Schmatta: Rags To Riches To Rags pt.2

Mr Fashion-Incubator caught yesterday’s entry in time to call the cable company and get us hooked up to HBO; an unanticipated present. I think he’s the greatest. So you have him to thank -or not- for all this spittle.

As favorable as it was for us -if a pity party could be deemed favorable- there’s more to the story. They had to keep the film simple; it couldn’t be a full blown analysis of all that ails us. That’s my job. Heh. I can understand how people could be depressed by it but reading between the lines, I firmly believe there’s a lot of unrealized opportunity and potential. I really believe that. Here’s my take on it.

Have I ever mentioned that I majored in economics? Apparel was my first jaunt at college, a two year program I never finished. Specifically, I majored in developmental aka “third world” economics (the latter term is offensive by the way). It’s the study of developing industry when you have nothing. No money, no infrastructure, no education, little equipment and so on. In short, perfect conditions for an apparel industry. In fact, the first organized industry a nation develops are the needle trades. It’s one of the barometers of economic indices. Everything you saw in this film should be filtered through this lens. In other words, the history of US industrialization starts with the apparel industry. Workplace safety and unions were birthed in the apparel industry, not because the trade was any worse than other tangential manufacturing being developed at the time but because it was first and because it was the biggest. The bigger you are, the harder it is to hide. There was plenty of horrendous stuff going on in other industries.

Yes we lost a lot of jobs but we would have anyway due to technological improvements that led to increased productivity. As technology improves, fewer workers are needed. Plumbing is a prime example, you’re not having to go down to the river every day to haul water. China beats us on brute force and ignorance (it’s an expression, not an insult) not productivity. There’s hope here but it’s a different game today but you don’t have to play by those rules. Before, the bulk of expenditure went into production. Post Reagan/Clinton, off-shoring permitted higher margins to spend on marketing, hence all the glitz, glamor and fashion designer rock stars. You can still win by playing a different game. You have to choose though, will you spend on marketing or manufacturing? At the same time, I’m discomfited by critics who force arguments of economic evolution; a society moves through development stages starting with agriculture, then various classes of manufacturing, and finally, a service economy. I think that is a false choice. The new game is, deliver small orders quickly. Seriously. You can be small and profitable.

There was some blame thrown around in the film, consumers are to blame because they’re cheap. There’s two truths to that. First, if the average consumer dressed like a garmento, we would have gone out of business a long time ago. The fact is, with lifestyle changes, we don’t dress like we used to.

Sadly, little blame was directed at the trade itself -it can’t all be someone else’s fault. I have three paragraphs of blame. First, the apparel industry has the lowest levels of investment in education and improvements than any other manufacturing sector. Or maybe not, it depends. Textile production is also at the bottom. We’re always duking it out with them for last place. It’s tragic how many regular visitors don’t see fit to invest in their own educations (they want it free!) by buying my book and then they’re upset that consumers are cheap? It’s two sides of the same coin. For too long, the US trade was spoiled. Post WW2 saw phenomenal growth but then we were the only ones left standing, our infrastructure wasn’t war torn and starving. Still, one must ask themselves, why are the Germans the number one exporters in the world? Hint: they’re big on engineering. The relationship isn’t coincidental.

Another overlooked blame (okay, it was mentioned) was the matter of going public, cashing in the dream IPO. If you’re forced to bend to investor dictates of ever increasing profits every quarter, you cannot selectively choose to back pedal one season and plow the proceeds into rebuilding your business infrastructure the way you need to. Everybody has a bad season anyway but stocks fall and investors wail. Don’t go public, just don’t do it. If you want to cash out, become acquired and trot off to do something new. In the meantime, keep your companies small, tightly held and debt free. If your debt is limited, you won’t be forced into making painful choices.

Last, nobody wants to change. If the trade got greedier, suppliers did too. Fed by every increasing larger orders, it was too much work for suppliers to feed smaller entities (DEs) who had a hard time making headway. Once the market tightened up (CAFTA, recalibrating in a climate of reduced tariffs), suppliers employed strategies such as going head to head with their own competitors or began to outsource themselves. Then they cut design detail and quality. Thus began the real race to the bottom. Never at any time was there the consideration of feeding newest entrants to the market, the impetus of what created their businesses in the first place. There still isn’t. Doing otherwise was/is seen as a step backward.

Some things about the film annoyed me. For example, the media will never tire of flogging Kathie Lee Gifford. She’s nothing to me, she’s not a customer, I’ve never seen her show and I sure haven’t bought her clothes. This is the truth of the matter: At a time when nobody did it, Kathie Lee traveled to visit the factories that sewed her clothes. That she got a dog and pony show for her efforts is nothing different than what many get today. Do you know why she went when no one else did? It’s because she was raised in the garment industry, her father was a pattern maker. This industry fed and clothed her, making the irony of being targeted the more personal and painful. There were worse offenders but they weren’t as famous or photogenic. She was a scapegoat, a convenient target, nothing more, nothing less.

Speaking of mean, what did you think of Irving Rousso, the founder of Russ Togs? He knocked off his own father! Or was it his uncle? Talk about a meanie. My point being, DEs think people in the business are mean now, they should have seen it before. Russ Togs went on the skids in 1991 before the worst of the crisis hit.

So what’s next for us? The film made no mention of our possibilities. Then as now, we are at the forefront of change wrought by technology. The solution is nothing less than faster cycle time. The film made no mention of opportunities like lean manufacturing, a further evolved system of productivity. Your only advantage is four weeks on the water. Don’t forget it.

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22 comments

  1. DesignerElla says:

    And your book is much less expensive than a college degree, oh I’m relieved you aren’t telling us we need those. Heh. Money is an issue, not cheapness, but I need to get it before I start manufacturing. (It’s much less expensive than making the stuff too!)

    Anyway it sounds like you might have also seen “Capitalism” – well I just did. I was mentally taking notes of what to/not to do the whole film, I even missed parts because of loud brain. Haha.

    I want to be demographic (at least partially, with my vote large) if/when I have under-employees, but I already knew I NEVER wanted to go public. Like ever ever after death. I knew about bending to whims from discussions with my BF.

    Your reasons give even heavier weight to that. Investors don’t seem to care about product or brand, and that makes sense with how “we’re” taught to trade. Also, I never want to *play* in the stock market. Poo poo to BF’s retirement account choice by his company, but I think that’s standard.

    It seems like shareholders or rather, having them/being public, can make the difference between ending the business and always sticking to your dream through ramen meals or anything, haha.

    “Don’t go public, just don’t do it.” should be in bold!

    I would add, if it’s time to grow, do it slowly and bit by bit. With each bit comes after thought and probably more success.

  2. Rocio says:

    Kathleen,

    Shmatta is exactly the kind of incentive I needed!…
    It’s been so unpredictable the last few weeks and so many contractors around our building have closed down for good that I’m starting to wonder if I should get out of the garment business and into another type of manufacture.

    In California the regulations imposed on the industry are driving a lot of companies “underground” (manufacturers and contractors alike) so even in Los Angeles, non licensed businesses are depressing the prices as they don’t have to comply with all the requirements to operate “by the book” :-(

  3. kathleen says:

    Esther/Rocio: no mention at all of regulations in the film. The powers that be think we’ll get over it and recalibrate to increased expectations. It’ll take years for analysts to see 2009 as the drop off. Most likely, they’ll blame it on the recession and they won’t factor in the inordinate hit our industry took owing to regs like CPSIA, Prop 65 and the increasingly “popular” california garment registration license.

  4. Brenda says:

    Kathleen,

    I did the same thing, ordered HBO within a few hours to spare and made sure I recorded it. Even though I was in shock after watching it, I couldn’t help but compare the garment industry to a “circle” all I ever heard in fashion school was “fashion is cyclical” and boy is it in more ways that one.

    In the end I was even more motivated about the possibilities for the industry and I think the future lies within the DE’s. There’s power in numbers…

  5. Valerie says:

    Wish i had HBO-or a TV even…any chance any of it will be posted on YouTube in the near future? Can people even put HBO clips on YouTube? Either way-bummed i missed it, but loved the blog Kathleen-very insightful and encouraging (the not so depressing parts anyhow) Very timely, esp. in reference to what you spoke of on Monday. Affirms even more the decision to go the route of lean manufacturing and remaining as independent as possible. Who knows, maybe HBO can do a sequel in a few years when DE’s are on the upswing and the face of the industry has shifted a bit.

  6. Barb Taylorr says:

    ” You have to choose though, will you spend on marketing or manufacturing?”

    I am not sure you can survive if you do not spend on marketing today. That is one way our world has changed dramatically that I believe must be factored in. If you ignore it, consumers will never see your product to know how excellent it is. The question is how to do it effectively, and finding the right balance between the two costs.

  7. Becky says:

    I think the marketing has to somehow get creative, though. We can’t do things they way they use to do. Who we are reaching out to is different. They are on the run, want instant gratification, want it simple and to the point. We have to think outside of the box and use all the technological resources out there. If we are doing small manufacturing, we aren’t looking to the masses. We are looking for that special customer or client that wants quality and uniqueness, and personal attention. Somehow we need to re-educate the customers into realizing well made clothing, designed with care, is so much better than mass produced garments that fall apart or look shabby in a few washings. A good friend was just saying that it is like the pioneer gene is deep within us. We are constantly reinventing ourselves to meet the changes thrown our way. I loved that thought, because that is just what I am doing right now; reinventing myself.

  8. Lisa Brazus says:

    Great post Kathleen. After reading it I went to HBO.com and found out when the show will be broadcast again. There is separate schedule for the East coast and the West coast. I am having a friend tivo it later this week.

  9. dosfashionistas says:

    I am going to have to find a way to see this show. When I look at that blunt statistic, I am amazed that I have stayed employed through this entire time. In 1965 I was one year out of college and working as an assistant designer for a children’s wear company. There were clothing manufacturers all over, and most had their own factory. In 2005, when I retired, I was a grader for a cheerleading and dance team company, because there was almost no one else in Dallas to work for.

    I hope I live to see it turn around. Keep plugging you DEs. You are the future. Lean and mean.

    In the debate of marketing vs. manufacturing, I will come down on the side of the latter. If you make a great product, you don’t have to shout about it. You do have to put it out where people can find it, but they will find out for themselves that it is great and they will come back for more. Just my opinion.

    Sarah@dosfashionistas

  10. Miracle says:

    I think going public as being a no-no is not a productive way to look at things. Even small entities can have investors that want exit strategies or investment-worthy ROI. Keeping small and debt free is fantastic, but not everyone is in business to stay small and debt free. I see two sides of the same coin and nothing being wrong with either. Some DEs need to stay small, and let me put a dollar figure here so we can all be on the same page, by small I mean revenues under 7 figures, because it’s pretty hard to go over that without debt. I’m not saying it’s not doable, but usually lines of credit, equipment leases and other forms of debt come into the picture at that point.

    Anyhow, back to my point, some DEs need to stay small and debt-free because they are incapable of managing anything else. But the reality is small and debt free businesses usually don’t create jobs. They are usually solely-owner-operated ventures (or employ mostly family) as typically, once you have payroll, a lot of businesses (again) have credit lines to serve as a back up to cyclical cash flow.

    So I guess my point is I suppose it does good to say stay small and debt free, but on the other hand, it’s almost counter productive to growing the domestic garment industry. And in a very interesting socio-economic twist, it’s usually an argument pushed by women to women which (I believe) is one of the reasons women owned businesses (statistically) tend to gross less than male owned businesses and why as women owned businesses grow, they tend to hire men to run them– because we aren’t socialized to grow and to properly manage money and debt in a business sense.

    Anyhow, I just threw my two cents in, as that struck a chord with me.

  11. Kathleen says:

    You’re probably right I shouldn’t have worded it as I did. There’s the matter of managed debt; I know of very small businesses (fewer than five employees) selling 7 figures who produce everything themselves and who have debt. It’s what got them to where they are, enabling their high productivity. I guess it depends on your debt percentage. What I see all too frequently is people assuming far too much debt, taking on second mortgages they can’t afford to risk. I’m much less concerned about secured debt. Like a car I suppose. If you get in over your head, you can sell or return the car and only be out the difference (and there surely will be) but it’s manageable. It’s expensive intangible purchases for which there are few means of recovery and with limited means to repay it that are distressing. And that’s what most people seem to be attracted to.

    Whether you choose to go public depends on your goals and working style. Personally, I don’t have the business or financial sophistication to even contemplate the transition so I’d settle for acquisition. Which is not to say I don’t admire people who can do it. It’s overwhelming to me.

    Which businesses I prefer depends on context.

    I prefer small businesses in several respects. For one, they employ more people than large ones. Second, dividing head count by total sales, they’re more profitable. They also tend to spend a greater percentage of their money locally which benefits the community.

    I prefer larger businesses because their operational practices are more professional. How it is that smaller businesses are more profitable than large ones considering their comparative operational inefficiencies, I’ll never understand. I suspect it’s related to transaction costs which escalate dramatically in far flung enterprises.

    Then, there’s the matter of scale. I’ve long said that different enterprises are optimally suited to different scales. Industries with a higher engineering component are better suited to large scale. The closer to the dirt you are, the smaller you should be (optimally). The example I cite most often is agriculture. The most efficient farms are 80 acres. I firmly believe there’s a governance with regard to apparel firms too altho I struggle to define it. I used to think firms ideally have no more than 200 stitchers. Lately tho, I’m thinking it’s less, maybe even dramatically fewer, say only 20. We’re not far from the dirt on the scale of needs hierarchy. First it’s food, then clothing, then shelter. Most builders are also not large and they’re also regional…

  12. Miracle says:

    I prefer small businesses in several respects. For one, they employ more people than large ones. Second, dividing head count by total sales, they’re more profitable.

    It’s very true when you go by the SBA’s definition of small business– however, one really huge area for concern that you will find is that, particularly among women, a high number of businesses (around 60%– I’d have to search to find the stats on that) only employ the owner, and barely provide full-time salary at that ($50K annual GROSS revenue).

    So collectively speaking, small biz is more profitable and employs more people, collectively, the majority of small businesses (at least those that are women owned) are micro businesses that don’t provide jobs.

    And for that reason, I think there’s a growing movement to teach financial management, growth and management skills, to move more businesses out of that revenue category into one that provides jobs.

    As far as people who took on risky debt they could not handle, irresponsible is irresponsible no matter how you cut it. Those that went out of control with their businesses usually were out of control with their personal finances (and I have yet to meet the person that’s an exception to that rule) and shouldn’t merit consideration when formulating strategies or stances on such issues. It’s just something I’ve learned about people in business over the years. You can determine character markers that distinguish between those who will ultimately make it and those who will just spin their wheels and fizzle out (or go up in flames).

    I think what happened with the apparel industry is a typical level of arrogance that “made in America” would mean something significant to a large enough percentage of the population, to the point where competitive advantages were no longer sustained or sought. Consumers aren’t necessarily “cheap” but we (the industry) doesn’t do a good job of combatting the widely held perception that we produce stuff in sweatshops for thirteen cents a day and mark it up to $300 in boutiques and top shelf department stores. We’ve done absolutely nothing to educate customers on the true price of production. People, generally, have a more realistic view of what it costs to make the goods they consume– except when it comes to fashion.

    You never see someone in the store saying “I know they make this Captain Crunch for twenty eight cents and have the audacity to sell it to me for nearly three dollars”, but betcha they believe $120 Nikes cost $4 to make by blind Cambodian children in a richshack indentured servitude camp serving one meal a day with no restroom breaks. Try it yourself, walk up to the average person and say do you know a box of captain crunch costs twenty eight cents to produce (including the box) and they won’t believe you but if you say that Nikes only cost four dollars to make, they will say “I knew it, I knew Nike was getting over!”

  13. Thomas Cunningham says:

    “Your only advantage is four weeks on the water. Don’t forget it.”

    I haven’t read through the comments, only your post, but that last sentence (don’t know if you coined it, Kathleen) is the tightest, sharpest and best piece of advice any domestic DE could ever hear. I am going to post that on the bulletin board in front of my desk, dead center, so I see it all day every day. And I am not kidding.

  14. Solongo says:

    I am wondering how all this economic downturn will affect aspiring designers, patternmakers and other supportive jobs when companies are not hiring or simply don’t have a job opening available. What can recent graduates and students do to still gain experience from the industry?

  15. Renee says:

    I’m not convinced that four weeks on the water is the only advantage. At least in some sewn-goods niches “made in the USA” can still provide a benefit to sales conversions, or at least I receive email from customers and prospective wholesale partners to that effect. Oh, and from my aunts. Is it a generational thing? Certainly plays to the conservation-minded consumer who wants to buy organic cotton, hemp and recycled polyester as well.

    In some cases where many of the materials inputs do, in fact, come from here, it seems the cost of shipping to another country would cancel out the savings in manufacturing labor.

  16. Lisa Bloodgood says:

    About Germany, my favorite manual pencil sharpener is from there.

    About design detail, maybe this is why I like vintage clothing and stuff older than that. Most of today’s stuff is too simple.

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