VF’S MCDONALD ADVISES AAMA ON NEW MARKETS

Byline: Thomas J. Ryan

NEW YORK — To compete in the global economy, apparel manufacturers must weigh the need to directly control their brand against the risks inherent in serving new markets.
That was the word from Mackey J. McDonald, president and chief operating officer at VF Corp., who spoke Thursday at an American Apparel Manufacturers Association seminar that focused on global competition. The seminar was held at the Grand Hyatt. In serving foreign markets, he noted that VF uses strategies that range from directly owned businesses to distributorships, laying out the pluses and minuses of these techniques.
Among the other speakers were James C. Jacobsen, vice chairman at Kellwood Co., and Anthony F. Scarpa, senior vice president in charge of the apparel and retail business at Chemical Bank.
McDonald began his talk with a call for companies to focus more intently on meeting the needs of consumers. He noted that VF’s recent cost-cutting restructuring initiatives “are not the solution.”
“The situation is not a short-term retail issue. It’s far-reaching and will last for many years. You need to be able to provide a value to that customer which is more than what she has in her closet or she won’t buy anything,” McDonald said.
Turning to competing globally, the executive cited several factors needed to do so effectively. These included having a “strong and powerful U.S. brand” that has a competitive advantage. Although VF makes many other products, it will focus its international expansion on its dominant areas, jeans and intimate apparel, where it has commanding market share.
VF’s Wrangler brand has increased its share in the discount channel to 17.4 percent in 1994 from 8.6 percent in 1990, he said. The Lee brand has grown to 15 percent of the department store channel from 8.7 percent in 1990.
Its share of the jeans market in Europe grew to 6.2 percent in 1994 from 5.1 percent in 1993. Lee expanded to 2.6 percent from 2 percent while Wrangler increased to 3.6 percent from 3.1 percent.
In intimate apparel, VF’s share to the French hypermarket increased to 24.7 percent in 1994 from 23.1 percent. Its share has also grown rapidly in intimate apparel in boutiques in Spain.
McDonald also said it’s important to gain knowledge of each potential new market, and VF has made several acquisitions that have aided in this purpose, as well as provided strong local brands. Understanding the customer in each market is key, he added, noting that the company’s jeans are constructed differently in many different regions around the world because of customers requests.
He also said its important to have a supporting network of licenses and distributors. VF has 40 licenses in Asia, 38 in Latin America, and 11 both in the Africa/Middle East region and Europe, on top of 32 in the United States.
Companies must study each market to figure out the best specific approach, McDonald said. VF applies a multi-tiered strategy: owning a business directly, forming a joint venture, working through licenses, or using a distributorship. In deciding which approach to take, companies should look at the risks, potential return, the needs for brand control, and their commitment to that market.
While distributors allows a company to test the waters, “it really doesn’t give you a good picture,” McDonald said.
Licenses have a high return on equity and allow companies to tap into local manufacturers’ capabilities, but often consistency is missing, he said. He further noted the only worthwhile joint venture for a company is when it owns more than 50 percent.
In advertising, he said there are “some elements that you can globalize and some localize.” He said the Wrangler western message and Lee’s fit message have been mostly universal, and he said the American style is still hot, citing the popularity of MTV and CNN.
“They may not like Americans, but they sure understand American lifestyle. It communicates a very positive feelings worldwide,” McDonald said.
Discussing global sourcing, Jacobsen said companies must weigh the benefits of making your own product at your own plants, joint ventures and the use of overseas sourcing officers or sourcing agents.
Jacobsen said Kellwood has increased the amount of product imported and produced by contractors to 72 percent in 1995 from 49 percent in 1990. Of the outsourced product, 54 percent was contracted in the U.S. and 46 percent outside the U.S.
Jacobson said sourcing strategy has “few restraints on where to source and who to source from.” This also helps support margins as the company focuses on providing retailers with second-tier brands and private label products.
He said its owned operations “constrain what we have to produce to fill our plants.”
Chemical’s Scarpa said the push for an apparel manufacturer to export internationally can be “fraught with risks that too often seem insurmountable,” but companies that are proactive in this area will benefit in the future.
“In a way, globalization can be compared to the adoption of MIS, EDI, and other technology which is often resisted by companies that later can’t imagine doing business without it,” Scarpa said. — Fairchild News Service

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