9 Big FAT Garment Liespresented by Barbara Zeins

President of Gerson & Gersonat the 2007 Annual Meeting of the

American Apparel Producers’ NetworkSanta Monica, CA

In August 2007, at our summit in Antigua, Guatemala, Barbara Zeins, President of Gerson & Gerson, gave a talk about Full Value Costing ideology in her own company. Towards the end of her talk, she showed us a slide she invented called “9 Big FAT Garment Lies”. Your personal ability to “get it”, that is, to take this list, learn it, internalize it, lead with it and define it to get and keep business is key to your company and your job. Why? Because its the truth and because the vast majority of your customers don’t know it and/or don’t believe it – and it shows in retail performance figures, for sure.  1. Vendors are substitutable – well, they aren’t. You can’t throw them away. Vendors are as different as brands and retailers. The spectrum of how to best define and categorize a vendor defies data collection. Its personal. We’ve learned this here from nearly 30 continuous years of being a cut/sew contractor-centric organization. You have to work with them on their merits, not those defined by their competitors or yours. (If you source your product strictly on the basis of lowest material and CMT costs, you will wind up producing in some very strange places and paying a very high cost.) 2. There is no cost in setting up a new vendor – baloney. It often costs over $100,000 to set up a new vendor. We know of one instance where a brand sent 4 people offshore for 4 months setting up a new vendor. The first order got screwed up a little and corporate dropped them. And THAT did not show up as an expense? We’ve seen where those who are hired to select vendors will switch a vendor and show on paper how much they saved doing so. They collect their bonus and move on to the next year. But if you look back, those “savings” only looked good on paper, not in fact. 3. Costs are linear, increasing in direct proportion to quantity produced – well, that was true on the early Ford auto assembly lines, but not in apparel. Most do not show their costs in the 85% of the steps in the cycle that precede actual cut and sew.  Its much more expensive to design new products today. (“The direct costs of making the garment compose less that 15% of the total number of operations

(activities) and take up less than 15% of the manufacturing period, yet almost all importers exclude the remaining 85% of manufacturing costs from their calculations.”) 4. Last years performance is a good prediction of next year’s performance – maybe last month’s performance is, but not last year’s. (The hard fact. We are going through a transition that will interest historians centuries from now. Its partly a result of globalization, partly the digital revolution and the information based economy it spawns”, Geoffrey Colvin, Fortune Magazine, September 2006) 5. Your people are a variable cost -- when there is a downturn in business just lay them off - “job security” is an oxymoron today. The affects of this economy's all time low sales have not been felt yet, but there isn’t a buyer out there certain of their future. In the “good old days”, when some managers were actually old, when intuition and experience ruled relationships that had taken years to forge, the work got done. Today? Its “what have you done for me today?”. 6. Customization is always expensive – Not at FesslerUSA its not. The later you cut, the more you can adapt to what is selling. Maybe its not so cheap to change colors at the last minute, but as styles change, customizing by changing the cut at the last minute can make much more margin.  7. All costs are either fixed or variable – no, some costs are super-variable. They defy formularization. They come at you out of the blue dictated by forces unseen and unexpected. With margins so thin, these are the costs that gobble them. (“In most situations, SMDA expenses (selling, marketing, distribution,  administration) have become an increasing percentage of sales. They are not fixed costs. They are not even variable costs. They are super-variable costs”, Kaplan & Cooper, Cost & Effect) 8. As long as you are competitively priced you will survive – your stuff can be as cheap as possible and it still won’t sell. Some people won’t buy what you’re selling at any price. When you have garments selling at full margin, their cost is virtually irrelevant. (“Managers searched for cheaper suppliers, wherever they happened to be…purchased in bulk to obtain volume discounts, built large automated warehouses to house and move those purchases, and deployed extensive inventory control systems and scheduling resources to… expedite items… from unreliable suppliers”, Kaplan and Cooper, Cost and Effect) 

9. The only way to lower product costs is through cheaper labor or materials – The more you know the real costs, the more you control the customer relationship. (“Direct labor based overhead allocation systems made sense 50-80 years earlier, when they were designed, because direct labor was then a high fraction of the company’s total manufacturing conversion costs”, Kaplan and Cooper, Cost and Effect)