Bob's Blog

What's a day worth?
16th November 2009

I was in Mexico a while back - we held an event in Mexico City - to talk with Fashion companies possibly interested in the world's best "Right Brain to Retail" - Fashion ERP system (I had to put a plug in for our system - - it really is the best Fashion solution available).

After our event - I went to visit some of our current customers. One of them said "business is really pretty good" - "we're tracking well ahead of last year - we've seen a renewed interest in regional sourcing".

Of course I had to ask 'why do you think it's happening'?

The answer "it's really pretty simple - we move through manufacturing just as fast as in Asia - and we're lots closer. In addition to the obvious cost saving from logistics - we can get it to them much faster - and - what's a day worth?"

Any of you in the US who belong to AAPN (and you all should) - will have read over and over about total costs versus component costs (or first costs in the sourcing world). Mike Todaro (aka Spam man) - has campaigned for years preaching the value of regional sourcing. Now, when we are looking for better - faster - cheaper: we're just beginning to understand the value of a saving days of working capital.

When are we going to wake up - and recognize that our obsession with cost elements without regard to total landed costs - is not really driving any profitability … ??? I strongly suggest that any of you who obsess over component costs - as a be all and end all - take a little time out to look into the principles of both "Fast Fashion" - and "Lean" ... And also - those of you who don't believe in the viability of regional sourcing - what's your plan - what costs will be acceptable - when the cost of a barrel of oil goes back up to $150 / barrel?

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Economics 102
5th October 2009

I read an article a little while back that indicated that Macy's in the US planed to 'lay-off' 7000 workers in the near future.

In 2008 retail in general eliminated 500,000 jobs - and I've seen estimates that say that 2009 has been at least twice that number as retail sales continued to falter.

I also read another article even more recently that indicated that Macy's current philosophy toward inventory is to eliminate all risky or marginal inventory - but just the same - isn't the crux of retail based in inventory - or as one of my professors used to say "you can't sell what you don't have …".

That's the retail side of the value chain - of course there is an equal or even greater impact on the supply chain side. I've seen numbers of articles - and - talked with numbers of friends that are on the verge of bankruptcy - bankers are unwilling to loan the operating capital that they need for funding the build of inventory or the cash required for ongoing operations. Fashion manufacturing organization are considered to be just to 'risky' - a marginally profitable business model with high risk - just not what bankers are looking for these days.

I've seen quotes related to the supply chain side of Fashion - indicating that 1/3 to 1/2 of all Fashion companies will be of new ownership at the end of this recession. And it has been said that more than 20,000 factories in Asia that support the Fashion supply chain have gone out of business (it's impossible to verify these numbers).

As most of you know - the apparel industry (for the most part) is not 'self-funded'. Most establish a revolving line of credit that they use throughout the year to fund their operating capital needs - - which (if everything goes right) - - by the end of the year the bank is paid off - and they are happy. This has been the way the industry has worked for decades - well - for as long as I've been in it.

So here we have... unprecedented lay-offs (retail) - along with huge cancelations of supply orders - coupled with credit strangulation (wholesale) during a time where we need just the opposite to ever produce growth in this industry again.

I'm no economic genius - but, it seems to me that we're making all the wrong moves if we ever hope to actually turn this recession mess around. People are out of work and those numbers are growing - retail is choked with merchandise - suppliers are being driven out of business by bankers (who have the money they won't loan from the US taxpayers) and soon - no one will be have any disposable income to use for the discretionary purchase of items like apparel and footwear.

I'm sure there's something that I'm missing here... I'm just not sure what it is.

And the latest incredible attitude attributed to major retail in both the US and Western Europe - "We'd rather lose sales - than get stuck with inventory." It seems to me (again) that we've missed the point. Isn't the key to surviving this economy based in the creation of strong supply networks - working in a collaborative manner - with open communication at the center? What we need now is the investment in proper business processes and policies that will allow retail to finally attain the "Right Product, Right Place, Right Now …" status they have been looking for since the beginning of time. Rather than this silly "turtle syndrome" we've got going.

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Fashion Economics 101
28th September 2009

We all seem to like silver bullets - magic potions and single answers to complex questions. Maybe you can help me to understand something - it seems to me that apparel & footwear retail has been in trouble for a very long time - this can't be something that just came about as a result of weak holiday spending - or the banking crisis - or sub-prime mortgages.

Hasn't our retail industry struggled over defining and redefining itself for a couple decades? It's been at least 10 years since I attended a seminar given by Robin Lewis - in that seminar Robin said (this is a paraphrase) 'Retail has lost its way - there is little to no differentiation - no reason to shop with one organization over another. Merchandise and merchandising is boring - some pay a little more attention to the consumer - some pay less - but none pay enough. There exists this vast sea of sameness - and no one seems inclined to break out of it.'

Right now we're in a period of global economic downturn - yet both Wal-Mart and Zara (along with some others) continue to increase sales - and make money. How?

I'm guessing that at the core of their success is both an innovative and evolving business model. Business models that rely in cooperation - collaboration - and communication. (Yes, Wal-Mart and the words cooperation and collaboration in the same sentence. I am assured by numbers of my friends still in the wholesales side of the industry - that Wal-Mart is all about collaborative Supply Chain activities today. The Wal-Mart that many of us remember - that drove suppliers to the brink of bankruptcy has turned over a new leaf.) And to accomplish this - both organizations have made substantial investments in technology. Technology as a key to better cooperation - collaboration - and communication.

Right now most companies seem to have gone into a bunker mode. But is that really the wisest thing to do? If you have a sound business model - and - you have every reason to believe you have a sound customer base. Now is the time to invest in those technologies that will make you a stronger organization on the other side of these troubled times. You may be concerned about how a move like this would be viewed by shareholders - but also consider how shareholders will view complete inactivity.

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Cash is King
1st May 2009

In today's economic environment - we're seeing perfectly viable apparel and footwear companies forced out of business from a lack of available operating capital. For as long as I can remember - the Fashion industry (with a few exceptions) has financed its operations with borrowed capital. Many of those organizations sadly got involved in collateral borrowing - wherein inventory turned into an asset that opened up more available borrowed operating capital. Why did I say "sadly" - because, I could never quite understand the logic in holding inventory. Inventory has to be turned 'as fast as possible' into cash. As soon as companies took this new view of inventory - they held more inventory than necessary - or - held onto inventory that should have been disposed of at (almost) any cost.

Now we find ourselves in a "Brave New World" - with new banking rules that have really handcuffed a lot of apparel and footwear companies looking for reasonable lines of credit to fund their period of inventory build. And rather than looking to improve their business model - or business processes - - there's just a desire to pull head, legs, and tail into their shells and 'wait it out'. This is crazy - and these policies that will do little more than hasten failure.

This is not the first measure of adversity to afflict itself on us - intelligence will help us through - not the instinct to hide.

"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

Charles Dickens, A Tale of Two Cities

English novelist (1812 - 1870)"

It seems to me that we have to look to inventory for a solution to our problems. Inventory and complete supply chain collaboration. Look to things like CPFR - VMI - Collaborative Commerce for solutions. Move inventory into cash at the speed of light - - inventory is not evil unless you let it be.

Cash is king

From Wikipedia, the free encyclopedia

Cash is king is a clichéd expression sometimes used in analyzing businesses; it refers to the importance of cash flow in the overall fiscal health of the business. The phrase is a favorite of Alex Spanos and has sometimes appeared in Motley Fool articles and commentaries. It describes the importance of sufficient cash as an asset in the business for short term operations, purchases and acquisitions. A company could have a large amount of accounts receivables on its balance sheet which would also increase equity, but the company could still be short on cash with which to make purchases, including paying wages to workers for labor. Unless it was able to convert its accounts receivable and other current assets to cash quickly, it could be technically bankrupt despite a positive net worth.

Manage your cash flow! Make decisions that provide and produce positive cash flow. Positive cash flow needs to be the result of the more rapid movement of inventory into shipments. Work with your customer base - develop more / new methods of producing 'win -win'

Cash flow statement

From Wikipedia, the free encyclopedia

In financial accounting, a cash flow statement or statement of cash flows is a financial statement that shows a company's flow of cash. The money coming into the business is called cash inflow, and money going out from the business is called cash outflow. The statement shows how changes in balance sheet and income accounts affect cash and cash equivalents, and breaks the analysis down to operating, investing, and financing activities. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 (IAS 7), is the International Accounting Standard that deals with cash flow statements. People and groups interested in cash flow statements include:

• Accounting personnel, who need to know whether the organization will be able to cover payroll and other immediate expenses
• Potential lenders or creditors, who want a clear picture of a company's ability to repay
• Potential investors, who need to judge whether the company is financially sound
• Potential employees or contractors, who need to know whether the company will be able to afford compensation

Your balance sheet is the single best indicator of your corporate health - learn how to do the business you have to do - while keeping a healthy balance sheet … fully integrating your business execution transactions is the key to knowing what you need to know - when you need to know it - the CFO cannot be the only one in your organization to understand your financial condition.

Balance Sheet

From Wikipedia, the free encyclopedia

In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a snapshot of a company's financial condition.[1] Of the four basic financial statements, the balance sheet is the only statement which applies to a single point in time.

A company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first and are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth of the company and according to the accounting equation, net worth must equal assets minus liabilities.[2]

Another way to look at the same equation is that assets equal liabilities plus owner's equity. Looking at the equation in this way shows how assets were financed: either by borrowing money (liability) or by using the owner's money (owner's equity). Balance sheets are usually presented with assets in one section and liabilities and net worth in the other section with the two sections "balancing."

Records of the values of each account or line in the balance sheet are usually maintained using a system of accounting known as the double-entry bookkeeping system.

A business operating entirely in cash can measure its profits by withdrawing the entire bank balance at the end of the period, plus any cash in hand. However, many businesses are not paid immediately; they build up inventories of goods and they acquire buildings and equipment. In other words: businesses have assets and so they cannot, even if they want to, immediately turn these into cash at the end of each period. Often, these businesses owe money to suppliers and to tax authorities, and the proprietors do not withdraw all their original capital and profits at the end of each period. In other words businesses also have liabilities.

From Mike Todaro - Managing Director AAPN

Many of us know the wonderful Chinese saying, "it is unwise to leap a chasm in two bounds". But my son the investor told me another terrific saying about what to read into all of these averages we are seeing go nuts today. The saying is, "it is not wise to wade across a stream that averages 4 feet".

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Theory to Practice ...
8th February 2009

I was talking with an old friend recently - he's in the apparel industry - and used to be a manufacturer. Now, like so many others - he is a brand owner who sources his products from all over the world. During our conversation he told me that he was having a problem with some operational issues - assuming that he was looking for some advice - I suggested - "have you considered trying blah - blah - blah"? (What I suggested is not important to the point I'm going to try to make). His response was "that's all just theoretical stuff - I need something practical".

That exchange started me thinking - how on earth does some of this stuff that we do move from the theoretical to the practical? How does an idea go from someone's mind - into the way we do business everyday - especially in an industry that is both - 1. so behind the times - and - 2. so incredibly risk averse? In a way - it's like that age old question: "who was the first person to eat an oyster - and how hungry were they before they decided to go for it?"

From Wikipedia … Theoretical:

"The word theory has many distinct meanings in different fields of knowledge, depending on their methodologies and the context of discussion. Definitively speaking, a theory is a unifying principle that explains a body of facts and the laws based on them. In other words, it is an explanation to a set of observations. Additionally, in contrast with a theorem the statement of the theory is generally accepted only in some tentative fashion as opposed to regarding it as having been conclusively established. This may merely indicate, as it does in the sciences, that the theory was arrived at using potentially faulty inferences (scientific induction) as opposed to the necessary inferences used in mathematical proofs. In these cases the term theory does not suggest a low confidence in the claim and many uses of the term in the sciences require just the opposite."

From Wikipedia … Practical:

"Pragmatism is the philosophy of considering practical consequences or real effects to be vital components of both meaning and truth. Pragmatism is generally considered to have originated in the late nineteenth century with Charles Peirce, who first stated the pragmatic maxim. It came to fruition in the early twentieth-century philosophies of William James and John Dewey and, in a more unorthodox manner, in the works of George Santayana. Other important aspects of pragmatism include anti-Cartesianism, radical empiricism, instrumentalism, anti-realism, verificationism, conceptual relativity, a denial of the fact-value distinction, a high regard for science, and fallibilism.

Pragmatism began enjoying renewed attention from the 1950s on, because a new school of philosophy put forth a revised pragmatism which criticized the logical positivism that had dominated philosophy in the United States and Britain since the 1930s, notably in the work of analytic philosophers like W. V. O. Quine and Wilfrid Sellars. The concept of naturalized epistemology was further developed and widely publicized by Richard Rorty, whose later work grew closer to continental philosophy and is often considered relativistic. Contemporary pragmatism is still divided between work that is strictly within the analytic tradition, and a more relativistic strand in the wake of Rorty, and lastly neoclassical pragmatism (which includes philosophers such as Susan Haack) that stays closer to the work of Peirce, James, and Dewey."

A few weeks ago - I attended a Fast Fashion event at FIT - Sponsored by TC2. While the content of the seminar was very good - and the theory of Fast Fashion really speaks to the issues of today's retail struggle for revenues - there were only about 40 or 50 attendees - from about 20 to 25 companies.

As we struggle with the current economy - and we struggle with a fashion retail sector that has lost touch with its consumer base - we're all looking for ways to differentiate ourselves. One of the obvious success stories is Zara - that poster child for Fast Fashion from Spain.

From Wikipedia … Zara:

"The founder of Zara, Amancio Ortega, opened the first Zara store in 1975.[3] The first Zara store was located on a central street in A Coruña.[4] Upon the success of Zara format, the firm started to expand and opened further stores.

Its first store featured low-priced lookalike products of popular, higher-end clothing fashions.[5] The store proved to be a success, and Ortega started opening more Zara stores in Spain. By the early 1980s, Ortega had begun formulating a new type of design and distribution model. The clothing industry followed design and production processes that required long lead times, often up to six months, between the initial design of a garment and its delivery to retailers. This model effectively limited manufacturers and distributors to just two or three collections per year. Predicting consumer tastes ahead of time presented inherent difficulties, and producers and distributors faced the constant risk of becoming saddled with unsold inventory.

Ortega sought a means of breaking the model by creating what he called "instant fashions" that allowed him to respond quickly to shifts in consumer tastes and to newly emerging trends. Ortega's dream remained unfulfilled, however, until he met up with José Maria Castellano. A computer expert, Castellano had worked in Aegon Espana's information technology department before becoming chief financial officer for a Spanish subsidiary of ConAgra. Castellano joined Ortega in 1984 and set to work developing a distribution model that revolutionized the global clothing industry.

Under Castellano's computerized system, the company reduced its design to distribution process to just 10 to 15 days. Rather than placing the design burden on a single designer, the company developed its own in-house team of designers—more than 200 by the turn of the 21st century—who began developing clothes based on popular fashions, while at the same time producing the company's own designs. In this way, the team was able to respond almost immediately to emerging consumer trends as well as to the demands of the company's own customers—for instance, by adding new colors or patterns to existing designs. State-of-the-art production and warehousing procedures, as well as the installation of computerized inventory systems linking stores to the company's growing number of factories, enabled the company to avoid taking on the risk and capital outlay of developing and maintaining a large back inventory.

The leaner, more responsive company—which adopted the name of Industria de Diseño Textil S.A., or Inditex, in 1985—captured the attention of Spanish shoppers. By the end of the decade, the company had opened more than 80 Zara stores in Spain. The company's instant fashion model, which completely rotated its retail stock every two weeks, also encouraged customers to return often to its stores, with delivery day becoming known as "Z-day" in some markets. The knowledge that clothing items would not be available for very long also encouraged shoppers to make their purchases more quickly.

The success of the Zara model in Spain led Inditex to the international market at the end of the 1980s. In 1988, the company opened its first foreign store in Porto, Portugal. The following year, Inditex moved into the United States. Success in that market remained elusive, however, and at the beginning of the 2000s, the company had opened just six U.S. stores. A more receptive market for the Zara format existed in France, which Inditex entered in 1990. The company quickly began adding new stores in major city centers throughout the country.

Through the 1990s, Inditex added a steady stream of new markets. The company entered Mexico in 1992, Greece in 1993, Belgium and Sweden in 1994, Malta in 1995, and Cyprus in 1996. In the late 1990s, Inditex stepped up the pace of its international expansion, adding Israel, Norway, Turkey, and Japan (the latter in a joint-venture with a local partner) in 1997, then, in 1998, moved into Argentina, the United Kingdom, and Venezuela. While the bulk of the group's stores remained company owned, in certain markets, such as the Middle East, starting in 1998, Inditex's expansion took place through franchise agreements with local distributors. By 2000, Inditex had added another dozen or so countries to its range of operations, including Germany, the Netherlands, The Philippines in 2005, and Eastern European markets including Poland."

If Mr. Ortega had said "that's all just theoretical stuff - I need something practical" - where would Zara be today? Zara took that leap of faith - that separates the leaders from the followers. So many organizations that you read about today - want to be the next Zara. But, do they have what it takes - do they have the vision - do they have the mindset to openly communicate and collaborate throughout both their supply and demand chains - and if they do - do they have the technical infrastructure to make it happen?

When people first started talking about collaborative commerce - I would say to them "how can you hope to collaborate with your suppliers 10,000 miles away - when your merchandising and production departments can't collaborate sitting 25 feet from one another" - "collaborative commerce begins at home."

Where are the 'edge of the envelope pushers' - where are the movers and shakers of the industry who helped us to become a global fashion force? Have we traded merger and acquisition philosophies for inventive and innovative business models that bring to the consumer - what the consumer wants - when the consumer wants it?

50 people from 25 companies had enough interest in Fast Fashion to attend the TC2 seminar at FIT - where on earth were the rest of you? I'm not suggesting everyone needs to become Zara - none of you may need to embrace Fast Fashion - in fact I'd like to suggest quite the opposite. Zara is Zara - but we all need to look for those differentiators like Fast Fashion - those ways to get ourselves closer to fulfilling the needs and wants of our customer base. We all need to become the 'be all and end all' to those loyal customers that have continued to shop with us. Offering then the Fashion, selection in inventory, and service that they expect from us - and more. Customers have choices - and they're not afraid to use them - a lost customer is everything.

Theory versus Practical - Ha. Develop a cognitive understanding of the situation - formulate an appropriate course of action - and take that leap of faith. No one knows your business and your customers like you do - use that as your strength - and make those moves and take those steps . To think that 70% markdowns represents a viable business strategy - or a viable business model is nonsense - we've got to bring about some evolution in our industry - in our business models - not just in our styles and colors for next season.

And - since we're talking about 'theory to practice' - check out ‘Fast Life, Slow Fashion: A New Theory of Fashion’

At some point in the near future - we're going to have to get serious about 'Sustainability' - and not just from a perspective of Marketing Spin.

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