June 8, 2011

On the Production End...

As the global economy faces a number of changes, from environmental disasters to social outbreaks, the future of production relies on smart, rapid adjustments in order to adapt. Whether that involves relocation, textile/material modifications, or design adjustments, companies all over the world are feeling the impact and doing whatever it takes to maintain quality while minimizing financial loss.

photo via: Red Luxury

While for decades China was seen as the world's production center, as their economy continues to rise, the nation has shifted toward becoming the next biggest consumer market. Designer brands such as Fendi, Burberry, Prada, just to name a few, have all implemented plans to increase brand presence across China. In order to solidify long term commitment to brand ownership in Asia, Kate Spade recently announced a joint venture in Mainland China with the E.Land group and reacquired its existing Kate Spade New York business in Mainland China from Globalluxe Ltd. this year. Many companies, from designer level to mid-price have all either opened more stores, staged runway shows and special events, or developed new offices. This shift of seeing China as potential consumers rather than a source of production is seen all across the board.

Due to higher wages and increased land costs, many brands have been forced to move their production to developing countries to gain higher profit margins. This is a drastic change for many, as most retailers have heavily relied on China for so long. For example, American luxury lifestyle brand Coach Inc. recently made plans to shift nearly half of its manufacturing out of China due to increased labor costs. While Coach increases sales in China, it plans to cut production in China to 40-50% from 85% at present. Instead, the company will begin further developments in countries with lower wages such as Vietnam, Philippines, and India.

While there are many others like Coach, resolving the issue by looking for a "new China" or "China alternative," these moves are unsustainable and will not work as long term solutions. In times where wise decision making is crucial, we suggest rethinking sourcing strategies that will not only increase profit, but also offer a plan that can truly last.

photo via: NY Times

Instead of looking to developing countries, one solution is staying close to home. Expressing their commitments to the North American market, German car manufacturing company Volkswagen, recently designed a new version of their midsize sedan, the Passat, specifically for America and is building them in its own new $1 billion plant in Tennessee. By manufacturing in the states and buying 85% of the parts from nearby suppliers, the company is able to significantly cut down its costs. There are reduced shipping and labor costs, and currency exchange rates are not an issue.

Furthermore, a recent study shows that 65% of wealthy American consumers prefer to buy American-made products whenever possible.  In a recent survey of more than 1,300 wealthy shoppers, U.S. ranked highest on an index measuring the quality of its luxury goods manufacturing, beating European countries like Italy and France.

photo via: Brooks Brothers

In retail, brands of all segments are reconsidering the "Made-in-America" label. The front page of menswear designer, Joseph Abboud's website proudly notes "Made in USA" and includes a video of the importance of American-made goods and shares background information of their production in Massachusetts. The Brooks Brothers' website also has a "Made in America" link, with factories from New York to North Carolina. Luxury jewelry company Tiffany & Co. has also expanded its manufacturing base to Lexington, Kentucky, and makes 60% of its jewelry itself.

photo via: PopSugar.com

Furthermore, New York-based label, The Row, continues to gain momentum as it was recently awarded for a new talent award by the Council of Fashion Designers of America (CFDA). Using factories in New York and Los Angeles, T-shirts retail for $250 and short dresses for $2,350. While the prices may be higher, the brand has accumulated a cult-like following, winning favor from even our First Lady Michelle Obama.

Quoting Brooks Brothers chief executive Claudio Del Vecchio, "There is a customer that appreciates that the product is made in the United States and is willing to pay for the difference." Ten years ago, Brooks Brothers made few goods in the US, while today, most of their goods are American-made. As the American economy is still facing pressing issues of unemployment, if they can afford it, consumers are willing to pay the higher price to show their patriotic support. Furthermore, as people are more interested in brand transparency, wanting to know where and how their products were made, locally-sourced and manufactured goods are slowly becoming the overall preference.

photo via: Ecouterre

As raw materials such as cotton prices continue to rise, cost cutting is also a new skill many brands are learning to develop. Working with "deconstruction" experts like Peter Brown, companies are seeking to make small, minor adjustments that when added up, save a significant amount. The goal is to not cheapen the product, but to see if there is any part of the production process that is unnecessary and eliminate whatever possible to keep costs low. This is similar to the zero-waste concept, more commonly known in eco-friendly fashion practices, but is also becoming a rising trend as reducing waste continues to be an important factor. Earlier this year, New York Parsons School of Design began teaching their students how to produce zero-waste fashion, in collaboration with Loomstate. And Hannah Learner, a student at Parsons, produced the first zero-waste thesis collection, mentored by Study NY's Tara St. James and the assistant professor.

Overall, we believe that eco-friendly practices will naturally find its' way into the future of production. Not only is it the responsible thing to do, but when done right, companies will see that it is actually profitable. The above is just a small glimpse of some examples, and we strongly believe that in time, there will be an even greater synergy between the two.

1 comment:

  1. For those of you who read our blog yesterday, you may find this article -- which ran in today's WWD -- an interesting follow-up on the very same topic.
    Take a look at it here: http://www.wwd.com/business-news/importers-deemphasize-china-3650442?src=nl/mornReport/20110610


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