How Hugo Boss Lost a Cleveland Union Battle
In Cleveland, a union wins an outsourcing battle against clothier Hugo Boss, using a combination of innovative strategies and old-fashioned bare knuckles.
In late 2009, the city of Cleveland was sitting under a cloud of gloom so thick you could cut it with an industrial power saw. Forbes saw fit to name it "America's Most Miserable" and "Worst Winter Weather" city. Its foreclosure crisis made national headlines, it lost a Ford plant and a Chrysler plant, and its largest bank, National City, was scooped up for a fraction of its worth and stripped of its name by an out-of-town company.
So when clothier Hugo Boss announced it was closing its plant in the Cleveland suburb of Brooklyn and moving operations to Turkey, at first it seemed like just one more piece of depressing news to toss on the pile. The company delivered the news in particularly Scroogelike fashion, dropping FedEx packages on employees' doorsteps in late December 2009, when they were on holiday break from the factory. It was a low blow to Workers United, an affiliate of the Service Employees International Union that had spent months trying to engineer a deal to keep the 21-year-old Cleveland plant open. Dallas Sells, then the Ohio director for Workers United, says company management "gave us a really slow dance because they knew we couldn't accept what they wanted to propose, and they had a plan in mind. It really pissed us off." The next few months unfolded pretty much as expected: Although the union fought to save the plant, it closed, the workers punched out for what was supposed to be the last time, and the textiles and sewing machines were packed up for shipment to faraway locales.
But then the script changed: Hours after the plant had been shuttered, supposedly for good, Hugo Boss caved to pressure and announced the plant would reopen. In July 2010, it did, in a ceremony attended by jubilant workers, union leaders, local dignitaries and at least one Hollywood celebrity — union activist Danny Glover. "I've been doing this for 27 years, and I've never been in a position once a company announced they were going to close, to force them to change their minds," Sells says. "We've had companies come to us and say they need X, Y, Z to stay open. But when they say they're going to close, they close."
So in the midst of a fierce recession, and at a time when unions have lost much of their clout, what went right? Harriet Applegate, executive secretary for the Cleveland AFL-CIO, says that it wasn't one approach or another, but a battery of scrappy tactics that caught management off guard. "They didn't stop," Applegate says of union organizers. "They kept coming up with creative things. And as it went on longer, they came up with four or five additional things. Their whole approach was, 'We're not going to accept this. We're going to do everything under the sun.'"
Workers United filed a complaint with the National Labor Relations Board claiming that Hugo Boss was in violation of its collective bargaining agreement, a complaint that the NLRB found had merit. And they sprinkled some Hollywood glitz here and there, bringing in Glover to rally the workers and draw national attention to their plight and encourage a celebrity boycott of Hugo Boss suits at the 2010 Academy Awards.
But perhaps the most effective strategy was getting a dozen or so state pension funds with investments in Hugo Boss' parent company, the European private equity firm Permira, to apply pressure to keep the plant open. Workers United President Bruce Raynor says that when the plant closing was announced, the union's strategic affairs department got busy with research and soon learned that the Ohio Public Employees Retirement System was a major investor in Permira, as were about a dozen other state pension funds. As a result, the SEIU decided to appeal directly to the pension funds, hoping to pressure Permira to keep the plant open.
Using pension funds as a union bargaining tool is not a new strategy, but it's underused, says Peter Rachleff, a labor historian and professor of history at Macalester College in Saint Paul, Minn. Rallying investors can be a slow process, he says, so a union has to put this tool in its arsenal ahead of time to use it effectively. But if there is sufficient preparation, he says, it's a worthwhile approach. "If unions focused on places where public employees fund investment and planned to use those as pressure points," Rachleff says, "they might have more success."
Bob Bruno, director of the labor education program at the University of Illinois-Chicago and the author of several books on unions in Ohio and Illinois, says that while bringing in Glover boosted worker morale and "got the lights on and the cameras rolling," the pension fund appeal is what really made Hugo Boss management pay attention.
"This is a pretty impressive success story and other unions can learn from it," he says, suggesting that Hugo Boss overlooked the fact that labor-management relations don't happen only between parties at the negotiating table. "Government can be brought in. Consumers can be persuaded to boycott the product," he says. "I think that caught Hugo Boss by surprise."
Bruno says that even against significant odds, "it's pretty apparent that if you find the right leverage points and if you look long and hard at them — if you can put some pressure on those points and really do a good job of working closely with the rank and file, build up a strong relationship with the workers — your chances of winning go up considerably."
Responding by e-mail, Hugo Boss management at the company headquarters in Germany had a very different take, writing that what changed the Cleveland plant's prospects was that "in the end, the labor union signaled its willingness to compromise, paving the way for an agreement." The company "was very satisfied with the outcome and the fact that — together with the trade union and the employees — we managed to find a way of keeping the Cleveland location open and operating at a more competitive level."
A veteran of a number of union pension-fund boards, Workers United's Raynor was already well versed in using institutional investors as leverage. Also, the union knew well beforehand that Hugo Boss might close the plant in 2010 — it was a possibility written into the union contract, an unusual clause — so it had time to strategize.
The first hurdle: getting the Ohio Public Employees Retirement System to consider withdrawing its investments in Permira because of its decision to close the Cleveland plant. A conservative fund, OPERS had never taken such a stand, yet getting its support was key to building momentum. "It would be very hard to get state funds in California and New York to step in on our behalf if you couldn't get the fund in Ohio, where the factory was," Raynor says.
Workers United appealed to OPERS, which had $149 million invested in Permira, from multiple angles, among other things persuading then-Ohio Gov. Ted Strickland to urge the pension fund to act. They found that a sister union in Columbus that represented health care workers in Ohio, West Virginia, and Kentucky — SEIU 1199 — had a member on the board of the state employees retirement system.
Workers United was able to get that member to "convince the board that it was time for OPERS to act," Raynor says. The union also sent a longtime worker at the plant, Wanda Navarro, to speak directly to the OPERS board about how the plant closing would affect workers and their families.
Navarro, who came to Ohio 30 years ago from Puerto Rico and speaks in broken English, was terrified to address the board. But her union rep gave her a pep talk right before the meeting. "I talked to everybody with no problem," she says. "I was just telling the truth — how hard it was going to be for everybody at the plant."
After the meeting, the state retirement system announced its decision to send Permira a letter that said it had "concerns about future involvement with your institution" because it did not "bargain in good faith with state and local community partners." In the days that followed, union leaders checked in with OPERS daily to be sure the promised letter was actually sent. After OPERS signed on, Raynor says, "It opened the way for us to get another dozen state funds to push pressure on Permira."
Besides pressure from the pension funds, the union had other factors working in its favor. The Cleveland plant was profitable, which made management look all the more greedy for wanting to close it to, ostensibly, make even more money by hiring cheaper workers. The brand was also vulnerable because the company's marketing focused heavily on the Hugo Boss name. "A lot of companies market themselves under all sorts of different things, so it's often hard to figure out who they are," Sells says. "But Hugo Boss is pretty much always Hugo Boss. If we were going to run a campaign that could potentially expose Hugo, we would be exposing their brand everywhere."
In addition, the company's management lacked a fundamental understanding of the U.S. market, Raynor contends. When Permira acquired Hugo Boss in 2008, it replaced most of its longtime management in Germany with outsiders. At the same time, Permira sought to expand Hugo Boss' reach in the United States, with plans for a number of freestanding stores and increased online business.
"It was a whole new group of people, and I thought they were dismissing the opinion of the U.S. management who were saying that 'Made in the United States' mattered to the customers," Raynor says. "Would it be cheaper to produce in Turkey and Eastern Europe? Yes. Would the quality be as good, would the customers buy as readily? No. We felt it was a shortsighted decision simply to save money that, in the long run, was not in the best interest of the company."
The ultimate victory was bittersweet — the plant stayed open and workers kept their pensions and benefits, but they also took a 19 percent pay cut.
And Hugo Boss is making no promises, noting by e-mail that although it has no plans to outsource any work now done at the Cleveland plant, "as a company with a global supply chain, Hugo Boss is always examining its production network."
Still, it was a victory, and one that required many efforts to succeed, together. "Here we had a campaign that had so many components that worked for us," Sells says. "The problem we always had was the clock. Because once it closed, it was going to be a real challenge for us. But as long as it was open, we had life."