L.A. Production Beyond Capacity

LOS ANGELES — It’s a classic Catch-22. <P>Local production, which a year ago was dying on the vine, has suddenly become the hot ticket. Business is undeniably booming, at long last. But contractors can’t produce fast enough —...

LOS ANGELES — It’s a classic Catch-22.

This story first appeared in the May 22, 2002 issue of WWD.  Subscribe Today.

Local production, which a year ago was dying on the vine, has suddenly become the hot ticket. Business is undeniably booming, at long last. But contractors can’t produce fast enough — there isn’t enough labor, and lead times have lengthened — and the pipeline is clogging up. And with the increase in lead time, imported goods start to look better — they’re always cheaper, and now can be obtained in about the same time.

In just six months, the unexpected surge in local production has the regional industry bursting at the seams, and contractors are riding it for as long as they can. Lace machines can’t knit fast enough, sewing contractors are knee deep in cut pieces and trendy retailers who serve customers with fashion attention-deficit-disorder are actually waiting for goods, trying to give suppliers as much shipping flexibility as they can.

Astonishing even the sunniest of optimists, business along the supply chain is up an estimated 15 to 40 percent over last year’s levels, according to industry leaders.“Who knows what happened this year, but the flood gates really opened,” observed Jimmy Macias, owner of sewing contractor Ja-Mar Apparel Manufacturing Co. in Irwindale, Calif. Last year, Macias’ business plummeted 30 percent. This year, he’s turning away work and is booked to capacity through next month.

Granted, January and February are generally the busiest months of the year here as spring orders, the region’s mainstay, are produced. Yet, the production frenzy has continued well past those critical months. Contractors, begging for work last year, are picking and choosing their jobs — many are booked solid through July.

Most observers believe the region is experiencing a post-9/11 rebound — retailers ditched inventory late last year, bought sparingly and now have empty shelves and an upbeat young customer, helping herself generously to peasant fashions.

Observers believe retailers were caught off guard by the recovery’s strength, had no time to source overseas and therefore sought out local producers.

Case closed? No, say many industry watchers, who argue that depleted retail inventory is only part of the explanation.The boom’s origin lies in a confluence of factors: 9/11, the fashion cycle, the China-Mexico sourcing debate, the current costliness of quota and the fact that it takes less production to simulate boom conditions in the anemic local production base.

“Retailers might be scrambling to catch up, but I think as a whole explanation for the magnitude of what we’re experiencing, that’s too simplistic,” said Joe Rodriguez, executive director of the 200-member Los Angeles Garment Contractors Association.

Although he remains puzzled about exactly why the activity is so dramatic, Rodriguez is among those who speculated the boom comes partly from companies rethinking sourcing in Mexico.

Increasingly seen as “high wage” and “less skilled” compared to Chinese producers, Mexico appears to be losing favor with California’s mid-sized companies.Alden Halpern, owner of denim company 4WhatItsWorth Inc., yanked his production from Mexico this year because of quality and delivery problems. He sent the bulk of his orders to China, but moved production of his Beau Dawson line, an updated misses’ denim collection retailing over $100, to Los Angeles.

“Anyone making contemporary denim with huge margins like that can make it domestically,” he said. “I’ve been in the [contractor] shops and they’re telling me they’re filling up with better-priced denim.”

Further, the fast-moving, novelty-heavy fashion cycle favors the tight cluster of sewers, screenprinters and embellishers here, rather than large Mexican factories geared for basics.

Brian McLaughlin, partner in textile converter 58/60, believes part of the domestic gain actually comes from job loss. He theorizes that after 9/11, manufacturers fired sourcing staff, either to cut costs or because they were afraid of sourcing in troubled parts of the world. Evidence of layoffs resides in McLaughlin’s file drawer, where he has 25 résumés from unemployed production people, most of whom specialize in working overseas.

“I classify myself as an ‘unofficial headhunter,’” he said. “But to have all these résumés is unusual. I think manufacturers let these people go and now the owner is not familiar with overseas [production] and he’s going back to what’s first nature — sourcing domestically. That’s going to change with time, as confidence returns.”

Meanwhile, McLaughlin is reaping the immediate benefit. Revenues have leapt more than 30 percent over last year and the average order has quadrupled to 4,000 yards.

He’s also seen a dramatic increase in the amount of people paying with cash or personal credit cards rather than using factored credit lines. That, he believes, is part of the dichotomy of the recent activity — times are suddenly good, but there is residual shakiness. Almost no one is betting production is here to stay.

“A lot of retailers didn’t pay on time at the end of last year, so these manufacturers haven’t paid their invoices,” McLaughlin said. “But to stay alive now, they need the goods immediately. So it goes on the credit card.”

In fact, like a snake with an oversized meal, the system is laboring to digest the demand.

Ike Zekaria, general manager of the 33-unit junior specialty chain Windsor, said he’s seen lead times on domestic product go from three to 10 weeks. In March alone, the company lost roughly 20 percent of its orders “mainly because we had a hard time getting our merchandise produced,” Zekaria said. The locally produced styles are particularly crucial, he noted, because they are fashion-forward items that entice the customer into the store and sell quickest.

Even at the San Pedro Mart, a mecca of quick-turn merchandise produced by Korean merchants, retailers are waiting seven weeks rather than the standard three for a mid-sized order.

Laura Willson, head designer and merchandiser for junior label Spacegirlz, said the industry is bogged down.“It’s a huge problem right now,” Willson said. “There are not enough contractors in L.A., not enough human labor. And the people who do the send-outs — the smocking and screen-printing and all that fun stuff — they’re behind. It’s a snowball effect. Now we’re where importers are” in terms of lead time.

Zekaria said, in fact, the local delay is giving an edge back to importers, always cheaper and now equally fast.“Importers are catching on to what’s happening domestically and in order to fight fire with fire, they’re quoting a six-week turn,” Zekaria said. “It certainly makes importing a lot more interesting.”

Willson pointed out the current clog could even damage fall business because manufacturers haven’t been able to produce fall tests, small runs of styles that hit stores early and give vendors data on what to produce on a large scale for fall. “Contractors don’t want your 120-piece test for next season,” she said. “They want the big cuts, and they can demand it.”

Contractors “definitely have the ball in their court,” said Michelle Brown, designer for private label firm Mimi Chica. “Our production manager’s first question when she calls is, ‘Are you guys booked up?’”

Lately, stories abound about vendors coming to pick up goods and finding the cuts untouched and the contractors sewing for another producer who’d offered more money per piece.

Manufacturers said the struggle for sewing capacity is coming down to price — and relationship. Those who have consistently funnelled work to local contractors say their efforts are being rewarded.

“When other people were slowing down, we had good quantities, which gave us a stronghold on [contractors’] production time and sewing,” said Brown.

Bubblegum USA’s chief operating officer, Ken Spiegel, said the denim brand’s decision to finance equipment and construction costs for several of its local contractors has created “enormous loyalty” between the companies, even though the contractors have long since worked off the debt.“We support them year-round with product and they work 100 percent for us,” he said. “But I’ve had many conversations with my peers and they’re having difficulty finding a [place to make] product. It’s a tremendous crunch out there.”

Pierre Serror, ceo of California Sunshine Activewear Inc., which holds the license for Playboy sportswear, said manufacturers with cash flow also have an edge during a labor shortage.

“Every Friday, you must have a check for [your contractors] so they can pay their employees,” he said. “If you have a reputation around town that you pay on time, they’ll take your work.”

Contractors are getting a windfall, but many complain their ability to reap full benefit is compromised by a shortage of trained sewing operators and a high minimum wage. In January, state minimum wages rose 50 cents to $6.75.Charlie Lee, owner of sewing contractor Sorah American Inc., said that despite numerous attempts, he’s been unable to hire additional sewers (as contracting shops have shuttered in the last decade and trained sewers have drifted into janitorial, restaurant and other fields.) And because his profit margin would be wiped out by paying overtime wages, Lee is unable to boost output by extending his sewers’ work day.

Accordingly, he has only been able to add two of 10 manufacturers that have approached him for work in the last few months.

“There’s a lot of competition among factories stealing away each others’ workers. And the workers pressure me because they think other people pay more,” he said. Local T-shirt producer American Apparel has hired 400 workers since January, but ceo Dov Charney remains philosophical about the boom. He believes dramatic surges followed by periods of little activity will become the region’s norm.

“More and more stuff goes offshore and some of it doesn’t work out,” he said. “Out of that comes the intensity of last-minute production. As globalization continues, that’s what L.A. will get — the last-minute stuff.””