By  on March 28, 1994

MEXICO CITY -- Jose Luis Ballesteros, chief executive officer and executive vice president of Grupo Synkro -- Mexico's leading legwear maker and now the second-largest pantyhose producer in the world -- uses New Jersey as a yardstick when sizing up the potential for expansion in his home turf.

Mexico, like New Jersey, has an economy that is roughly one-twentieth the size of the entire U.S. market -- a fact that led Grupo Synkro two years ago to reach beyond its borders for the first time, buying Argentine legwear company Modecraft, then acquiring in January the number two U.S. pantyhose maker, Kayser-Roth, followed by the acquisition of the Hue license from The Leslie Fay Cos.

"After they started discussing the North American Free Trade Agreement, we decided we really had to have a strategy to develop our company internationally," said Ballesteros, and that's exactly what the company did. With its recent series of acquisitions, Grupo Synkro now claims legwear market shares of 58 percent in Mexico, 16 percent in the rest of Latin America and 13 percent in the U.S.

The company's 1993 sales were $200.5 million (641.6 million pesos) at current exchange rates, with hosiery accounting for 68 percent. The total volume represented an increase of 4 percent against 1992, with a net income before taxes of $11.7 million (37.5 million pesos), down 3.4 percent against the previous year. The company's operating profit last year increased to $36.05 million from $31.97 million, or 13 percent.

Now, when Ballesteros looks at his company's future in the North and South American markets, this is what he sees:

  • Tapping the burgeoning U.S. Hispanic market -- a sector he says will likely surpass the entire Mexican market in purchasing power -- with Grupo Synkro's trademark Dorian Grey pantyhose, its flagship line whose television advertising has helped develop popularity throughout Latin America.

  • Adding to his company's Calvin Klein and Burlington high-end hose labels in the U.S., acquired in the Kayser-Roth deal, by developing a sheer pantyhose under the Hue tights and sock label.

  • Building on its Kayser-Roth acquisition by marketing its 12 styles of No Nonsense hose and socks in Latin America and Canada, where one of its leading customers, Wal-Mart Stores, is also expanding, and to use distribution channels in the U.K. acquired as the result of the Hue acquisition.
  • Further developing the U.S. African-American market with Kayser-Roth's Shades of You label, and through its recent $5.4 million acquisition of the assets of the defunct Shieffield Corp., Miami, and its Big Mama label.

  • Further developing the Argentine market, where Grupo Synkro last year introduced several of its Mexican brands, increasing sales by 42 percent.
With the purchase of Kayser-Roth for $170 million, roughly 40 percent of KR's $370 million in volume, Grupo Synkro became the second-largest legwear maker in the world, next to the giant Sara Lee Corp., which has $6.1 billion in worldwide sales of personal products in 1993 (including hosiery, knitwear, accessories and innerwear). Sara Lee claims 44 percent of the U.S. hosiery market, with some $1 billion in sales.

Sara Lee -- which has been on a global expansion binge for several years -- made its first acquisition in Mexico by buying the number-two pantyhose maker, Mallorca, whose roughly 14 percent market share pales in comparison to Grupo Synkro's 58 percent. Ironically, Grupo Synkro was once Sara Lee's licensee in Mexico for Hanes hosiery, a line that never seemed to take off in that country.

Ballesteros maintains there is market share for both Sara Lee and Grupo Synkro in North America, as well as South America, where the customer base is centered in Colombia, Chile, Venezuela, Brazil and Argentina. He said established market leaders needn't hand over business to a newcomer. As an example, Ballesteros points to Sara Lee's entrance into Chile's legwear market five years ago. There, local pantyhose maker Cafarena, with more than half of the market, has held its ground. Instead, Sara Lee has captured about 17 percent of the market from other players in the fragmented pantyhose arena.

Nevertheless, the potential threat of Sara Lee in Grupo Synkro's own backyard hasn't been lost on the company. As soon as Sara Lee went out on its own in Mexico, Grupo Synkro launched a Lycra spandex blend line of support hose called Active to fill the void left by Synkro's loss of Hanes's Alive.

Then, in a turnabout move, Grupo Synkro bought Kayser-Roth from Collins & Aikman, a Santa Monica, Calif., maker of wall coverings and automobile upholstery that had viewed the legwear business as a misfit among its industrial product lines.Kayser-Roth's mass-market No Nonsense hose has 120,000 points of sale, compared with its direct competitor, Sara Lee's L'eggs, which has 90,000 outlets, according to Ballesteros. In its 1993 annual report, released last week, Grupo Synkro declares its goal as developing "into the preeminent legwear and socks manufacturer in the United States."

Grupo Synkro, providing 75 percent of the financing of Kayser Roth, turned to an undisclosed brokerage house and the Ballesteros family, led by patriarch Crescensio and his sons JosÄ Luis and Jorge for the balance. The Ballesteros are well known in the Mexican business community. The father is chairman of Grupo Synkro and a leading construction concern, Grupo Mexicano de Desarrollo, which is headed by Jorge Ballesteros.

With the Kayser-Roth acquisition, Grupo Synkro doubled production to roughly 30 million dozen pairs of hose, tripled sales to roughly $600 million and increased its 3,000-person work force by 5,000. The deal is the cornerstone of Grupo Synkro's plans to break out of the small Mexican economy where it's a big player and develop into a global player.

"For us to get more of a share of the Mexican market would have cost us a lot more money," JosÄ Ballesteros said. "It makes more sense to look for expansion internationally, especially now with the competition from Sara Lee. The Mexican market is becoming more sophisticated, more international. We welcome the competition because it's good for the market and good for the consumer. The Mexican market is going to grow."

Ballesteros forecasts a 5 percent annual growth in the Mexican legwear market over the next 10 years.

"The strategy of buying Kayser-Roth was very important to us," he continued. "Now, with a good presence in the U.S. market and, with the acquisition of the Hue brand, we have distribution in the U.K., which brings us an additional advantage. Also, Kayser-Roth has a factory in Puerto Rico, which is strategically important because it is very close to the north coast of South America and it is halfway from Mexico to Europe.

"No Nonsense is also very strong in nylon and very weak in spandex. We have very excellent products in spandex. I think with No Nonsense we can improve our share of the spandex market in the U.S.," he said. "In Canada they also have good brand awareness with No Nonsense, just like in the southern United States where there is an awareness among the Hispanic population of our Dorian Grey line."Ballesteros says that the Greensboro, N.C.-based Kayser-Roth is on strong financial footing, noting that last week's announcement that 100 administrative and sales jobs would be eliminated was nothing more than a streamlining initially proposed by the previous owners.

"We are exactly on the right track. We are very confident about its future," Ballesteros said.

In addition to legwear, Grupo Synkro has a line in Mexico of popular household products, H24, and a medium-priced personal care and makeup line, Zan Zusi, purchased and relaunched two years ago with a new image after Maybelline discontinued its licensing agreement with the company after NAFTA's passage.

A third business, footwear -- Grupo Synkro is the Mexican licensee for Puma and has its own low-end sports and rubber shoe line, Katt's -- will likely be sold as the company moves further into hosiery, Ballesteros said.

Grupo Synkro's Mexican-based hosiery business reaches many segments of the market, and even before the Kayser-Roth acquisition, it had licenses for designer hosiery in Mexico, including Paloma Picasso, Paco Rabanne, Bill Blass and Calvin Klein.

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