California Apparel News

MIAMI BEACH, Fla.—Make no bones about it: China is the sleeping giant that will likely be filling most of the orders placed by American clothing makers and retailers when import quotas for textiles and apparel disappear in 2005.

If you need a pound of proof, take a look at Japan. For years, the country has not had any apparel and textile quotas in place. Consequently, 75 percent of Japan’s clothing is imported from the burgeoning Middle Kingdom, which is rapidly taking on the role of garment factory to the world.

But few manufacturers are willing to gamble on China alone as their favorite sourcing site. Instead they will scatter their business among a few other developing countries where labor is cheap and free-trade agreements are in place.

So the question is this: Which developing countries will survive the onslaught of Chinese competition, and which ones will be crushed?

That was the theme of “The 2005 Trade and Sourcing Environment” seminar that opened the Material World trade show, held Sept. 29–Oct. 1 in Miami Beach, Fla.

“This changes the way sourcing has been done in the past 25 years,” said Stephen Lamar, senior vice president of the American Apparel & Footwear Association, which organized the seminar. “Companies will have to rethink how they do business.”

Among the panelists were Howard Kahn, chief executive of Kahn Lucas Lancaster Inc., a 114-year-old New York–based childrenswear manufacturer that specializes in dressy dresses and has licenses with OshKosh and Nickelodeon; Courtney O’- Keefe, vice president of sourcing for Phillips-Van Heusen Corp., which recently acquired Calvin Klein; and Jeff Streader, vice president of global sourcing for VF Corp.

Kahn said his company is already rethinking its business.

For almost 100 years, the company produced its lines in six company-owned factories in the United States. But in the mid-1990s that began to change as the company learned the advantages of manufacturing in Central America. It also acquired a division of a large childrenswear importing company and took on more responsibility.

“By the end of the 1990s, we maintained four different businesses,” Kahn said, noting that those businesses included domestic manufacturing, manufacturing in Central America and importing. “It just became too complicated, and we made a decision in 2000 that this was just enough.”

Overnight, the company shuttered its factories and decided to manufacture all its garments in foreign countries. “We made a commitment to accomplish two things, flexibility and simplicity, because things were just too difficult,” Kahn said.

Since then, the company has eliminated triplication of overhead. It eliminated its piece goods and trim departments, and it didn’t need to keep its six factories busy year-round, which had added to high inventories of finished goods. “Our inventory immediately went down 70 percent,” Kahn said.

Now the childrenswear company does about 20 percent of its production in China. It plans to increase its production in China to 50 percent in 2005 because factories there can do complicated manufacturing.

“A typical Easter dress could have six different fabrics, eight different trim items and a couple of accessories that go on one style,” Kahn said. “There are only a handful of countries that have the natural resources and infrastructure to provide all of these. And China is the one that is most competitive for our market.”

But Kahn will stop at 50 percent and diversify into other countries. “I don’t want to be fully exposed in one country,” he said.

As manufacturers have wandered overseas, they have learned not to rely on one source. The SARS epidemic earlier this year, which practically halted all business travel to China, taught them that.

For Kahn, the secret recipe for successful overseas manufacturing is this: Work with factories that comply with human rights criteria. Find a country that has a good infrastructure and logistics. Locate factories that can take on part of the financial burden to produce goods before they are shipped, such as those that will procure their own letters of credit. Work with factories that have product-development capabilities.

Other companies much larger than Kahn’s childrenswear business have similar recipes for sourcing. And having a recipe is more important now than ever.

PVH’s O’Keefe called the elimination of quotas “the biggest event in my sourcing career.” Now that quota is not driving her sourcing decisions, O’Keefe said she is looking at other factors.

At the top of her list is compliance with human rights and labor issues. “It takes three to six months for us to get a factory up and compliant,” she said. “We at Phillips-Van Heusen don’t want to be part of any ’60 Minutes’ expose.”

Her company also looks at quick response times, political and labor stability, currency stability, terrorist activity and proximity to an advanced textile infrastructure.

At VF Corp.—one of the world’s largest publicly traded companies and the manufacturer of Lee, Wrangler, Jansport, The North Face and Nautica labels—executives said they are under greater pressure to keep prices down. “A jacket that cost $100 in 1992 now costs $62,” said Streader.

In the not-so-distant past, VF Corp.’s strategy was to own the factories that produced its brands. Now it is embarking on a blended strategy.

“In 2000, we owned 72 percent of our production,” Streader said. “By the end of 2003, 46 percent of our product will be made outside of VF Corp.–owned factories.”

Mexico and Caribbean countries make up more than 50 percent of VF Corp.’s production, followed by developing countries in Asia and other areas that do 38 percent of the corporation’s vast line of apparel and workwear. Only 6 percent of production is done in the United States.