Tuesday, May 30, 2017

How to Make Big Problems Out of Little Ones

This is a time in the evolution of the apparel industry where profits and market share are in flux. It seems everything is changing, not for the best for some companies. The players who are doing well are reading from a new script-speed and agility is a main asset. Also price is a main driver in today’s market, so cost reduction is as important as product cost when sales are threatened.

I have found that too many companies, especially larger ones, get in their own way. They have too many processes that do not add value, and are very slow; most important, too many people working on the same things, each with a little piece of the whole to complete, and most with no power to move the process forward. This is due to two main factors: 1. The organization of the process itself, and 2. Too many people involved in decision making, most not empowered to make even small decisions. This all costs time and money.

Two examples, two companies, both US companies manufacturing in China:

1.     Company A makes mens shirts. One print of bulk fabric due for quick turnaround has some shading bars. It is visible in fabric form, but when sewn into a shirt it is nearly impossible to see. Within one day of the problem being uncovered, the factory produces a sample that proves this. The players in China, including the head of all Asia offices, as well as the quality manager, agree that this sample is acceptable to go ahead. However, they refuse to make the decision and send the shirt to US for final decision. Two weeks later, the decision is made and, naturally, the delivery is delayed.
2.     Company B is making a shawl that will be packaged with some woven strips which use a Velcro closure. Someone decides to change the shape of the Velcro closure from square to round, and, when samples are examined, it is found that the adherence is not acceptable. The solution is to change back to square to give the Velcro more traction and iron the patches to make sure they adhere well. Good solution. That being said, it took about 5 days and more than 30 emails to come to and approve this conclusion.

Both cases clearly illustrate my point.  There are two problems: 1. Too many cooks in the kitchen and 2. Nobody feels empowered to make the decision except the big boss, finally-like a basketball team passing the ball 30 times and nobody wants to shoot.

What should happen here?

1.     Change the process and perhaps reduce the number of players so decisions can be made quickly. Most companies are set up in silos- every order requires the participation of many departments, all of whom have one piece of the process and very little impact on the whole. What is more, they have no personal interest in problems in the other area, even if they may have caused them. Oh, and they don’t usually talk to each other.
2.     Empower staff so that decisions can be made at the lowest feasible level. If you hire someone to “manage” something, let them manage. If you don’t trust them to manage, you shouldn’t have hired them. It is undeniably true that people who are put in the position of sheep end up being sheep, even if they weren’t when they started the job.
3.     Find staff that are highly productive and add value; you can give them more workload, thus reducing the number of fingers in the pie. Even if you have to pay them more.
4.     Think big, be small. Reduce your staff as much as possible- just a Seal Team of highly effective people. Will cut cost and reduce the number of hands in every process and decision.

Each case and each company are different, but the above principles work are universal.

Here are some more specifics of what can be done to improve and speed up the process:

1.     Reorganize along project lines rather than functional lines. IF one person manages one order or one factory by themselves, they will be fully conversant in all aspects and will not have to wait on who-knows-how-many people to answer questions or make decisions. It is their order-period- and they cannot defer the responsibility to anyone else if problems occur. They and only they must solve problems and get it done.
2.     Simplify your process so it can be handled by fewer people. For example, the omnipresent PSR (Production Status Report). In every case that I have seen, these reports are a waste of everyone’s time. All you need to know- just a list of key events with due dates, another column for actual dates (AKA reverse calendar). Not the date every style goes to cutting, sewing and packing.
3.     If a process or part of it does not add value, don’t do it. You will simply waste money and slow things down. For example, inline inspection. For continuing styles and with a good, dependable factory, problems with sewing should almost never happen. Even if 5% problems (way high), why waste time doing 100% of production? Put the burden on the factory to get it right.

I am sure that the biggest challenge here is change. Companies are rarely willing to give up something that they believe gives them a comfort level-even if they cost too much, slow things down too much, and problems happen anyway (always). Unfortunately, many don’t know any better way. What is needed for them is a new standard and belief in new possibilities that they either never considered before or considered and dismissed.

The most important lesson is that little problems should be just that-little problems. If they become a big problem, probably your process is the problem.

Wednesday, May 24, 2017

US Apparel Sourcing- Are We At The End of the Story?

A recent public report by Goldman Sachs considered the US-China trade relationship in apparel and explored the question of whether, with the storm clouds of change brought about by this administration, it was feasible to bring a significant amount of manufacturing back to the US.

After consideration, their analysis was that it would take an investment of about $50 billion, 5-10 years to build, hire and train, and would require a price increase of around 15% due to multiple times the labor cost (that figure is low in my opinion).

What chance is there of that happening? Without a seminal event that required the building of US factories just to maintain supply (considering also that China apparel exports are estimated $300 billion/year), who in their right mind would invest that kind of money just to end up with product that is more costly- in a market that is driven by price? And, if there is some political breakdown that results in higher tariffs or drives the US-China relationship down the drain, what will happen to the industry in the 5-10 years it takes to build this questionable solution with their biggest source of supply cut off or severely restricted?

The answer can be found in the history of apparel sourcing before and since US quotas removed from China (2005).  IN the first few months of that year, an incredible amount of goods were shipped into US from China, which resulted in calls from probably the same people who are talking about it now, to restrict imports from China. The New York Times reported in March of 2005:
Imports of major apparel products from China jumped 546 percent. Last January, for example, China shipped 941,000 cotton knit shirts, which were limited by quotas; this January, it shipped 18.2 million, a 1,836 percent increase. Imports of cotton knit trousers were up 1,332 percent from a year ago.

As a result of the surge, voluntary restraints (the Elvis Era) were agreed by the two countries through 2008. As a person who lived through that era, I can say without hesitation the restrictions did nothing except raise prices and blood pressure.

Then- labor costs should have increased with the Chinese Labor Law of 2008. The aging population started shortly thereafter to affect the apparel labour force; this turned out to be the main driver of increased labour costs. At the same time, China very rapidly built infrastructure, such as high speed rail, to the inland provinces and gave great incentives to folks there to build factories. This took a while, but now many workers have enough jobs in their home provinces to not have to migrate to the East for work. So labour costs continue to rise in the main Eastern apparel-producing provinces.

Finally, the renminbi increased in value slowly but relentlessly. From 8.15 RMB/1 USD in 2006, the rate increased to about 6.05 in the beginning of 2015. It has since recovered to 6.9. (which tells you that the government will do what it has to do to maintain exports)

So, increased labour cost, declining USD exchange rate, legistlative hurdles, and China still represents about $300 billion of the $1.5 triliion US apparel market. Why?

First, China put some of that trade revenue to good use with infrastructure improvements, such as high speed rail, that make the US counterpart look sad and aged by comparison (that is something Goldman Sachs did not mention- how much would need to be spent on infrastructure improvements in US to facilitate a $50 billion investment and an increased labour force of 500,000?)

Second, China found a way to decrease or at least hold costs by increasing the efficiency of manufacturing- most especially, and this is a key to success and a major deficiency in many other countries- creating an almost perfect vertically integrated industry on a very convenient map. In apparel, not only manufacturing but all raw materials and components can be found within the same provinces as most of the factories-Zhejiang and Jiangsu.

Third, above and beyond infrastructure, the government is devoted to policies that will stimulate growth and also offset global and internal factors such as those mentioned above.

Finally, sourcing managers found out that a main reason that China endured as the main apparel manufacturing location is that it continued to be the best choice.
Labour shortage or not, 1.4 billion people in a relatively educated country with a historic affinity for business and business acumen trumps-well- every alternative combined.  No country has the population that China does (except India, whose pitiful lack of infrastructure and backward population, and non-helpful government takes it out of contention), and no country has the vertical integration. Bangladesh, Vietnam, even Thailand etc. still depend on China for raw materials such as fabric.

So here we are in 2017 and China is still the main exporter. What do we see in the future that will change this balance significantly? My view is that whatever was going to happen as far as sourcing diversification has happened already. No emerging countries/regions are threatening to steal significantly more orders from China than they already have. In the past, there has been lots of talk-such as the talk of Africa being the future of global sourcing. Didn’t happen there or anywhere else, and won’t- at least not with the scale that would make a dent in China’s exports.

Unless there is a country or region I missed, I think the diversification of sourcing that was going to happen has pretty much played out- mainly because of the internal factors that limit sourcing as discussed above- population, raw materials, etc. In a time when apparel business is undergoing major changes, nobody on either side of the export-import equation in apparel is going to make major factory investments anywhere-especially in the US where it may be set up to fail.

Message to Washington: The practicality of punitive trade reforms against China for policymakers is: OK, do it- then what?

Wednesday, May 17, 2017

The Death of Apparel Retail- Conclusion

The Death of (Apparel) Retail-Conclusion

1.   The Way We Were

Remember that song? If you don’t, it cheesily lamented a past time when two people were happy and content with their situation-which had passed.

Remembering that time in retail is just as useless as the emotion in that song. In the song or in the real evolution of retail, remembering how things were only makes sense if it provides a starting point for the starting point of change.

Sadly, that wistful but useless approach is not how many companies, both retail and brand, look at the past. We see entrenched management with a vested interest in their leadership which led to current troubles, out of fear, insecurity, or just lack of a clue as to what to do next, defending their failed or failing business model.

NOTE TO MANAGEMENT- “the way we were” is never going to return. So get over it and move on. This takes some courage and doesn’t work if you are risk averse in any way. This is because, for many, change does not mean little tweaks-it means a complete and objective analysis of what you did, why it didn’t work, and how to move ahead. I believe this means a wholesale change of, first, business philosophy, process, and, most important, probably a wholesale change of the people that failed- including the same people that are charged with making decisions about change in the future.

Brutal, I know-but this is what happened to the dinosaurs. They failed to adapt, and are extinct. In today’s retail environment, such a wholesale extinction is more than possible.

As said in the first installment of this article, we have already moved on from the era where department stores and famous brands were king. In part, this is due to the emergence of retailers such as Uniqlo and Inditex who have legitimized their own brands with good fashion, value pricing, and item-oriented merchandising.  That being said, a significant portion of the blame lies with the department stores and the brands themselves: The department stores got greedy and emphasized, in OTB dollars and floor space, their private brands to create a price conundrum in the customer’s mind; the brands also got greedy. They were not content to maintain the exclusivity of their brand product and price (especially when challenged by retailer’s private brands and the emergence of mass retailing), and, thus seduced by price as the driver, compromised the quality and integrity of their product so they became no different than the private brands- just the opposite of what they should have done.

So here we are- brands we grew up with are either history or being reduced to so-what in the consumer’s mind. And, as the distinctive appeal of these brands declines, their department store partners also become a so-what.

2.   Is Extinction Inevitable?


If nothing changes, yes. This is Creative Destruction at its finest- for something to be born, something has to die. In this case, if a new path is not allowed to be born, death is inevitable. There is no reincarnation, it is just-death.

I don’t believe this has to be the case. There is still value in brands and in the institutions we call department stores- but that value is declining rapidly and the bleeding must be stopped soon.

So what should be done for brands and department stores to have a chance at a bright future in the current and developing retail environment?

1. For Brands-
a. Play a little hard to get. Be selective as to where and how your merchandise is sold at retail. Don’t sell to stores where your brand is not respected and is just another fixture in a confusing, discouraging and price-driven environment. 
b. Respect your own brand integrity- look for innovative ways to present your product- New fabrics, new fits, etc.
c. Respect the opportunity to marry digital to brick and mortar- so that once your customer following returns, they can access the product anywhere and combine the two.
d. MOSTLY, do not compromise your product even 1 percent for price.
e. NOTE TO MANAGEMENT: Wake up and throw your egos out the window. Recognize that your troubles are because something or somethings you have done in the past are not working. And that, like the song, you can pine wistfully for the way we were, but it ain’t coming back.
d. ANOTHER NOTE TO MANAGEMENT: Take all drastic and precipitous actions needed- all in or nothing. You can only do this once you have really opened your mind that anything is possible. Replace what and who needs replacing- Including yourself.

2.     For Retailers-
a.     Start with c. above, goes for you as well. You need to accept that some companies are more successful than you now because they are doing something right and you are doing something wrong. I don’t care who you are and what is the company name on the door.
b.     Don’t be afraid to copy what they do right. For most department stores, this will involve completely changing your buying and merchandising philosophy, which in turn will dictate how your stores look.  You must represent a very clear direction and key items very clearly in each department.
c.      Make your floors and your merchandise look inviting and interesting, not overassorted, overcrowded and discouraging.
d.     Hire some buyers who can be successful in a changed environment. Real merchants with some experience and an affinity for fashion and style selection.
e.     Start to cultivate a culture of VALUE, not price. Make your customer believe you. This may take time, but it is the only way to succeed.

When the dinosaurs died, only those creatures who could adapt to the new environment survived. So I guess the bottom line is, are you a dinosaur or a survivor?

Change, or die. Simple as that.

Fan Favorites