2007 Retrospective: Forecast for 2008

Imports were up, employment was down, commercial rents stabilized somewhat and retail sales were all over the map—strong in some sectors and tough in others.

The past year was one of economic uncertainty as the U.S. housing market and the U.S. dollar deflated, while energy prices remained high.

But amid the economic adjustment, there were bright spots as businesses looked for new opportunities overseas and took advantage of opening markets at home.

Calfornia Apparel News takes a look at some apparel-industry statistics from 2007 and asks several industry executives for their forecast for 2008. The 2007 Retrospective continues here.

A shakeup in the housing industry and rising gasoline prices challenged the business community throughout California in 2007. With consumers spending more of their disposable income on food, gas and electricity, next year will prove to be an equally demanding time for manufacturers and retailers.

California Apparel News editors caught up with industry experts to get their take on 2007 and their thoughts about 2008.

Retail

2008 is going to be a tremendous year for two things. The first is anything eco. We’ll see flat growth rates in traditional sectors, but environmentally friendly fashion will boom. Recycled cashmere is very important. It’s half or one-quarter of the price (of new cashmere), and it looks new and fresh.

The second trend is that people want the retailer to edit collections. Busy people are bombarded with an abundance of products and too many choices. They don’t have time to go to 100 stores. They want to narrow down the choices. Successful retailers will be able to edit the choices with a distinct point of view.—Mark Werts, chief executive and founder of contemporary retailer American Rag CIE

Manufacturing

Organic and sustainable clothing has been around for decades. Even we were designing these textiles in the ’90s. But it has bubbled in popular culture because of several driving forces: There are high fuel prices; global warming; longing for a holistic, healthier life; and education about the toxicity of traditionally grown fibers. I tend to think recent design and fabric developments are the significant factors—that organic or “green” clothing can be design-forward in beautifully refined materials. As manufacturers, we’ve produced collections that are full-circle organic, and we’ll continue to develop new textiles, new techniques, challenge our tailoring skills, offer our handicraft touch, all while using organic and sustainable materials. Beyond environmental concerns, consumers are really searching for a human story in design and, of course, beautiful aesthetics and lasting quality. I hope Peligrosa well represents that.

I expect 2008 will continue to grow with more manufacturing resources and eco-conscious product, and there will be more companies selling an eco-conscious slant. The demand lowers costs and increases development in organic farming, so we all benefit.Nico Morrison, chief executive and creative director of Los Angeles–based knit manufacturer Peligrosa

Import/Export

2007 was a very uncertain time for importers, mainly because of the talk of Vietnam and antidumping quotas possibly being imposed on textiles and apparel. Also, apparel was under a watchful eye this year by U.S. Customs and Border Patrol for transshipping. Then there was a ton of fake goods coming into the country, which was a huge increase over previous years. All this has become a focus point of Homeland Security and Customs and Border Patrol. They have confiscated hundreds of millions of dollars in fake goods.

As far as health is concerned, you have the toy world, the accessories world and the childrenswear market being scrutinized for products not being up to standard [for lead content and chemical hazards]. You have medium-sized children’s firms that are going to be sued. So far as importing, the whole thing is uncertain.

And now we are going into an election year. It is already come out that the Committee for the Implementation of Textile Agreements is keeping all the safeguard quotas [on 34 textile and apparel categories on Chinese-made goods] through 2008. Then we’ll see. You also have the Wal-Marts and the Targets flexing their muscle to make more products under their own name. All this contributes to how you plan for the next season. The record seems to show that apparel imports are increasing, but everybody is talking about somewhat of an inventory slowdown for the first quarter and possibly into the second quarter, which is huge because that’s when you have Valentine’s Day and Easter.—Bruce Berton, director of international business consulting for Los Angeles accounting firm Stonefield Josephson Inc.

Real Estate

Commercial real estate is still strong in Los Angeles. We are selling retail condos at Santee Village, and there is a lot of activity and interest. We sold 20 [residential] units in September and October. Lending is less difficult in the Fashion District because we are in an Empowerment Zone. Chase and Bank of America are offering a residential loan with no money down and good pricing. In general, sales are slowed down during the holidays. Good relationships with the developer and/or borrower is much more important today than six months ago.

The loft trend will continue to flourish and gentrify as it attracts a wider demographic of people in the surrounding areas. Santee Village is one of the only authentic loft buildings downtown. Price point and values are the drivers of the buyers that we sell to.—Mark J. Weinstein, principal, MJW Investments, Santa Monica, Calif.

Downtown has a strong future in real estate. Too much has already been invested, but I think in today’s economy, we may have approached the saturation point [with loft construction]. Let’s take care of what we have right now and then move forward. The great thing is we are preserving our historical buildings. The Kors project, for one, saves that building for another generation. We are involved in another effort to revitalize downtown with a program called “Bringing Back Broadway. We hope to revitalize the theaters and bring back the old red trolley car to connect Broadway with L.A. Live. I hope we see it. We’ve hosted four or five fashion shows this year [at the Orpheum] as well as the L.A. Fashion Awards and want that to continue. We also want to bring theater back and hope to host a four to six week run in 2008. It’s not an easy task.—Steve Needleman, owner, ANJAC Fashion Buildings, Orpheum Theatre

Technology

Technology investments in 2008 should continue to be strong among apparel brands and retailers as they invest in key technologies such as PLM (product lifecycle management), global sourcing and ERP (enterprise resource planning).

Given the realities of time compression and shorter product lifecycles, companies are hungry for technologies that will drive new efficiencies and help them become more productive. Businesses must streamline their front-end processes, so PLM will continue to be a huge initiative for both apparel brands and private- label retailers. We’re beginning to see the maturation of this hot technology. Early adopters have seen tremendous results with PLM implementations, and now PLM is pushing down into the mainstream as middle-market companies seek to replicate that type of success.

Global sourcing continues to become more complex, as companies face challenges in managing production; getting accurate, real-time information from the factories; controlling quality; and tracking logistics. Companies cannot effectively manage product lifecycles and global sourcing using spreadsheets and e-mail, so there will continue to be a movement to Web-based global sourcing software. The best solutions can transform global sourcing operations by providing real-time visibility to product information, accelerating speed-to-market and helping companies dramatically improve quality control throughout their supply chain.

ERP investments by apparel brands and private-label retailers should be strong in 2008. Many companies are still trying to run their business on 10-year-old legacy ERP systems that were implemented in advance of Y2K. These systems simply aren’t adequate for today’s apparel industry. Companies that have experienced very rapid growth are especially ripe for ERP upgrades, and the push toward consolidation is forcing companies to adopt new systems to handle the complexities of their business.

Finally, we expect to see increased adoption of technology in China. As the cost of labor increases, Chinese factories face stiff competition from other Asian countries, and they’re seeking new ways to become more efficient. As a result, we expect to see a wave of investment in shop-floor control systems that can help Chinese factories become more productive and compete effectively.—Fred Isenberg, vice president of sales, New Generation Computing (NGC)