California Apparel News

Debut a fashion line at a trade show, wholesale the new brand to retailers, and, down the line, open a branded boutique and an e-commerce store devoted to the label. That’s the conventional model of starting a fashion label. San Francisco–headquartered American Giant is part of an emerging avenue of manufacturers and retailers looking to turn that model upside down.

Company founder Bayard Winthrop is hoping to lead this new wave. He sells his high-quality men’s basics exclusively at the brand’s website (www.american-giant.com) and manufactures them close to the company’s hometown.

 Winthrop estimated that he saves more than 70 percent of his manufacturing budget by cutting out retailers and other wholesale partners. This pure-play vertical retail model creates more revenue to manufacture what he believes to be the best hooded sweaters and sweatshirts his label could make. On April 17, American Giant debuted a T-shirt line.

“A shirt you buy from a department store costs $70, but it only took $10 to make,” Winthrop said. By eliminating all those markups and margins, he contends that he’s able to invest much more in the product itself. “My career has been about how to cut [manufacturing costs] down from $10 to $8 to $7,” said Winthrop, who helmed action-sports brands Chrome and Atlas Snowshoe. “For the first time, we can look at the distribution piece and unlock real savings to reinvest in the product for the consumer.”

Other companies staking their future to pure-play vertical retail include eyewear manufacturer and e-commerce retailer Warby Parker, which raised $12 million in venture capital last September. Pants line Bonobos got its start selling its high-end menswear online exclusively since 2007, but on April 12, Nordstrom Inc. announced that it led a $16.4 million round of investment for Bonobos. Bonobos will now be sold at 20 Nordstrom locations. 

Another San Francisco–based men’s pants line, Cordarounds, launched with a similar e-commerce-only model, which it recently expanded when the company rebranded as Betabrand, an online-only company that “designs, manufactures and releases new inventions every week. Back in 1999 Lucy launched as an online-only resource for women’s activewear. In 2007, the company was acquired by VF Corp., which rolled out a fleet of 60 physical stores for Lucy.

Still, the online-only model is very new for the apparel industry, and most apparel businesses prefer the traditional model of wholesaling, said

Allen Doan, president of the Orisue menswear brand, based in Santa Ana, Calif.

“People are beginning to experiment with domestic manufacturing,” Doan said. “When you’re already established, it’s hard to transition to a full collection where everything is done domestically, especially when customers are expecting a certain price point.”

Doan forecast more labels would experiment by manufacturing capsule collections domestically and selling them online, but he added that American Giant might scare off penny-pinching customers. Doan is friendly with members of the American Giant board of directors.

“Americans like the idea,” he said, referring to a vertical e-retailer making high-quality clothes. “But they may not necessarily want to pay the price.”

An American Giant hooded sweatshirt retails for $69, and a sweatshirt retails for $59. In comparison, American Apparel fashion basics are also U.S.-made and sold through the company’s e-commerce site, its bricks-and-mortar stores and its wholesale division. American Apparel’s retail prices range from $41 to $60 for fleece and sweatshirts.

American Giant raised seed capital in 2011. The round was raised by Donald M. Kendall, ex-chairman of PepsiCo.

American Giant is manufactured at SFO Apparel, based in Brisbane, Calif., just south of San Francisco, and it has been making women’s fashions and outerwear since 1994. The clothes are designed by Philipe Manoux, an industrial designer and engineer who worked on the iPod while an employee at Apple Inc.

Winthrop hired a novice fashion designer because he wanted someone who could bring new perspectives to basic silhouettes

“[Manoux] has a very specific point of view of building a garment from the ground up,” Winthrop said. “He has a deconstructionist point of view, which is measured against people who have a solid apparel experience. It has been an odd but happy marriage.”

Winthrop said the savings realized by the vertical retail model can be channeled back into the quality and construction. “The managers at SFO often say, ‘You don’t need a yoke on this panel; it will save you 20 cents,’” he said. “We always say, ‘We want to keep the yoke and the triple-needle stitch.’”

Winthrop may be an evangelist for the pure-play vertical retail model, but manufacturing consultant Steven Goldman does not forecast small manufacturers will be lining up to follow American Giant’s lead. Goldman contends traditional manufacturing models still pencil out well. “Small manufacturer and wholesale apparel companies with annual sales of $1 million to $2 million get a much better return on their dollar invested by selling wholesale,” Goldman said. “Their cost of sales per unit is far lower than selling consumer direct, and, thus, they reach more retailers.” Goldman is the president of Apparel Industry Consulting Service, based in Los Angeles.

But business and consumer tastes are changing quickly, Winthrop said, and those not relying on e-commerce will be left behind.

“The current industry is stuck in layers of distribution, which react too slowly to a changing world and are too expensive,” he said. “I believe consumers are smarter. They know there’s too much money wasted between the consumer and product, paying the middleman.”
But the final word on American Giant will be its product, Winthrop said.

“We want to be judged on quality, construction and fit, first and last,” he said. “We believe we’re building such incredible momentum because we’re new and independent and we’re committed to American-made quality.”