Big Profits Await Domestic Apparel Sourcing

This Article appeared in the 4/30/2013 issue of:

 Time for a New Apparel Profit Revolution

There has never been a better time since the beginning of the industrial revolution to rebuild the apparel industry in North America. This time we can build on more than patriotism — we can build on profits! The time is perfect for the expansion of digital decoration technology into the mainstream of the fashion apparel market. For a whole laundry list of reasons the fashion apparel industry needs a new domestic solution. Ominous headlines forecast dangerous waters ahead for the fashion apparel industry. Environmental pressures, new selling platforms and increasing offshore costs are churning the structure of the multi-billion-dollar industry. This tempest has opened the opportunity for one of the world's most historically inflexible industries to navigate a new course. The fashion apparel world is facing a "perfect storm." Dark clouds are on the horizon and the seas are getting rougher every day. The industry faces three major challenges: first, the change in fiber content that's driving performance and fashion products to an increased use of man made fibers. These fibers are much more difficult to color and require increasingly more active dye compounds and processes. These processes use more toxic chemicals and more water ... a very bad direction in today's environmentally sensitive market. 

Second, the retail market has been flooded by the entry of hundreds of non-- traditional online sites. The outlets have destabilized traditional retailers and brands and created uncertainty in marketing plans throughout the industry. Third, major retailers and brands are running out of undeveloped countries with sufficient water and cheap labor to support the traditional offshore mass production strategy. Most fabric dyeing and printing requires mass production through multiple factories, which often results in excess fabric from over forecasting production. This supply and demand model and the desire to squeeze every drop of profit out of the manufacturing process has created an unsustainable structure of over-production, discount and dump in today's apparel market.

Attack the Losses and Stabilize the Costs

Meanwhile in another world far away from the chatter of 7th Avenue and the red carpets of Hollywood, hundreds of small specialized domestic apparel companies are pioneering a new approach to the economics of apparel production. Instead of spending thousands of dollars purchasing volume-based overseas production, they are producing value-based personalized apparel on demand for individual consumers and retail customers.

This demand approach to retail stocking is focused on removing the loss of profit caused by unsold inventory. By removing profit thieves such as inventory costs, carrying charges, tariffs and transportation, and most markdowns, these demand-based retailers can double or triple gross margins. The dramatic increase in retained profit more than makes up for the increased cost of production in a domestic factory.

Digital decoration fueled by online sales is growing at an accelerating pace while traditional fashion-based apparel is encountering flat growth and increasing market and supply chain instability. The industries relative sizes, however, are so vastly different that a technology splash in the pond of digital decoration sends ripples across the entire surface, but the waves dissipate in the vast sea of overproduction inherent to today's fashion apparel supply chains. The irony of this comparison is that the relatively small splash of digital technology represents the best hope for the renewal of stability and growth for the massive fashion apparel business. Digital prepress and printing allow today's online manufacturers of bike jerseys, rash guards, uniforms, performance wear and other apparel products to dye, print and imprint only the amount of apparel needed, all at one location. This is a much quicker schedule than a designer placing foretasted orders overseas, months in advance, to separate dye houses and printing companies.

This high profit demand manufacturing technology called "PAM"(Purchase Activated Manufacturing) is the opposite of the mass manufacturing left over from the industrial revolution. Once you tie the manufacturing production directly to consumer purchases, surplus production is no longer a challenge. Digital apparel manufacturers can produce a one-off for online sale at competitive prices without mass production. Today with conventional production, four out of every five blouses produced overseas are not sold at retail price. That means we've produced four blouses more than we need for the marketplace, and the water used for coloring runs somewhere between 100 to 150 gallons per blouse, so if we don't produce four of them because the technology is tied to the consumer demand, we've saved water and reduced pollution, inventory costs, transportation costs, markdowns and lost profits. Expanding the demand-based role of digital design, prepress and production will rebuild the domestic apparel manufacturing base by restoring lost profits to the retail and manufacturing sectors.

The leverage of digital technology in relation to moving the mass of the apparel industry is based on the capability of digital technology to "change on the fly." This ability to change colors and designs without time-consuming cleanup or setup allows digital printing and dyeing to operate without minimums. Preserving this fundamental digital asset while increasing the scope and speed of products can allow the apparel world to leverage change with increased wholesale and retail profits. In fact the mixing of key parts of current digital decoration technology with the vast flow of the tides of fashion will create a sea of sustainable new jobs and domestic manufacturing.

Why haven't conventional and digital apparel production joined in one big happy family? Here are some of disconnects inhibiting this union.

Color Issues

The single largest issue defining the difference between the digital decoration and the conventional apparel world is the difficulty in merging the worlds of process color and spot colors. Process color built from dots of cyan, magenta, yellow and black is the staple color system for digital devices. This color technology, also called CMYK, is widely accepted for printing on smooth, stable substrates. The problem, of course, is that most textile fabrics are neither smooth nor stable. This substrate surface problem has caused many conventional textile printers to shy away from process color based equipment such as inkjets. Because process color equipment prints dots and much of the surface of textiles is made up of unprintable air space between the knitted or woven yarn in the fabric construction. Many of the color dots are lost because they are deposited in air. This is especially a problem for high resolution graphics and also for solids. To achieve a high resolution, manufacturers should select the best dot pattern for the fabric construction or lower the resolution to bridge the voids in the fabric.

One of the basic rules of colored fabric production is that the transition from process color to spot color is a one-way street. Fortunately it travels in the right direction. When translating colors it is infinitely easier to go from process to spot than to go from spot to process. This direction is important because process color digital sampling and custom product sales have very low prepress cost compared to conventional spot color separations, screens and printing. Matching a process color with a spot color can provide a dramatic production cost advantage for when a design builds demand and can support conventional production setup costs. The newest technology is pioneering the use of both spot and process color in the same garment at the same time. This coloration process allows the apparel to be dyed, printed and even individually labeled all in one pass. This technology uses a process the can produce black bodies with colorful white and other light colors without the use of opaque white or other registration based under-color removal.

The technology can also use high-visibility colors that are difficult to produce using process color based printers. Since all of these new color technologies and techniques have the ability to change on the fly, they all maintain the advantages of demand manufacturing fundamental to high-profit digital manufacturing.

Understanding Real Cost Issues

In the world of fashion apparel the key ingredient of cost control has always been the idea that if you could get to market faster, you could somehow capture greater profits. This idea was so widely accepted that in the 1990s, the U.S. government spent a reported $220 million on a project called Demand Activated Manufacturing Architecture or DAMA. The project decreased the time and cost from design to order but did not address the technology of printing or dyeing fabric.

The project, co-sponsored by the Department of Energy, produced significant changes in the design and sampling process, which resulted in the increase of product choices. The impact, however, was increased pressure on the textile dye and print industry to produce shorter runs with more color changes, which in turn produced more pollution and additional use of water and energy. The additional product choices increased the finished goods inventory and decreased profits due to holding costs and markdowns at retail. The additional pollution drove up regulatory costs and forced the industry to move to offshore countries with less demanding pollution standards and to reduce costs through less regulated work rules. This focus on cost increased mass production and caused increased over-production, driving up markdowns and inventory costs.

While the fashion apparel industry has continued to fruitlessly pursue mass manufacturing technology as an answer to the decay in profits, the digital decoration industry has created a path to some of the highest and sustainable gross margins in apparel history. The key to demand manufacturing is no minimum "change-on-the-fly" coloration that has appeared in many forms. Whether in the form of transfer, sublimation or direct print, the industry is now evolving to exploit the Internet's booming online apparel business.

Custom decoration will soon be joined by custom dyeing technology and 3D CAD body scanning and fitting to create the ultimate personalized product offering. This highly profitable demand approach links manufacturing and sales to a single production schedule and is measured in "cost per unit sold" rather than "cost per unit."

Production Scaling the Technology

The apparel world's first business objection to digital printing technology is always the same: "Where is the mass production scale?" The apparel fashion industry cannot visualize any possible scenario where the relatively slow speed of inkjets, heat presses and single ply cutters can ever produce the volume needed to support the market. The point-of-purchase industry said the same thing years ago and the paint industry said the same thing until consumers started getting digitally matched colors without inventory costs. In fact, when was the last time you saw an ad for an inventory reduction sale in paint. The answer to the "scale" objection is hundreds of specialized mini-factories that will capture the manufacturing in segments and provide the same kind of personalized custom service the paint counter at your local home center provides. Every product made will be sold and gross margins will double or triple at retail. Look at the online custom t-shirt or bicycle jersey business, where digital demand manufacturing has built small screen printing operations into powerful multi-million-dollar apparel companies.

Building the Future

The next step will be to create a technology bridge that integrates the CAD languages of the apparel world and the postscript language of the print world into one seamless stream between patterns and prints. Although both languages have the ability to use both vector and bitmap information, their end product can differ dramatically, since one produces a 2D image and the other a 3D image.
On the immediate horizon is the development and adoption of new digital dyeing technologies using energy instead of chemistry to permanently dye the performance textiles that dominate of both the active wear and fashion apparel segments. The ability to permanently dye man-made fabric without the use of water or harsh chemicals can allow small specialized vertical factories to capture a higher level of gross margins by dyeing and printing of apparel fabrics. These "fabric to finished product" mini-factories can operate without production minimums or regulatory controls of water use and produce no toxic byproducts.

The final step will be the expansion of the vertical online direct sales specialty companies that manufacture and sell directly to the consumer. These manufacturing/e-tailers represent the next big wave of change in the apparel industry. Today most of these online companies are limited by their inability to vertically combine in-house dye, print, cut and sew with online customer input to produce various garments directly from white goods.
Digital dyeing and decoration capabilities allow online companies to expand and products that previously were the private domain of traditional producers of action sports, technical apparel, commercial uniforms, resort and recreation activewear and casual fashion.

Summary

The use of digital information to convert data into product on demand can revolutionize domestic industries and flip the supply-and-demand economics that has driven manufacturing since the industrial revolution. Now is the perfect time to maximize the leverage of our domestic consumer base and switch to a demand-and supply economic model.

Bill Grier is managing director for AM4U.