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.

                                                                                                          

Principle 4: Inventory Turns not Volume makes Profits

The Impact On PROFITS by Inventory Turns Based on POS Demand Replenishment

Since the inventory is virtual stocking, production decisions are based on velocity not space, storage cost or salvage value

Agile manufacturing and micro-merchandising are the basic enablers for both Demand Replenishment (DR wholesale) and Purchase Activated  Manufacturing (retail), but the real path to maximum profits is managing the movement at and after the POA.  When the manufacturer is producing product at a rate matching sales, quick turns and detailed data integration reduce risk and boosting profits. Management of the production path where the generic physical inventory (Generic Stocking Unit: GSU) is transformed into an individual SKU awaiting sale is the critical determinant of profitability.  The unit production at this point must have real time POS sales demand integrated with ERP production scheduling.

Demand Replenishment B2B Sales

The first Principle of demand is; “follow the money” which requires integrated Point-of-Sale (POS) systems that follows the money or in this case the retail sales by unit, in real time.  This POS data should be automatically consolidated and compared to the DOS on hand.  Once the preset minimum is reached the ERP orders a replenishment DOS from the demand manufacturer.  At the brand and manufacturer level the demand is based on “days-of-supply” (DOS). DOS is a unit production schedule based on the retail sales velocity plus the time require for the distribution pipeline to sort and transport product to the selling location. Averaging the sold product take away for a week and adding the units in the distribution pipeline determines the unit volume of the DOS for each specific SKU.  This calculation will provide product availability with the risk of only minimal surplus units as the product velocity accelerates, then peaks and decelerates through the product’s sales life.  The DOS calculation must be separated buy SKU, including sizes and also separated by distribution path and selling location. Once this is calculated, the units for production are re-consolidated by sewing group and drawn from the virtual inventory as production groups. Each unit is then image tagged with a production tracking bar-code in an area of cut space outside the garment image along the seam allowance.  The sewing group designation is defined by the production sewing format required.  Most replenishment orders at the wholesale level will have multiple units of the same SKU and therefore will use a modified progressive bundle sewing system.  The sewing system drives the print layout, which in turn drives the cutting nest and the organization of the cut pieces for delivery to the sewing station.  This explanation may seem complex, but in operation it is simple, efficient and capable of continuous individual or group unit manufacturing without time consuming color changes or production retooling and rerouting between SKU and design changes..

Purchase Activated Manufacturing (PAM) Direct to Consumer Sales

The receiving of funds and selection of product from the virtual inventory, initiates the production schedule for individual PAM direct to consumer sales at any level (retail, brand or manufacturer).  It is important to remember that online sales from a virtual inventory can give every level direct access to the consumer.  This levels the playing field and gives all players the opportunity to sell product at retail profit levels. PAM sales can create low risk increased sustainable profits by linking retail selling price directly to production.

The primary difference between wholesale Demand Replenishment (DR) and consumer PAM is in the print layout which ultimately produces an individual production bundle of each complete garment for a modular unit sewing system.  The PAM factory needs to be fully integrated with technology for change-on-the-fly printing and dyeing as well as single-ply cutting and a bundle delivery system.  Quality control must be designed into the process, because one error is 100% error when the order is for one unit.  Note: QC will be covered in detail in a later blog.

Both the DR and PAM production systems depend on timely, accurate and detailed purchase information to drive an integrated ERP scheduling module that matches the DOS of GSU usage to the velocity of SKU units leaving the PAM facility.  Keeping the proper inventory of low risk GSU supplies on hand allows an efficient, fast transformation to a pre purchased high profit SKU.

Why Does the Industry Fail to Adopt Sustainable Profit Based DR and PAM Systems?

From direct observation over the last decade of systems development, the major reasons the apparel trades have not embraced DR or PAM are:

First, the industry believes the product must be in the store and available to touch and try on.  As more and more retailer close their doors and online sales grow it is obvious that this is a fundamental misconception facing the traditional apparel market.  The antidote to this part of the problem is simple, retail stores are still the best opportunity to provide consumers a gateway to the virtual inventory.  Treating this supposed misconception as an excuse instead of an opportunity is the problem. Retail stores are the only place that can provide both the opportunity for instant gratification or the value of perfect gratification, because the store can personalize product onsite, or act as a tailor to produce the perfect fit and look for the customer, willing to wait three days for the perfect garment.  Proof of this concept is the instant gratification of the paint counter at the local home center and the success of online tailoring in specialty online clothing.

Second, Retail chains and brands have invested millions of dollars in software and employees given the mission of out-smarting the market trends months and sometimes years in advance.  With a consumer market bombarded by social media, cable channels, personalized target advertising and fashion blogs at every traditional market level, predictions are often a bigger risk than a Vegas table.  The solution has been to focus on “time-to-market” instead of customer value.  This ability to create product samples is an important step, but because most technology stops with the visual sample the production still takes months and minimums with the mass inventory still a risk.  If even a fourth of those millions had been spent on production technology integrated with the virtual sample and integrated POS ordering, production times would be slashed and minimums would disappear. Production would support real time inventory and distribution with little risk of overstock or out-of-stock gambling.

Third, the basic relationship between the three parties in the sourcing path needs to change.  The current relationship fostered by mass production and cost based purchasing creates an adversarial relationship between manufacturers who must produce volume to reach contract cost levels required by retailers who, in turn, only want enough product to fill the shelves unless they have a hit.  This leaves brands in the middle trying to satisfy both parties of this unsustainable triangle.  Unfortunately, this belief that volume lowers cost and lower cost is the basis of profit has caused manufacturers and distributors to sink millions more into efficient repetition mass production technology instead of agile technology that produces only what the consumer wants on demand.

Fourth, the industry has created a set of business formulas that artificially support the continuation of unsustainable mass production.  None of the standard inventory, sales and margin formulas account for the actual sales income compared to the potential sales income. Current formulas all start with a fixed inventory level defined by units or dollar value.  The ability of the manufacturer to provide production and delivery directly related to the demand for the product and the effect on potential profit or loss is not calculated.

As an example take an average apparel sell-through percentage as published by Accelerated Analytics, a highly respected firm that provides retail reporting services across the product spectrum.  Starting from the fixed initial inventory, apparel on an 8 week cycle has an average sell through of 24.3%, after the initial cycle stores will begin a discount cycle resulting in an additional 4.2% for a total sell-through of 28.5% by week 13.  After week 13 retailers will clear product at heavy discount or resell product to discount outlets resulting a sell-through of 45.5%at 26 weeks and a reported sell-through of 68.7% of the initial stock by the end of the year.  Remember these sell through percentages, they will be used to calculate the profit difference between fixed inventory and DR inventory replenishment in a spreadsheet example.

Fifth and the most pervasive argument from the defenders of the current mass production paradigm is that, “no purchase activated manufacturing technology can support the volume required by the market”.  The argument is rooted in the idea that mini-factories cannot be efficient enough in cost to compete in the market.  So while big brands and mass retailers loose billions in lost profits from over production and risky forecasts months before actual sales, small demand mini factories continue to flourish online.  

Looking for an example of the impact of demand based micro-factories.  Visit your local micro-brewery pub.  These small demand based breweries scaled to fit product demand have flourished because their product is produced to match the demand and the distribution is direct to the consumer. According to U.S. News & World Report, these thousands of micro-factories have carved out a $22 billion share or 21% of the $105.9 billion U.S. beer market. In addition the large brands have been forced to merge and consolidate even though they are experts at the cost efficiency of mass manufacturing.  Yet the little guys continue to grow at nearly 13% per year while the big mass manufacturers lost another .02% of the market.  This is just another example of the billions poured down the drain by domestic companies that believe they can drive the market to match their cost based production, rather than capture the billions in lost profits by matching real time production to demand.

Examples Based on a Real Purchase Activated Mini-Factory

The examples below are based on the production volumes and delivery cost from a prototype integrated mini-factory built in southern California in 2011 and operated through 2015.  The cost per unit difference is inflated to demonstrate the profit impact of flexible demand sourcing.  The factory run by AM4U, Inc. is pictured at the top of the blog and featured in the linked videos.

Example of overstock and discount from a fixed inventory ordered months in advance:

Example of the same product ordered from a flexible virtual inventory ordered on demand with two weeks delivery.  No risk of overstock or insufficient GP to support operations cost.

Example of the same product selling hot and out-of-stock with lost sales because of offshore replenishment production response time.


Example of the same product selling hot and replenished every two weeks based on a DOS formula developed from POS history.  Only inventory remaining is orphan sizes.  High profit with no risk of surplus inventory and wasted production and pollution.

Key lessons learned from this prototype PAM facility are:

1. The integration of design, marketing, production prep, raster image processing(RIP), printing, cutting and fulfillment software is the key missing link to adoption of DR and PAM production.  The hardest development task of this project was to link the separate software company’s products in a seamless chain of marketing, production and fulfillment.  The resistance of single task technology “silo’s” to understand their interdependence is the primary roadblock to the return of domestic production.
2. The concept that domestic manufacturing cannot compete with overseas is entirely based on a comparison of labor costs.  It is not a realistic comparison of cost at the point of sale.  The cost of bulk transportation, multiple factory sourcing surcharges and minimums, duties (as high as 40% on some apparel), domestic inventory storage and unsold stock are not accounted for in most sourcing formulas.  According to FORBES "United States still maintains tariffs on clothing that amount to 10-times the average U.S. tariff." After years of piecing together cost and estimates from experts and internet sources there is no reason to believe labor costs actually make more than a 5% difference in the total cost of product at the point-of-sale.
3. The impact of attacking overstock and out-of-stock inventory losses has more impact on profits than a 30% lower cost of product.  The overstock and out-of-stock examples above detail the difference between attacking costs only and attacking losses with a virtual inventory and demand activated production.  The path to sustainable profit is make what you sell and sell everything you make!
4. The myths, that demand digital production cannot deliver timely product to replenish retail and online sales is another myth of misunderstanding.  From personal experience and early mistakes to today’s integrated mini-factory there has been a huge evolution in capacity, scalability and cost.  

Just pick a volatile product category like printed top or leggings and run the numbers comparing actual sales weighted by discounts against the contract order.  Compute by both units and dollars to see the impact a mini-factory making that product category will make to the bottom line.  
An integrated digital apparel system from merchandising to fulfillment for DR and/or PAM can be assembled and in operation in less than eight months at a cost of less than a million dollars and pay back with a profit in less than a year.  You can contact me at: bgrier@am4u.com, for live spreadsheets and a full project plan.

Videos of Purchase Activated Manufacturing and Demand Replenishment in Action

Links to YouTube Videos

 This video is a overview of Purchase Activated Manufacturing and the integrated technologies now available to build a pilot facility for Demand Replenishment (DR) and Purchase Activated Manufacturing (PAM).

Executive Overview of Purchase Activated Manufacturing

 This video shows the profit advantages of PAM over conventional overseas manufacturing.  The numbers are best single garment estimates from a number of industry players however, most companies do not breakdown individual unit total cost because of mass production and shipping.  AM4U has active comparative spreadsheets that can be used to estimate investment payback and unit profit.  Contact me for more info.

Profit building with PAM technology.

Water-less chemical free dye and print with Active Tunnel Infusion™ technology.  Avoid the high cost and time of prepress minimums and the risk of inventoried prints and colors that don't sell with permanent color and print using advanced frequency technology from AM4U.

Active Tunnel Infusion™ dye and print technology

Building consumer value through pollution free consumer choice builds profits by selling at retail price instead of costly discounts and clearances.  Build business through promotion and loyalty without risking overstock or out-of-stock losses. Avoid costly environmental fees and costs while creating sustainable jobs at home.

 Empowering the consumer

Building an integrated expandable mini-factory to offer both DR and PAM to your customers.  Take a tour.

The Integrated Mini-factory background

Building the Factory 

Compare ATI with modern water saving technology.

CCTV media video Dye vs ATI 

Principle 3: Build Jobs on a Profit Base Through Micro-Merchandising

Principle Three

All Marketing starts with the individual

Micro Merchandising integrates production with consumer value

When you’re capable of making individual products at full manufacturing speed you can use micro merchandising to address individual customers instead of groups or market segments or even niches. For instance, if you have a situation where you have a specific style that everybody wants like a fleece hoodie.  Then you can address that shape with all the different decorations and colors that might sell to just one person in some obscure country somewhere in the world.

Always Make a Profit

When you digitally produce one item, which is already paid for, from a virtual inventory, you make a gross profit every time. Paying in advance makes unit production purchase activated.  You will always make more profit per unit than you make if you mass produced a product to get a lower cost and then have to sell out your entire inventory to realize the savings.  When companies mass manufacture in advance, sooner or later they have to discount or dump over stocked product.  Even if a garment is popular and sells quickly, when all the popular sizes are sold, someone will have to eat all the odd sizes. Both of these problems will take away from profits. The idea micro merchandising is to open a style (silhouette) with a wide scope of prints and color choices spanning the entire market to reach even the most obscure group of individuals. Remember, you have no risk in creating an individual virtual design and if somebody buys that item you’re always going make a profit. Since you are normally printing in process color the cost is the same every single time no matter what color the artwork or complicated the decoration. Regardless of who your target customer is, even if it’s one person in a bayou in Louisiana and you’re just making a personalized jersey for a worker on the softball team at the Tabasco factory on Avery Island.  You are still going to make exactly the same profit that you made for someone who is a pro football fan and wants a specific name or number. This transition to virtual risk instead of financial risk is intuitively difficult, it is very important to constantly remind yourself that a massive inventory of virtual product that can fit in your smartphone, makes a lot more profit than the one hanging in the warehouse.

Building a Micro Merchandising Campaign

Let’s look at how a micro merchandising campaign gets organized. Currently we look at apparel in two forms of merchandising organization. Apparel producers look at products as collections or they look at the seasons. They try to build around those models simply because they have to order in large volume. They want to have some organizational grouping to sell at retail so the purpose is to be able to have a display that has some continuity and planning cycles. This event-based structure creates traffic and helps shoppers find what they’re looking for. Retailers can create display excitement and build traffic pattern through the store. Shoppers can look through common product theme of the collections including displays of different products of the collection. Everything from accessories to actual apparel can lead shoppers to different points around the store. If it’s a seasonal structure then all the products in that particular area, like tops or the pants or shoes all fit that season. When the whole store changes from winter to spring the prints and the colors change. 

The problem is not everybody wants to buy on a schedule dictated by the supply chain’s most efficient cost of mass production. Consumers want to buy what they want when they want it. This means a growing number of potential customers are no longer shoppers wandering the mall.  This new rapidly growing segment is searchers looking for a specific product that meets their current need.  This massive dis-synchronization between mass production scheduling efficiency and individual consumer purchase timing has always been accepted as an unchangeable reality of mass merchandising. Giant mass merchandisers mitigate this dysfunction through purchasing leverage and the value of lower prices.  Specialty stores try to use real or contrived giant markdowns and clearance events to make the same appeal to consumers.  The basic dysfunction is still the same.  Retailers cannot clear their entire inventory by telling the consumer what and when they should buy. Clearing the inventory by having the last shopper buy the last product at full retail price is the retailer’s impossible dream. Micro merchandising linked to Purchase Activated Manufacturing (PAM) can finally make that dream come true.  

Structuring Micro-Merchandising to a Product Group

When you manufacture after purchase in a consumer activated Integrated Mini-Factory there is no physical inventory to discount or dump. The marketing tactic for creation of this hyper profit demand environment is micro-merchandising. The effective application of this individualized selling requires new organizational structures for product presentation. There are three sequential levels to building a micro-merchandising campaign.  The sequence layers technology and offers additional consumer participation and value at each level.  The process also offers the provider the opportunity to develop and fully test each level before adding the next layer.  The levels are identified by the main feature they offer, the first level is the catalog level, followed by the customize level, followed by the individualize level.  Each level has tasks and technology, which synchronize with the next level.  Building the levels in progression allows a merchandiser to anticipate the features needed at the next level and avoid software backtracking that costs time and limits offering growth.

Catalog Level

The catalog level is the primary building block of micro-merchandising where the essential integration between merchandising, sales, PAM and fulfillment is established and coordinated.  The first decisions are to establish the market space and selling platform.  In short, what are you going to sell and how are you going to sell it?  In apparel it is important to remember all the required production steps in order to insure the best possible efficiency and lowest PAM production cost.  For instance, look for common fabric construction types (knits or wovens or laminates or non-wovens) this can make a huge difference in the type of cutting and sewing equipment needed in the PAM factory.  Remember coloring and printing are an integrated part of PAM, so fabric choice is generic white or greige, so swimwear, leggings, tops and underwear are all from the same construction family.

Second, decide if the selling space is online, retail or both. Building an accessible virtual inventory is required in either selling space.  The catalog level requires the design software to produce 3D/360 output for the catalog and matching 2D RIP compatible output for PAM.  In addition the software should have PLM link for generic POA and virtual inventory management and production/fulfillment tracking.  The next level, Customization, will require an embellishment layer, which needs to be compatible with the catalog images.

Once the basic silhouettes have been chosen, a merchandise matrix can be constructed for detailed planning and scheduling of the designs that will be offered in the virtual inventory catalog.  

The product matrix is a three-sided image (see illustration) that can help visualize the choices and priorities of developing the full virtual inventory.  The virtual inventory has no limit in size since it only exists in the catalog data cloud.  However, with size comes great responsibility, the cloud must be easily searchable and a comfortable visual experience for the consumer or wholesale buyer.  The images need to be high-resolution 3D/360 and easy to see and find on multiple devices.

Virtual Inventory and PAM Integration

The integration of production (PAM) and the virtual catalog is not difficult if silhouette discipline and compatible software are maintained.  The sequence is easy since the parts are available in the market today.  First, build the gray silhouette in the compatible 3D/360 software and check the graded sizes for production pattern capability.  Once the production patterns are approved the 3D/360 design software avatars can be draped or filled with any color or design that fits the micro-merchandising selling sites selected.  Silhouette disciple is important to insure that costs remain constant and manufacturing meets PAM delivery criteria.

Key Features of the Catalog Level

•  The POA for final manufacturing can occur in store for instant gratification (like the paint counter cited in Blog #2&3) or in a local PAM factory for daily delivery.
•  The virtual inventory is based on decoration not designs by fabric cut.  Cut and seams are only required for change in fabric construction or closures and fasteners. Other seams between colors and areas can be printed with high resolution that reduces sewing and cutting costs.
•  Close integration (order transmission) can allow PAM to produce a physical inventory that is already sold, which produces much higher profits and no overstock or out-of-stock sourcing.

Customize Level

The customize level of micro-merchandising allows the consumer or wholesale/retail buyer to add embellishments and color changes to catalog products to create unique personalized garments or a line of private label apparel.  This level adds a layer of object art, trim or color to the catalog offering.  This new SKU is visualized on the 3D/360 avatar and placed on the 2D production image automatically. 

This capture is from an  Embodee (embodee.com) demo the leader in 3D/360

The choices are selected from a side menu of “brand rules” tested in advance for compatibility.  Although some of the trim and fastener items may have to be physically inventoried in generic colors, many can be colored or produced along with personalized care and brand labels using digital technology as part of unit production in the PAM factory.
See the entire video on Embodee's 3D/360 at:  https://www.youtube.com/watch?v=UnG67C3kj-c&t=3s

Key Features of the Customize Level 

• Consumers can create personal value through participation in the design and manufacturing process supporting higher retail value while maintaining constant cost model on presold goods. Translation: higher margins without inventory risk equals greater profits. 
• Retail and wholesale buyers can create private label versions and test them online without risk. Result, greater product differentiation without unsold inventory risk.
• Brands can tweak designs under pseudo names and gather massive demographic and consumer data online without risking brand position or wasted minimums. Result: sell to retail with hard sales projections by geographic and demographic results and no risk of “charge-backs”.

Individualized Level

The individualized level is characterized by a multitude of micro sizes built to match individual shapes and then visualized in virtual catalog changes to the avatar in the 3D/360 to match the body type of the individual consumer.  All the embellishment capabilities are still in place and retained the cutting pattern as it morphs into a tailored garment.  This perfect fit feature can be input through body scan, retail smart mirrors, smart phone and home game scanners and once the individuals point cloud is established it can be applied to the entire catalog creating a realistic view of apparel choices.  This ultimate consumer value proposition can generate generic design planning and market advantage data that can reduce risk and drive profits.

 Watch this entire video at: https://www.youtube.com/watch?v=BeUHLNhS3BY

Key Features of the Individualization Level

• Consumers can create a virtual store using fit and fabric of their previously purchased silhouettes to use for reordering or redecorating and repurchasing. Creating sales without new design, marketing and development costs to retailers, brands and manufacturers. 
•  Generic production data from private consumer virtual stores added to current trend analysis technology can drive future catalogs and planning much more accurately. 
• Consumer brand loyalty will become a personal attachment for future purchases.

The Consumer Participation Experience

An apparel searcher/shopper becomes an apparel purchaser based on a sequence of decision questions:

1.     Purpose: What am I looking for?

2.     Look: Does this look fit my purpose?

3.     Fabric: Does this fabric work and feel right?

4.     Fit: Does this garment fit me?

5.     Price: Does this price match the value?

Answering these questions is the requirement to convert a retail or online searcher to a purchaser that activates the virtual inventory and PAM production.  Since purchase can drive the process for both retail and online activity, a review of each question on in each selling space is required.

Purpose: The x factor in the purpose decision is “brands”.  Many brands have established an identity around specific positioning like recreation, athletics, business wear or children’s wear. That positioning can direct the decision to search a specific retail specialty store or a specific site. The brand’s detail purpose features ultimately gives the advantage to the online seller because the performance and visual information can be sourced much easier on the internet.  In addition the retail store can require significant time and work to find the product… if it is still in stock.

Look: Here the advantage can depend on the sellers (brand or retailer) use of social media.  Look is a product of both personal taste and peer influence social media can influence both.  If the apparel has the “look” and is linked to a convenient retail site then instant gratification can dominate the decision and retail wins.  If the is no link or convenient location, online PAM delivery direct to the consumer wins. 

Customer creates the "look" at retail with virtual Kinect® technology.

A mitigating factor is an online kiosk or display in the retail store with direct access to the virtual inventory.  If the consumer can feel the fabric of try on a grey fit version and select color and print the store will win the sale for direct shipment.  Links to virtual try on technology: https://www.youtube.com/watch?v=Mr71jrkzWq8&t=75s, https://www.youtube.com/watch?v=nWcGhuX6N7w

Fabric: Consumers need both tactile and performance comfort with the fabrics and fasteners in a garment they decide to purchase. An instore touch screen display, like the one pictured below, can allow consumers to try on solid color garments for fit and fabric feel.  Then they can scan the tag and have access to the entire virtual catalog in that fabric and silhouette and add embelisments in the store or later at home.  They can then order and pickup or have it shipped to their home.  If the store has onsite DTG they can produce a PAM product in a few minutes from the customers choice.

Retail touch screen gateway to the entire virtual inventory.

Retail has the direct advantage in this situation since the actual product or a gray version or swatch can be physically examined.  Once online sellers get to the Individualization level that advantage is almost eliminated by the ability of consumers to source and repurpose product they already have purchased in another form, color or print.

Fit:  Retail has the advantage because of onsite accessibility, however; online has the advantage in market reach especially at the brand level because of consumer familiarity with a brand’s grading and quality level.  When no retailer is convenient or the consumer already has a similar product online wins the sale.  The down side for online is a much higher level of returns because of bad fit or multiple buying to find a fit.

Price: Retail has the initial value advantage because of the need to clear product for event or seasonal restocking.  Once the clearance event is over and the remaining product is dumped to the second level the advantage moves to online for two reasons.  First, online searchers are more likely to be looking for the unsold sizes because online sales tend to move the extreme sizes more that retail.  Second, online discount sites offer even lower discounts than retail so price value is an even bigger factor.

Enhancing the Consumer Search Experience

Multi-layered search criteria like lifestyles layered on color layered on content so consumers can find blue wild flower prints any time and use them to color a pair of leggings, a long or short sleeve top or a matching scarf.  Online customers in most cases are searchers that turn into buyers, rather than shoppers that just wander around and buy whatever happens to pop on the screen. Today’s customers are actually looking for something specific, so it is extremely important to create a volume of metadata linked each product to allow search engines to find the content and features of that product. Searchers need to be able to type in a key word and sellers need to have enough reference words tied to product in the catalog that searchers they are taken directly to the seller’s catalog. Creating detailed metadata can create a structure where searchers can find product. A layered structure combines different variations of the basic product and can take customer to a page where there are different choices under that one category.   This is not a new technology; online sellers and search engines use suggestive banners and pop-ups every time the user clicks to a new screen.  Apparel producers have been limited to more general market segment suggestions because of the requirement to move larger volumes quickly to clear inventories.

Enhancing the Products Personal Value

Once the customer has found the product they can now leave the catalog layer and enter the configurator layer of the merchandising software. In the configurator layer the consumer or buyer can change colors and add embellishments from a secondary clip art and trim sidebar menu. This allows the buyer/consumer to create multiple versions of the chosen silhouette to build a private label line or to create a set of choices in the consumer’s personal closet.  When sellers require physical inventory the marketing of multiple versions and consumer customization was cost prohibitive. Each choice by a buyer or consumer created a new SKU and a requirement for inventory of colored fabric and trim with all the attached inventory and waste costs. With the advent virtual inventory with POA’s in materials and agile manufacturing technology and integrating the principles of PAM the SKU’s become virtual and only create direct cost when the product has been purchased.

Target Groups of Individuals with Shared Interest

The goal is to try to find groups of individuals who fit into product shapes that you can decorate to give them individual choices. Groups like clubs, sports fans, or temporary social connections like graduates, back-to-school, brides, etc.  A specific example is one of the great under served apparel niches that has occurred in the last 10 years, is the couch athlete market.  Couch athletes sit on their couch and play some electronic game or concentrate on some fantasy football league or baseball league but they are just as involved and mentally attached to their sport, game or team as someone who’s playing physical sports. In fact many of them make as much money as the lower levels of professional sports. They identify with their characters and with the scenes that they play in.  They identify with their fellow competitors, remember they’re playing over the Internet so they’re playing against somebody very often not just against the creator of the game. Often they are playing visually, there is a two way video connection so they want to be dressed properly they want to identify completely with their with their characters. This entire world doesn’t even have a piece of apparel.  The sub market however is all individuals, each player identifies with a different character in the game. Players identify with a different color or different weapon or a different team. The goal is to take advantage of each individual identity, even if you create only a single form or single formula for the fashion. Suppose everybody is going to be wearing either short sleeve are long sleeve crew neck loose fitting light fleece. Because a lot of these players don’t look particularly good in compression fit, we’ll go with the loose fleece. The idea is that were now in a position to have a base visual so you create that gray style. Since there is no inventory cost, thousands of character from hundreds of games can be viewed and tried on with a click of the mouse. Consumers pick the characters and the original game artists and distributor ends up getting licensed art fees and you have a huge market. It’s a very predictable market because you know how many games are sold and you know exactly how many people are competing online. You know exactly how many players you’re focused on and more importantly you know who they are and their email address and you can send promotions specifically to them. This consumer target represents all the basic characteristics of micro merchandising, you are focused on individual’s value of the design, and you can create extreme profits from leveraging the individual consumer’s selection and participation value.
Social Media
There are many forms of social media that can enhance market reach and consumer value the most importnt critea is to focus on the visual customer experience.  Fashion blogs and picture sites along with strong search data can determine the level of demand and purchase that drives the PAM factory.  It is very important to find and engage specialist and online site assistance in making sure your micro-merchandising message reaches the largest market reach possible.  Remember there is no manufacturing without demand and purchasing.

Lessons Learned about Micro-Merchandising:

1. Silhouette discipline is critical to efficiency and sustained profit.  Concentrate on color and decoration to preserve constant cost levels.  This is the opposite of current mass manufacturing and hard to accept, but without this discipline merchandising and manufacturing cannot be integrated.
2. Market reach online is world wide... micro-merchandising integrated with PAM allows virtual inventory designs for every culture and group.
3. Retail stores can produce or build product from the virtual inventory onsite.  Touch, fit and design for each customer and always sell at retail price with a profit.
4. Technology is available at every level; design, test market, sales, production and fulfillment, the key is integration and connecting the software.