Lofty Ambitions: ANN's Response to Zara's Fast Fashion
LA Fashion Report Summary Final 020116
1.
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Industries that serve consumers get grouped
into two categories. The first group they call
“consumer staples.” This includes everyday
spending on essentials – food, beverages,
soaps and cosmetics.
Apparel is NOT included in staples!
Clothing design, and the industries that
manufacture or distribute it, end up in a
second category called “consumer
discretionary.”
In this group, industries that serve consumers
rely upon the discretionary, or extra, income
earned by consumers. The reason for apparel’s place as a
discretionary purchase, and not a staple, is that apparel is
considered an aspirational commodity. Other products in the
discretionary goods group include automobiles, home
furnishings, and consumer electronics.
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Clothes are cheaper; financing is not
necessary! Knowledge of fabric design and the
assembly involved in fashion creations are
easier to master and move than are the large,
fixed capital expenditures involved in an auto
plant, or making sectional sofas, or assembling
HDTVs. Manufacturing processes for apparel
require smaller machines.
This allows the location of apparel
manufacturing to be footloose. In other words,
apparel manufacturers feel free to find the
most convenient place on the globe to move,
where labor costs are in line for the producer,
where speed-to-market is a benefit, and
where there is a “cluster” of industry
participants.
People buy clothing to express their unique tastes, to show others their aspirations in life.
Clothing outgrew its essential demands long, long ago.
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Many “trendsetters” live and work in the Los
Angeles area. These include our celebrities,
models, actors and actresses, notable
executives, and designers. Online social media
is a core tool trendsetters use to touch others
globally. People tap into this “aspiration” mode
every day. It is global in its reach, but
entrenched in Southern California.
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Extended chains of apparel manufacturing
production lift developing economies by
introducing machines, assembly floors, and
organized training to the unexposed masses.
The more skilled create an extended value
chain of contractors and sub-contractors.
In the 19th
century, organized apparel making
was introduced in England. In the 1870s, it
moved west to capitalize on the U.S. immigrant
pool on the East Coast.1
A century later,
apparel manufacturing shifted to the West
Coast, and then moved across the Pacific to
employing the masses in China. Today, supply
chains can extend to all corners of the globe;
such as Bangladesh, Nicaragua, Vietnam, and
the Dominican Republic.
Los Angeles, with its proximity to lower-cost
Mexico and the Pacific Rim countries, all with a
migrating pool of skilled workers, has always been a natural fit for textile making and cut-and-
sew manufacturing; a distinction it holds to this day.
1
During the 1870s, the value of garments produced in New York City increased six-fold. By 1880, New York produced more garments than its
four closest urban competitors combined. In 1900, the value and output of the clothing trade was three times that of the city's second-largest
industry, sugar refining. New York's function as America's culture and fashion center also helped the garment industry by providing constantly
changing styles and new demand. In 1910, 70% of the nation's women's clothing and 40% of the men's was produced in the City. – Lower East
Side Tenement Museum, Tenement Encyclopedia, Chapter Six: Garment Industry
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The twin ports of Los Angeles and Long Beach,
and the major air and sea and trucking lanes,
form this region’s essential commercial
backbone. Trade and transport logistics tie the
global aspiration-setting process in L.A. to its
affordable global clothing supply chains.
The synergy of online aspiration setting, a
footloose manufacturing mix, and
international trade logistics in one place—
these three lock the Los Angeles region in as
an enduring fashion design center. This Pacific
coastal region will remain a dominant apparel
manufacturing and fashion aspiration center
in the United States and beyond.
This 2016 Los Angeles area fashion report shows you how it happens.
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Creativity
• An extraordinary L.A. creative cluster sits
atop all other industries. The creativity in
the region results from having 12 times
more film and video editors than the
national average; 12 times the media and
communication workers; 12 times the
makeup artists and theatrical performers;
more than 10 times the fabric and
apparel patternmakers; and nearly eight
times the fashion designers. (Bureau of
Labor Statistics, May 2014).
• Constant sun and easy living inspire the
enduring popularity of L.A.-based design.
This “L.A. Style” is propagated by the media’s obsession with Hollywood.
Numbers
• L.A. brands and a constant influx of new designer names command a premium. A
“Designed in L.A.” or “Made in the U.S.A.” label commands a prestige factor. 75% of U.S.
consumers would pay up to a 9% premium for it (Harris Interactive Survey, March 2014).
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• L.A., with deep strength in entertainment and design, can maintain its competitive
advantage in product design and marketing through global licensing. This is an important
revenue-generating tactic, with an average royalty rate of 5% of sales (LIMA, 2014).
• E-commerce and social media swiftly reshaped global aspiration-setting. The shift to e-
commerce is 7.2% for the U.S. overall, but in apparel the shift has been faster, reaching 15%
of retail sales or more.
Dynamics
• In L.A., Internet-only apparel retail is already common. Another movement is underway
called “Clicks-to-Bricks.”
• Computer technology also helps L.A.’s designers and manufacturers stay competitive by
shortening product cycles and reducing costs. 3D fitting, 3D printing, and virtual reality are
here.
• The L.A. textile industry’s advantage? – There is great design, the ability to diversify product
lines, and vertical operations, all in one area. Profitable L.A.-based textile processes involve
many layers of expertise, speed, and a willingness to try new things.
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Geography and a marketable fashion
statement are a powerful combination. $43B+
in apparel imports enters our ports. Local
companies capture $17.8B in revenues. $6.9B
(1/3) flows to local workers. (From USA Trade
Online, Hoover’s, and estimates we develop
inside this report.)
Front-end job growth looks solid. In May 2014,
4,130 fashion designers were employed in L.A.
with another 520 working in Orange County.
Two years prior, 3,770 fashion designers
worked in L.A. That’s fashion designer growth
around 9% over two years (+4.5 a year)
(Bureau of Labor Statistics, Occupational
Employment Statistics).
In this up cycle, L.A. added the most establishments and jobs at operating wholesale firms.
Wholesaling apparel wages remain a strong spot at $24 an hour, though earnings have settled
back the last couple years, tracking along with apparel import prices. This global industry has
sustainable reasons for a permanent place in the region, with a well-paid employment base.
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From 2012 to 2013, apparel manufacturing added 3,596 net jobs (42,483 to 46,439; a 7.7%
rise). Cut-and-sew apparel jobs offer $12.50 to $14.50 an hour. This is above current California
and federal minimum wage rates (Bureau of Labor Statistics).
L.A. back-end fashion businesses are doing better (+6.3% y/y) than national trends. Catching
the data is difficult because apparel-related jobs fall outside the data “catch-all” of
manufacturing, textiles, and wholesalers.
Location quotient data show L.A. women’s clothing manufacturers scored an incredible 17.2 LQ
(location quotient – meaning this sub-industry has 17 times the usual concentration in L.A. vs.
the nation). Apparel contractors scored a 13.3; wholesale apparel had a 5.1; textile and fabric
finishing had a 4.1 (Clustermapping.us).
Sophisticated L.A. assembly operations work closely with designers and fill low-volume, quick-
turn orders. These command much higher prices. Hence, higher profit margins are in place.
Sending such orders to offshore factories is not economical, in terms of time and operational
procedures.
The L.A. apparel industry of today has greatly improved working conditions from the apparel
industry of 10 years ago through self- and government monitoring. In contrast, the “second
migration” to low-wage countries – from China to places like Cambodia or Bangladesh –
created a backlash from the consumer due to a lack of worker safeguards.
Entrepreneurs can start a business in the L.A. region – easily and quickly. All they need is
capital.
Total L.A. fashion back-end employment impact sums to 212,923 jobs. That’s a cluster!
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Textile and Apparel Five-County Metro
• L.A. Customs District Imports $43+ billion
• Company Revenues $17.8+ billion
• Worker Incomes $6.9+ billion
L.A. Pay
• Fashion Designers $35 an hour
• Wholesalers (Importers) $23 to $24 an hour
• Apparel and Textile Workers $12 to $15 an hour
Job Counts
Apparel, Textile & Wholesale (2013)
• SoCal Workers 102,311 (2013 +6.3% y/y)
• L.A. Metro Workers (includes Anaheim) 99,230
• N.Y.C. Workers 69,555
• SoCal Wholesalers 48,842
• Apparel Mfg. 46,439
• Textile Mfg. 6,799
Independents 8,995
• Fashion Designers 4,130 in L.A., 520 in OC (May 2014, +4.5% y/y)
• Cosmetics Workers 5,917
• Jewelry Workers 8,810
• Footwear Workers 5,117
• L.A. Knitting Machines 2,000
• Centers for Higher Education 20
• SoCal Establishments 11,000
• Overall Fashion Jobs 135,800
• Apparel Direct & Indirect Jobs 213,923
Proportion of U.S. Jobs Located in Southland in 2013
• Apparel Manufacturing 42%
• Wholesaling (Importers) 24%
• Textile Mills 6%
L.A. County Companies with $1 Million or More in Revenues in 2015
• Textile Mills & Apparel Manufacturing 640
• Wholesaling (Importers) 892
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72.2%
35.2%
25.9% 22.2%
13.0% 11.1% 9.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Women’s Juniors Men’s Children’s Activewear Other Denim
What Is Your Product Category?
In October 2015, the California Fashion Association (CFA) and CIT Group jointly launched the
inaugural L.A. apparel industry survey. It garnered 54 responses to 17 questions.
Background
Prominent L.A.-based apparel manufacturers spoke.
They selected women’s apparel (72%) as their prominent product category, followed by juniors
(35%), men’s (26%), and children’s (22%). Denim and activewear products came in around 10%
each.
The size of companies varied from over 1000 employees to one-employee sole proprietors. The
statistical mode – 18 responses – fell between 20 and 50 employees.
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It’s a battle-hardened group of firms.
In terms of years in business, 16 responses fell between 20 and 30 years.
The majority of companies (32 of 54) have more than 20 years of experience. One has been in
business in L.A. for 62 years. Another just opened its doors last year.
Hard-earned lessons from the point of view of senior executives get shared.
Their firms have survived a huge variety of adverse market environments: the NAFTA Free
Trade Agreement of 1994 and the financial crisis of 2008 among them.
Then, they positioned operations for the current period of social media-led growth.
0-4 Years, 6%
5-9 Years, 15%
10-14 Years, 6%
15-19 Years, 15%
20+ Years, 59%
How Many Years Has Your Company Been in Business?
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When asked where their goods are manufactured, 83% (4 out of 5) said internationally (48%) or
in combination with domestic production (35%). Sole domestic sourcing tallied 17%.
Half of firms heavily depend on global licensing. 37% described themselves as branded apparel
licensors/owners of trademarks. 11% said they were licensees. 22% were private-label
manufacturers.
Domestically
17%
International
48%
Combination of
the two
35%
Where Are Your Goods Manufactured?
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Compelling Obstacles and Successful Strategies
Retail consolidation (31%) and wages (24%) top the list of the biggest obstacles to revenue
expansion in 2016 and 2017, followed by consumer apathy (17%). Logistics (7%) and regulations
(6%) didn’t resonate. A substantial 15% chose “other.”
Below are some comments from the respondents:
Combination of wages and regulations
None. Opportunity only.
Stores closing
Soft retail
Combo of retail consolidation and buying patterns changing
When asked what they saw as the most innovative technology for the future of the apparel
industry, a whopping 54% said “social media.” This is followed by 24% that said integrated
systems between manufacturers and retailers, and 13% that said either 3D fitting or 3D
printing.
Retail Consolidation,
31%
Wages,
24%Consumer Apathy,
17%
Other
(please specify),
15%
Logistics Challenges,
7%
Regulations, 6% Media Attention, 0%
Industry-wide, What is the Biggest Obstacle to Revenue Expansion for
L.A. Apparel Companies in 2016 and 2017?
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Industry-wide, what is the biggest growth opportunity for LA apparel companies in 2016 and
2017?
The Internet played a role in over half of responses. Online/Offline “Clicks-to-Bricks” business
models garnered 35% of responses. Online-only got 22%. New entrepreneurial concepts (19%)
came in a close third place. Export opportunities (11%) and off-price retailing (7%) wrap it up.
When asked about the most important step these executives will take to make their L.A. fashion
business more profitable in 2016 and 2017, 35% cited that they will broaden their product lines.
Social Media,
54%
Integrated
Systems
Between
Manufacturer
and Retailer,
24%
3D Fitting, 9%
Other (Please
Specify), 5%
3D Printing, 4%
Universal
Measurement
for Tech Pack
Development,
4%
What Is the Most Innovative Technology
for the Future of the Apparel Industry?
Online/Offline
35%
Online only
22%
New
Entrepreneurial
Concepts
19%
Export
Opportunities
11%
Off-price Retailing
7%
Other
(Please Specify)
6%
Industry-wide, What is the Biggest Growth Opportunity for
L.A. Apparel Companies in 2016 and 2017?
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22% will re-evaluate sourcing opportunities. 20% will change their business models. A very high
19% chose “other.”
Below are some of their responses:
A combination of sourcing, changes to one of our divisions, continuing to expand
e-commerce, and controlling MD$ (marketing dollars)
Advertising and marketing
Re-evaluate sourcing opportunity and broaden the product line
We are moving out of state due to wages and regulations
Increase marketing
Do more profitable business
Control costs, expand high-margin divisions, and build drop-ship abilities
Pursue retail opportunities
Increase sales
Which factors would negatively impact your businesses in 2016 and 2017?
47% said the cost of doing business. 43% said retail consolidation. 34% said product viability at
retail/competition concerned them. Consumer apathy garnered 25%.
The Value of L.A.
What keeps their fashion business in the L.A. area?
47% answered access to L.A. ports. 37% said access to fashion designers. 31% said fast fashion.
20% said access to local suppliers. A whopping 35% chose “other,” many of which may be
reflected in comments about having a preference for living in the area.
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Here are some of their responses:
Too old to move to a better business climate.
Employees.
Customers like American-made, and we can turn clothes quickly. We like to oversee and
control production. But minimum wage threatens our ability to compete.
Production. QC is best done in person.
Infrastructure, vertical setup.
It’s home.
Fast to market and control of quality.
We are very flexible in a specialty market.
It’s the best place to live.
No desire to relocate.
Personal preference.
Surprise! —2% (just 1 responder) chose “Access to Hollywood Celebrities”.
When asked how the apparel and textile industries benefit from being in L.A., 53% said the
Pacific Rim location mattered, and an equal 53% said L.A. industry cluster advantages.
Other often-cited responses included 39% said L.A.’s image (39%) and entrepreneurial
opportunities (33%) mattered.
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Which of the following proposed policy decisions would help operations the most?
47% would create tax incentives for job creation of “new hires”.
27% would raise the small-business tax exemption from $500K to $1M.
18% would eliminate the gross receipts tax.
8% would include a three-month “training wage” level, to encourage businesses to hire
inexperienced workers.
47% for tax incentives for “new hires” versus 8% for a 3-month “training wage”? That suggests
an important insight. Keep starting wages higher for new workers. But directly compensate
apparel-manufacturing businesses for training them.
27% in favor of a small-business tax exemption over 18% in favor of eliminating the gross
receipts tax shares? That’s another insight. Target small businesses under the most financial
stress. That may work better. The diffuse revenue tax breaks that benefit firms regardless of
size, and outside this industry, may be less effective to get growth.
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What countries will apparel and textile producers source from in 2016 and 2017?
Perhaps unsurprisingly, China leads the field (37%), followed by Vietnam (15%) and India.
Mexico and the United States each got 9%.
Italy, Peru, Indonesia, Cambodia, Burma, and Bangladesh came next, in that order.
1
1
1
1
1
1
1
1
1
1
2
2
3
3
3
4
9
9
12
15
37
0 10 20 30 40
Canada
Honduras
Philippines
South Korea
Taiwan
Thailand
All Over
Europe
Nicaragua
Not Sure
Bangladesh
Burma
Cambodia
Indonesia
Peru
Italy
Mexico
USA
India
Vietnam
China
From Which Countries Do You Plan to Source Apparel and
Textile Production in 2016 and 2017? (List the Top Three)
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While fewer people answered this question, China’s lead shrinks, but it’s still dominant, with 29
responses. Vietnam and the United States got seven. Mexico and India got two. Nicaragua and
Cambodia got one vote.
1
1
1
1
2
2
2
2
7
7
29
0 5 10 15 20 25 30
Asia
Cambodia
Nicaragua
No idea…
At Some Point N. Africa, Africa
Mexico
India
Not Sure
USA
Vietnam
China
What Country Will Be the Most Important Source of
Production for the Apparel and Textile Industries
in 2017 and Beyond?
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Shifting to marketing, respondents were asked what “Designed in L.A.” marketing strategy
would work best. A whopping 55% said “social media.” 22% chose “none of the above.” 12%
chose traditional advertising. 6% chose trade shows.
Conclusion—What New Marketing Innovations Will Have the Greatest Impact on the L.A.
Fashion Industry?
That answer couldn’t be more clear—social media by a mile!
Think blogger-sponsored e-commerce, social media in its next phase, social media buzz and
direct-to-market, Snapchat, selling on the Internet, possible fashion blogs, and digital
technology.
Other ideas – Pay attention to new lines and L.A.-based manufacturers. Collaboration for Omni-
channel partners with retailers looks promising. Innovative product designs help.
Famous brands, events like trade shows, and managing L.A. perceptions matter, too.
Social media
55%None of the
above
23%
Advertising
12%
Trade shows
6%
Other (please
specify)
4%
Which “Designed in L.A.” Marketing Strategy
Would Best Work for Your Company?
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Written by John J. Blank PhD, Chief Equity Strategist at Zacks
John Blank earned a PhD in economics from MIT. Currently, Dr. Blank is the editor of “The
International Trader” at Zacks and Chief Equity Strategist. He was the author and lead
economist for the 2011 and 2014 Los Angeles Area Fashion Industry Profiles. The first was done
while serving as Deputy Chief Economist of the Los Angeles Economic Development Corp. This
2016 report is a two-year update of the 2014 report. He lives near the beach in Los Angeles, CA
and wrote this report there.
The California Fashion Association (CFA) is a non-profit organization established to provide
information for business expansion and growth to the apparel and textile industry of California.
The international mission of the CFA is to define the industry’s economic impact, and to outline
it global opportunities.
CIT Commercial Services
CIT Commercial Services is one of the nation's leading providers of factoring and
financing to the apparel industry. CIT tailors financial solutions that help companies
of all sizes increase sales, improve cash flow, reduce operating expenses, and
eliminate customer credit losses. CIT serves apparel companies ranging in size from
$2 million to $1 billion in annual sales that sell to a broad range of public and private
retailers, wholesalers and distributors across the nation and abroad. CIT's internet-
based platform provides clients with real-time credit approvals and comprehensive
accounts receivable information.
To learn more, visit cit.com/commercialservices.
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The California Fashion Association (CFA)
The California Fashion Association was organized in 1995, as a non-profit public
benefit 501(c)(6) Corporation. 20 years ago, the CFA was established to provide information for
the expansion and growth to the apparel and textile industry in California. The CFA is the forum
organized to address the issues of concern to our industry. Manufacturers, suppliers,
educational institutions, allied associations, and all apparel-related businesses benefit.
To learn more, visit www.calfashion.org.
Disclaimer: The opinions, statement, and information that appear in this report are solely those
of Dr. John J. Blank. They do not necessarily reflect the views or outlook of CIT. CIT does not
endorse or certify the accuracy of such opinions, statements, and information. This report is
also not to be construed as investment advice provided by Zacks Investment Research.
To pass on any comments or media inquiries, please contact us at info@calfashion.org and 213-
688-6290 or jblank@zacks.com and 213-248-5899.