FLAT CAPS are back in fashion, thanks to celebrities such as Victoria Beckham, but Failsworth, a 100-year-old Manchester cap-maker, has decided to move into more mainstream millinery.

When managing director Philip Wilson joined the struggling company in 1999, he hired a consultant to help him decide on the way forward for the company. “He said the men’s trade was going to fade away, but that the ladies’ market was developing,” said Wilson.

Failsworth promptly acquired a milliner in Luton, the home of Britain’s hatmaking industry. The integration of the two businesses was rather troublesome, but now Failsworth’s women’s hats have become its most promising line.

Although men’s hats have been in decline for some years, sales of women’s headgear grew 10% for Failsworth in 2003. They are also slightly more profitable, with profit margins of 52%, compared with 47% for men’s.

Wilson, an accountant, said his main aim was to increase profits. Failsworth had suffered eight years of losses when he joined, although its plight was not unusual for the industry.

In the past five years he has more than doubled the size of the company through acquisitions, and it now has annual sales of £3.7m. But he does not want to rely on acquisitions for future growth.

In 2002 Failsworth reported its only loss since Wilson took over. This was caused by problems in integrating the business that it bought in Luton.

But as most of Failsworth’s costs are fixed, the only way he can take the company forward is to increase sales. However, this is easier said than done. Despite healthy growth in its women’s business, which Wilson forecasts at 10% compound for the next five years, falling sales of men’s hats will keep Failsworth’s overall sales static this year.

The problem for all of Britain’s traditional men’s milliners has been competition from low-cost suppliers that make their hats in the Far East. A lot of British hat production has gone overseas as imports have made inroads into the core market. And as this consists of elderly men who are, naturally, dying out, and hat wearing has passed the next generation of old men by, that core market is shrinking.

Independent menswear retailers are also dwindling. But this may have as much to do with the general decline of independent retailing as with falling demand for tweed hats.

“We get customers who have retired to Bournemouth who say there is nowhere for them to buy a decent hat,” said Roger Oakes, the third-generation owner of Ardec, a tailor in Beckenham, Kent. Ardec’s display of men’s hats includes some of Failsworth’s lines, but most are supplied by an Italian company.

Here lies another problem that Wilson must tackle urgently. Failsworth, like other British hatmakers, has lost touch with its sales channels because of staff cuts, a symptom of the industry’s long decline. There are too few people to manage the accounts of independent retailers.