Wednesday, January 16, 2008

5 Tips to Export: America is On Sale

Niche brand American apparel makers face increase costs due to two macro economic factors.

First, transportation budgets are out of control. I looked back three years ago and freight was 2.9% of sales, last year it was a whopping 5.5% of sales! That's a 90% increase in three years. That pinches an 8% profit by 2.6% to 5.4%, ouch.

Second, the rapid decline of the dollar is making raw material prices spin out of control. For the last two years we've seen 15% annualized inflation for textiles coming out of Asia and Europe. Textiles and findings represent approximately 50% of an apparel items cost and it hurts to see 15% price increases.

As depressing as this sounds, there is a huge opportunity for the nimble footed small apparel maker. Look outside of the United States and export your products! Five years ago it took 1.25 Euros to buy a US dollar and 1.40 Canadian dollars to buy a US dollar. Today it only takes 0.70 Euros to buy a US dollar and 1.0 Canadian dollar to buy a US dollar.

Five years ago if an item sold for $50 (USD) it would be equal to 63 Euros and 70 Canadian dollars. Today the same item would equal 35 Euros and 50 Canadian dollars. You see, without discounting American products are 45% less in Europe and 30% less in Canada than five years ago. This is a once in a lifetime opportunity for a small business to build a brand outside the United States.

Here are a few tips, from a manufacturer whose been bumped and bruised but started exporting last year.

1) Act Local: Price your product in the local currency and ship from an address within your new customers country.

2) Europe is not a Country: The United Kingdom, Germany and France are three different countries! Just like the United States, Mexico and Canada are three different countries.

3) European Quality: Specialty store quality expectations throughout Europe are far higher than in America. Where we view clothing as a disposable item, in Europe clothing is an investment that should fit perfectly and last indefinitely!

4) Sales People: In Canada they're called sales reps, in the European Union they're called sales agents. Show them the best America has to offer and give them a work of art sell!

5) Ugly Americans: Respect the business customs of your new customers. We, the American, are the supplier and you should expect to be treated like any other supplier in the country you sell within. Remember, woman aren't treated equally throughout the world, class societies still exist and we are foreigners that don't speak the local tongue. Be polite, considerate and thankful for the opportunity because you are the guest of another country!

Export now because in five years you will have a global brand and have built up friendships throughout the world. This is a once in a lifetime opportunity. Seize the moment.

Monday, January 7, 2008

Specialty Stores on Target

I'm in New York, exhibiting the Corky & Company Winter 2008 collection, at the Children's Club wholesale trade show in the Jacob Javits Center. Four times each year, January, March, August and October, childrenswear manufacturers gather in an open venue to show their new collections to store owners & buyers. It's an exciting few days where I get quality time with my customers.

Today, Helene Fineberg, an executive with Earnshaws magazine, stopped by my booth with an editorial columnist and we were having a causal conversation about the boutique label childrenswear industry . For 90 years, Earnshaws has been the leading trade publication in my industry and over the last fifteen years they have given Corky & Company an enormous amount of editorial coverage for which I am extremely grateful.

Helene asked what was driving change in our industry and I quickly responded with one word 'Target.' It turns out Earnshaws has been doing research for an article about the impact of Target on the kids clothing market and I was quickly asked if I could be quoted. In two seconds we went from a casual conversation to can we go on the record.

As one of the nation's largest apparel sellers, Target raised the fashion - value bar to new heights and set a standard boutique label manufacturers must exceed to remain successful. In essence, the branded apparel manufacturers (ie. me) must provide products to specialty retailers which are cutting edge, fresh, novel, and at a price that screams value to the consumer.

Three years ago my customers rarely turned a tag over to look at price before they bought several thousand dollars worth of product because it was all about picking the right labels with the hottest, freshest looks, whether it be European or American. Today, however, the vast majority do what I call a 'fashion reality check' and broadly look at price points to see if the fashion is being provided at a good value.

This behavior has been extremely positive for specialty store owners because their product mix is still cutting edge, fresh and novel, but it is also represents a compelling value to the consumer. Specialty stores will never compete with Target on price, but with about 2,000 children's boutique label manufacturers pushing the fashion - value edge consumers will find a lot of extremely exciting fashion at moderate prices. Collectively we offer a product mix that could never be produced for the mass market.

Thank you Target, you made our industry change for the better!

Thursday, January 3, 2008

Customers, Suppliers & Competitors Need to Make Money

Why do your competitors, suppliers and customers all need to make money?

The wholesale fashion business for boutique brand clothing is a small business community. Like many other niche industries, our competitors buy from many of the same suppliers and sell to many of the same customers.

If you're in the business you obviously want to be profitable, but to be successful your customers, suppliers and competitors will also need to be profitable. You may think; I understand that my customers need to be profitable to buy and pay for my products, but why the heck do my suppliers or competitors need to be profitable!

To gain a better perspective let's assume you're the retailer buying branded apparel products from fifty different suppliers. As a retailer you want to buy appealing products that merchandise well together and ultimately lead to purchases that ring the register. The key is cash flow, moving inventory from the sales floor to money in the checking account so you can pay your rent, employees and suppliers.

As the retailer if your supplier base shrinks, you can't offer your customers the diversity and breadth of product that a specialty store shopper wants. It's very important to your success to have a strong supplier base that continually reinvests in new product development so you can ring the register. Now that we've pretended to be the retailer, I hope you can see why it's important to have strong competitors. It's because the store owners you sell to need a vibrant supplier base in order for them to be able to pay you for your products!

So in order for my customers to be profitable my competitors need to be profitable? Yes, but you need to continually offer better products and value to your customers because that is exactly what your competitors are doing. Don't fall behind because you'll probably never catch up!

Part of being competitive is buying products from your suppliers on terms that are comparable to your competition. Note, I said terms and not price! I love responsive, dependable suppliers that continually develop new products. These are companies you want to partner with because it will enable you to be a responsive, dependable supplier that provides your customers with new looks that will sell well. These kind of suppliers need to be profitable to maintain your commercial relationship.

If a supplier shows promise, but doesn't fully meet your expectations you should obviously consider replacing this company, but be aware of the dangers of a supply chain disruption. I call this the devil you know versus the devil you don't know. Business people aren't idiots and if your supplier is not meeting your needs simply tell them what you expect. Eight times out of ten your supplier will rise to the occasion. The other two out of ten times, you just aren't that important of a customer and you'll need to find new resources.

In future posts I'll provide some tips on finding and developing new resources. But when you decide to part company with one of your suppliers, be straight forward and honest. Just simply say, 'I'm sorry, but you currently aren't meeting my expectations. I hope we can do business again sometime in the future.' Don't get emotional, use foul language or burn bridges because you may need this supplier sometime in the future!

I hope this parable has explained why your customers, suppliers and competitors all need to make money in order for you to be successful. Let me indulge and provide a couple links to some of our on line customers - La Bella Flora and Best Dressed Kids.

Wednesday, January 2, 2008

Million Dollar Dash

A niche branded apparel maker must walk a fine line when expanding distibution, especially when your focus will be on boutiques, specialty stores and high end department stores. There really can be too much of a good thing, but there can also be too little of a good thing.

If there is too much of your label in a concentrate region, the "specialty" merchandise label will no longer apply and your product will become a commodity. However, if you don't sell enough product you won't be able to stay in business. The key is to expand geographically with your label so you can maintain the "specialty" appeal of your product and get to an annual sales volume where you can make a profit.

So what type of sales volume do you need? My answer to this question is what I call the "million dollar dash." Once you've made a decision to build a label that will be more than a hobby, you need to get to a million dollars in sales volume within three years. If you don't want to run the race that's fine because you can focus on having a profitable hobby and not quit your day job. If however, you are going to make a living from your business you'll need to run the million dollar dash.

Why three years? Burn-out. After three years you'll get so sick of the endless hours, the steady diet of sleepless nights and the fact you aren't making any money that you'll wake up one morning and decide it ain't worth it! The solution to the endless hours and incredible stress will be to a hire a small number of people and this leads to the money part of the race.

Why one million dollars? Assume for the moment you can price your product with a 55% gross margin (I'll talk more about this in a future post) and this will allow retailers to buy it, mark it up and sell it. With close to 15 years in the business, I can say if you price at a 55% gross margin, when you add it all up at the end of the year and file your taxes you'll be lucky to end up with a 40% gross margin.

The loss 15% is what I call "ideal direct cost dilution." You need 400 yards of fabric at $7 per yard and the mill minimum is 500 yards, your true cost per yard is $8.75. Your button supplier is late what a surprise. Instead of a $50 UPS bill, you have it sent FedEx at $300. You ship a catalog or department store and the box weight exceeds 30 pounds, guess what that just cost $50 per box. After all this you're ready to ship a week past the cancel date, that's going to cost you with some of your customers. The list goes on and on, so don't be surprised when you loose 15% in gross margin.

You're going to need a full time team of 5 people to manage design, sampling, production planning, purchasing, quality, trade shows, customer service, warehouse and the finances. In addition, you'll need some temp help for the warehouse twice each year to get the product shipped by the cancel date. After you get done matching FICA, paying wages, unemployment and workers comp insurance each employee is going to cost about $40,000. The temp help will run about $10,000 each year. This totals $210,000.

Guess what independent sales people work for commissions and if you want them to work hard you should pay at least 10%; that's $100,000 of the million in sales. The two New York trade shows you'll need to exhibit, will cost about $25,000 after you pay for travel, event fees, decorations and the ten dollar bottles of water. Add in hazard & liability insurance, rent, office supplies, postage, accounting fees, etc and this will easily run another $65,000.

Why one million dollars? Just do the math.

$1,000,000 Gross revenues
-600,000 Cost of goods sold

=400,000 Gross profit

-210,000 Labor (your one of the employees)
-100,000 Sales commissions
-25,000 Trade shows/advertisement
-65,000 Other necessary expenses

$0 Net Profit

At least you made $40,000 as an employee and you now know your business' break even point!

In future posts I'll explain ways to lower your cost of goods sold and other indirect costs and also to get back some of the ideal direct cost dilution. This morning I read a great post by Jeff Cornwall about Bootstrapping your Business for Income and Wealth. Bootstrapping is extremely important for the long term success and profitability of your business.

Tuesday, January 1, 2008

Who are Corky Coats

Corky & Company, a children's outerwear manufacturer, was started in 1994 by my wife Kim and me.

I have an undergraduate degree in electrical engineering, an MBA and was an executive for a large aerospace company. While working in aerospace I had the opportunity to do business in many countries, so I'm comfortable outside the borders of the USA. Kim had a computer science degree and was a successful systems analyst. The bottom line, however, was we knew little about garment manufacturing, our new venture.

The fashion business is competitive, but to keep perspective realize all businesses operate in a competitive environment and the strongest survive and thrive. Any successful business you start, will require luck, inspiration, perspiration and perseverance.

If you want to start an apparel company, the best blog on the subject is called the Fashion Incubator written by Kathleen Fasanella. Her book, The Entrepreneur's Guide to Sewn Product Manufacturing is an invaluable resource for both industry rookies and veterans.

I've started four companies, three succeeded and one failed. I consider the failed business to be a decade ahead of it's time. I started a dating service in 1985 and I now think what could have been if it had been 1995. Maybe a dot com millionaire?

As I've seasoned, my hair turning from brown to salt and pepper, I've joined two company boards. I thoroughly enjoy helping people succeed and hope you take away a little something to add to your success.

Always remember, enjoy the journey because for us mortals the destination is always the same.

Corky Starts a Blog

I've read so many blogs and made so many comments on other blogs I figured I try it myself.

My wife and I started Corky & Company way back in 1994 and I want to publicly recognize the people that had a strong influence on our development. I anticipate that our customer's, supplier's, employee's and sales rep's will drive my content and this will be useful to people running small businesses.

Over the years Corky & Company moved from my basement with a handful of local suppliers, to a domestic factory and warehouse with suppliers in the Northeast, to a company with a global supply chain.

In our first year of business twelve retailers in New England bought our coats and today we serve customers throughout America, Canada, Ireland and the United Kingdom. The global element of our business is why I called this blog the Corky Nation.