the U.S.?
Banducci: Yes. I was very outspoken. In an article in EcoNews, it wasn't so much about Mexico. It was about L-P crying crocodile tears about job loss here because of the timber supply being constricted while they were planning the whole time on moving things to Mexico. That was my issue.
Q: (To Banducci) Were you completely surprised by the decision?
Banducci: We had had a discussion about a month before -- in theory -- about vertical integration, whether it could be done in Arcata, or in Denver. At least keep the jobs in the U.S. Bowes was thoughtful (but) he knew what was coming down.
Before we built this building (new main offices and shipping) in 1987 or '88, we had this discussion about whether we can be competitive here.
Maybe it wasn't the best, most economic decision because of freight-in/freight-out, being close to our vendors. We really didn't consider moving the operations then, but we looked at L.A., Portland-Seattle and Reno. We did a study because we had to know what it was costing us to stay.
We knew that some day we would have to confront this. And these guys (new owners) did it sooner rather than later.
Q: What are the ripple effects of the loss of 40 jobs? How about Redwoods United? I understand Yakima accounts for 40 percent of its workload for job training.
Hamilton: No question. There will be an impact. There's
a local powder painter we do a lot of work with. It will affect
him. But we made a good faith effort that if he felt we were going
to bankrupt his business, we would buy his equipment.
We're trying very hard to find jobs for these people. We've got tuition for retraining, a severance package, one guy wants to go to truck driving school.
Don said (the decision to move assembly and shipping) was a matter of dollars-and-cents. It's a matter of being competitive. It's a matter of creating wealth. In a free market, the only way a customer is going to buy your (product) is that if they feel there is a value. Nobody forces them to buy a Yakima rack.
The case can be made, if you are too expensive and the market won't bear the price, you are going to start losing jobs. John Bowes would make the case that, over time, we will create more jobs in Humboldt County, not less. It's not a short-term thing. In fact next year, in 1996, it will cost us money, I guarantee you. Look at the cost of making this move. We won't yield a benefit until 1997. It's long-term competitiveness in a global situation.
The other impact is international. Don went to Japan. We've picked a partner. We started to ship stuff to Japan. We ship stuff to Canada. In both cases we are having a difficult time because we are just too expensive.
Q: What assurances do you have from Bowes that this whole operation
won't be picked up and moved to, say, San Francisco?
Hamilton: He discussed it. It doesn't make any sense. The jobs here (remaining) are all knowledge workers. I've got engineers, fit technicians , model makers, people in sales and marketing. They aren't going to move.
If we pick up and move this headquarters, we go from a low-rent, low cost-of-living environment to the opposite. Everybody here is dealing with information. It's cheap to send information. It's getting cheaper every day.
Are they any guarantees? No.
And it is the character of this company. It is important that we are all active, outdoor people who use the product. You could lose all that.
Banducci: In the Mountain West (economic) report, it said that
a product must be lightweight, high value, value-added. Information
is not only lightweight, it's incredibly value-added.
What we are doing here today is incredibly complex, fitting cars with very little interface between us and the car designers. Not only fitting cars with racks, but we're fitting all manners of things on those racks at 80 miles per hour in wind and rain.
And it is getting far more complex in the last couple of years than in the first 10 years. It's one of the reasons that I decided to sell the company because I could see the writing on the wall.
Over 15-16 years, we had become so successful. It's not like that anymore. You've got Ford wanting us to become an "ISO 9000" quality management-type of company...
We know what that's all about now. It means incredible discipline and documentation and organization, and these guys understand that. Bruce Hamilton understands that. That's not the realm that Don Banducci functions in very well.
Hamilton: Everything Don said is true. And he sold because he knew it was time. You can't go on that way forever or you'll hit a wall. It has to become discipline. Look at this fit list [Waving a one-inch-thick parts manual]. It's not a bunch of hippies smoking that Humboldt County funny stuff. It can't be.
Q: Apart from Yakima, you are both involved in another new
venture, Wings? (See separate story)
Banducci: Bruce and I are shareholders.
Hamilton: And actively involved! And my wife, Cathy, is doing the bookkeeping.
Q. Is it the next Yakima?
Banducci: (Waving his arms) Wouldn't you like to see about 10 of these office complexes around the county? Look at the wealth that would create, and the opportunity. Where we are sitting today, 30 years ago used to be the California Barrel Co. with 1,500 jobs. Gone.
Q. What does Wings produce?
Banducci: They are inflatable products (rafts). The barrier
to entry to get into that market is not nearly as high as it was
for Yakima. There are lots of people making inflatable rafts,
kayaks and all these other products. We've got lots of competitors.
But Bill Wing is well-connected and well-liked in the industry. He has good ideas. His partner John Marten is a real perfectionist when it comes to fabrication and design.
We have four or five boats ready to go to the big boat show in Reno (early December). They really are the prettiest, most beautifully executed, finely tuned rafts anywhere. And we're making them right here in Arcata.
What those guys needed was Bruce Hamilton's business expertise, and Don Banducci's marketing and image, brand-building expertise and they could become the next Yakima.
Hamilton: They needed capital, and yesterday Humboldt Bank announced that they were going to fund the loan.
Q. (To Banducci) You use terms like "barriers to entry?"
Do you have a background in business or economics?
Banducci: I was a rafter, kayak instructor and Santa Claus. No college degree.
Hamilton: He's a people guy. And he has extremely good common sense, especially to know when he can't do something. He knows what to do.
Banducci: Yeah. Get a partner.
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