California Apparel News

The shakeout in B2B software technology looks to be a blessing in disguise for an apparel industry looking for supply-chain management solutions.

As dozens of players have been weeded out with the dissipation of venture capital, apparel resources now have a clearer picture of what’s out there since there are fewer to choose from and those that remain have had to survive a big fallout. At one point the market was cluttered with 75 or more companies, most of which offered “blanket solutions.” Now the industry is poised to make more investments.

“It’s among the top of the top 10 concerns of [chief information officers],” said Paul Colleta, senior vice president of marketing for Freeborders, a San Francisco-based supply-chain manager for the apparel industry.

It’s expected that B2B revenues will grow sixfold over the next four years from the current $4.5 trillion counting all industries including apparel. And e-commerce revenues are expected to skyrocket from $446 billion to $2.1 trillion over the same period, according to market analyst Goldman Sachs.

Among these tech execs’ most sought-after tools are supply-chain suites that manage design, product management, sourcing, quality control and deliveries. These “solutions” can tell a factory in Europe or Asia what’s selling or not selling on a retail selling floor in Los Angeles and make the needed adjustments to improve profitability. Using such tools can slash expenses by as much as 20 percent, according to IBM. With a softer economy facing apparel retailers, along with skimpy margins (5 percent over the past five years) and quick-turning fashion trends, it would seem that apparel companies would be into investing in B2B in a big way. But they haven’t.

The adoption process for these initiatives has been slow, as the logjam of solutions on the market has caused confusion and has made retailers and manufacturers a bit skeptical, according to Colleta. Many companies want to see quick returns on their investments, and that has not occurred in many cases.

“The apparel industry has been in the business of going out of business,” said William Seagrave, chief executive officer of Los Angeles-based Fasturn. “There’s lot of money in it and a whole lot of work involved but it hasn’t been benefiting the bottom line. There needs to be a fundamental change in operations philosophy...as opposed to fighting the war at the consumer level.”

“You are going to hear more about ROI [or return on investment] going forward,” added Bill Brandel of Aberdeen Group, speaking at a recent B2B conference in San Francisco. “For some companies, the short-term focus on ROI is going to destroy their B2B initiatives.”

Mature companies such as Fasturn have been tinkering with their business models to prepare for the next level of growth in the industry. Fasturn has recently restructured management and enlisted four former Oracle executives to help launch the company’s first Operations Network, which is a new class of software that facilitates day-to-day electronic communications between trading partners and places more emphasis on the bottom line.

This model is like a virtual factory that emphasizes control over gross-margin erosion vs. production time, sourcing, task accountability, letters of credit management, etc., according to Fasturn spokesperson Lisa Porter.

Newcomer SupplyChainge, based in Portland, Ore., is addressing supply-chain management from the factory’s perspective, with more control from the inbound point of the supply chain.

“Speed is the easiest thing to talk about,” said CEO John S. Thorbeck. “But one of the biggest costs affecting the industry comes through markdowns and stockups, so if you can capture even a small piece of that, you’re going to make a big impact [on your bottom line].”The company owns a factory in Bangalore, India, which clients can use as a test facility.

“A lot of the criticism [aimed at B2B] has been that it hasn’t been tied to the process,” Thorbeck said. “With SupplyChainge, it’s easy for our clients to engage the solution.”

Critics have also knocked many of the supply-chain companies for being too broad. Thorbeck has an apparel-industry background, having worked in footwear production most of his career.

“A lot of the customers we have today are here because we are focused specifically on the apparel industry,” said Colleta.

Freeborders is one of the few companies that is niched—although more are beginning to crop up. Its clients include Liz Claiborne, Levi Strauss, Saks, Dillard’s and Nike. Claiborne, Dillard’s, DuPont and Burlington will be part of a company presentation at the upcoming Bobbin World Expo in Orlando, Fla. next month. Freeborders also inked a deal in recent weeks with the Apparel Group Ltd. (TAG) to use its product development, electronic information exchange, and fabric- and color-managing modules. TAG’s client list includes Gap, Saks, JC Penney, May and Nordstrom.

“Our biggest challenge is to get high-quality product to the market faster,” said TAG president Norman Goldberg.

“It’s all about improving the product cycle time,” added Colleta. “If I can get a product there a couple of weeks faster, the value is tremendous.”

Thorbeck said cutting four- to six-month lead times down to 10 days is possible now that model retailers such as Zara of Spain have developed systems that can take new styles conceived in Europe and put them on a U.S. selling floor within five weeks. Retailers, including the Limited, Kohl’s, Guess and Ann Taylor, have turned to suppliers such as Hong Kong’s Li & Fung, which relies on supply-chain technology to keep the turnover moving at breakneck speed and has the numbers to back it up, with 32 percent growth last year.

Supply-chain managers like Colleta see a wind of change for the B2B market as it relates to the apparel market.

“The [slowing] economy is now a selling point,” he said. “It’s forcing retailers to give more value to their customers.”