strategies for success
TRANSCRIPT
Strategies for Success in aStrategies for Success in aGlobal Sourcing EnvironmentGlobal Sourcing Environment
Prepared For:
National Textile Association151st Annual MeetingAmelia Island, Florida
November 7, 2005
JASSIN ~ O’ROURKE GROUP48 W. 38th Street, New York, NY 10018 212-382-0045 (o) 917-567-3540 (c) [email protected]
Consumer / Retailers / Traditional Brand OwnersConsumer / Retailers / Traditional Brand Owners Market Dynamics ~ Supply Chain HavocMarket Dynamics ~ Supply Chain Havoc
Consumer Confidence Level Discretionary Spending / Non-Apparel
Growth Sluggish Mall Traffic to E-tail Growth Profound Consumer Demographic Changes Explosion of Focused Lifestyle Brands Private Label eating Brand Share Fast Fashion/Chase/Replenishment Models Consumer Value Merchandising/Marketing Unabated Price Pressure Sourcing Uncertainties . . .
Retailers and Brand-Owners’ FocusRetailers and Brand-Owners’ Focus
Bottom Line Growth: Maximize Margin & Profit– Reduce Sourcing Costs
• Quota-free 2005– Last shift to lower cost needle countries– Sourcing administration/overhead consolidation
• Analysis shift to raw material cost impacts, rather than inputs– Fabric price per yard, transitioning to fabric cost per garment– Typical Garment Fabric Yield Specifications, impacted by
• Sourced-fabric seconds history• Apparel manufacturers’ cutting technology use• Apparel manufacturers’ history of finished garment seconds
• FOB versus “To Store or Distribution Center” Garment Cost Competitiveness– After duty, shipping, brokers fees– Seconds extraction/refurbishment– Sourcing capital timeline– Full package terms; elimination of letter of credit
Variables – Cutting AutomationVariables – Cutting Automation Yield Impacts Net Fabric Cost/Garment Yield Impacts Net Fabric Cost/Garment
1.3 1.4 1.5 1.6 1.7 1.8
Mexico
Colombia
Brazil
Turkey
Italy
China
Bangladesh
Yards/Garment
Automated Cutting /Productivity/Planned YieldAutomated Cutting /Productivity/Planned Yield Impact on Planned Fabric Use/Yards Per GarmentImpact on Planned Fabric Use/Yards Per Garment
Variable Cost ImpactsVariable Cost ImpactsTypical % Seconds Experienced by Cotton Apparel ImportersTypical % Seconds Experienced by Cotton Apparel Importers
0 1 2 3 4 5 6
CBI/Andean
Turkey
AGOA
China/HK
Vietnam
Bangladesh
% Seconds
Retailers and Brand-Owners’ FocusRetailers and Brand-Owners’ Focus
Bottom Line Growth: Maximize Margin & Profit– Identify/Fast Track High Margin Opportunities
• Rapid Response to Key Fashion Trend Items– Style– Fabrication
• Consumer-Desirable/Marketable, Innovative Products– Performance– Comfort– Carefree
• Fashion Replenishment Programs – Signature Items– Color
Regional Apparel Sourcing Prospects . . . . Regional Apparel Sourcing Prospects . . . .
Safeguards sustain regional markets short term Long term stability and growth dependent on:
– Lead time improvement/advances• Single greatest opportunity• Pre-production elements most critical
– Private label market share advances• Leaner merchandising calendar for PL• Forcing traditional brands into more seasons/product
lines• Specialty stores adopting fast fashion business models
and core fashion replenishment programs– Innovation
• Where performance is the key value proposition– Communicating Cost Competitiveness
• Return on Sourcing Capital Employed
China’s Mega-Investments Are Paying OffChina’s Mega-Investments Are Paying Off
Expansion-driven, foreign investment for apparel export entities– 70% of China’s exported apparel production is under non-mainland
control• foreign-owned• joint ventures• equity partnerships
– Mainly HK, Taiwan, S. Korea, Japan, Singapore-headquartered apparel vendors
– Quality increasing with equipment / technology choices, improved methods and through better use of equipment and training
Significant focus on IT systems and logistics– Better customer communication– Noticeable lead time reduction
• Pre-production through delivery Cost reduction through process streamlining
Brand-owners transferring more “authority”– To their own Asian-based sourcing management– To Asian vendors
Some China Fast Facts . . . Some China Fast Facts . . .
Guangdong Province, for example:• Closest to Hong Kong, led by the cities of Shenzhen,
Dongguan and Guangzhou.• 40% of China’s knit apparel exports or more than 5
billion pieces• Dominated by circular knit apparel output, from
sportswear t-shirts to better quality, fine gauge knit cotton shirts (though this fabric is largely imported).
• Third largest province for knit machinery imports; many vertical knit/sew operations, small to large.
• Third largest cotton fabric-producing province, including some 200 million meters denim.
• Largest importer of cotton apparel fabrics, representing some 1.7 billion meters.
– 60% of export apparel production from this province uses imported fabrics
• Mainly due to dyeing quality• Adds to lead time.
China’s Labor Issues impact Brand Owner Margins China’s Labor Issues impact Brand Owner Margins
China is not the lowest labor cost source in Asia.– Rates can be as low as $.55 per hour, to as high as $2.10 in
some Shenzhen factories.– Labor availability is an increasing problem in the key coastal
areas.• Competition from higher wage industry sectors has
escalated, with the more skilled workers exiting the industry.
• Proportionately more migrant workers• Extremely high turnover; higher training costs.
– Deliveries running late– Excessive short-shipments due to seconds and labor
turnover
Average Apparel Labor Costs - AsiaAverage Apparel Labor Costs - Asia
0.23
0.29
0.25
0.28
0.30
0.40
0.41
0.55 - 1.70
1.10
1.20
4.20
4.53
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 4.50 5.00
BANGLADESH
CAMBODGIA
INDONESIA
VIETNAM
PAKISTAN
CHINA-INLAND
INDIA
CHINA -COASTAL
THAILAND
MALAYSIA
KOREA S.
TAIWAN
Asia - Apparel Labor Costs US $/Hour
Pre-production Lead Time Advances - AsiaPre-production Lead Time Advances - Asia
Initial fabric sampling– 2 to 5 days
Fabric lab dip samples– 4 to 7 days
Knit down samples– 5 to 8 days
Yarn dyes– 10 days
Pre-production Lead Time AdvancesPre-production Lead Time Advances
Pre-production garment sample cost quote– Same day to 24 hours
Concept garment samples – Completed in 5 days or less
Fit sample garments and corrections– 4 to 8 days
Salesman samples– 2 to 3 weeks
Fabric and garment testing– 1 week or less
Conclusions Conclusions
West can compete with East– Knit cotton basics: underwear, tees, polos– Simple make, knit sportswear tops– Basic jeans (women’s stretch more vulnerable)– Performance bottoms (replenishment/no-iron/fast
fashion color)– Performance activewear– Swimwear (women’s upper moderate &
competitive)– Daywear fast fashion (color) & Shapewear– Corporate Workwear
Strategies for Success Strategies for Success
Identify Retailers/Brand-Owners Pre-Disposed to Regional Sourcing– Research/identify their consumer value proposition– Determine how your product aligns with it
Develop marketing spin on the true cost of sourcing; cost reduction/margin enhancement– Fabric yields, seconds, short shipments, etc– Landed price versus f.o.b.
Target Signature Tee Programs/Color Quick Ship Target Specialty Store Private Labels and E-tail QR Items Fabric sourcing knowledge among regional apparel manufacturers is
critical– Create sample libraries for key manufacturers– Quote pricing within 24 hours– Deliver lab dips in 4 days– Partner with apparel manufacturers who quote garment cost 24
hours Investigate Partner/Fireman/QR sourcing with Asians
And Selling To China – The Emerging Market And Selling To China – The Emerging Market
Top line revenue growth strategies drive brands and retailers into the Chinese market; local / unlimited sourcing will facilitate market access
2% of the population can afford any Western product– Apparel purchase focus almost exclusively on Western designers
and brands, mainly the EU luxury price points. Another 13%, the emerging middle class, can afford product ranging from
a Wal-Mart quality to department store brands.– This consumer covets Western brands today– They are status-conscious, and will mix one or two visible Western
brands, with top Hong Kong brands, among their growing wardrobe of top China brands
Major US brands targeting market development today– Requires whole new approach, merchandising, product adaptation,
body measurements, sizing to color– Will add another layer of complexity to managing process
How are you positioning to take advantage of China as a market???
Landed US Cost Analysis 2005 - US $Landed US Cost Analysis 2005 - US $
Jr. 96% Cotton / 4% Spandex Knit SKIRT & T-TOP, Print, Combed, Ring – US $ / Landed
Garment made in: Mexico Peru China
Fabric cost per garment 10.70 10.30 9.35
Trim cost per garment (incl. Pocketing/Thread) 1.80 1.80 1.60
Cut / Make / Finish Cost per garment 3.66 3.19 2.90
Average profit per garment 1.62 1.53 1.38
Average shipping cost per garment 0.09 0.11 0.12
Duty Cost into US where applicable-2005 0.00 0.00 1.44
Total Landed US Cost- estimated-2005 17.86 16.93 16.78
Importers/Brand Owner Price to Retailer 21.97 20.82 20.64
Retail List Price Before Discounting or Markdowns 59.00 59.00 59.00
Required CHINA Landed Cost to Represent Competitive Threat - $ ( 16.08 )
China – Raw Material Cost ImpactChina – Raw Material Cost Impact Women’s Jean v. Textured Poly Pant Women’s Jean v. Textured Poly Pant
4.52
2.40
$1.14
0.8
0.39
2.56
2.15
$0.29
0.31
1.54
1.65
Duty
Shipping
Profit
Cut/Make
Finish
Trim
Fabric
CHINA 2005 CHINA 2005
7.43
63%Raw
Materials
Textured Poly PantDenim Jean
10.63
70%
Raw Material
&
Finishing
US Apparel Source of Supply - ProjectedUS Apparel Source of Supply - Projected
0
5
10
15
20
25
30
35
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
US Apparel Market Supply Billion Square Meter Equivalents
Domestic Americas ROW
Minor Regional
Surge
Quota-Free: Most Supplier MarketsChina Quotas Likely 2005 - 2008
US Production
Regional Supply– Canada, Mexico, CBI and Andean
CHINA
REST OF
WORLD