Reducing wages costs by means of a global supply chain has been driving apparel production decisions for the last ten years.  U.S. fashion retailers have based an increasing proportion of their production outside the U.S., primarily in China and other low-wage regions of East and South Asia, but also in the Caribbean basin and Central America and, to a lesser extent, in Eastern Europe, North Africa and South America.  As additional low-cost production has come on stream, clothing prices have dropped.
    At the same time, retailers are facing pressures from ever more sophisticated consumers to come up with a continuing series of attractive new offerings.  Consumers are no longer willing to pay traditional retail prices for undistinguished merchandise that sits on the selling floor for an entire season and grows stale.  Retailers have been scrambling to find ways to bring new styles forward more frequently and to cut their losses on less popular items.  Large market operators and discount chains, such as Target and Kohls, are masters of the global supply game and are continually increasing the fashion component of their clothing selections at prices that pose major challenges to the traditional full-price department store and retail specialty outlets.
New York Could Do It 
    In this environment, should New York City try to participate in apparel manufacture at all?   If so, what should industry players consider as they develop a strategy?
    New York City is not going to be a competitor purely in terms of low wage cost – that much is clear.  Where goods have commodity characteristics, that is, compete solely on the basis of price and durability, with perhaps a dollop of fashion tossed into the mix, the global supply chain specialists will win, exploiting a flexible and geographically diverse production base with a range of low-wage regions from which to choose. 
    On the other hand, New York City has a number of competitive advantages across the apparel production cycle.   Bringing these together could make New York City an attractive base for high-end apparel and luxury good production.  In this segment of the market, merchandise competes on the basis of design, quality of workmanship, stylishness, novelty, and prestige.  Price is viewed in terms of the value delivered along these dimensions.  Traditional economies of scale – producing large volumes of identical items – do not apply; instead, customers are more likely to respond to artificial scarcity and will line up for “exclusive” or “limited edition” offerings.  Most of the value in this segment is based on design and marketing; it depends on the full production cycle, from inspiration and apparel design through to store design and customer service.
    Approaching the business from this angle, New York City has a lot to offer:
    — A sophisticated fashion design community, comparable to that of Paris and Milan, along with the associated media and event machinery and two world famous design schools, the Parsons School of Design and the Fashion Institute of Technology;
    — Development and experimentation in high tech fabrics, which have special qualities for wearing or handling, or which require less sewing in garment assembly;
    — A traditional infrastructure of showroom space, financing techniques, and other assets and skills associated with the traditional “garment industry”;
    — A highly sophisticated and well-to-do local market of consumers, ranging from the trendiest of young people taking part in the art or club scene, through the traditional or classic taste of people in the midst of career or family, to the currently underserved segment of older people who would still want to wear and use attractive things;
    — A large population of highly motivated, literate, and skilled (or potentially skilled) craft workers, as well as available manufacturing space and other physical infrastructure for manufacturing; and
    — Unequaled expertise in bundling design, manufacture, advertising and point-of-sale experience into brand value.
Some Models for New York 
    New York City can look to successful models for integrated approaches to apparel and luxury goods manufacturing and marketing based on factors other than low wage costs. Apparel and luxury goods production in northeastern Italy is widely cited as an example of how a regional cluster of small businesses, many of them family-owned, can operate successfully in a high-wage environment.   Design and marketing are carried out by “name” companies, but manufacture is supported by subcontracting to local networks of highly specialized firms.  The region as a whole gains the benefits of both economies of scale and vertical integration, even though batch size is small and ownership is dispersed.  This “cluster” structure permits flexible production and fosters innovation.  It seems to work best when it is working initially to satisfy local, or at least domestic, demand.
    A second model takes advantage of higher-cost local manufacture to permit in-season production in response to real-time information about what is selling and what isn’t.  This is the model successfully implemented by the Spanish apparel company Zara. Zara goes into each season with only 50-60% of its season offerings committed.  The balance of each season’s offering is scheduled for manufacture during the season and can be readjusted or pre-empted based on day-to-day market intelligence; the entire production cycle from design to store delivery can be as short as 10 days or two weeks.   In addition, Zara delivers new inventory to its stores twice a week and makes only a limited run of each style.  Zara customers have learned to shop frequently and to buy now if something pleases them – it might be gone next week!  Zara’s end-of-season markdown sales represent a much smaller proportion of sales than is typical for its competitors.
    In the United States, Tiffany and Coach have been successful by pursuing an integrated strategy in which design, high quality (often U.S.) manufacture, and consistent marketing across all channels convey strong brand image, with a characteristically American mix of fashion with tradition.  The quality and brand image, carried through to the stores and sales interaction, support premium pricing which is nonetheless viewed by consumers as representing fair value for what they get.  The American consumer feels comfortable paying for luxury when the product promises years of use – the shopper feels prudent while making an extravagant expenditure.
Technology Makes It Happen 
    A further piece of the puzzle can be provided by technology.  Technological innovation can foster production in a high-wage environment in at least two ways – by increasing worker productivity, and thus effectively reducing labor cost, and by supporting mass customization.  The concept of mass customization – where customers can order products cut to their size or made to their unique specifications – is well suited to the luxury sector but requires not only that products be made efficiently but also that they be delivered quickly.  Paying a premium price for a uniquely tailored good feels right only if you actually get it before you have changed shape or changed your mind.
    In all these cases, there is benefit in locating design and manufacture close to the market – not only for the obvious reason that shipping expense is reduced, but to make market response faster and sufficiently accurate to support premium pricing:  Local manufacturing, if strongly driven by a responsive design cycle and supported with good marketing and merchandising, could make sense for New York City.

Nelson Fraiman and Carolyn Paris are with the Columbia University Business School.
 
 
 

View a printer-friendly version of this article.

Send us your responses. We may print them in an upcoming forum.