The Outsourcing Evolution – in men’s clothing – Statistical Data Included
Supply chain shifts in he U.S. tailored clothing industry are moving more volume makers toward global sourcing — and mid-range makers may soon he following in their footsteps.
Looking at official U.S. trade statistics, it’s apparent that tailored clothing is giving way to casual apparel, and that U.S. production of lower-end and mid-range suits is probably a losing proposition in the long run. Overall, the U.S. market for wool and man-made fiber men’s and boys’ tailored clothing shrank percent from 1994-1999. During the same period. U.S. imports of tailored garments shot up 40 percent — with much of thc growth stemming from low-labor-cost countries.
For example, in the year 2000, the top 15 countries exporting tailored clothing to the United States accounted for 84 percent of all U.S. imports in those categories. And of those countries, the Dominican Republic, Mexico, Canada, Italy and China accounted or more than 50 percent of the pie. Drilling down deeper, Mexico was the largest exporter of wool suits to he United States last year, surpassing Canada and Italy. The Dominican Republic, on the other hand, dominated in all U.S. tailored clothing import categories except wool.[*]
Volume manufacturers in the United States, such as Bayer Clothing Group Inc. (a major private label maker for JCPenney, Sears and high-end discounters) and the Lanier Clothes operating group of Oxford Industries (a diversified international manufacturer and marketer of men’s, women’s and children’s apparel), have been outsourcing offshore for years — and they will continue to search for inexpensive production locations.
By contrast, top- and upper-mid-range U.S. makers — including Hickey-Freeman Co. (along with parent Hart Schaffner & Marx), Oxxford Clothes Inc., Southwick Clothing and Pincus Brothers-Maxwell, among others — continue to make their own labels, store brands and licensed products in the United States.
Their reasons for staying planted on U.S. soil include skilled operators, consistent production, high-quality construction capabilities and the cachet that U.S. tailoring offers. There’s little doubt that a retailer selling $1,500 to $2,000 suits would be hard put to hang “Made in Mexico” or “Made in China” labels on the racks next to U.S. and Italian products. Moreover, most men buying clothing in the $600-and-up range prefer garments produced in the United States, Italy or Canada.
But at the mid-range levels that mindset can be changed — if not now, perhaps sometime in the future — according to several industry consultants and participants. They note that tailored manufacturers and contractors in low-labor-cost countries, such as Mexico and China, are becoming more sophisticated with support from U.S. producers. For example, both European and U.S. manufacturers already have technicians in these markets to develop production capabilities.
Still, there remain stumbling blocks in attempting to produce in those environments. According to one representative for a better maker who spoke to Bobbin, a big problem in developing relationships to produce high-end and midrange goods is that most apparel factory employees in low-wage countries — even at management levels — have never purchased high-quality garments. Therefore they cannot relate to the requirements of U.S. retailers and consumers.
However, the belief is that China is gradually going to get to the point where it can produce a mid-range product of consistent quality, and the country’s tailored clothing producers may make substantial inroads in the United States. They can afford to put in a great deal of handwork, with a very high labor content, says one long-time mid-range manufacturer.
Bill Williams, a Kurt Salmon Associates (KSA) principal with more than 30 years of industry experience, agrees. “Although I don’t see the top-end companies going to China, middle-tier companies are going to be there not too far down the road,” he says.
The Competitive Edge
If U.S. makers in the upper and upper-mid tiers hope to maintain a domestic manufacturing presence over time, they will have to change the way their garments are produced to remain competitive with Canadian and Italian companies. Industry veterans point to Canadian producers’ decision nearly a decade ago to aggressively adapt the German-inspired two-shell construction method, a cost-effective, engineered approach to manufacturing that requires less handwork than traditional methods. Consequently, Canadians have made strong inroads in the U.S. market.
Although some better U.S. makers are using the two-shell method to varying degrees, there have been questions about how far to take it. The fear among traditional producers is that too much engineering will turn garments into commodity items, according to industry observers. However, as more aspects of the two-shell path are incorporated into the production process, labor minutes are saved and it becomes easier to leverage technology and equipment.
“If you look at Hugo Boss, that’s a two-shell construction,” KSA’s Williams says. “So you can make a very nice garment that way if you [don’t want to] be in the handwork business to any great extent. But that [method] is somewhat incompatible in the U.S., philosophically.”
It’s also been argued that Canadian producers have had an extra advantage over their U.S. counterparts because they have been able to buy high-quality imported woolen piece goods less expensively. Until this past October, when the Trade and Development Act of 2000 (TDA) was implemented, tariffs on these fabrics for U.S. makers were 30.6 percent greater than the levies Canadian companies paid. As a part of the TDA, which provides preferential U.S. trade access to countries in Africa and the Caribbean Basin Initiative, tariffs on super 100s and better fabrics were lowered to 6 percent. In addition, the tariff on super 80s was lowered to 18 percent, the same duty charged for an imported worsted suit. There currently are quantity limitations on these fabrics, but they will ease over the next three years.
Looking ahead, these tariff reductions will lower costs for U.S. makers. It also will provide them with an opportunity to become more price-competitive with other countries, depending on how much of the cost savings is passed on to the consumer, says William’s colleague Curt Clark, a KSA manager. But he emphasizes, “There are still some advantages north of the border, in addition to the two-shell construction.”
Clark observes that other factors, such as the current exchange rates, competitive wages and lower fringes, also play into the picture. “When you [compare] construction, wages and fringes, even if material costs are equal [in Canada and the United States], Canada [may have] a slight advantage.”
Clark notes that the U.S. tailored clothing industry as a whole seems to be at a crossroads right now and is following the rest of the apparel industry’s move offshore, which has taken place over the past decade. The lower-end tailored clothing market is already gone and, in his estimation, mid-range makers are not far behind. “Even in light of the improving duty picture,” he says, “no one is going to come back to the United States [to manufacture]. Companies can slow the erosion, but it’s still going to happen. It’s just a matter of eventual acceptance.
“It has always been our view at KSA that, given the same technical resources, the same working conditions, the same training and the same types of skilled individuals, you can replicate the [U.S. manufacturing] environment, Clark continues. “We have successfully done that in other apparel categories, and [tailored] clothing ultimately should be no different — whether it is in Mexico, Costa Rica or the Dominican Republic.”
Williams adds: “We’re not going to see Oxford or Hickey [moving offshore]. They would be afraid of losing control. There is a big concern about [workforce] skills from their point of view. But for mid-range garments, it’s really all in the training and the setup, and the commitment to the training. I think you can successfully make these garments [in low-wage countries].”
While the upper mid-range makers are facing tough decisions about offshore production, the lower-end makers have been busy developing offshore sourcing programs. For instance, Lanier Clothes has been outsourcing since the early 1970s and is making the majority of its $300 to $400 retail price suits in Mexico, the Caribbean, Eastern Europe, South America and Asia, in about 13 plants.
Jim Tuman, vice president of manufacturing, says one key to a successful operation is constant electronic communication with the factories on model details, specifications, delivery needs, etc. Human involvement is also imperative. “Our quality control and production control people visit all of the facilities on a regular basis, and in many locations we have in-country personnel employed by our company to monitor programs,” Tuman says.
Further, Lanier’s outsourcing is balanced among wholly owned and partner-based contractor facilities. “If you’re going to work with contractors, it’s important they satisfy the requirements of the industry in terms of service and flexibility,” Tuman adds. “And there has to be some shared emotional — not necessarily financial — investment to realize the quality that’s needed. There has to be electronic interchange of information and the sharing of point-of-sales data. … It’s a lot more than saying, ‘Cut me 1,000 pieces, and thank you very much.'”
As a result of this communication, Tuman reports that the company’s goal of making only what the customer wants is now in much closer range than it was a number of years ago.
The Pricing Picture
Tuman believes the greatest challenge in the tailored clothing market is competitive pricing. Looking ahead, he believes that when the World Trade Organization (WTO) implements the final phaseout of quotas in 2005, low-cost providers are going to get the business because the quality and service expectations will be developed in these countries. “Even the higher-end products are going to be driven by price,” Tuman adds.
Norman Fryman, executive vice president of Bayer Clothing Group, a company sourcing well in excess of 50 percent of its suits outside of U.S. borders, agrees with the focus on price. “Certainly, the last thing anybody would want to do is build a U.S tailored clothing plant today. If you’re not outsourcing, you better start looking around,” he says.
Fryman believes that to successfully produce offshore, a company has to develop personal relationships. “You have to be there,” he says. “To say, ‘I’m going to make this in the Dominican Republic or China, here are my specs, here’s where you get the goods, and goodbye and good luck,’ isn’t going to work.”
Considering the prospect of a playing field without quotas in four years, the success of U.S. companies depends on how strong they are compared to the competition. In Fryman’s view, being successful is as much about the marketing as it is about the quality of the goods.
“If somebody aggressively comes along with the right pizzazz, the right hype — quota or non-quota — they’re going to be in the business,” Fryman says. “Those who don’t do anything and say, ‘We make suits, and this is the way we did it for 100 years,’ are in trouble.”
Jules Abend is a Bobbin contributing editor and editor in chief of Clarion Inc., a Howell, NJ-based international news gathering organization.
(*.)These statistics were compiled for Bobbin by Kurt Salmon Associates (KSA) under the direction of Curt Clark, a KSA manager.
A Look at Challenges Facing the US. Tailored Clothing Industry
Industry Executives Speak Out
CASTAGNA: Preparation is Key
Bruno Castagna, executive vice president of quality maker Hickey-Freeman Co., a division of Hartmarx Corp., has strong opinions about the “degrading” of the U.S. tailored clothing industry over the past decade. He doesn’t agree with the reasons many companies give for the decline of this segment at the top-end and mid-range levels, which include manufacturing inefficiencies.
Rather, Castagna says that “benign neglect” created the current situation the industry is facing. “We didn’t prepare throughout the years,” he says. “There is no heart, no willingness and no manufacturing strategy to protect this environment. More than the economic factor is the lack of skills available. They are disappearing.”
When asked if the Union of Needle Trades, Industrial and Textile Employees (UNITE) has hampered the competitiveness of U.S tailored clothing companies, he responds: “If we want to, we can find an excuse — we can have all the excuses we want.
“The Europeans have been competitive worldwide — think of Hugo Boss or Brioni or Canali — and they have the same regulations that we have here,” Castagna adds. “The unions in the United States are very cooperative. In Europe, the unions are more conflict-oriented and more antagonistic. And still [manufacturers] manage to make the right product and to make progress.”
Making the right product means benchmarking, observes Castagna, who believes that in the U.S. industry, the practice doesn’t have the proper position in corporate mission strategies. “We don’t use it enough to compare our weaknesses and strengths vis-a-vis our international competitors,” he says.
In that regard, Castagna offers: “The Canadian [manufacturers] are in much better shape than the American [producers] because they prepared, revised their processes, etc. In the late 1980s and at the beginning of the ’90s, [U.S. makers] were a very formidable competitor among North American companies. Now, look at the success of Peerless or Jack Victor. They are aggressive because they did the groundwork to build the product. Now something has to be done to protect the little business that is left in the United States,” he concludes.
FRYMAN: Retail Realities
Will tailored clothing gain back its former ground at retail? That’s the big question.
“I don’t think it’s ever going to come back the way it was,” says Norman Fryman, executive vice president of Bayer Clothing Group Inc. “There are always industries that slip a little and bring it back. But let’s face reality: Things have changed. When men dressed in suits, we had a very viable tailored clothing business in the United States. Then the consuming public said, ‘I don’t have to wear a suit anymore.’
“In addition,” continues Fryman, ‘what happened economically in this country was that labor went up, and we had a problem with piece goods. The duty rates to bring in worsteds were killing us. If you made goods outside the country, you paid a lesser duty rate than you did for bringing in the raw materials.”
Furthermore, Fryman reminds that along with the steady decline in the number of tailored units sold in the United States, employment figures went down. There also was a consolidation of retailers and manufacturers, leaving fewer players on either side of the table.
“We’re selling a lot more sports coats than we used to and a lot less suits,” he says. “Is that going to change again, and who does that depend upon? It’s certainly not the manufacturers. It depends on the consumers.”
WIMBS: Timing is Everything
For formalwear manufacturer Men’s Apparel Group, which counts among its labels After Six, Oscar de la Renta and Raffinati, outsourcing presents a timing problem, although the company is producing about 10 percent of its goods outside of the United States.
“We are mostly domestic,” says Cecil Wimbs, senior executive vice president, who has been in the clothing business for more than 20 years. “We haven’t gone to outsourcing to any great degree, although we’re keeping the possibility as an alternative. From a formalwear perspective, we will have to do some outsourcing to stay competitively priced. But because of the quick turns you must have in this segment, you can’t outsource much,” he notes. “Our facility is in Athens, GA, where 90 percent of our coats, bottoms, accessories, vests and ties are made. Our turn time for a coat is eight days from cut to finish.”
Although timing is difficult even in the Western Hemisphere, the Men’s Apparel Group is making some bottoms in Mexico, which are brought back and coordinated with coats in the United States. Additionally, the company has been producing its entry-level tuxedos in China for about three years. Over the long term, the company expects to move into more outsourcing because of rising costs.
Men’s Wearhouse Balances Diverse Operations
Men’s Wearhouse — a company respected for very rarely using its muscle on vendors — began outsourcing suits about seven years ago. The chain, which is vertical with the exception of fabric production, now produces just about every category of men’s apparel, in addition to buying finished products. Bobbin spoke with Ken Muggeridge, director of manufacturing, about the complexity of managing a diverse global operation.
While most tailored clothing companies focus on one or two price ranges, Men’s Wearhouse, which operates a stable of stores including K&G Men’s Center and Canada-based Moores the Suit People, juggles a wide range of price points throughout hundreds of retail locations. As a result, Muggeridge’s duties are somewhat more diverse than those of his manufacturing contemporaries.
Overall, Men’s Wearhouse caters to a diverse audience with different tastes and pocketbooks. For example, K&G’s suits, which are made in Korea, sell for $99, while prices at the other stores in the chain start at $199 and rise to about $500. The top Men’s Wearhouse line of full-canvas garments is sourced directly from Italy, along with most other suits in the $299 range. The company also manufactures in Mexico and “dabbles” in Eastern Europe.
Muggeridge, who is responsible for coordinating the sourcing of these products, also oversees a Canadian plant, Golden Brand Clothing Ltd., which came under the company’s umbrella as part of the Moores acquisition two years ago. The facility is capable of producing about 500,000 jackets and 1 million pairs of pants annually.
So how does the retailer keep such a far-flung operation in balance? First, there are many highly experienced manufacturing veterans in the sourcing department, advises Muggeridge, who previously was with Neema Clothing. And in addition to having a team that knows the business and stays in close contact with the factories, he says Men’s Wearhouse has a history of working very closely with vendors.
“As a retailer we’ve never been a company that has used a lot of chargebacks, for example,” notes Muggeridge. “We try to look at the long-term relationship, and we have been extending this policy into the manufacturing environment as well.”
He firmly believes corporate sensibility will carry the day. “The tailored business is difficult for everybody right now,” Muggeridge states. “And the more we bond together, transcend traditional relationships and find ways to make things work for everyone, the better we’re all served. One of the things we do is allow people, as partners, to run their businesses, take responsibility, and build relationships where their interests are closely parallel to ours. We don’t like to be standing next to somebody with a hammer, waiting for them to make a mistake.”
COPYRIGHT 2001 Miller Freeman, Inc.
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