By Evan Clark
Powering Up Jones’ Systems
As one of the apparel industry’s largest manufacturers, Jones Apparel Group can help keep sales growing with acquisitions, but it also needs to create high efficiencies in new and existing businesses if the bottom line is going to keep pace.
An increased focus on technology over the last few years and the streamlining it allows has been a cornerstone of the firm’s efforts to stay on top. Three years ago, the firm, which produces apparel under names such as Jones New York and Norton McNaughton, brought in Paul Lanham as its first chief technology officer. He’s been busy every since.
Items on the laundry list of initiatives taken on under Lanham’s guidance include the standardization of back-office processes, a move toward common distribution systems and a Web-based collaborative planning system used with retailers, as well as the consolidation and upgrade of infrastructure.
Since 2000, Jones invested a total of $55 million in technology and has another $20 million earmarked for the purpose this year. In all, the firm has about 200 employees working in information technology departments, as well as a joint venture that adds additional capabilities like software programming.
In a nutshell, Lanham said he works to leverage the size and scale of the $4.34 billion company to increase sales and margins.
One area of intense interest for Jones as a vendor is reducing its rate of chargebacks from retailers. The firm’s chargebacks equal about 0.8 percent of its net sales, down from more than 1 percent previously. Chargebacks on better-priced goods are lower than the company average at 0.5 percent of sales.
“Minimizing them is really basic blocking and tackling,” Lanham said of chargebacks.
Much of the work consists of automating processes that are prone to human error and can create chargeback exposure, such as how goods are packaged or how information is transmitted to the retailer.
Since smaller companies, such as those Jones might acquire, often don’t have the funds for sophisticated systems to address chargebacks, they find themselves paying up to 3 percent of their sales in chargebacks and in a position to benefit significantly from systems integration. That leads to another focus area for Jones — the systems integration of acquired businesses, which can quickly produce results. This helps facilitate a main source of growth for the company — snatching up smaller businesses to capture sales and, though the virtue of Jones’ girth, making them more profitable in areas such as distribution and common office technology.
Most recently, Jones acquired Kasper A.S.L., which has sizable suit and sportswear businesses, out of bankruptcy for $232.5 million. Given the longer-than-usual acquisition time frame due to bankruptcy court proceedings, Jones had a head start on preparing for the company’s arrival before the deal closed last month.
Accordingly, Kasper’s e-mail systems, for example, have already been brought into Jones’ tech structure. As for the firm’s production processes, Lanham expects that part of the business to be integrated within six months.
As acquisitions vary in size and shape, so do their integration timetables. For the most part, though, Jones is able to wire an acquired company into its systems within a year.
“Systems integration capabilities are vital to acquisitive companies in that they limit the potential for errors that arise when operating on multiple platforms,” said Todd Slater, equity analyst with Lazard Frères, in a research note. “Efficient systems integration also eliminates duplicative processes, saving time and resources.”
Technological developments have also given Jones executives access to a computerized Financial Dashboard, which offers a detailed picture of the company’s key financial metrics and can keep decision-makers on the same page.
Anita Britt, executive vice president of finance, said instead of a pile of reports or a slew of e-mails to dig through, “in basically five, 10 minutes you can run through everything and have it at your fingertips.”
Chief executive officer Peter Boneparth and chief financial officer Wesley Card check up daily on the state of the company with the Financial Dashboard, Britt noted. Lanham added, “The art of this is to accumulate information to where it’s usable.”
Jones has partnered with its retail customers in developing ways for technology to ease business relations.
“Ideas percolate out of need,” said Lanham, adding there are a lot of contact points between Jones and its major retailers and opportunities to refine processes. “We want to leverage the size of the companies. There’s a lot of collaboration going on.”
The company has improved technology in areas where retailers and vendors have traditionally cooperated, such as inventory management.
“There are different venues for cooperation, and the real story over the past three or four years has been the increased use of Internet technology,” said Lanham.
One Web-based technology used by vendor and retailer is 7thOnline Collaborative Planning software — also used by other vendors — that automates some of the ordering process so that the details for orders don’t have to be worked out during what usually turns out to be a hectic market schedule.
“There are some real returns in that for both parties,” Lanham said.
Jones technology development has been aided by support from upper management. Lanham said, “Wes [Card] and Peter [Boneparth], being some of the key executives of the company, are very much involved in the process.”
VF Jeanswear: Tracking The Stores
By Scott Malone
Over the past few years, there’s been a general trend in the jeans business to use lighter-weight fabric. Whereas the heavy-duty dungarees that come to mind for many people use rugged denim that weighs 13 or 14 oz. per square yard, designers who are looking for tighter silhouettes and an airier feel have been trading down to 10-oz., even 8-oz. denim — a weight more commonly used for shirts than pants in the past.
But Lee Co. vice president of marketing Kathy Collins knows that, whatever the fashion trends dictate, Hispanic men are reluctant to buy lightweight jeans.
“There is still a feeling among certain ethnic groups that the heavier the denim, the more durable it is, and therefore the higher quality it is,” she said. “So in that case, we might ship more 13- or 14-oz. denim than 8- or 10-oz. denim.”
Collins knows this because of a system at Lee’s parent company, Greensboro, N.C.-based VF Corp., called the retail floor space management program, which the company uses to track closely which products sell and which gather dust at more than 5,500 of its customers’ retail stores around the country.
The system evolved out of an initiative to develop a vendor-managed inventory program that the company got started on more than a decade ago, according to Mark Gatehouse, director of replenishment, planning and category management for VF Jeanswear. While VF, which in fiscal 2002 reported revenue of $5.08 billion, does not break out divisional results, sources estimate that its jeans sales exceed $3 billion. In addition to Lee, its denim brand lineup includes Wrangler, Rustler, Riders, Chic and Gitano.
“What we saw early on in the game is that replenishment was only one important spoke in the wheel, but that there were a lot of other things that we were potentially missing,” Gatehouse explained.
For instance, he said, sales representatives would get a call from a buyer complaining that a store was overstocked, even when VF’s model showed that it had an appropriate amount of inventory. Typically, upon further review the company would see that it was an unusually small store, or in a particularly quiet part of the country where shopper traffic was off.
That’s when VF management began to realize that it would be better off tailoring inventory models to individual locations, which meant gathering store-by-store point-of-sale data and compiling it into a massive database. By doing so, the company began to develop a wealth of data about how regional tastes and the particular demographic mix of shoppers in a given store will influence buying patterns.
Collins said the Lee division has rolled out the program at its major accounts, including J.C. Penney Co. and Kohl’s Corp. VF’s mass market jeanswear division also has the program in place. Executives at the mass division declined to name their customers, but VF jeans brands can be found in major mass chains including Wal-Mart, Target and Kmart.
Some of the findings were predictable, such as that shoppers in northern states tend to gravitate to heavier fabrics and darker colors than do Southerners, and Midwesterners buy more khaki pants than do shoppers in the Southwest.
But much of what the company has learned was more of a surprise, Collins said.
“The differences between the consumers of Northern and Southern California are so extreme,” she explained. For instance, shoppers in Southern California prefer much shorter shorts than those from the north of the state.
Style preferences even vary within a given city. Collins said the company has found that some styles that will sell at one chain store won’t at another location operated by the same retailer just across town. Typically, digging into local demographics to determine how shoppers at one location differ from those at the other offers some sort of explanation for this phenomenon, she said.
For instance, immigrants and female Hispanic shoppers tend to wear smaller sizes than shoppers whose families have been in the U.S. for generations — a statistic that perhaps reflects fewer years of eating fast food.
Gatehouse said that top management first saw the real potential of the program when an account that he declined to name called with what would normally be bad news.
“I remember the first time we talked about needing to reduce VF square footage in some stores,” he said. “From a manufacturer’s standpoint, that’s hard-fought real estate, and the last thing in the mentality is to give it up.”
However, looking at data that showed which parts of the store had higher foot traffic, VF executives were able to negotiate a move into a more productive location.
“Based on the fact that we were picking up space where the consumer was, even though we were getting less square footage overall, we wound up doing increased business,” Gatehouse said.
Gatehouse said VF uses JDA Software Group Inc.’s Arthur inventory-management program, as well as software developed in-house to run its retail floor space management program.
“Most of our technology is pretty firmly in place. Right now, we’re looking at doing some fine-tuning and some upgrades,” he said. “Most of the dramatic big implementation is done, I don’t see any of that in 2004. Now the question is can we make it better and how do we make it easier? Is there something we can do to streamline the process, make it less intensive and require less hand-holding and less human intervention?”
VF is also considering rolling the program out from its jeans operations into other product areas as well, such as intimate apparel and outdoor wear.
Lee’s Collins said she’s certain that the program has helped the division boost revenues.
“It’s very helpful,” she said. “Definitely we sell more.”
Kim’s Gamble: Going Vertical
By Nola Sarkisian-Miller
As the owner of a dye house and printing mill, Edmund Kim felt like he was in the sunset of his career about 10 years ago.
His company, Edmund Kim International, was churning out textile orders for the likes of Guess and Calvin Klein, but he sensed a wave of competition from the deepening sea of importers who could provide full-service operations to major manufacturers and retailers.
So, by 1997, Kim took a gamble by creating a vertically integrated company for private label manufacturing at a time when manufacturers were morphing into shell companies of design houses and handing over production to someone else. The company added a knitting and converter plant and apparel manufacturing center, creating three wholly owned subsidiaries:
- Pacific Continental Textiles Inc., which handles dying, printing and knitting.
- Pacific Continental Apparel, which oversees garment production.
- Edmund Kim Production Group Inc., the converting business.
Yet, it was able to trim payroll by about 24 percent, for a current workforce of 400.
“As we see it, we’re doing more business than five years ago [sales of $65 million], with fewer employees,” Kim said.
Amassing clients such as Wal-Mart, Reebok, Fossil, Victoria’s Secret, Anchor Blue and Mimi’s Maternity, the firm’s production of fabric, sportswear and sleepwear for women and men has driven sales up to $100 million in 2003, with projections to hit $120 million this year.
To accomplish the feat, he invested $20 million in technological improvements, financed by banks, that are just bearing fruit. He brought on board executive vice president Reza Farmehr, a former senior audit manager with accounting firm Moss Adams LLP, in 1997, to oversee the ramp up, that most notably included the eight-month-long creation of a production and inventory tracking system using software systems Omni 7 for the fabric side and Apparel Magic for apparel manufacturing that pinpoint where the product is in every stage of the process.
If the company receives an order for a million screen-printed T-shirts, the system can follow production from the fabric order and the dying and finishing stage to the cutting room and the end of the multistep process. Efficiency also gets a boost, since the system can monitor the fabric’s shrinkage, torque and working loss.
“There’s a big difference between now and the caveman era, when we were using Excel,” said Joe Buggan, the firm’s manager of corporate planning. “Nothing linked. The computer program couldn’t connect to our dying formulations.”
The difference is the bottom line: Farmehr said the company’s dilution rate — the number of goods that fall out of production — has plummeted to 1.5 percent from 5.5 percent in 1998, with $4 million in upside for the firm.
The system even sounds an alarm when pick tickets (orders for goods to be picked from inventory for shipment) don’t mesh with invoices, helping the company lower its error rate to less than 0.1 percent, down from 1.5 percent.
To get a leg up on production, the company upgraded and expanded its machinery, which now includes 90 Monarch knitting machines and 20 Thies dye machines that have increased capacity by 30 percent. That in turn helps get product quicker to the company’s affiliate in Mexico, as well as factories in Guatemala, for cut-and-sew assembly that has transformed the company into a quick-turn provider, averaging four weeks, compared with the two-and-a-half months it took about five years ago.
Among its growing strengths are coping with increasing restrictive quality control measures. Retailers’ growing intolerance of shading discrepancies can send many a project back to the drawing board if it weren’t for the two-year-old computerized color separation machine that can pinpoint color differences to a degree of 1 percent.
“There was lots of reworking, redying and simply trashing of merchandise — now we’re one step ahead,” Farmehr said.
Savings from Kim’s investment hasn’t turned the company into a low-cost production leader. Kim said on a pricing scale of 1 to 10, the company ranks seventh highest in price. But, that’s not turning away customers who value the firm’s quality and consistency, such as Angela Foster, Fossil’s production development manager.
“Their sewing quality in T-shirts is very good and we always stay informed about where we are in the design process,” Foster said.
Mastering apparel production through technology has also awakened Kim’s interest in branding. His company launched a young contemporary line called Gasp last year to 150 specialty boutiques, such as La Femme Fatale in Telluride, Colo., and Camila’s At Tahoe in Tahoe City, Calif., which pulled in $500,000.
The quiet launch helped the company fine-tune the product, veering from its overly youthful designs, such as its exaggerated sleeves, to a cleaner silhouette featuring denim miniskirts with heart-shaped pockets, sleeveless ribbed tops with side embroidery, and ruched, mid-length skirts. Already benefiting from private label accounts who use the line, including Victoria’s Secret, Gasp is expected to triple in sales this year, especially if it breaks into select department stores.
Getting this far with technology wasn’t easy, Kim said, given that the apparel community was just waking up to its marvels when he introduced his upgrades.
“Factors even gave us a hard time, saying we’d be stuck with this equipment,” Kim recalled.