Last October, I wrote an entry called Two questions wondering about the state of the economy, the rate of exchange and how these trends may affect us. I wish I’d called the entry “Three questions” and included the topic of energy prices. The comments were interesting. Nearly everyone reported an up tick in international sales (I have too). Generally, everyone felt the luxury goods market was steady but since then, experts agree it has been wavering. I think luxury has been a holy grail of sorts. We tell ourselves all is well with the world based on its market performance, perhaps in a misaligned perception that we can aspire to producing it eventually.
I can’t tell where Birnbaum’s world of mass retailers, outsourced transnational production and push manufacturing of commodities ends and ours begins (today’s first entry). Most certainly in ours, the tragedy of the madras jackets wouldn’t have happened because you’re not producing in advance of orders. Right? Of course not. You’ve learned how to manage production to order from my book so those things won’t happen to you. Still, when the biggest operators sneeze, it’s the rest of us who catch pneumonia. To whit, once everyone moved offshore, we couldn’t buy fabric domestically so whatever affects them, affects us. The question is, how will it manifest this time?
The latest issue of Birnbaum’s newsletter set the tone for his upcoming book and what these things may be. Perhaps I should reiterate that the product markets he’s describing are restricted to commodities. Namely underwear, men’s trousers, men’s shirts etc. Here’s some excerpts (some are not germane but interesting) from his newsletter, my comments follow.
…woven shirts appear to be the exception among the four strategic category items. I believe this is the result of fashion changes. Men are beginning to move away from casual attire back to more formal clothing. (pg 17)
I wonder -how do people dress in a recession? More classics, more tradition? I figure fashion historians in our midst will enlighten us. I took fashion history but don’t remember much. Does it go without saying that I think a move back toward more formal attire is a plus? Classics are less disposable than trendy apparel. While lean manufacturing is sustainable, is fast fashion?
(pg 18, re: underwear)…November data clearly shows that both importers and retailers were expecting lousy Christmas sales. December data for retail sales clearly showed that however lousy their expectations were, they were still unduly optimistic.
Birnbaum’s opinion on the state of the economy, based on his figures:
…economists are still debating about whether the U.S. is in a state of recession. Based on these figures, the only true topic for debate is how deep is the recession and how long it will last. From where I sit, the answer is very deep and possibly very long. (pg.25)
Birnbaum’s newsletter elaborates on the state of the industry by nation and sector. He’s very gloomy about Mexico, I haven’t included his comments on it. But still, I wonder if the losses in Mexico and Caribbean Basin represent opportunities to those who want to outsource but not far afield? On Sri Lanka he says:
Sri Lanka has an excellent industry -reliable, high quality and with some of the best management in the world. Of the many factories, ten count. Of these ten, three are world class. All three will one day rank in the world’s top 50. However, all three are going the way of Korea and Taiwan -moving offshore, in this case, to India. I cannot blame them. India is ideal for offshoring. All the customers want to work in India. But all things considered, these customers would prefer working with their Sri Lankan suppliers. (pg 68)
More on the South Asia region which conversely, provides a hint toward solutions:
South Asia as a whole is falling down. There are no more successful South Asian countries. To some degree, each country is failing for its own reasons. But there is one common cause of failure. All four (Pakistan Sri Lanka, Bangladesh, India) South Asian governments take the position that they need do nothing to support their industries. They need not provide infrastructure. They need not provide education. They need not provide logistics. I’m sorry to say that they are wrong. (pg 71)
The non-bloc comprised of Vietnam, Cambodia and Indonesia looks like it is doing very well. In these difficult times, they are some of the very few real winners…Vietnam leads the world as the U.S. supplier with the highest growth rate, beating out Greater China.
This is good news for Cambodia. Of all nations, Cambodia has the best paid and protected needle trades workforce. If you wanted to outsource and have greater assurances of fair trade standards, Cambodia is your best bet.
Birnbaum’s conclusions (pg 107)
We are moving into a very difficult period. The industry is about to be hit with a double whammy:
- Retailers are finally beginning to realize that over-ordering goods just to mark them down later is not a profitable strategy. The smart ones will be cutting order size regardless of the state of the economy.
- The U.S. is moving into what might well be a serious and long-lasting recession. Consumer demand for garments will fall and with it customer demand for imports.
As we can see from the October report, customers reduced orders in the fourth quarter, but those reductions proved to be inadequate. 2008 motto will be “Order Less – Profit More”.
Eric and I talked about this last night. In some respects, we think DEs will continue to be immune to trends affecting Birnbaum’s intended average book reader, newsletter subscriber or consulting client. Few of you are producing commodities; the exceptions are tee producers who don’t cut and sew. Few of you are selling to department stores. Most are cutting to order or at least some semblance to it. Few of you -while not luxury producers- are competing on price. These are all strengths.
Then there’s the matter of organics. In the coming push and shove of recession and increased energy costs, how significant will organic fibers be to consumers? Will operations that are sustainable but not organic (these aren’t the same thing) have more staying power? Which is more responsible? Will consumers get the message? Will they care enough to pay for it?
Another factor that will become increasingly significant to our industry is obesity. There’s no way around it. With 30% of the population overweight and another 30% obese, I think styling choices will become even more of an issue of haves and have nots. I can’t see that beyond the few dedicated DEs serving the plus size market, that the industry will move beyond commodities in serving over 60% of the total adult apparel market. Just the infrastructure demands of meeting the needs of this population are staggering. With apparel prices continuing to decline and the direct correlation with income and obesity, there will be a continuing shortfall. Offerings across the board in plus size apparel will only worsen.
I did tell Eric one thing. Assuming I had the interest and the capital (including intellectual capital), I’d open a mill to produce fabric for the domestic market. With increasing energy prices, being domestically integrated would be an unparalleled advantage. I also joked that I’d buy up a lot of treadle sewing machines that don’t rely on electricity. Maybe it won’t be a joke twenty years from now.
Birnbaum’s newsletter is pricey at $400 a year but if you can afford to outsource and you’re producing commodities, it’s probably a must have subscription.