California Apparel News

California companies—and out-of-state companies that do business here—are faced with a full slate of recent issues that could make business challenging in an already challenging economic environment.

The California Fashion Association and financial accounting firm J.H. Cohn LLP hosted a free seminar, titled “Los Angeles: The Epicenter of Fashion,” to keep companies apprised of the “hot-button” issues currently impacting the apparel industry—as well as a few looming on the horizon.

“There have been problems before—many greater than these—but these are coming all at once,” said CFA President Ilse Metchek, speaking on July 23 in California Market Center’s Fashion Theater.

Before delving into the challenges, Metchek listed some of the industry’s strengths, including its long history of pioneering new niche markets and its proximity to Hollywood and its stars.

But the apparel industry’s contributions often get overlooked by state officials, Metchek noted, because it is an industry largely composed of small- and mid-sized companies.

“Apparel and textiles are the second-largest commodity coming though the ports,” Metchek said. “But not one [of these importers is a] Fortune 500 company. All are small companies.”

Among the issues affecting the industry is the Consumer Product Safety Improvement Act, or CPSIA, which affects manufacturers of childrenswear and apparel sold to children up to 12 years old. The regulation, enacted earlier this year, requires that manufacturers certify that all the components in a garment have been tested for lead content.

There are only 32 certified testing labs, and none is located west of St. Louis, Metchek said, adding that there is a backlog of items waiting to be tested at many labs, exacerbating a process that can add up to two weeks to the production cycle.

Proposition 65 covers the use of hazardous materials in a workplace. The law has been on the books for a decade, but a recent expansion of the law’s scope is threatening to make this another troublesome issue for the industry, Metchek said. In addition to requiring companies to post signage indicating if employees in its facility are exposed to hazardous substances, the expanded regulations would require labeling garments to indicate whether the item—or any of its components—contains lead.

In addition, there’s a “bounty hunter” provision in the law, according to Metchek, who said the suing party can keep 25 percent of the assessed penalties.

10 + 2 is an customs initiative that requires importers to supply additional information 24 hours before shipment to the United States.

“The Department of Homeland Security, they’re keeping us safe from zippers,” Metchek quipped.

But in addition to requiring the fast transmission of additional information, Metchek said, the initiative brings up issues of privacy and maintaining a company’s competitive advantage.

“Your sources in China, Vietnam, Korea are on the manifest,” she said. “Who gets to see that information? We don’t know yet.”

Plus, although U.S. Customs is waiting until the end of the year to levy penalties for violation of 10 + 2, the civil penalties are onerous, according to Metchek, who said they can run as high as $100,000 per violation in addition to possible forfeiture of the goods.

Card Check, or the Employee Free-Choice Act, is currently stalled in Congress. The proposed measure would make it easier for unions to initiate unionization efforts by allowing employees within a company division to unionize. Metchek said the proposed act has the potential to impact multi-door retailers, manufacturers with facilities in many locations (such as showrooms, warehouses and regional offices), and service providers with support staff and various offices in other cities.

Cap and Trade, or Carbon Emissions Trading, is also currently in Congress. Aimed at reducing carbon emissions, the measure sets a mean standard for energy efficiency and requires companies that exceed the mean to purchase allowances, or “credits,” for excess carbon-dioxide emissions.

“We are an energy-intensive industry,” Metchek said. “100 people in a manufacturing facility will use more energy than 100 accountants in an accounting firm. The industry will buy and sell allowances on an open-market controlled by the government. To me, it’s a tax. I don’t know what it sounds like to you.”

The final issue addressed is the Design Piracy Protection Act, which would extend copyright protection to apparel garments.

According to Metchek, the law would “allow designers to claim copyright over styles and features they did not invent.”The hotly debated measure was drafted to prevent knockoffs of original designs, but Metchek argues that, if passed, the law would generate additional problems for the industry. “Will trend reporting become an accessory to a crime?” she asked rhetorically. “What is the role of the retail buyer? [If passed,] judges will be the arbiters of fashion. Have you seen what they wear under those robes?”

Questions About CIT, Credit

Although not on the agenda at the California Fashion Association seminar “Los Angeles: The Epicenter of Fashion,” the CIT Group’s current financial crisis loomed over the event, drawing questions from the audience about the impact of a potential bankruptcy filing by the factoring giant.

“Credit will be tighter—whether CIT is in or out,” said CFA President Ilse Metchek, who advised the audience to speak to their accountants and lawyers about the CIT situation and the other “hot-button” issues on the agenda.

Joseph F. Montero, a partner with Good Swartz Brown & Berns, a division of J.H. Cohn, reiterated the impact of CIT’s crisis on the apparel industry overall.

“The trickle effect is enormous,” he said. “It will affect every company in some way. You need to have a contingency plan.”