Speaking with style: Henry Tan, CEO, Luen Thai Holdings (Part I)
Henry Tan, CEO of Luen Thai Holdings on stage with just-style managing editor Leonie Barrie at the recent Prime Source Forum in Hong Kong
Luen Thai Holdings is Hong Kong's largest listed garment firm, with 34,000 employees, revenues of around US$1bn and a flagship business that produces over 80m garments a year - as well as footwear and bags - from production bases in China, the Philippines, Indonesia, India, Bangladesh and Cambodia. In the first of two articles based on a conversation with just-style managing editor Leonie Barrie at the recent Prime Source Forum in Hong Kong, CEO Henry Tan calls for industry-wide collaboration in a bid to increase efficiency and offset rising costs in the apparel supply chain.
Like many executives in the apparel industry, Henry Tan admits: "We are all searching for the next China." But he also has a suggestion to slow the incessant quest to find cheaper and cheaper production bases around the world.
"Closer collaboration between our customers and ourselves would be the best answer," he explains. Prices have now dropped to a level where they cannot go down any more and, "instead of moving orders to a competitor who can offer $0.10 less, trying to work with the manufacturer to eliminate waste and expenses may offer more room than trying to look for the last cent or the lowest wage country."
He adds that the initial markup (IMU) has "gone from 50% to 70-80%, and price has now dropped to a level where it cannot go down any further. How much more can they squeeze from us? A better formula would be to try to work with us to produce the best product for the consumer and gain market share."
Tan's comments are backed by experience. Luen Thai boasts a customer base that includes Adidas, Coach, Dillard's, Esprit, Limited Brands and Polo Ralph Lauren - as well as Japanese giant Fast Retailing - parent of the Uniqlo casual clothing chain - where close co-operation is already yielding dividends.
"Uniqlo is a good example. They do production balancing with us, by month, by quantity and by style. They are a very efficient operation so they do not have to do a very high mark-up to be able to deliver a product with the best value - and that's why they are growing so fast.
"They don't move orders because our neighbour will do it 5 cents cheaper, so I make savings and these are passed onto consumers. So it's win, win, win - for us, Uniqlo and the consumer."
Working closely with customers also enables Luen Thai to grow strategically - to the extent of building factories and planning production two to three years in advance.
"Of course we also need to trust them as we spend millions of dollars trying to build facilities that we anticipate them to use. They also help us to do production balancing, because one of the biggest costs is production downtime."
Take an Oxford shirt; it's the same product whether it's made in April when production levels are low, or in August when production is high. "But if we cut the ticket earlier to fill some of the voids in April, then average costs could go down."
Ultimately, though, building strong customer relationships comes down to trust. "If you can share what you may be buying, we can order the greige goods first, but you have to use them," Tan implores.
"A true partnership between retailer and vendors would yield a lot of benefits, but is easier to say than do," he notes. Like other industries there will probably be more consolidations, among brands, customers and among suppliers - so we will all be more important to each other.
"If we look at our own company, the biggest overhead is between us and our fabric mills, and between us and our customers. If we really can work seamlessly that will probably be the biggest area where everybody could benefit, instead of trying to figure out a way to buy this garment for another 5 or 10 cents lower.
"Some of the things we can plan out from raw material onward, but sometimes you already know the product/style, but not the colour you want. And that's why closer collaboration between customers and ourselves would be the best answer.
"But my only request is that you make it a two-way street, not a one-way street."
Collaborating with vendors on IT systems is another area Tan describes as "very challenging".
He adds: "A true collaboration would also require IT systems to link up [between the garment manufacturer, the fabric mill and the customer], but everybody has different databases. This is something the whole industry should work on.
"A style change in our industry could take a week or ten days from designer to factory, yet with an automobile, someone in Detroit pushes a button and the whole supply chain knows it - and I'm sure it's easier to make a garment than a car."
Click here to read part II of the interview with Henry Tan, in which he talks about the push into new production bases and the changing role of China.
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