Strategies For Success

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Strategies For Success

  1. 1. Strategies for Success in a Global Sourcing Environment Prepared For: National Textile Association 151 st Annual Meeting Amelia Island, Florida November 7, 2005 JASSIN ~ O’ROURKE GROUP 48 W. 38 th Street, New York, NY 10018 212-382-0045 (o) 917-567-3540 (c) morourke@jassinorourke.com
  2. 2. Consumer / Retailers / Traditional Brand Owners Market Dynamics ~ Supply Chain Havoc <ul><li>Consumer Confidence Level </li></ul><ul><li>Discretionary Spending / Non-Apparel Growth </li></ul><ul><li>Sluggish Mall Traffic to E-tail Growth </li></ul><ul><li>Profound Consumer Demographic Changes </li></ul><ul><li>Explosion of Focused Lifestyle Brands </li></ul><ul><li>Private Label eating Brand Share </li></ul><ul><li>Fast Fashion/Chase/Replenishment Models </li></ul><ul><li>Consumer Value Merchandising/Marketing </li></ul><ul><li>Unabated Price Pressure </li></ul><ul><li>Sourcing Uncertainties . . . </li></ul>
  3. 3. Retailers and Brand-Owners’ Focus <ul><li>Bottom Line Growth: Maximize Margin & Profit </li></ul><ul><ul><li>Reduce Sourcing Costs </li></ul></ul><ul><ul><ul><li>Quota-free 2005 </li></ul></ul></ul><ul><ul><ul><ul><li>Last shift to lower cost needle countries </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Sourcing administration/overhead consolidation </li></ul></ul></ul></ul><ul><ul><ul><li>Analysis shift to raw material cost impacts , rather than inputs </li></ul></ul></ul><ul><ul><ul><ul><li>Fabric price per yard, transitioning to fabric cost per garment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Typical Garment Fabric Yield Specifications, impacted by </li></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Sourced-fabric seconds history </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Apparel manufacturers’ cutting technology use </li></ul></ul></ul></ul></ul><ul><ul><ul><ul><ul><li>Apparel manufacturers’ history of finished garment seconds </li></ul></ul></ul></ul></ul><ul><ul><ul><li>FOB versus “To Store or Distribution Center” Garment Cost Competitiveness </li></ul></ul></ul><ul><ul><ul><ul><li>After duty, shipping, brokers fees </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Seconds extraction/refurbishment </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Sourcing capital timeline </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Full package terms; elimination of letter of credit </li></ul></ul></ul></ul>
  4. 4. Variables – Cutting Automation Yield Impacts Net Fabric Cost/Garment Yards/Garment Automated Cutting /Productivity/Planned Yield Impact on Planned Fabric Use/Yards Per Garment
  5. 5. Variable Cost Impacts Typical % Seconds Experienced by Cotton Apparel Importers % Seconds
  6. 6. Retailers and Brand-Owners’ Focus <ul><li>Bottom Line Growth: Maximize Margin & Profit </li></ul><ul><ul><li>Identify/Fast Track High Margin Opportunities </li></ul></ul><ul><ul><ul><li>Rapid Response to Key Fashion Trend Items </li></ul></ul></ul><ul><ul><ul><ul><li>Style </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Fabrication </li></ul></ul></ul></ul><ul><ul><ul><li>Consumer-Desirable/Marketable, Innovative Products </li></ul></ul></ul><ul><ul><ul><ul><li>Performance </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Comfort </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Carefree </li></ul></ul></ul></ul><ul><ul><ul><li>Fashion Replenishment Programs – Signature Items </li></ul></ul></ul><ul><ul><ul><ul><li>Color </li></ul></ul></ul></ul>
  7. 7. Regional Apparel Sourcing Prospects . . . . <ul><li>Safeguards sustain regional markets short term </li></ul><ul><li>Long term stability and growth dependent on: </li></ul><ul><ul><li>Lead time improvement/advances </li></ul></ul><ul><ul><ul><li>Single greatest opportunity </li></ul></ul></ul><ul><ul><ul><li>Pre-production elements most critical </li></ul></ul></ul><ul><ul><li>Private label market share advances </li></ul></ul><ul><ul><ul><li>Leaner merchandising calendar for PL </li></ul></ul></ul><ul><ul><ul><li>Forcing traditional brands into more seasons/product lines </li></ul></ul></ul><ul><ul><ul><li>Specialty stores adopting fast fashion business models and core fashion replenishment programs </li></ul></ul></ul><ul><ul><li>Innovation </li></ul></ul><ul><ul><ul><li>Where performance is the key value proposition </li></ul></ul></ul><ul><ul><li>Communicating Cost Competitiveness </li></ul></ul><ul><ul><ul><li>Return on Sourcing Capital Employed </li></ul></ul></ul>
  8. 8. China’s Mega-Investments Are Paying Off <ul><li>Expansion-driven, foreign investment for apparel export entities </li></ul><ul><ul><li>70% of China’s exported apparel production is under non-mainland control </li></ul></ul><ul><ul><ul><li>foreign-owned </li></ul></ul></ul><ul><ul><ul><li>joint ventures </li></ul></ul></ul><ul><ul><ul><li>equity partnerships </li></ul></ul></ul><ul><ul><li>Mainly HK, Taiwan, S. Korea, Japan, Singapore-headquartered apparel vendors </li></ul></ul><ul><ul><li>Quality increasing with equipment / technology choices, improved methods and through better use of equipment and training </li></ul></ul><ul><li>Significant focus on IT systems and logistics </li></ul><ul><ul><li>Better customer communication </li></ul></ul><ul><ul><li>Noticeable lead time reduction </li></ul></ul><ul><ul><ul><li>Pre-production through delivery </li></ul></ul></ul><ul><li>Cost reduction through process streamlining </li></ul><ul><li>Brand-owners transferring more “authority” </li></ul><ul><ul><li>To their own Asian-based sourcing management </li></ul></ul><ul><ul><li>To Asian vendors </li></ul></ul>
  9. 9. Some China Fast Facts . . . <ul><li>Guangdong Province, for example: </li></ul><ul><ul><ul><li>Closest to Hong Kong, led by the cities of Shenzhen, Dongguan and Guangzhou. </li></ul></ul></ul><ul><ul><ul><li>40% of China’s knit apparel exports or more than 5 billion pieces </li></ul></ul></ul><ul><ul><ul><li>Dominated by circular knit apparel output, from sportswear t-shirts to better quality, fine gauge knit cotton shirts (though this fabric is largely imported). </li></ul></ul></ul><ul><ul><ul><li>Third largest province for knit machinery imports; many vertical knit/sew operations, small to large. </li></ul></ul></ul><ul><ul><ul><li>Third largest cotton fabric-producing province, including some 200 million meters denim. </li></ul></ul></ul><ul><ul><ul><li>Largest importer of cotton apparel fabrics, representing some 1.7 billion meters. </li></ul></ul></ul><ul><ul><li>60% of export apparel production from this province uses imported fabrics </li></ul></ul><ul><ul><ul><li>Mainly due to dyeing quality </li></ul></ul></ul><ul><ul><ul><li>Adds to lead time. </li></ul></ul></ul>
  10. 10. China’s Labor Issues impact Brand Owner Margins <ul><li>China is not the lowest labor cost source in Asia. </li></ul><ul><ul><li>Rates can be as low as $.55 per hour, to as high as $2.10 in some Shenzhen factories. </li></ul></ul><ul><ul><li>Labor availability is an increasing problem in the key coastal areas. </li></ul></ul><ul><ul><ul><li>Competition from higher wage industry sectors has escalated, with the more skilled workers exiting the industry. </li></ul></ul></ul><ul><ul><ul><li>Proportionately more migrant workers </li></ul></ul></ul><ul><ul><ul><li>Extremely high turnover; higher training costs. </li></ul></ul></ul><ul><ul><li>Deliveries running late </li></ul></ul><ul><ul><li>Excessive short-shipments due to seconds and labor turnover </li></ul></ul>
  11. 11. Average Apparel Labor Costs - Asia
  12. 12. Pre-production Lead Time Advances - Asia <ul><li>Initial fabric sampling </li></ul><ul><ul><li>2 to 5 days </li></ul></ul><ul><li>Fabric lab dip samples </li></ul><ul><ul><li>4 to 7 days </li></ul></ul><ul><li>Knit down samples </li></ul><ul><ul><li>5 to 8 days </li></ul></ul><ul><li>Yarn dyes </li></ul><ul><ul><li>10 days </li></ul></ul>
  13. 13. Pre-production Lead Time Advances <ul><li>Pre-production garment sample cost quote </li></ul><ul><ul><li>Same day to 24 hours </li></ul></ul><ul><li>Concept garment samples </li></ul><ul><ul><li>Completed in 5 days or less </li></ul></ul><ul><li>Fit sample garments and corrections </li></ul><ul><ul><li>4 to 8 days </li></ul></ul><ul><li>Salesman samples </li></ul><ul><ul><li>2 to 3 weeks </li></ul></ul><ul><li>Fabric and garment testing </li></ul><ul><ul><li>1 week or less </li></ul></ul>
  14. 14. Conclusions <ul><li>West can compete with East </li></ul><ul><ul><li>Knit cotton basics: underwear, tees, polos </li></ul></ul><ul><ul><li>Simple make, knit sportswear tops </li></ul></ul><ul><ul><li>Basic jeans (women’s stretch more vulnerable) </li></ul></ul><ul><ul><li>Performance bottoms (replenishment/no-iron/fast fashion color) </li></ul></ul><ul><ul><li>Performance activewear </li></ul></ul><ul><ul><li>Swimwear (women’s upper moderate & competitive) </li></ul></ul><ul><ul><li>Daywear fast fashion (color) & Shapewear </li></ul></ul><ul><ul><li>Corporate Workwear </li></ul></ul>
  15. 15. Strategies for Success <ul><li>Identify Retailers/Brand-Owners Pre-Disposed to Regional Sourcing </li></ul><ul><ul><li>Research/identify their consumer value proposition </li></ul></ul><ul><ul><li>Determine how your product aligns with it </li></ul></ul><ul><li>Develop marketing spin on the true cost of sourcing; cost reduction/margin enhancement </li></ul><ul><ul><li>Fabric yields, seconds, short shipments, etc </li></ul></ul><ul><ul><li>Landed price versus f.o.b. </li></ul></ul><ul><li>Target Signature Tee Programs/Color Quick Ship </li></ul><ul><li>Target Specialty Store Private Labels and E-tail QR Items </li></ul><ul><li>Fabric sourcing knowledge among regional apparel manufacturers is critical </li></ul><ul><ul><li>Create sample libraries for key manufacturers </li></ul></ul><ul><ul><li>Quote pricing within 24 hours </li></ul></ul><ul><ul><li>Deliver lab dips in 4 days </li></ul></ul><ul><ul><li>Partner with apparel manufacturers who quote garment cost 24 hours </li></ul></ul><ul><li>Investigate Partner/Fireman/QR sourcing with Asians </li></ul>
  16. 16. And Selling To China – The Emerging Market <ul><li>Top line revenue growth strategies drive brands and retailers into the Chinese market; local / unlimited sourcing will facilitate market access </li></ul><ul><li>2% of the population can afford any Western product </li></ul><ul><ul><li>Apparel purchase focus almost exclusively on Western designers and brands , mainly the EU luxury price points. </li></ul></ul><ul><li>Another 13%, the emerging middle class, can afford product ranging from a Wal-Mart quality to department store brands. </li></ul><ul><ul><li>This consumer covets Western brands today </li></ul></ul><ul><ul><li>They are status-conscious, and will mix one or two visible Western brands, with top Hong Kong brands, among their growing wardrobe of top China brands </li></ul></ul><ul><li>Major US brands targeting market development today </li></ul><ul><ul><li>Requires whole new approach, merchandising, product adaptation, body measurements, sizing to color </li></ul></ul><ul><ul><li>Will add another layer of complexity to managing process </li></ul></ul><ul><li>How are you positioning to take advantage of China as a market??? </li></ul>
  17. 17. Landed US Cost Analysis 2005 - US $
  18. 18. China – Raw Material Cost Impact Women’s Jean v. Textured Poly Pant CHINA 2005 CHINA 2005 7.43 63% Raw Materials Textured Poly Pant Denim Jean 10.63 70% Raw Material & Finishing
  19. 19. US Apparel Source of Supply - Projected US Production Regional Supply– Canada, Mexico, CBI and Andean CHINA REST OF WORLD

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