Competing On Design: Sweatshirts

Here is a story on a designer sweatshirt maker that is making many right moves, but I think will fail pretty quickly for some pretty classical errors.  These are errors I warn against when I teach the better way of proceeding. he called in designers for his Sweatshirt, which is a very good idea. 

For starters, it appears to weigh more than two pounds. The fabric, which is 100% cotton, feels about three times thicker than most sweatshirts. And ribbed paneling along the shoulders and sides help create a tailored look, eliminating the boxy silhouette of most hoodies. Bayard said he spent about eight months designing it with the help of former Apple engineer Philipe Manoux and world-renowned pattern designer Steve Mootoo.

 Obviously the design is valid, since it is selling well, at $89.  I notice College Logo hoodies are in the $60 - 80 range, so if these are obviously nicer quality, the price should attract, and it does.  

The zip-up hoodie, made by San Francisco startup American Giant, costs $89. It had been on the market for 10 months when a December 2012 Slate article declared it "the greatest hoodie ever made" and suddenly sales exploded.

Now this is dangerous.  A blip from a news article, and sales jump.  An increase due to an article is usually not sustainable.    Careful about meeting such demand.

“We are absolutely throttled down on manufacturing,” Winthrop said. “We are maxing out all of our capacity at all of our factories. As much as they can give us, we are taking.”

Now this is fine since they are using subcontractors, who are probably delighted to get the work.   And farming the work out means they are not investing in plant and equipment.  Very good. But next, the model is business to consumers, which I question...

The company advertises that it’s “bringing back American manufacturing” and pledges to never outsource jobs overseas. It can afford the higher labor costs in the U.S. because it is a direct-to-consumer business and therefore avoids expensive overhead associated with brick-and-mortar stores.

Four problems here.  1. Nobody cares where clothes are made. There are no studies showing peoples' preferences depend on where something is made.  Sure, no end to surveys that SAY people prefer made in USA, but when it comes to actually buying, they contradict themselves in action.  American Apparel advertises made in USA as well, but plenty of importers out sell them.  If you spend time promoting what no one cares about, then you are wasting time and money.  

2. Manufacturing clothes in USA is still a big business, look at where your tshirt is made.  But it is the cheap stuff made here (see American Apparel).  Quality is made overseas since it is management intensive plus the duties and restrictions cause producers to have their expensive stuff made overseas, as anti-trade barriers in cotton goods are by weight, not cost.

3. A promise to never outsource overseas is extremely unwise, when Federal policy is get big or get out, and having regs directed at ruining specifically you can and will be written.  Here they do it to lettuce growers. People go overseas to stay in business, not to save money.  The fourth problem relates to brick and mortar, but let's let them expand first....

“One of the great unspoken, dirty secrets about the apparel industry is that brands for the last 40 years have been investing a tiny amount in the product to sustain huge marketing and huge distribution costs,” Winthrop said. “In American Giant’s case, we do almost the exact opposite of that.”

So above they say their model is business to consumer and here they reveal a "secret."  Whole lotta errors here, and one of the biggest mistakes you can make in business, indeed life, is to believe your own PR.  First wholesale (business) to consumer is a bad idea since online sales are only about 6% of retail sales in USA.  That means this company will miss about 94% of their potential market. 

The "dirty secret" described relates to the specialty market, not the Walmart model.  It is no secret, since everyone already knows it.  Everyone knows the model, and yet 94% still prefer to walk into brick and mortar.

Specialty brick and mortar are constantly looking for such things as new sweatshirts, a luxury version.  Now someone will come along and offer a $400 retail version, but the quantities will be very low.  Sine the quantities are low, the markups are high to cover the costs of all those involved.  At $400, Saks will sell through.  The vendor to Saks will make more money doing less work that American Giant.  Just because you can sell X at $89 does not mean you cannot sell Y at $400.  And no assurance you'll make more profit at X than Y overall.

Of course higher price slows down demand, demand is a problem with which American Giant contends.  Further, as a start-up, their brand would be associated with Saks and Neiman, etc, not a bad association as the company moves forward.

Companies that have a higher revenue in relation to lower production are easier to finance than otherwise.

By eschewing those leading retailers, he is also denying himself steady feedback that is valid and reliable, upon which he could build his company, like a Nike.

The opposite of the "dirty secret" is what Walmart does.  So here we have a specialty product being sold on the Walmart model.

What goes on is not a  secret, dirty or otherwise, it has been around about 5000 years, not 40,  it relates to about 20% of the market, not 80%, what they claim is secret is well-known and beneficial, and their response is to adopt the Walmart model.  My guess is if and when American Giant gets to numbers that interests Walmart, having proven the Walmart model is good for their sweatshirt, Walmart will put their version of the same thing on Walmart  brick and mortar shelves AND the Walmart website.   At $59, same quality, made overseas.

Looking ahead, Winthrop said he plans on sticking to the basics: t-shirts, jackets, hoodies and sweatpants.
“When we think about next year, just being in stock — not expanding the product mix — but just being in stock will be a huge lever up for us,” he said.

Sitting duck.  He should be wholesaling to specialty retailers and working on new designs.  Fine if they are just tshirts, sweatpants, etc, if that is what customer feedback says.  My guess is he'll stock up as demand wanes, because the news article plug is a lightning that will not strike twice.  

My predictions as to who will make it has been pretty good over the last decade.  I wish all small businesses good luck and success, but some moves are deleterious.  Not too late to change the model, but the mantra needs to be "our opinion does not matter" and get in front of the opinions that do matter, 94% of the market, the brick and mortar specialty stores, at a higher price.

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