(for more information about AAPN meetings please go to their website at www.aapnetwork.net)

 

AAPN Meeting 2007, Lowes Santa Monica Beach Hotel

 

 

This is terrific coverage of our meeting in March in Santa Monica by Jordan Speer of Apparel magazine. Jordan has covered us for years and she goes “above and beyond” in this article.

 

    Based on our previous experience at meetings in L.A., where executives compensate for heavy traffic by arriving late AND leaving early, we thought we’d be lucky to get 50 people for 2 days. We got almost 3 times that due to the recruiting efforts of our members with West Coast credentials like Rick Horwitch of Bureau Veritas and Walter Wilhelm of WWAssociates. Of course, as I write that, it was Peter J. Hegarty of Tuscarora Yarns in North Carolina who got our headliner, Dov Charney of American Apparel.

 

 

     The end of one AAPN meeting produces the agenda for the next and we work on the issues daily in between meetings. Here, it all adds up.

 

 

Globalization is Getting Us

Executives at the AAPN annual meeting explored the true costs and opportunities of doing business globally.

May 01, 2007. www.apparelmag.com

 

Your washing machine is broken. You find exactly the replacement you want at a local appliance store for $550, including tax and next-day delivery.

    Doing some comparison shopping online before making your purchase, you find the identical item for $450. It’s a no-brainer. Reaching the checkout page, you find the total cost is $535, including taxes, shipping and handling, and delivery. It’s not as good a deal as you first thought, but it’s still the lowest-cost option. Plus, you don’t have to leave your house. You type in your credit card. Done deal.

    Was this the best deal? At first blush, yes. But, two days later, your washing machine has not yet arrived, and you’re out of clean underwear. Without time to visit the laundromat, you swing by the store to buy some ($15) and miss the beginning of your daughter’s dance recital. (She’s crushed. To make up for it, you take her to Build-A-Bear. Bear: $14. Bear outfit: $10. Talking heart for bear: $3.)

    Two days later you’re slinging shirts at the laundromat ($6). Then the washer arrives. So which was the better deal? The online price was lower, but your real cost in going with this option was significantly higher: $33 more, plus aggravation and lost time and opportunity.

    Armed with this information, few would choose the online option vs. the option to make the purchase at the local store. Yet according to some executives at the spring annual meeting of the American Apparel Producers’ Network (AAPN), whose theme was “How It’s Made in America(s),” apparel companies routinely opt for the lowest-price garment without first factoring in expenses that might render the total costs much higher.

    “Most companies still chase the lowest-cost FOB,” says Barbara Zeins, president and COO of children’s dress maker Gerson & Gerson. A better measure of true costs must factor in logistics, trips to Asia and so forth. “Sometimes the lowest FOB is not the lowest FOB,” she says.

The opportunities of sticking close to home

    It’s something that Dov Charney, founder and CEO of American Apparel, knows well. His company, known for trendy, undecorated T-shirts, underwear, jeans and other apparel sold in more than 140 American Apparel stores around the world, continues to defy current trends by manufacturing exclusively in its Los Angeles facility and paying the highest wages in the industry at $100 per day.

    For the jeans that the company recently starting manufacturing, that comes to about $5 per pair in labor (700 pair a day with a team of 30 people). While that might be more than what some companies pay for offshore labor, the total costs are not much different when you factor in other indirect costs — such as the $200,000 to $400,000 annual salaries that other companies pay their employees to “keep flying back and forth to China.

    “That adds up, too,” says Charney. Additionally, the American Apparel model gives the company incredible speed and flexibility to react to fashion shifts in the market. If Charney learns that a particular color is selling like hotcakes, he can replenish a store in days via air, making garments in L.A. on Saturday and getting them to his Amsterdam store by Tuesday, for example.

  He says price doesn’t matter, if the brand is strong and the customers buy. Likewise, other attendees said they find that the Western Hemisphere offers great advantages. Jeff Marine, president and CEO of California-based T-shirt maker JEM Sportswear, says he can turn his product in seven to 12 days and can respond quickly to changes in the marketplace, for both the company’s licensed product as well as its customers’ private label programs.

    Carlos Arias, president of Guatemala-based Koramsa, a full-package designer and manufacturer of jeans, offers a full range of programs and services to its customers, from small orders to the development of new washes and designs, all with a lot of flexibility and speed built in.

    Abercrombie & Fitch, one of Koramsa’s largest customers, likes that flexibility, says Arias. The company can make changes on a dime to allow A&F to cater to the ever-changing whims of the teenage market.

    Arias says that some of his customers are finding that “it’s not all perfect in Asia.”

    Still, some say availability of the type of service that Koramsa offers is not that widespread. Most companies doing full package in the hemisphere are not up to snuff with full package out of China, says Walter Wilhelm, Walter Wilhelm Associates. “Just because you stock fabric, it does not mean you are full package. If you’re not doing design and serious collaboration, you’re not offering the same thing,” he says.

    Despite the challenges of producing in this hemisphere, including continuing problems with financing and fabric availability, it is clearly working for some.

American Apparel buys raw materials from all over the globe, including from U.S.-based vendors. While Charney says he’s “positive” he could get some of those inputs cheaper in China, he is more concerned with developing a product and a relationship that works well. If it’s a little bit more expensive, “who cares?” he says.

    Conversely, if he finds exactly what he needs in China, he buys it there, and doesn’t care if he pays a little more to ship it. For example, of the partnership he has, and elastic he receives, from North Carolina-based Asheboro Elastics, he says: “We’ve got it down. … It’s perfect. … I get a lot of money for my underwear.”

    It’s the company’s No. 1 selling product, and it got that way through a lot of trial and error — 175 different samples, which Charney test drove himself.

    Now, it’s made the Top 10 product list in GQ. For some, it’s a must-have item.“Free trade provides us with an opportunity,” says Charney. “There are various inequalities in the market, but the main thing is … [to] focus on your brand, your quality, your product and on distribution channels.”

The real challenge — and opportunity — of globalization

    Charney, who says he opened his own stores only because no one wanted to buy his stuff, notes that he’s a free trader, but that free trade just “didn’t go far enough.”

Although U.S. companies are manufacturing goods around the world and importing them into the United States, they have a much more difficult time trying to get that same merchandise into other big consumer markets, such as Canada, England or Japan, he says. Mexico and Israel are particularly tough export markets, he says.

    Meanwhile, “the international people are coming onto our turf,” Charney observes — companies such as H&M and Zara — and are challenging U.S. firms, such as Gap, which have focused exclusively on the U.S. market.

    “A lot of companies said: ‘You know what, don’t try to export, ’cause we’ve got America, man. It’s big. Three-hundred million people. We’ll sell here.’ Who cares, right? But it does matter, because the world is now bigger.”

    In fact, the challenge and opportunity of globalization are in many ways the same: There are so many different people. And there are so many different people.     Yet, with so many markets outside of the United States, a core message at the AAPN meeting was that American companies should consider taking their products, not just their supply chains, offshore. Another challenge: The world is not only “bigger;” it’s also “not just about America anymore,” says Charney.

    “America is second class,” says Charney. “The new class is international. Americans are welcome to the international class. But not all internationals want to be at McDonald’s.”

    The new international society of young people is all over the world, and it doesn’t discriminate on the basis of national origin, race, religion. It’s a smart, savvy group, always in flux, concerned about the world, hooked into the global pulse. Even in China, there’s no filtering the Internet, he says. “They know what’s up.”

“The real Americans are no longer Americans. They’re part of this new Classe Internationale. Borders are over,” says Charney.

    As such, companies that are successful abroad also will be international, appealing to this new sensibility. A “Made-in-the-USA” stamp or U.S. brand name may in some specific cases carry some cachet, but it’s not something to hang your hat on, he says. “American Apparel is an international company.”

 

Making globalization sustainable

Globalization offers other types of opportunities. Consider the international consumer, drinking fair trade coffee at Starbucks, wearing an organic cotton T-shirt, hooked in, wirelessly, to the world, chatting on his cell phone. He’s helping to fuel another huge trend: The focus on sustainability.

    Sustainability — a term that refers to the practice of using a resource without depleting or permanently damaging it, but is often used in a sweeping way to refer to social and environmental responsibility across the board — is having a growing impact on business worldwide, including in the apparel sector. Its impact already can be seen in the changing policies and practices of retailers and brands such as Wal-Mart and Nike, and in factories halfway around the world.

    Companies are finding that, in addition to the inherent plusses that come from following socially and environmentally responsible practices, corporate sustainability has long-term economic benefits, including cost savings that result from the use of energy-saving equipment or a reduction in packaging, for example, which becomes even more significant when you are moving product from halfway around the world.

    And consumers, who can so easily plug in, and are more aware of the impact their purchases have on the people that make them and the environment they live in, are more likely to make purchasing decisions based on these factors.

    The combination has sparked an enormous shift toward sustainable practices and expanded focus on “environmental footprints.” It is spurring the development of restricted substance lists (RSLs) and the use of organic fiber inputs.

    Already, Europe has banned many substances that were previously in common use, and the United States is not too far behind. “Anything that can be done [to increase your eco-friendly practices] puts you in the lead,” says Rick Horwitch of Bureau Veritas.

 

 

Always on: It’s business-o-clock somewhere

Globalization and technology are indeed creating limitless possibilities. We can shop for washing machines, or anything else, 24/7. We can work from Starbucks while chatting with our business partners in Hong Kong. Globalization is not a new trend, but its recent rate of acceleration, attributable to incredible advances in technology, is unprecedented. In some cases technology and globalization are changing the world faster than their effects can be understood, managed or even recognized.

    Communication moves faster, at lower cost. A phone call to Boston from Montreal used to cost Charney 55 cents per minute. Now he makes calls around the world, on his cell phone, while driving down the highway, at a fraction of the cost.

    Cheaper technology is what has allowed businesses to produce offshore at lower costs. It’s enabled new forms of products and services. American Apparel can move its product swiftly and relatively cheaply around the world by air, using logistics companies such as FedEx and UPS.

    Ideas move faster, too. There are so many ways to stay connected, all the time. Whether the businessman or the young international consumer, we are constantly monitoring our e-mail, our Blackberries, our cell phone messages. We have become, says Zeins, what former Microsoft vice president Linda Stone calls “live nodes on the network,” with a need to be hooked in to something much larger than ourselves, all the time.

    Technology has become an addiction, she says.

    This has led people to give “continuous partial attention” to everything, and is depriving them of the ability to prioritize tasks, or to even ascertain what is important. Technology has created what Stone calls an “artificial state of crisis,” where everything is given equal weight, says Zeins.

    This “whack-a-mole” effect — constantly attending to every e-mail and call that comes in without regard to its importance — is creating a workforce that is awash in facts but losing the ability to innovate, to judge and to problem solve, she says.

It’s also interfering with employees’ ability to take charge: “Most people think when they’ve read an e-mail, they’ve taken action,” she says, adding that most people spend two and a half hours a day on e-mail.

    “The more the tool does, the less we need to know,” she says. Patternmaking, for example, is becoming a lost craft, she says, because patternmaking technology tools are no substitute for the understanding that comes from years of working with fabrics, patterns and bodies — skills that are for the most part no longer acquirable in the United States. “It’s almost impossible to find someone in this country who knows patternmaking,” she says.

    This is evident to Ilona Foyer, president of custom model form manufacturer Shapely Shadow, from the orders the company receives for models that are the same size back and front — which does not represent the reality of a human form. Many of today’s patternmakers are technology savvy, but so unfamiliar with the art of their profession, she says, that companies are ordering these inaccurate forms so that the patternmakers will not have to deal with the nuanced differences of front and back patterns. The result is either horrible fit problems at retail, or patterns that have to be readjusted multiple times by experts farther down the line.

    Zeins, who is a strong advocate for technology, says it’s important that we learn how to tame it, using it where it makes sense, and not adopting it just because it exists. She knows of many apparel companies, including her own, that have adopted a PDM solution, yet found that it slowed them down. They were ultimately unable to achieve an economic justification for the system.

    A common reason that technology often fails, she says, is that it changes so quickly, yet ROI is measured in years. Also, she says, many managers don’t know how to measure the results of technology; nor do they understand the underlying goal of the software, which limits their ability to benefit from it.

Zeins says it’s crucial, when adopting technology, to figure out exactly why you need the tool, what it will do for your company and how you will measure results.     Make sure that technology is regarded as a tool, not a solution, and that it enhances, rather than cloys, your company’s innovation.

    Or, as Charney puts it: “Focus on fashion. That’s the magic.”

Jordan K. Speer is senior editor of Apparel. She can be reached at jspeer@apparelmag.com

Editor’s Note: For more information about the AAPN, contact Mike Todaro at miketodaro@mindspring.com or Sue Strickland at sue@aapnetwork.net.