Plunkett Research, Ltd.                                                       

                             APPAREL & TEXTILES
                              INDUSTRY TRENDS
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  Table of Contents                                                                                     1
  Major Trends Affecting the Apparel & Textiles Industry                                                2
     1) Introduction to the Apparel & Textiles Industry                                                 2
     2) Globalization: China Dominates Apparel & Textiles But Its Explosive Growth is Checked           3
     3) Apparel Firms and Clothing Retailers Targeted for Mergers and Acquisitions                      5
     4) High-Tech and Smart Fabrics Proliferate                                                         5
     5) 3PL Supply Chain Management Evolves to Serve the Global Market                                  6
     6) Synthetic Fiber Manufacturers Face Global Glut                                                  9
     7) U.S. Linens Sales Dominated by Big-Box Retailers and Discount Department Stores                 9
     8) The Vast Majority of Shoes Sold in the U.S. Are Now Made in China                               9
     9) Bricks, Clicks, Catalogs and Living Rooms                                                       9
     10) Alternative Sizing Is Big                                                                     10
     11) Baby Boomers Dominate the Apparel Market                                                      11
     12) Discount Clothing Retailers See Promise in Designer Lines                                     11
     13) Haute Couture Designers Experience Conflicts over Costs and Control                           12
     14) Luxury Goes Online                                                                            12
     15) Mass Designers and Retailers Speed Up for Fast Fashion                                        13
     16) Athletic Footwear Draws Big Names from Athletes to Designers                                  13
     17) Specialty Retailers Look Forward, and to the Past, for New Ideas                              14
     18) Some Apparel Manufacturers Still Resist Outsourcing                                           14
Plunkett Research, Ltd.                                                         

                                              Chapter 1


     Major Trends Affecting the Apparel & Textiles      16)   Athletic Footwear Draws Big Names from
                      Industry:                               Athletes to Designers
                                                        17)   Specialty Retailers Look Forward, and to
   1)     Introduction to the Apparel & Textiles              the Past, for New Ideas
          Industry                                      18)   Some Apparel Manufacturers Still Resist
   2)     Globalization: China Dominates Apparel &            Outsourcing
          Textiles But Its Explosive Growth is
          Checked                                       1)     Introduction to the Apparel & Textiles
   3)     Apparel Firms and Clothing Retailers                 Industry
          Targeted for Mergers and Acquisitions              While China is rapidly gaining a dominant
   4)     High-Tech and Smart Fabrics Proliferate       position in shoes, apparel and linens manufacturing,
   5)     3PL Supply Chain Management Evolves to        U.S. makers of these items have suffered a long
          Serve the Global Market                       period of decline. For example, over 98% of the
   6)     Synthetic Fiber Manufacturers Face Global     shoes sold in America each year are imports, and the
          Glut                                          vast majority of these imports come from China. To
   7)     U.S. Linens Sales Dominated by Big-Box        consumers, this growing reliance on China as a low-
          Retailers and Discount Department Stores      cost producer has meant very low retail prices for
   8)     The Vast Majority of Shoes Sold in the U.S.   goods of reasonable quality. In fact, some categories
          Are Now Made in China                         of clothing have actually gone down in retail price in
   9)     Bricks, Clicks, Catalogs and Living Rooms     recent years.
   10)    Alternative Sizing Is Big                          Hundreds of thousands of U.S. manufacturing
   11)    Baby Boomers Dominate the Apparel             jobs have been lost in this industry. Since 1997, 367
          Market                                        U.S. textile plants have closed. More than 440,000
   12)    Discount Clothing Retailers See Promise in    U.S. jobs have been cut and most remaining mills
          Designer Lines                                operate at 50% capacity. Textile mill bankruptcies
   13)    Haute Couture Designers Experience            have been commonplace.
          Conflicts over Costs and Control                   Meanwhile, the manufacture of basic synthetic
   14)    Luxury Goes Online                            textiles, such as polyester fabrics, is facing a global
   15)    Mass Designers and Retailers Speed Up for     manufacturing glut, combined with rising prices of
          Fast Fashion                                  basic materials due to the high cost of petroleum.
Plunkett Research, Ltd.                                                              

   Synthetic textile manufacturing has been dominated         have been trained to wait for clothing to go on sale
   by the largest global chemical firms, but many of          before they make purchases. Nonetheless,
   them are exiting the business by spinning off or           department stores remain major forces in apparel
   selling their holdings.                                    retailing today.
        Trade agreements among the U.S. and its trading            Another sweeping change in apparel retailing is
   partners attempt to foster employment in certain parts     the rising success of e-commerce. National apparel
   of the world (such as poverty-stricken areas in the        chains are employing bricks and clicks successfully.
   Caribbean) and allow U.S. consumers fair access to         That is, they create synergies between very active
   reasonably priced goods while providing some sort of       web sites and their retail stores. Other firms, such as
   relief to U.S. business interests. Because trade , sell apparel through the Internet only,
   agreements will never satisfy all parties concerned,       often at everyday discount prices. Catalog retailers
   they tend to lead to controversy and much critical         continue to do reasonably well, particularly if they
   discussion.                                                operate well-designed web sites to supplement their
        On the retail end, consumers are enjoying wide        printed catalogs. Meanwhile, a growing number of
   selections and moderate prices in the U.S., Europe         fashion companies are enjoying success selling
   and elsewhere in the world. American apparel, shoes        women’s fashions in the home via independent
   and accessories combined are approximately a $450          reps—somewhat like the success of similar
   billion retail market. Apparel retailing has always        companies that sell cosmetics.
   been a tough, highly competitive business, and many
   chains rise dramatically and then fail. Retail fashion     2)     Globalization: China Dominates Apparel &
   merchandising is a vast challenge (witness the recent             Textiles But Its Explosive Growth is
   ups and downs of The Gap). Just-in-time inventory                 Checked
   driven by highly computerized supply chain                     The apparel and textiles industry has long been
   management systems is now an immense assist to             ruled by complex import and export agreements that
   major retailers. Nonetheless, price pressure from          limit the amounts of particular garments (such as t-
   major discounters like Wal-Mart and Kohl’s can keep        shirts, pants and sweaters) and textiles (such as yarns
   profit margins thin at stores that sell moderately         and fabrics) that may be produced and exported to
   priced apparel. Some of the most successful retail         specific markets around the world. In an effort to
   chains are those that focus on niche markets with          safeguard domestic production, the United States,
   special tastes and needs, such as Chico’s FAS, which       Canada and several additional countries now part of
   caters to 35- to 60-year-old women who want                the European Union established the Multifiber
   flattering fashions that suit their figures. Speaking of   Agreement (MFA) in 1973. Under the provisions of
   figures, the well-documented growing girth of              the agreement, a quota system was put in place that
   Americans is placing new challenges upon fashion           established the maximum numbers of products
   merchandisers as overweight people of all ages,            produced in developing countries that could be
   tastes and income brackets require clothes in larger       legally exported to MFA member countries. These
   sizes. Designers and merchandisers face the task of        amounts differed from country to country and were
   developing and presenting larger clothes in a              based on historic purchasing patterns.
   flattering light.                                              By the mid 90s, many factors, including global
        Department stores have changed their business         demand for cheaper goods and political pressures for
   models drastically. While they were originally             free trade, brought about the World Trade
   sellers of virtually every type of product, set in well-   Organization’s (WTO) Agreement on Textile and
   defined spaces within giant buildings (thus the use of     Clothing. This agreement defined a 10-year phase-
   the word “department” to describe them), most              out of the MFA quotas, finalizing on January 1, 2005,
   department stores of today are primarily apparel and       after which all WTO member countries were to have
   accessories stores. When consumers shop at stores          virtually unrestricted access to U.S., Canadian and
   like Nordstrom, Neiman Marcus or Dillard’s, they           European markets. The abolition of these quotas had
   find floor after floor of shoes, clothing, accessories     a marked effect, particularly in apparel and textiles
   and cosmetics. This change has created problems            exported from China. According to the United States
   within the department store industry, as managers,         International Trade Commission, China’s export of
   faced with intense competition, developed the habit        bras jumped 232% since that quota’s end, and the
   of continuously discounting clothing in sale events,       export of baby clothes soared 826%. Overall, U.S.
   consequently pressuring profitability. Consumers           federal estimates place the rise in Chinese textile and
Plunkett Research, Ltd.                                                           

   apparel imports from January 2005 through August         Bangladesh, for example, were up 20% in 2005 over
   2005 at 64%, totaling $15.4 billion.                     2004.
       China, which joined the WTO in 2001, had the              Another effect of the newly imposed growth caps
   most to gain from global free trade since it boasts a    is that China is being forced to improve the quality of
   highly diversified apparel and textile industry,         its goods to stay competitive. Since many Third
   operates in a low-cost environment, is active in all     World nations are capable of providing low-cost,
   phases of production and has developed markets in        low-quality apparel manufacturing, China needs to
   countries around the world. However, in response to      move ahead in terms of quality in order to maintain
   the MFA phase out, the U.S. and the European Union       significant competitive advantage and continued
   established “safeguard quotas” in June 2005 which        revenue growth. Manufacturing trends in China are
   were essentially caps on growth. The WTO has an          evolving somewhat like they did in post-war Japan.
   agreement with China, under which the international      In the 1950s and 1960s, Japan was seen as a very low
   organization may impose a growth cap of 7.5% per         cost producer of goods that were generally poor in
   year on specific categories of Chinese textile imports   quality. However, as Japan’s post-war industrial
   to member countries, if those imports are proven to      giants gained engineering prowess and a greater
   be disruptive to local markets. Items such as            understanding of global consumer markets, Japanese
   sweaters, trousers and brassieres were all deemed to     quality (and consumers’ awareness of that quality)
   be disruptive imports, especially in the EU. The         began to rise steadily. In fact, in many respects Japan
   European countries also imposed their own caps, in       is now a world leader in producing highest quality
   which growth in 10 categories of Chinese textiles        goods that represent tremendous value to the
   were to be capped between 8% and 12.5% until 2008.       consumer. Lexus and Toyota automobiles are an
       Unfortunately, the European caps backfired,          excellent example. Watch for the Chinese
   creating multiple, unforeseen problems. By               manufacture of all manner of goods (including
   September 2005, millions of Chinese-manufactured         apparel and textiles) to evolve from the world’s
   sweaters, trousers and bras were stranded at             cheapest to eventually become some of the world’s
   European ports because they exceeded the growth          best. This is already happening in
   quotas for the year. Retailers were clamoring for        telecommunications equipment and certain other
   inexpensive goods to offer their customers and ports     electronic goods made in China.
   were stymied by limited storage areas and huge                Meanwhile, India has not reaped the expected
   amounts of quarantined goods. Representatives from       rewards of free markets in apparel and textiles. After
   the EU and China hammered out an accord to ease          the expiration of the MFA agreement, analysts
   the caps and allow one-half of the backlog of goods      projected that Indian apparel exports would reach $25
   into Europe immediately. The other half were also        billion by 2010. This looks doubtful, however, since
   allowed in, but counted as a deduction against 2006      India’s apparel exports for 2005 declined 4.9% from
   growth limits.                                           the previous year, falling to $5.4 billion. The reason
       In the U.S., a landmark pact was signed in           for the decline, and the more important failure to
   November 2005 and took effect in January 2006.           capitalize on the lifting of global quotas, lies in the
   Under this agreement, Chinese textile import growth      labor laws that govern Indian textile workers. They
   will be capped at between 10% and 15% in 2006;           forbid contract labor and make it virtually impossible
   12.5% and 16% in 2007; and 15% and 17% in 2008.          for employers to terminate workers once hired. New
   The accord effectively replaces the safeguard quotas     proposals under government consideration include
   put into place in mid-2005.                              allowing contract employment and extending work
       The result of these growth limits is impacting the   hours from 48 hours per week to 60 with overtime
   Chinese textile industry in a big way. Ironically,       benefits.
   some Chinese companies are laying off workers and             In a World Bank estimate, China will control
   outsourcing labor-intensive tasks to countries such as   close to 50% of the world’s clothing market by 2010,
   Bangladesh, Nigeria and Cambodia, the very               significantly up from its 17% share in 2003.
   countries that world economists predicted would          Historically, China has paid its apparel workers
   suffer when global quotas were lifted in early 2005.     approximately $73 per month on average, while pay
   In addition, many of those countries have enjoyed        was higher elsewhere: about $75 per month in
   significant growth in exports to the U.S. The            Indonesia, $102 per month in the Dominican
   Department of Commerce says that imports from            Republic and $300 in Honduras. However, in recent
                                                            months, intense demand for workers has caused pay
Plunkett Research, Ltd.                                                            

   rates in China to rise dramatically. Nonetheless, the        While import restrictions and quotas may
   rich U.S., Canadian and European markets                 preserve domestic jobs in the short term, free trade
   guaranteed to these and other developing countries in    proponents argue that they will drive prices up and
   the quota system will be dominated by the volume of      therefore hurt consumers. Prices for apparel drop
   goods that China can and is providing and China’s        30% on average in each category when a particular
   ability to manufacture and ship in a timely manner.      quota has been abolished.
   In fact, the apparel industry in The Philippines has
   already been hurt by the removal of the quota on         3)     Apparel Firms and Clothing Retailers
   baby clothes. Its share of the U.S. market has                  Targeted for Mergers and Acquisitions
   declined, according to industry sources.                      Growth through mergers and acquisitions is a
       The impact of globalization on the apparel and       time-tested business practice that has strengthened
   textiles industry in the U.S. has been devastating.      many companies in business sectors across the board.
   Especially hard hit are the southern states of North     In the apparel industry, the dominance of
   and South Carolina, Georgia, Virginia and Alabama,       manufacturer VF Corporation is due largely to smart
   where apparel and textiles have long been a major        acquisitions of niche companies such as North Face,
   economic mainstay. According to the Department of        Gitano, Jansport, Nautica and Wrangler.
   Labor, 248,000 textile workers have been laid off             More recently, Jones Apparel Group acquired
   since 1990 in the Carolinas alone. A total of 318,000    Barneys New York by for $400 million in late 2004.
   jobs have been cut in the U.S. since January 2001.       In 2005, the takeover of May Department Stores by
   Many of the largest textile mills have declared          Federated Department Stores created a retail giant
   bankruptcy, including Burlington Industries, Malden      with close to 1,000 department stores and 721 bridal
   Mills Industries and Guilford Mills. Some have been      and formalwear stores.
   forced completely out of business, such as Pillowtex          However, bigger is not always better, as may be
   Corporation, maker of Fieldcrest, Cannon and             the case for Jones Apparel Group. Despite its
   Charisma bed linens and Royal Velvet towels.             aggressive acquisition policy, the company is seeing
                                                            falling profits, down to $274 million in 2005 from
   SPOTLIGHT: American Apparel, Inc.                        $301 million in 2004. In March 2006, Jones retained
        The most notable exception in the decline of U.S.   Goldman, Sachs to look for possible buyers. Industry
   textile manufacturing plants is an up and coming firm    analysts are looking to conglomerates such as VF
   called American Apparel, Inc. American Apparel is        Corporation and Oxford Industries, which owns the
   the largest apparel manufacturer operating in            Tommy Bahama line of casual apparel, as potential
   America—all of its goods are made at its U.S. plants,    buyers. Private equity groups are another possibility
   which employ more than 2,000 workers. The firm’s         in a Jones sale, as in as the purchase of luxury
   downtown Los Angeles factory has an output of over       department store chain Neiman Marcus in 2005 by
   one million garments per week. In addition to its        investment firms Warburg Pincus and Texas Pacific
   regular product lines, American Apparel offers           Group.
   Sustainable Edition, a line of clothing made from
   certified organic cotton. The firm plans to integrate    4)     High-Tech and Smart Fabrics Proliferate
   sustainable and organic cotton into nearly all its            With the advent of rayon in the 1920s, high-tech
   products in coming years, and it recycles over a         fabrics were born. DuPont’s “continuous filament
   million pounds of fabric scraps each year. In            viscose fiber” was then and is now durable and silky-
   addition to its California factory, American Apparel     soft and costs much less than organic fabrics made of
   maintains distribution warehouses in Montreal,           silk. Today’s high-tech fabrics are either treated with
   Quebec and Frankfurt, Germany, as well as a              chemicals, polymers or combinations thereof, or
   wholesale office in the U.K. The company operates        specially engineered for durability, stain-proofing,
   its own chain of retail stores, and plans to add 35      wrinkle-resistance or weather protection. In addition
   stores in the coming year, including locations in        to these wonders, scientists are producing smart
   Tokyo, Puerto Rico and Mexico City. Ambitious            fabrics, which are engineered on a molecular level for
   expansion plans call for over 100 stores worldwide       wearability advantages as well as an astounding array
   by the end of 2006, and nearly 1,000 by the end of       of protective and clinical abilities. Through the use of
   2008.                                                    special fabrics capable of conducting data flow,
                                                            telecommunications and computing abilities are also
                                                            possible in apparel.
Plunkett Research, Ltd.                                                            

        The abilities of high-tech materials to keep              The future for high-tech fabrics and smart fabrics
   athletes dry and comfortable have sparked a $9-           in the near term sounds to many like something out
   billion market for high-performance outdoor apparel.      of science fiction. Nonetheless, specialized fabrics
   An excellent example of the power of this industry        will be sensitive to a wide variety of external
   niche is the wildly successful Gore-Tex fabric            substances, including harmful toxins or chemical
   produced by W.L. Gore & Associates, Inc. The              agents. The U.S. military has already incorporated
   fabric is a fluoropolymer, a manufactured fiber that      patches worn on uniform cuffs that change color
   forms a barrier to wind and water but still allows air    when harmful agents are detected in the surrounding
   to pass through it. Body heat and moisture can            air. Scientists at MIT have created smart fabrics that
   evaporate through Gore-Tex even while it protects         filter or shield wearers from radiation by combining
   from wind, rain, sleet or snow. It's used in everything   synthetic fibers with an optical device called a
   from jackets to shoes to backpacks, and it generates      dielectric mirror.
   impressive sales since apparel treated with Gore-Tex           The possibilities are fascinating. Want to wear a
   often costs three times as much as non-treated pieces.    favorite shirt in a different color? Smart fabrics made
   W.L. Gore’s 2005 annual revenues were upwards of          of winged fibers that change how special dyes reflect
   $1.8 billion.                                             light can do the job. What remains to be seen is how
        Another example of high-tech fabric is X-Static,     consumers respond to these innovations and how
   manufactured by Noble Fiber Technologies, Inc. X-         much they will be willing to pay for them.
   Static is reinforced with silver, which kills bacteria    According to Venture Development Corp., a
   and odor while providing thermodynamic                    technology market research firm, revenue growth for
   temperature regulation. In cool weather, X-Static         smart clothes should stay at 19% through 2008 to
   helps the body retain heat, and in warm weather it        reach $720 million, up from $300 million in 2003.
   disperses heat. The silver is woven into the fabric,           Yet another boon to the smart clothes industry is
   meaning that it cannot wash out or weaken over time.      the potential for domestic employment gains in the
   First developed for the U.S. Army, it is now used in a    U.S. Particularly in hard-hit areas in the southern
   variety of athletic apparel and was used in the           states where traditional textile mills have all but
   uniforms worn by athletes from 61 countries in the        disappeared, plants that provide high-tech and smart
   2004 Summer Olympics.                                     materials, as well as factories for producing goods
        Yet another high-tech sports apparel example is      made from those materials, are employing workers.
   Textronics, Inc.’s ( use of         In the eighteen-month period from January 2005
   electro textiles. The fabric has circuitry, sensors and   through May 2005, seven nonwoven textile
   functional component woven right in that renders the      companies planned new facilities or expansion,
   material capable of powering electronic devices such      investing $241 million in the Raleigh-Durham, North
   as cell phones of music players, provide heat for the     Caroline area alone.
   wearer or sense external changes such as shifts in
   temperature and respond accordingly. Textronics           5)     3PL Supply Chain Management Evolves to
   makes a sports bra under the NuMetrex brand which                Serve the Global Market
   senses the wearer’s heart rate and communicates that           The challenges faced by supply chains are
   data to a wrist monitor. Retailing for about $115         multifaceted: coordinating the arrival of supplies in
   (including a combination wrist monitor/watch), the        factories; bringing together all the necessary parts
   bras free female athletes from wearing separate heart     and assembling them into consumer-ready products;
   rate monitor straps and sensors.                          and distributing them across oceans, highways and
        Manufacturers are hoping to take high-tech           airways to arrive in the correct locations in the right
   fabrics indoors by applying new technology to fabrics     quantities, colors and styles to satisfy consumer
   used in suits, sweaters, ties and more. They believe      demand. All of this must be done at the lowest
   that consumers will buy into clothing that can't be       possible cost. Compounded by delays and mistakes
   crushed when packed and is stain-proof as well as         that can be made along the way due to bad weather,
   waterproof. Retailers such as Eddie Bauer are             communication breakdowns, accidents, inspections
   already stocking casual cotton pants made of              or simple human error, these challenges can quickly
   nanotextiles—materials constructed at the molecular       become catastrophes. In order to prevent mishaps
   level of particles so tiny that moisture cannot           and manage day-to-day supply issues, companies hire
   penetrate them.                                           supply chain managers and utilize advanced data
Plunkett Research, Ltd.                                                             

   systems. In some cases, supply chain services are         SPOTLIGHT: CH Robinson Worldwide, Inc.
   outsourced altogether.                                    Sector:          3PL
        Third-party logistics companies (known as 3PLs)      2005 Revenues:   $5.69 bil., up 31%
   are quickly assuming a vital role in the supply chain.    2005 Profits:    $203 mil., up 48%
   The idea here is to provide, on an outsourced basis, a    2005 Employees:  5,700, up 18%
   seamless link between freight services, inventory
   management, warehousing and distribution.                      With nearly $6 billion in 2005 revenues, C.H.
   Logistics services are generally defined as services      Robinson Worldwide, Inc. (CHRW) is one of North
   added onto regular transportation activities, including   America’s largest third-party logistics (3PL)
   freight forwarding, which is the handling of freight      providers and a global provider of multimodal
   from one form of transport to another (for example,       transportation services. It operates through 176
   the movement of containers from ship to truck or          offices in 42 states across the U.S., as well as in
   railcar to truck). Transportation managers determine      Canada, Mexico, Europe, South America and Asia.
   the most viable mode of transport (by train, truck,       The company, which does not own any of its own
   boat, plane or a combination thereof). Value-added        equipment, maintains the largest network of motor
   warehouses store the stock of other companies and         carrier capacity on the continent through contracts
   ship the stock out as needed. Supply chain                with approximately 35,000 carriers. CHRW serves
   management (SCM) software makers specialize in            more than 18,000 customers and handles
   software that can track and/or allow communication        approximately 3.8 million shipments annually. The
   between the different parts of a supply chain.            group also contracts air carriers and specialty motor
                                                             carriers that provide temperature-controlled and less-
                                                             than-truckload services. Its subsidiary CHREX
                                                             provides expedited services and is the largest
                                                             capacity provider in the expedited market. In
                                                             addition, the firm’s T-Chek unit offers fuel
                                                             purchasing management services for motor carriers.
                                                             In September 2005, CHRW acquired two freight
                                                             forwarding companies, Hirdes Group Worldwide, an
                                                             air and ocean international forwarding company
                                                             based in Germany, and Bussini Transport S.r.l., an
                                                             international freight forwarding, customs brokerage
                                                             and domestic truck services firm based in Italy.

                                                                  The number of major logistics services
                                                             companies worldwide has grown to more than 1,000,
                                                             despite a rash of mergers between 1999 and 2001.
                                                             Since the birth of the logistics services industry in the
                                                             early ‘90s, it has grown by as much as 20% per year,
                                                             and it will continue at a steady rate of expansion for
                                                             the foreseeable future.
                                                                  In the U.S., by 2005, more than 80% of the 100
                                                             largest American companies were using 3PL
                                                             services. The total market in the U.S. for outsourced
                                                             logistics and warehouse services is now in the $100
                                                             billion per year range.
                                                                  Many freight and parcel shipping companies
                                                             have jumped on the 3PL bandwagon to provide their
                                                             customers with turn-key shipping services. Deutsche
                                                             Post, UPS and FedEx have all made logistics
                                                             acquisitions as they battle for market share. British-
                                                             based Exel plc, one of the largest providers of
                                                             logistics services in the world, has made several
                                                             strategic acquisitions in order to offer domestic and
Plunkett Research, Ltd.                                                             

   international supply chain management from                SPOTLIGHT: Supply Chain Evolution in the
   beginning to end, with services including freight         Global Apparel Industry
   forwarding, warehouse management, multi-modal                  Many industries have benefited greatly from the
   planning and powerful information technology. In          leaps and bounds in supply chain intelligence that
   turn, Exel was acquired by DHL in late 2005.              have come about in the recent past. However, one of
   However, the industry has not consolidated to the         the last to see a return on investment was the apparel
   point where there is no longer room for small or start-   and textiles industry. The failure of logistics to meet
   up companies. Many regional or specific service           the demands of this industry stemmed from several
   specialists have found a great deal of success in their   factors. For one thing, most data systems for
   own niche markets.                                        purchasing and invoicing, such as EDI (electronic
       The rapid growth of 3PL is global phenomenon.         data interchange), were too inflexible to account for
   In China, for example, UPS has announced plans to         the incredible variety that is found in textile goods,
   open its first mainland China cargo hub, at Shanghai,     such as weave, fiber, color, texture, quality, style and
   enabling it to offer 3PL services. In fact, as the        size. Many efforts to implement data systems met
   world’s reliance on Chinese manufacturers continues       with failure. Another factor that compounded the
   to grow, 3PL service operators in China have enjoyed      problem was the mercilessly fickle demand found in
   booming business. UPS, FedEx and DHL are                  apparel consumers, who buy millions of a particular
   offering supply chain management services for             shirt one week, for example, and then just as quickly
   foreign companies that purchase large quantities of       abandon that fashion while manufacturers watch their
   Chinese goods. DHL has seen its business in China         goods go out of style in a warehouse. Some garments
   surge by as much as 50% yearly.                           can be sold for only two weeks at full price, then at
                                                             30 to 40% discounts for another two, and after that
                                                             the price can plummet to a mere 10% of full retail
                                                             value (probably less than its cost). To top it off, new
                                                             manufacturers and textile mills pop up daily in China,
                                                             India and elsewhere, each offering its services at a
                                                             lower price than the one before, slicing profit margins
                                                             to a razor edge and leaving little room for error.
                                                                  Advances in information technology and entirely
                                                             new models for manufacturing and supply have
                                                             recently come to the fore (and to the rescue) in the
                                                             apparel industry. Major improvements have included
                                                             cutting time-to-market so as to turn over new
                                                             fashions as quickly as possible and working more
                                                             closely with retailers in order to monitor and react to
                                                             demand with greater speed and efficiency.
                                                                  For example, take TAL Apparel, Ltd., a
                                                             manufacturer based in Hong Kong. TAL entered into
                                                             a close relationship with one of its primary retailers,
                                                             J.C. Penney, taking over practically every aspect of
                                                             its supply chain for store-branded dress shirts. Under
                                                             the agreement, TAL receives selling information
                                                             directly from point-of-service (POS) stations,
                                                             including price, color and size. From this data, TAL
                                                             not only fills out its own order forms to send J.C.
                                                             Penney more shirts, but also, based on the trends that
                                                             are found in each store, determines how many of
                                                             each type of shirt to send and in what size and color.
                                                             As a result, there is no delay between the sale of
                                                             inventory and the shipment of new items, and no
                                                             need for warehousing or overstocking. It is a
                                                             streamlined and incredibly efficient system.
Plunkett Research, Ltd.                                                                

   6)     Synthetic Fiber Manufacturers Face Global            manufacturers, such as Allen-Edmonds (a high-end
          Glut                                                 maker of men’s shoes with about $100 million in
       The manufacture of basic synthetic fibers, such         annual sales), are able to maintain factories in the
   as widely known polyester, is generally controlled by       U.S., domestic manufacturing is all but dead.
   major chemical and petrochemical companies                       Another exception is New Balance. This maker
   worldwide. Many of these fibers are based on                of high-end running and athletic shoes operates six
   petroleum, much the same as in the plastics business.       factories in the U.S. While New Balance gets much
   These manufacturers are deep in a glut of capacity,         of its inventory from overseas factories, New Balance
   which is driving down prices and profits.                   has taken an interesting position with its
       The business has been so tough that DuPont,             manufacturing philosophy. It is the only large maker
   inventor of many synthetic textiles that are household      of athletic shoes that still has plants in the U.S., while
   names, such as Lycra, Stainmaster and Polarguard,           its major competitors, such as Nike and Reebok, get
   exited the business after being an industry leader for      most or all of their shoes from Asia.
   decades. It sold its textiles business to subsidiaries of
   Koch Industries, Inc., a massive, privately held            9)     Bricks, Clicks, Catalogs and Living Rooms
   petrochemicals company based in the U.S. DuPont                  The most successful apparel retailers take full
   had renamed its fibers business INVISTA, which has          advantage of the stability of traditional, store-based
   operations in 50 nations. Its business units are            retailing in combination with the growing popularity
   organized along the sectors of apparel, performance         of catalog and Internet-based retailing. Such a
   fibers, interiors, intermediates, polymers and resins       strategy entails:
   and textile fibers. Likewise, the global Bayer Group
   of chemicals companies spun off its polymers, fibers,       • Seamless integration of store, catalog and
   additives and rubber units into a new company               Internet-based offerings to consumers, providing
   named Lanxess in 2005.                                      choices of 1) place and method of purchase, 2)
                                                               method of pickup or shipment and 3) place or method
   7)     U.S. Linens Sales Dominated by Big-Box               of returns, repairs and additional services as needed.
          Retailers and Discount Department Stores             • Communication of a seamless brand identity and
        The superstore concept has played a major role in      level of service throughout catalogs, retail stores and
   the way that American consumers purchase linens for         web sites.
   household use. “Big-box” retailers have captured
   significant market share at retail. These retail chains          Few companies have reached this level of
   include Linens ‘n Things and Bed Bath & Beyond.             integration of traditional and non-traditional retailing.
   At the same time, discount supermarkets, including          However, for good examples of companies that are
   Wal-Mart, Target and Costco, have major market              evolving toward such seamless strategies, study Wal-
   share in this merchandise. Bed Bath & Beyond is a           Mart, J.C. Penney, The Gap and Victoria’s Secret.
   particularly interesting retail chain. With 660 stores           At lingerie giant Victoria’s Secret, customers
   in 44 U.S. states, the firm’s long-term goal is to grow     find enhanced flexibility and customer service thanks
   to 1,050 stores. It enjoys terrific profit margins.         to the opportunity to shop via the web, the Victoria’s
   Local store managers have significant influence over        Secret catalog or Victoria’s Secret stores. In addition
   the merchandise they carry, so that each store has the      to the millions of catalogs that are mailed every
   ability to cater to local tastes and economic               week, stores hand out copies of the catalogs—which
   conditions. In 2005, the firm racked up a healthy           feature the web address of, as
   $5.15 billion in sales, compared to Linens ‘n Things'       well as phone and fax ordering options. The point is
   $2.69 billion.                                              to create loyalty-inducing convenience for customers,
                                                               giving them options for purchasing when, where and
   8)    The Vast Majority of Shoes Sold in the U.S.           how they please. Online apparel sales are soaring.
         Are Now Made in China                                      Another retailing option that is particular to
       According to the American Apparel & Footwear            apparel (as well as cosmetics) is selling from the
   Association (,                   home. Companies such as Doncaster, Carlisle and
   Americans purchased 2.16 billion pairs of shoes             Worth enable women who are independent
   during 2004. The organization states that 98.4% of          representatives to show and sell clothes and
   those shoes were imported, and 83.5% were                   accessories from their homes or company show
   manufactured in China. While a handful of                   rooms at trunk shows, usually held four times per
Plunkett Research, Ltd.                                                             

   year. It’s a model similar to Tupperware parties. At      billion. However, those in the apparel industry who
   Doncaster, for example, “associates” are trained by       have tried to capture this market have seen mixed
   district sales leaders to learn the ropes of fashion      results. For manufacturers, challenges exist both in
   display, merchandising and marketing, as well as the      terms of labor and material costs. The costs of
   nuts and bolts of processing orders and collecting        additional fabric and thread can be passed on to the
   payments. Each quarter, associates send out advance       customer fairly easily. However, passing on the costs
   marketing materials and invitations (professionally       associated with changing equipment, creating new
   produced by Doncaster) to friends and acquaintances.      patterns and training employees on new designs may
   Appointments are made by customers to see and try         be more difficult.
   on pieces from the current line. Orders are placed,            For retailers, part of the challenge lies in finding
   and then the apparel is delivered to the customers        the best way to effectively target these consumers.
   within several weeks.                                     Factors that retailers must consider are product
        Prices range from $60 for accessories up to          placement in stores and store layout. Having clearly
   $1,000 or more for suits and outerwear. Annual sales      marked sections devoted exclusively to plus-sized
   for these private companies run between $30 million       garments, rather than combining these garments on
   and $130 million. Average annual income for               racks with non-plus-sizes, seems to help, as do larger
   associates is $40,000, with top sellers earning more      fitting rooms with pleasant lighting and fixtures.
   than $100,000.                                                 There are also design issues. Many plus-size
                                                             consumers, especially women, do not want to
   10)    Alternative Sizing Is Big                          sacrifice style for proper fit, and they enjoy wearing
        The results of a recent study of American body       youthful, chic clothing instead of the tent-like tops
   shapes and sizes reveal trends that will impact a         and pants that have been their traditional choices.
   number of industries, including apparel. While a          However, not all designs and fabrics fit all bodies in
   well-known 1994 study by the Centers for Disease          the same way, and designers must give careful
   Control and Prevention (CDC) has already shown            consideration to creating clothes that are both
   that Americans are getting bigger, a more recent          flattering and comfortable for plus-size consumers.
   study, which was sponsored by the U.S. military as             Over the years, as more and more Americans
   well as clothing companies such as Lands’ End, J.C.       have approached the “overweight” category (women
   Penney, Target and Dillard’s, shows how factors such      are generally moving from size 12 to 16, and men
   as age, income and occupation affect the size and         from size 40 to 46), manufacturers have adjusted
   shape of the human body. For example, those who           their sizes to stroke consumer egos and generate
   earn up to $25,000 per year weigh 152 pounds on           more sales. The trend is called “vanity sizing.”
   average, while those in the $50,000-to-$75,000            What used to be labeled a women’s size 10 is now a
   category average 160 pounds. Those earning above          size six. Some manufacturers are even making their
   $75,000 weighed nearly the same as those in the           sizes slightly looser—a pair of men’s slacks with a
   lowest income category. Regardless of income, the         32-inch waist may actually measure 33 inches.
   average adult American woman is 5’4” tall, weights        Others, such as The Gap, are designing clothes in
   155 pounds and wears a size 14.                           varying styles to conform to different body shapes.
        While the study, known as SizeUSA, affirms the       The Gap’s men’s khaki pants, for example, are
   CDC’s findings, it also shows that as the American        offered in easy, relaxed and classic fits.
   population has grown more ethnically diverse, its              However, the sponsors of the SizeUSA study
   average body size has changed. What was                   hope that their findings will bring more accuracy to
   considered “average” 40 years ago is no longer            manufacturers’ sizing conventions, as well as help
   average today. These developments may mean                them to target certain age and income markets more
   important changes in the way that apparel designers,      effectively. These changes should pay off for
   retailers and manufacturers anticipate consumers’         consumers, who will then be able to find properly
   needs and desires.                                        fitting clothes more quickly. Several clothing
        The plus-size market usually refers to women’s       companies have adjusted the fit of their garments
   sizes 14 and up. However, there is also a larger set of   based on the study’s findings. Jockey, for example,
   sizes which range from 14W to 24W (the W stands           updated the fit of its line of bras while Liz Claiborne,
   for “woman”), and an extended range that goes from        Inc. altered the sizing of all 42 of its brands.
   24W to 34W. The plus-size market is clearly               Victoria’s Secret and The Gap offer pants in three
   growing, with U.S. sales rising 4% in 2005 to $17.4       different fits. Victoria’s Secret offers the Christie,
Plunkett Research, Ltd.                                                            

   Marisa and Bridget fits for different body types while    often have more money to spend on clothing than
   the Gap is selling Curvy, Original and Straight fits.     young women do, and older women also tend to be
        Although Wal-Mart and Target have struggled in       more loyal to particular brands.
   this market, some retailers and manufacturers are
   clearly profiting from these sizing trends. Torrid, a     12)    Discount Clothing Retailers See Promise in
   retailer that specializes in plus-size clothing for              Designer Lines
   young women, has 123 stores nationwide and seems               Discount apparel is booming as major discount
   to have found the proper balance between style and        stores focus on fashion as well as low prices. Among
   fit.                                                      the key players in this business are Wal-Mart,
                                                             followed by T.J. Maxx/Marshall’s, Target, Old Navy
   11)    Baby Boomers Dominate the Apparel                  and Kmart. In terms of apparel, discount stores such
          Market                                             as Target, Wal-Mart and Kmart have typically been
         Americans aged 55 years or older are the fastest-   the places where consumers shop for inexpensive
   growing segment of the population. 2006 marks the         clothing basics such as socks, hosiery, underwear and
   year that the first Baby Boomers turn 60. The term        sweatpants. But all of these retailers are now trying
   “Baby Boomer” generally refers to people born from        to gain a firmer hold on casual and careerwear as
   1946 to 1964. It evolved to include the children of       well, by offering trendier, more upscale lines of
   soldiers and war industry workers who were involved       clothing.
   in World War II. When those veterans and workers               One such retailer is Wal-Mart. In 1999, it
   returned to civilian life, they started or added to       acquired Asda, a U.K-based retailer specializing in
   families in large numbers. As a result, the Baby          “cheap chic.” Asda operates several stand-alone
   Boom generation is one of the largest demographic         stores called “George,” which sell its upscale but
   segments in the U.S. According to MetLife, Baby           inexpensive apparel goods under a label bearing the
   Boomers make up about 27% of the U.S. population.         same name. Designed in the U.K., the clothes feature
   These people number an astonishing 77 million. By         sumptuous fabrics such as leather and cashmere at
   2011, millions will begin turning traditional             competitive prices. In the U.S., slightly more
   retirement age (65), resulting in extremely rapid         conservative versions of these clothes are available
   growth in the senior portion of the population.           for men, women and children at Wal-Mart stores.
         The apparel industry is quickly evolving to meet         Wal-Mart’s entrée into the trendy clothing
   the needs and tastes of the people in this rapidly        market comes on the heels of other discount retailers,
   growing population segment. The Gap, Inc. took a          such as Target, which have paved the way in offering
   big step in this market in 2005 when it introduced its    designer-name products. In recent years, Target has
   new Forth & Towne chain of stores. With four              entered agreements with a number of hip designers,
   locations in the Chicago area and one in West Nyack,      such as Michael Graves (for housewares) and Isaac
   New York, Forth & Towne offers four labels, each          Mizrahi and Mossimo (for apparel and accessories) to
   with its own style. Allegory offers tailored separates    develop products for its stores. Both chains are
   and coats; Vocabulary is a line of easy-fit knit wear;    spending millions to advertise their fashion-forward
   Gap Edition offers casual sportswear and jeans; and       apparel in upscale media including Vogue.
   Prize is the trendiest with more avant garde styles.      Beginning in the luxe magazine’s September 2005
   Unlike the clothes at The Gap stores, which are           issue (it’s biggest issue of the year with page counts
   designed on a fit model in a size eight and then          of 800 or more due to advertising), Wal-Mart bought
   altered or “graded” from there to fit the larger and      an eight-page advertising spread. The landmark
   smaller sizes ranging from 0 to 16, Forth & Towne         appearance is part of 116 full pages of ads for the
   uses a size 10 fit model and stocks sizes from 2 to 20.   discount giant that will run through 2007. This is a
   90% of the clothes offered are priced at under $100.      major investment; Vogue’s average advertising rate
   The Gap, Inc. plans to open 10 new For the & Towne        for a full page is $104,000.
   stores in late 2006.                                           While these developments point to the increasing
        Another retailer, Chico’s FAS, Inc., which           competition among discount retailers, they also
   operates 780 stores across the U.S., targets older        reflect the general public’s greater ease in shopping
   women looking for casual clothing that’s                  for discount apparel. Wal-Mart claims that 93% of
   comfortable, stylish and vibrant. If Chico’s success      all U.S. households include at least one shopper who
   is any indication (2005 annual sales reached $1.06        buys at its stores.
   billion), this market is a profitable one. Older women
Plunkett Research, Ltd.                                                            

   13)    Haute Couture Designers Experience                in China and 18% of Armani Collezioni, the ready-
          Conflicts over Costs and Control                  to-wear line of Giorgio Armani SpA, is produced in
        Fashion design houses are particularly              Eastern Europe.
   susceptible to changes in the economy, and since the          Some design houses are experiencing painful
   stock market crash of 2000 and the 9/11 terrorist        adjustments after being acquired by larger
   attacks in 2001, many are still struggling to regain     corporations. The main bone of contention?
   their standings. Although the outlook for this           Creative control. Superstar designerTom Ford left
   industry is improving, many of the large, high-profile   Gucci, owned by retailing giant Pinault Printemps
   houses, such as Gianni Versace S.p.A. and Gucci, are     Redoute, apparently over design issues. Designer Jil
   undergoing restructuring to reduce costs and             Sander, who sold her fashion house to Prada in 2000
   strengthen profit margins.                               and made a news-generating comeback in 2003, once
        Versace is cutting spending on flashy publicity,    again left the company in late 2004.
   while looking for ways to attract new customers, such         Ultimately, fashion is a fickle business and the
   as ordinary department store shoppers, rather than       relationship between public companies and the
   focusing exclusively on the well-heeled clientele that   design houses they acquire can be a trying one—for
   attend its runway shows. At Gucci, six brands such a     the designers, the shareholders and even the
   Balenciaga, Stella McCartney and Alexander               consumers. Some fashion houses, such as Armani,
   McQueen lost $30.9 million on $160 million in sales      Missoni and Chanel, S.A. have thus far resisted the
   in the first half of 2005. The top brass at Gucci has    benefits that public ownership can bestow—namely,
   warned the ailing lines that they will be sold if they   cash for expansion and debt reduction. For these
   don’t show a profit by 2007.                             companies, maintaining design control is key. Karl
        Balenciaga chief designer Nicolas Ghesquiere is     Lagerfeld, the chief designer for Chanel, has been
   taking the warning seriously, cutting costs wherever     given free reign, something that appears to suit both
   possible. In 2005, he introduced Capsule Collections     him and the company. Indeed, some private fashion
   of his most popular designs which lack pricey haute      houses have even bought back licenses, one way to
   couture embellishments. Priced between $345 and          reclaim control. In industries such as fashion, where
   $575, Capsule Collections pieces are far cheaper than    free-flowing creativity is an important component of
   most Balenciaga ready-to-wear which costs upwards        a company’s success, public ownership can
   of $2,000 per piece. The simpler clothes are             sometimes be stifling. For haute couture designers,
   produced more quickly, spurring customers to visit       the question of public versus private ownership is
   stores more often to try on and buy new merchandise.     fairly simple—do you want to make money, or
   The efforts are reaping early rewards, with a 115%       beautiful clothes?
   sales increase during the first six months of 2005.
        Other designers are taking preventive measures      Fashion Defined:
   to ensure healthy profits by introducing lines of        Haute Couture: Hand-sewn to order clothes using
   clothing directed at new markets, selling new designs    fine materials. Couture designation is awarded by the
   before they hit the runway or diversifying their         French government to those fashion houses that
   operations. To insulate itself from market caprices      employ at least 20 people, create at least 25 designs
   and potential fashion show busts, Dolce & Gabbana        for twice yearly shows in Paris and have had
   S.p.A. sells approximately 75% of its clothes well       collections for at least two years.
   before they hit the runway in what are known as          To Order: Handmade clothes made by designers who
   “pre-collection sales.” These clothes are tamer in       do not have the haute couture designation.
   style and design than their runway counterparts,         Semi-Couture: Machine made clothes made with
   which tend to be more conceptual and far more            fine materials in limited quantities.
   expensive. Some designers are also buying back           Ready-to-Wear: Designer clothes that are mass
   license agreements in order to regain control of         produced and sold off the rack in retail stores.
   design, manufacture and marketing quality control.
        High fashion houses are also outsourcing some       14)    Luxury Goes Online
   production to countries like Egypt, Hungary and               After a few false starts, luxury apparel makers are
   China, an unheard of practice for luxury goods until     selling big on the Internet. Not only are design
   recently. Valentino suits are being sewn in Egypt,       houses maintaining their own sites, high-fashion sites
   Celine (a unit of LVMH Moet Hennessy Louis               featuring many different brands of apparel and
   Vuitton SA) is manufacturing some of its handbags        accessories are also flourishing.
Plunkett Research, Ltd.                                                            

       One example is YOOX SpA (              time of just two weeks. This is due in large part to
   The Italian site offers more than 250,000 items from     the close proximity of its manufacturing facilities
   designers such as Chloe, Dolce & Gabbana, Gucci          (located in Spain) to its stores.
   and Prada. 2005 revenues are expected to reach $60            H&M is the largest player in the fast fashion
   million, up 28% from 2004.                               market, both in terms of sales and stores. It operates
       Advance Publications, Inc., a private magazine       more than 1,100 stores in the U.S. and Europe and
   publishing company that owns Conde Nast                  recorded sales of $9.4 billion in 2005. From design
   publications among others, operates       table to store rack, its lead time is three weeks. In
   The site’s content is comprised of ads and some          keeping with the fast fashion model, H&M typically
   editorial content in Vogue magazine. Pages from the      does not restock items—once they’re gone,
   magazine’s current issue appear on the site, where       customers won’t see them again. This “now or
   users can click on a page to see information on items    never” policy helps to promote H&M’s image as a
   shown in ads, including price and where to buy. In       purveyor of up-to-the-second style. Mango uses a
   some instances, users can click on links to buy online   slightly different strategy to cultivate a sense of
   immediately.                                             fashion immediacy—it displays only one item per
       Overall online apparel sales in the U.S. were        size in its stores. Though others may be in the
   expected to reach $12.5 billion in 2005, a 23% rise      stockroom, the customer is left wondering if that
   from 2004’s $10.2 billion. Watch for luxury apparel      size-10 shirt will be around tomorrow.
   companies to continue to pursue this rapidly growing          Although The Gap has yet to meaningfully
   market.                                                  compete in the world of fast fashion (though it was
                                                            reported recently that it had begun to decrease its lead
   15)    Mass Designers and Retailers Speed Up for         time on some apparel pieces to just a few weeks), it is
          Fast Fashion                                      making some changes in order to keep its styles
        Several European mass retailers are                 current. Meanwhile, in recognition of this market, its
   experimenting with a new business model known as         Old Navy stores already offer three different t-shirt
   “fast fashion.” The key players in this business are     size types, some of which are geared to teenagers,
   Sweden’s Hennes & Mauritz, also known as H&M,            who like a snugger fit and bare midriffs. Twenty-
   as well as Zara and Mango, two Spanish retailers, and    somethings and baby boomers generally prefer a
   the U.K. chain New Look. For these retailers,            looser, more comfortable fit.
   success comes from designing trendy, inexpensive              While The Gap sees lots of potential overseas, it
   clothes that mimic high-end fashion and that are         is still trying to find the right business model for non-
   delivered to consumers at lightning speed—two to         U.S. stores. It is learning that German and Japanese
   four weeks after conception. This turnaround time is     tastes are far different from Americans’, both in
   a far cry from the four to nine months that U.S. mass    terms of style and fit. Rather than try to aggressively
   retailers typically require.                             compete in the European market, however, The Gap
        Fast fashion wasn’t always part of New Look’s       closed its stores in Germany, a country where H&M
   business strategy. As the phenomenon began to heat       dominates.
   up, New Look changed its business model to get a
   piece of the action. Originally a discount retailer,     16)    Athletic Footwear Draws Big Names from
   New Look's 511 stores now stock new items every                 Athletes to Designers
   week in order to catch the attention of fashion-              Athletic shoes have long been sporting the names
   conscious shoppers.                                      and endorsements of big name professional athletes,
        Mango, which operates more than 800 stores and      particularly basketball legend Michael Jordan.
   entered the U.S. market in 2005, has developed a         Nike’s line of Air Jordan shoes has been the top
   clever distribution system that keeps its products and   selling shoe brand of all time. Other athletes in the
   its inventory current. Clothes are categorized           Nike stable are Kobe Bryant, Dwayne Wade, LeBron
   according to basic style traits, such as dressy or       James and Carmelo Anthony. Adidas-Salomon AG
   casual, and then shipped to stores that are most         offers shoes from Tracy McGrady and Kevin Garnett.
   successful at selling specific categories of             Reebok International Ltd. pushes shoes under the
   merchandise. This system has given it a competitive      Allen Iverson name. The trend to sell a shoe under
   edge in the world of fast fashion and its products can   an athlete’s name is called marquee footwear.
   hit the stores in just four weeks. Inditex’s Zara,            A new twist to marquee footwear is that which
   which has 646 stores, boasts the quickest turnaround     sports a famous designer’s name instead of an
Plunkett Research, Ltd.                                                              

   athlete’s. Stella McCartney, a high-fashion designer       in clothes they bought in the mid- to late 1990s and
   and daughter of former Beatle Paul McCartney,              asking the retailer to replace the modern-looking
   began collaborating with Adidas in 2005 for hip            labels it used at that time with the older, scripted
   athletic shoes and clothing. Another designer/athletic     labels to which it has since returned. Eddie Bauer, J.
   shoe partnership is that between traditional shoe          Crew and Paul Stuart are also looking at old styles in
   maker Cole Haan which was acquired by Nike. The            new ways. Many retailers attribute the consumer
   combination resulted in a line of comfortable street       demand for retro looks to recent events, such as the
   shoes called Cole Haan Nike Air.                           September 11 terrorist attacks of 2001 and the
       All is not golden in the land of big name shoes,       sobering-up period that occurred after the dot-com
   however, since sales of basketball sneakers for men        crash.
   were down 4% in 2005 from the previous year,                    Looking to the past also means looking at more
   according to NPD Group. Quality remains high, but          formal styling. As workplaces return to their former,
   consumers are balking at high prices. Men’s athletic       more formal days, careerwear is following suit.
   shoes in 2006 are priced about 5% higher than in           Careerwear is expected to be one of the fastest-
   2005, and women’s shoes jumped by 10%. Most                growing apparel segments. This is good news for
   marquee athletic shoes run in the $125 to $150 range,      companies like Ann Taylor and Talbot’s, which have
   although a notable exception is the Converse Wade          been suffering from customer defections. Many Ann
   which is made by Nike and priced at $90.                   Taylor customers thought the brand had become too
       There are cheaper, more fashionable alternative        stiff in recent years, while at Talbot’s, customers fled
   on the market which is attracting teen consumers           when it started to shorten its hemlines to present a
   especially. One big leader in the trend toward chic        more modern look. Ironically, while department
   athletic footwear is Germany-based Puma. Puma,             stores are looking for ways to convince consumers to
   which experienced dismal sales in the 1980s while          pay full price, Talbot’s has dealt with consumers
   Nike leaped to the top of the market, is enjoying a        drifting away from its traditional full-price model.
   renaissance. 2004 topped $2 billion, up from almost        To keep them streaming through its bright red doors,
   $1.6 billion in 2003. What helped to turn the              Talbot’s is banking on service and perks such as
   company around was a focus on fashion, aided by            refreshments and on-the-spot discounts at open house
   designers such as Germany’s Jil Sander and                 events. Such discounts, however, are not advertised,
   American supermodel-turned-yoga guru Christy               and as such are positioned as rewards for faithful
   Turlington. Although Puma’s sales figures are still        customers.
   dwarfed by heavy hitters like Nike and Reebok, it is            But retailers are looking forward, too. Rather
   growing at a significant rate.                             than waiting to copy runway styles, many retailers
       Nike, which earned more than $13.7 billion in          and their suppliers are thinking more like haute
   sales in fiscal 2005 (13% more than in 2004),              couture houses, trying to anticipate what consumers
   overhauled its computerized supply systems to              want before they want it. Big retailers like The Gap
   increase efficiency and focused on international           are looking for inspiration in unlikely places, such as
   markets for soccer and fashion shoes and apparel.          Parisian flea markets and vintage clothing stores.
   (Nike gets more than one-half of its revenues from         Many suppliers are working fast to develop new
   markets outside the U.S.) Nike’s marketing budget is       fabrics, as much as one year in advance, hoping that
   legendary. Basketball great LeBron James signed a          consumers’ tastes will catch up by the time the
   $90 million Nike endorsement contract in 2003,             products hit the stores.
   while still a high school senior.
                                                              18)    Some Apparel Manufacturers Still Resist
   17)   Specialty Retailers Look Forward, and to                    Outsourcing
         the Past, for New Ideas                                   Many American and European clothing
       Like department store retailers, many American         manufacturers, unable to resist the less expensive
   specialty retailers are looking for ways to lure new       labor costs available in Latin America and Asia, have
   customers and regain others who have drifted away.         given in to outsourcing. H&M, a European mega-
   Some, such as Brooks Brothers, see promise in the          retailer known for its aggressive pricing,
   past. Digging through their attics and archives, the       manufactures most of its clothing in China and
   brand’s designers are retrieving old classics for use in   Southeast Asia, as does The Gap. Some, however,
   new pieces. Even labeling has become important.            prefer to manufacture in their home countries, even if
   Brooks Brothers claims that customers are bringing         it costs far more. This is often the case with haute
Plunkett Research, Ltd.                          

   couture houses, such as Chanel, where quality, both
   in fabric and workmanship, is of critical importance.
   All of Chanel’s haute couture designs are made in
   France, one of the most costly countries in the world
   in terms of labor.
        However, this is also the case for Allen-
   Edmonds, a men’s shoe manufacturer based in
   Wisconsin. Its shoes, which are aimed at traditional,
   affluent men, have been worn by both President
   Bushes. How it has been able to sustain a successful
   American shoe manufacturing company is a lesson in
   Business 101: train your employees well, reward
   them with good pay and benefits and make a top-
   quality product. With products priced at $200 and up
   and available in a highly diverse array of sizes and
   widths, Allen-Edmonds is an unusual player in this
   business. In a market where 98.4% of U.S. shoes are
   manufactured abroad by laborers earning between
   $0.60 and $0.80 per hour, Allen-Edmonds’ average
   employee earns $15 per hour. Meanwhile, the firm’s
   high prices mean far fewer customers than a
   company like Nike. However, its annual sales run an
   estimated $100 million, a very impressive amount.
        Allen-Edmonds’ employees are also loyal, which
   has actually begun to pose a problem. Some of its
   most highly skilled employees are nearing retirement,
   and the company must now find and train new,
   younger employees to fill their shoes. While Allen-
   Edmonds has thus far resisted the temptation to
   outsource, it may be forced to look overseas for

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