Consolidation: The Next Wave

Jennifer Negley, February 7, 2005

New York — Remember the boundless opportunity that the elimination of quota was supposed to bring to overseas textiles manufacturers as Western markets opened to thousands that never before had access?

That’s not the shape of things to come, according to senior textiles executives who gathered at the Princeton Club here last week to forecast the industry’s future.

Instead, what lies ahead is a rapid consolidation of resources as large customers — suppliers and retailers — align with the best manufacturers around the globe.

“We’re going to see fewer factories in fewer countries — there can be no doubt about that,” said Robert Zane, senior vice president of manufacturing, sourcing, distribution and logistics at Liz Claiborne.

Zane was one of seven speakers addressing the American Apparel & Footwear Association’s “Issues and Solutions Conference” on the post-quota world Feb. 1 — exactly one month after the elimination of remaining textiles quotas.

Filling out the dais were: Wilbur Ross, chairman, International Textiles Group (ITG); Harris Mustafa, executive vice president of private brands and product development, Saks Department Store Group; Peter Boneparth, president and CEO, Jones Apparel Group; Homi Patel, CEO, Hartmarx Corp.; Dominic Rispoli, managing director of retail apparel and textiles, Lehman Brothers; and Emanuel Weintraub, president and CEO of Emanuel Weintraub C.M.C., a management consultant firm that helped coordinate the seminar.

Zane noted that Liz Claiborne currently sources from 300 factories in 40 countries, but expects to winnow that down by 40 percent and halve the number of countries from which it pulls product.

Indeed, Lehman Brothers found that major retailers plan to cut the number of countries from which they source or receive product by 70 percent to 95 percent, said Rispoli. Major apparel suppliers plan reductions of 50 percent to 70 percent, he said.

“The real opportunity here is the consolidated supply (base), the chance to have the all-in-one supply chain where everything happens in one place,” Rispoli added.

Executives on the panel cited a number of efficiencies that would be gained under such a scenario. There will be less ground for sourcing staff to cover; working with a core network of factories will make it more cost-effective to place a permanent quality control administrator at each site; and the cost of monitoring compliance will also decline, they said.

Rationalizing sources of supply also will result in more predictability in pricing and less time spent on activity that adds no value, said Saks’ Mustafa. “We’ve been on a quota chase around the world.”

Factory size won’t be the primary factor determining which overseas manufacturers wind up with the best alliances. Some panelists noted that while many Asian mills have doubled or tripled in size in preparation for 2005, there has not necessarily been a corresponding escalation in their management expertise.

Said ITG’s Ross, “Management of geometric growth is very difficult.”

One of the biggest benefits of manufacturing concentration will be improved speed to market, according to Jones Apparel Group’s Boneparth. He noted that brand portfolios have mushroomed as retailers increasingly demand exclusive labels, adding that one Jones division now manages 18 labels — triple the original number.

“The economics of handling a large number of differentiated brands is more difficult than managing a small number of large brands,” he said.

Constant innovation, the panelists agreed, is the key to remaining relevant to retailers.

“The life span of a successful innovative product is shrinking,” said Hartmarx’s Patel. “You have to innovate knowing that anything successful is going to be knocked off.”

The streamlined supply chain structure will bring the greatest benefits to better and brand-driven companies, Lehman Brothers research predicts. Opening price point companies will also realize a net positive, said Rispoli.

Moderate companies will be most at risk, he said. “They’re less about product differentiation, more about price.”

Forging a strong branded position will be one key differentiator, several panelists said.

“If you don’t have a brand with a strong connection to the consumer, you’ re just a sardine processor,” said consultant Weintraub.

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