Wednesday, May 17, 2017

A Timeline to the Loss of Manufacturing and the Crash of Specialty Apparel Retail


 

Events all the way back to the early 1900's have shaped our apparel and textile import imbalance and manufacturing loss.  Here are some of the defining milestones in a continuing timeline.

 

1911 Unions and Progressive Sewing Begins

The deadly fire at the Triangle Shirtwaist factory killing 146 piecework sewing workers caused a public outcry and new safety and work regulations.  Quietly the industry looked for new manufacturing processes to replace the individual seamstress with a less multi-skilled employee that allowed for more personnel turnover.  This allowed factories to work around new work regulations instituted in the 1920’s

1916 The Mass Production Assembly Line is Perfected


In 1916, Henry Ford was determined to build a simple, reliable and affordable car; a car the average American worker could afford. Out of this determination came the Model T (Identical and Black Only!) and the assembly line - two innovations that revolutionized American society and molded the world we live in today.

Profitable Mass Production based on volume efficiency was born and the apparel manufacturing industry began to adopt the process.

1920’s & 30’s Ready-to-Wear Builds Factories & Brands

Retailers feature ready-to-wear apparel and fashion magazines promote production apparel based on illustrated garment patterns.  The shift from tailored sewing to production sewing accelerates allowing more assembly line mass production.  The key element of mass production, uniformity of product, is still hampering full adoption.

July 1939 Standard Sizing Promotes Mass Manufacturing

The Roosevelt administration creates a project to measure tens of thousands of American women from 1939 to 1940.  This project is designed to formulate standard sizing for the industry and promote ready-to-wear and U.S. manufacturing.  The plan is a success and mass manufacturing and the assembly line dominate apparel production.  Jobs increase even though wages only slowly increase, and by 1965 over 95% of our clothing was made in the U.S.

December 2, 1970 Regulations Choke Textile Manufacturing

The Environmental Protection Agency (EPA) is formed to consolidated the regulations and laws designed to protect the environment.  Water regulations and the Clean Water Acts of the early 70’s quickly targeted the textile industry as one of historically the largest polluters.  These acts effectively caused US textile mills to leave the US starting in 1970 with the formation of the Environmental Protection Act (EPA). They went to countries with huge pools of cheap labor and no restrictions on water or air pollution. 
Suddenly the US apparel manufacturers were faced with long raw material supply lines and large minimum orders of fabric, colors and designs. (Remember Henry Ford: "You can have any color you want as long as it is BLACK'). Another huge layer of overhead costs that were rarely included in garment cost sheets.

January 1974 MFA Separates Textile and Apparel

In an attempt to mitigate the impact of overseas fabric (textile) production the U.S. and Europe agreed to the Multi-Fiber Arrangement (MFA).  Under the MFA, the United States and the European Union restricted imports from developing countries in an effort to protect their own domestic industries.
The MFA was active from 1974 till 2004. The agreement imposed quotas on the amount that developing countries could export in the form of yarn, fabric and clothing to developed countries.
Key to this arrangement was that it did not include certain countries. Examples like Bangladesh and China, which increased exports to the U.S. and EU dramatically during the term of the MFA.

8:01 AM June 26, 1974 UPC’s Change Everything and Empower Giant Retailers

In a seemingly unrelated event at a Marsh Supermarket in Troy, Ohio, a 10-pack (50 sticks) of Wrigley's Juicy Fruit chewing gum became the first UPC marked item ever scanned at a retail checkout.  This is the development that would eventually link real-time “point-of-sale” (POS) data with all stocking, display, promotion, planning, distribution and manufacturing caused a massive restructuring of retailing world wide.  This ability to know exactly what merchandise sold under what conditions (promotion, clearance, positioning, etc.) at what price and eventually to what customer, changed the playing field.  Grocery and general merchandise stores were soon adopting complex software that converted POS data to maps of product velocity, inventory and positioning called plan-o-grams.  This created the opportunity to manage larger and larger stores based on product movement and gross profit or “shelf index”.  These stores evolved into giant locations known today by the generic, “box stores”.  Stores like Home Depot , Wal-Mart, Kroger and others including specialty discount stores like T J Max, HomeGoods and other flourish because they adhere to strict stocking rules driven by POS data.  Many apparel stores still rely on trend analysis and forecasting to stock their sales inventory.  Since these retailers still deal with long production lead times they operate at high risk. 

Early 1980’s Textile Leads Apparel Overseas and Enables Box Stores to Make Volume Buys

The cumulative effect of textile plants leaving the country and long and longer product lead times started to force the loss of apparel manufacturing throughout the U.S. To help resolve this logistical quandary, US apparel factories followed textile factories overseas, hoping the cheaper labor would help defray the new lead-time and transportation costs.  According to the Dictionary of American History published by the Gale Group, by 1980 the country had lost over 25% of the apparel manufacturing jobs.
Larger retailers, aka the box stores, began to grow and exert their buying leverage in the countries not included in the Free Trade Agreement FTA/MFA trade pact. This buying leverage allowed the POS based retailers to tie their inventory much closed to actual sales and the impact of their volume allowed them to dictate lower costs and create consumer value based on price.
Source: Office of Textiles and Apparel, U.S. Department of Commerce

1992 DAMA Helps Send the Last Apparel Jobs Overseas

In a well meaning attempt to save manufacturing jobs an a disappearing major industrial segment the federal government funded $222 million to created the Demand Activated Manufacturing Architecture (DAMA) Project from 1993 to 1997.
According to the official description:
The DAMA project team consisted of around 30 companies, four Department of Energy (DOE) national laboratories, one DOE production facility, several universities, and one Cooperative Research and Development Agreement(CRADA) spread across the entire country.
The stated goal was:
The industry has determined that collaborative business practices are necessary to provide a significant reduction in time and cost to product pipelines. Potential savings in the U.S. Integrated Textile Complex (ITC) are estimated at $45Billion per year with a realistically achievable 50% reduction in time. DOE has determined that there was a need to ensure a reliable nuclear deterrent with declining resources by applying information technologies and shared business practices to product realization. The DOE goal was to reduce product realization cycle time by 50%, which will result in significant cost savings, while achieving ten times fewer defects.


Source U.S. Bureau of Labor Statistics
If successful the project would have provided a continuous integrated path from sales, to sourcing, to manufacturing, to inventory.  This integrated demand path would reduce risk and provide detailed inventory control and greater profits, ultimately moving production closer to sales and reversing the job loss.  Great idea, poor execution, rather than focus on the growing technology of apparel production, the project was seduced by the 1990’s promise of the rapidly growing internet technology of information exchange.
The project spent vast amounts of money improving the ordering and communications and control of apparel sourcing, while supporting the concept of mass manufacturing.  The result was a technology leap in the ability to manage sourcing and production management information.  This information did not change the process of textile manufacturing, fabric coloring or apparel manufacturing, however, it did provide a better window on labor costs and quantify the savings of overseas manufacturing.  Thus with greater visibility and control thanks to taxpayer financed internet software 70% more apparel jobs moved overseas.

2005 After the MFA the WTO is No Solution

This was the end of the MFA’s term (1974-2004)  and the U.S. tried once more to save the apparel trade by brining the textile and apparel trade under the auspices of the World Trade Organization (WTO).
Wikipedia’s history of the transition taken from a number of references:

At the General Agreement on Tariffs and Trade (GATT) Uruguay Round, it was decided to bring the textile trade under the jurisdiction of the World Trade Organization. The Agreement on Textiles and Clothing provided for the gradual dismantling of the quotas that existed under the MFA. This process was completed on 1 January 2005. However, large tariffs remain in place on many textile products.
During early 2005, textile and clothing exports from China to the West grew by 100% or more in many items, leading the US and EU to cite China's WTO accession agreement allowing them to restrict the rate of growth to 7.5% per year until 2008. In June, China agreed with the EU to limit the rate to 10% for 3 years. No such agreement was reached with the US, which imposed its own import growth quotas of 7.5% instead.
The simple average U.S. tariff on all goods in 2012 was 4.7 percent (calculated as the average tariff applied to 10,511 tariff lines). However, the applied tariff rate for U.S. imports in 2012 (calculated as duties paid divided by customs value) was 1.3 percent, which confirms that there is a higher incidence of importation of products subject to low- or zero-tariffs (which, in turn, confirms the protectionist, anti-consumer nature of tariffs). For apparel products (catalogued in Harmonized Tariff Schedule Chapters 61 and 62), the average applied rate of duty was 13.1 percent in 2012, with importers paying as much as 32 percent on some articles of clothing.

The question remains if the apparel trade is protected by a duty of up to 32% and the added costs of transportation from overseas why can’t U.S. factories recover and why are apparel retailers failing.

2009 Online Technology Cuts Into Retail Sales

Forrester Research commissioned by Google
Initially the online competition to brick and mortar retail was focused on clearance of excess inventory through secondary sales and the sale of custom printed uniforms and athletic wear.  Consumers soon became more sophisticated and the conversion from mall shopper to online searcher changed buying habits.
Wandering the mall for the “right look” was easier on social media and finding bargains and the right fit in stock was much more efficient on store internet sites.  The chart shows the increasing influence of online searching and directional shopping.  It also shows that over 80% of purchases still occurs at a physical location where look, feel and fit are confirmed. 
The impact of social media has had much more to do with the demise in mall traffic than a reduction in retail sales.  Lists of affected and failing retailers and anchors are directly related to mall locations and the demise in social traffic.  Companies and pundits who blame internet for these failures are overlooking the social role of malls that has been replaced online.

2017 The Retail Segment Follows the Manufacturing Collapse

Thousands of retail stores, mall anchors and  apparel specialty stores are closing in 2017.  There are lots of individual reasons but the common link is inventory overload caused by lack of store traffic and cost based volume purchasing driven by forecasting and mass manufacturing technology.  The result is debilitating discounts and lack of product differentiation.  Massive inventories at brand level and distribution sites caused by cost based volume buying leave retailers and brands with little alternatives.
According to Advanced Analytics, a major supplier of POS data, product sales are less than 25% of inventory in the first 8 weeks of a garment’s retail sales and still less than 30% after 13 weeks.  These sell-through levels cannot support retail apparel sales and will soon collapse brands that also search for cost savings through volume buying.

2017 Enter The New Player Purchase Based Demand Manufacturing


Demand printed using no water, no minimums, direct from a virtual inventory...

Direct-to-garment, digital sublimation, Active Tunnel Infusion and other coloring and dye technologies that don’t need water and polluting chemicals are now operating in small factories all over the U.S.  These purchase activated factories understand the value of B2B and direct to consumer demand based inventories.  They will soon evolve with design and sewing services and use their high profit low risk virtual inventory production to build a new future of domestic manufacturing.  Unfortunately the current large brands and retailers have little understanding or regard for this innovative wave of entrepreneurs.  This institutional resistance to change will likely result in many more iconic retail and brand failures before apparel manufacturing fully returns.  Since the consumers a here and their demand ultimately drives purchase activated manufacturing the future is bright.
                                                                                                          
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