KOREAN MAKERS IN L.A.: CLIMBING THE LADDER AND GOING MAINSTREAM
Byline: Katherine Bowers
LOS ANGELES — When Peter Kim took the helm of his family’s $25 million moderate sportswear firm, Saymee K., five years ago, he made a basic, but crucial decision.
“I told the receptionist to stop answering the phone in Korean,” he said, recalling how his father, Sang Kim, a first-generation immigrant who worked as a valet parking attendant when he first arrived in the U.S., continued to conduct business. “This is America. We speak English here.”
Kim’s move is strikingly emblematic of the evolution of the largest and most powerful immigrant group in the apparel industry in this region.
Often pigeonholed as knockoff producers of disposable junior wear and lackluster misses’ moderates, the Korean-American community is redefining itself in typically fast fashion.
As a second generation grabs the reins of the family businesses buoyed with new ideas about distribution and development, the industry’s tight-knit Korean-American community is moving toward the mainstream. They’re making inroads as producers of legitimate fashion brands, while continuing to set the standard for quick-turn, low-cost production here.
“They’re learning like anybody else coming into the garment industry on the West Coast,” said Joe Kofsky, a consultant with accounting firm Moss Adams LLP who has worked with Korean manufacturers for two decades.
Even those still embracing the “old ways” — working only with Korean-speaking suppliers, taking on jobs without a realistic profit margin and paying cash for business transactions — are being forced to change. Facing serious challenges from low-cost producers abroad and blistering price competition within the community based here, Korean-American vendors are finding they can no longer drive business based simply on low price.
It’s difficult to peg how big the Korean-American garment community actually is or how much revenue it generates. Few, if any, studies have been done in a city whose immigrant groups have always been famously hard to quantify. According the 2000 census data, there are 186,350 Koreans living in Los Angeles county. That’s the largest Korean community outside of Korea. Other sources, such as local Korean newspapers and university immigration studies, estimate the number is twice the official data. As for the garment industry, based on estimates from various private sources, there are roughly 86,000 Korean-American workers, accounting for 60 percent of the sector’s 144,000 jobs. Industry sources estimate Korean-owned apparel and textile businesses generate between $7 billion and $10 billion annually. In 1997, the state’s apparel and textile industry hit $21 billion, according to the latest U.S. Census data.
In fact, Korean-American clout spans the industry vertically, from fabric suppliers (Korean-Americans have a 70 percent market share in knitting, according to data from Hana Financial, the largest Korean-American-owned factor) to aggressive retailers like Forever 21, a 125-unit chain gearing up for an IPO in 2003. The company exceeded $300 million in sales in fiscal 2002, which ended in February. The company expects to reach $500 million in fiscal 2003, according to Lawrence Meyer, Forever 21’s chief financial officer.
In Forever 21’s wake is a new crop of cheap-and-chic junior and young contemporary chains owned by Korean-Americans, such as 27-door Reference, 38-unit Papaya and 21-store V. Generation. Many see the move into retail as the community’s last step to a completely vertical presence.
Nowhere have Korean-Americans been more influential than in the junior category. In the last decade, out of small jobber shops lining downtown streets east of the CaliforniaMart, they’ve set the pace for price point and turn time — leaving the rest of the domestic industry scrambling to keep up.
Korean-American companies, rigorous about low overhead and using automation to reduce workers, are nipping business from big box competitors and weaker branded players.
“American companies tend to have a huge overhead: receptionists, multiple designers, multiple assitants, whereas Korean manufacturers have one designer and one assistant each doing the work of two people,” said Philip Kim, sales manager for dress resource Dit-Toe Inc.
(None of the Kims in this story is related to each other, with the exception of brothers Peter and Tony Kim of Saymee K.).
Relying on a lean staff willing to put in the overtime, many Korean-American-owned companies work on a 15 percent margin and turn inventory 35 times a year. The mainstream industry has larger margins — 25 to 30 percent — but turns inventory only 12 times annually.
Larry Hansel, ceo of Rampage Clothing Co., doesn’t source from the Korean community, but he acknowledged that this group is edging in on mainstream apparel firms.
“The Korean community is damn hard-working. They’re out there in a little five-by-five space on Pico [Boulevard] with a phone — they’re hard to beat,” said Hansel.
Several CalMart showroom owners report covert sketching and photography of new merchandise, a common tactic in the San Pedro Mart.
“You can’t even put a cute thing in the window anymore,” complained one CalMart showroom owner, speaking anonymously.
J.C. Choe, publisher of Pacific Textile News, a bilingual magazine serving the Korean textile community, said he thinks the mainstream vendor community has been “generous” to its Korean counterparts. “They have been more than fair, because they lost a lot of business to Koreans. There have been a lot of guys at CalMart who had to be closed down because Koreans are competing with them at a cheap price.”
Dit-Toe’s Philip Kim said it’s foolish to contend a “business is war” mentality is limited to Korean-Americans. “We’re going into it competing not just with American manufacturers, but also against each other,” he said. “We all want to win.”
Although most Korean manufacturers report they do $15 million or less annually, there’s a growing cadre of companies with revenues upward of $40 million, including $55 million One Clothing Co., $100 million private label vendor Edmund Kim International and $140 million denim producer Koos Manufacturing.
According to Victor Pak, an accountant serving Korean-American apparel clients, the community has been successful because “they’ve been building this from the ground up. At every level of manufacturing process, Koreans are there. They are buddy-buddy with fabric guys, printing guys, trim guys. They are ethnically and personally close, so they have abundant sources.”
Indeed, since Koreans began pouring into Los Angeles in the late Seventies, the community has built an industry within an industry. There’s the 500-member Korean-American Sewing Contractors Association and the 1,200-member Korean-American Manufacturing Association — double and quadruple, the size of corresponding mainstream groups, respectively.
There are four Korean-American-owned factors based in Los Angeles servicing this segment of the industry. Hana Financial, which has a refactoring agreement with CIT Commercial Finance, handled $600 million in receivables in 2001, according to Hana executive vice president Sunnie Kim.
While the CaliforniaMart and New Mart serve as hubs for the branded labels built by earlier generations of immigrants, the lemon-and-lime stucco San Pedro Mart a few blocks east is the bustling nucleus for Korean-American manufacturers. In the lingual stew of the San Pedro Mart, Korean is the first language, Spanish the second (many Koreans immigrated to the U.S. by way of Brazil and still do hefty trade with South American retailers) and English a faltering third.
Despite its plebian appearance, space at the San Pedro Mart commands some of the steepest rents in the downtown Fashion District. Rates range from $6 to $10 a square foot, according to real estate sources, well above the $1.75 a square-foot charged by the New Mart and using bilingual advertisements in local publications.
Jobber activity also flourishes in a 12-block radius surrounding the San Pedro Mart. The activity prompted the mart’s original investors to break ground on a 150,000-square-foot annex. Prices for the 115 new units, to be sold condo-style, complete with association fees, range from $120,000 to $1.6 million, according to Jason Kim, the San Pedro Mart’s property manager.
The Korean-American industry is also exercising political clout. KAMA won a year-long battle with downtown landlords against key-money practices — demands of $10,000 annual cash payments above monthly rents. Assembly bill 533, signed into law last October, requires rent charges be specified in a lease.
Based on anecdotal evidence, Korean and Korean-American student enrollment is up at both downtown campuses of the Fashion Institute of Design and Merchandising and the Otis College of Art & Design, according to admissions office representatives. The Korean-American Student Association is Otis’ largest on-campus group.
But behind this progress is growing pressure from leaders within the community as well as external economic forces to integrate with the mainstream industry.
“With cash-and-carry business, there’s a limit to how much you can grow,” observed KAMA president Michael Kang. He estimated only 20 to 30 percent of his constituency is factored, as compared to 85 to 90 percent of the mainstream industry. Many remain “crippled by the language barrier and their inability to borrow money,” he added, referring to their accounting practices.
Paul Herold, vice president of Capital Factors, believes many Korean-American vendors have been slow to realize the importance of the financial community. “When there was so much product sourced in L.A. and so many Koreans sewing so cheaply, they could beat everyone on price. Now production is going overseas and they’re being forced into the same sourcing dilemmas as everyone else.”
Choe of Pacific Textile News said establishing credit lines and adopting mainstream accounting practices should be the top priority among Korean-American vendors.
Indeed, buying and selling goods with bricks of cash is so prevalent that many San Pedro stores employ armed security guards.
“They underreport income,” said Choe. “Or they calculate profits not considering major indirect expenses like r&d, upgrading equipment and marketing. A lot of Korean suppliers are willing to extend credit to other Koreans, but when the jobber doesn’t take care of the financial business right and he closes his doors, who gets burned?”
Moss Adams’ Kofsky has observed that Korean-American vendors “fund themselves by trusting each other. But if you get up into big numbers, you have to deal with the financial community.”
Besides finances, observers say the community’s other big challenge is changing the widespread belief it achieves phenomenal speed and price by bending labor rules.
An anonymous CalMart showroom owner summarized the feelings of many. “How can anyone make a garment for these prices?” she asked. “It’s impossible. If you have a top that costs $4 and you know the fabric is almost $3, something is illegal.”
The Department of Labor does not track the ethnicity of labor violators and so has no data on whether Korean- American-owned shops are more likely to break wage-and-hour laws, said a spokeswoman.
But Ted Park, vice president of Newport Apparel Corp., a $60-million producer of junior apparel, called labor law compliance “the utmost important factor for the future of Korean-American garment industries. It will be an obstacle to progress if they do not incorporate fair labor practices as a business principle.”
Michael Lee, a manager with KASCA, said most violators are unfamiliar with the law.
“It is different from their business culture, the way they are used to doing things. That’s the reason we are doing a campaign about violations,” he said.
The group invites speakers from the labor department to review workplace laws during meetings. But Lee admitted there’s a disconnect at times since most of its Korean-speaking members do not understand the English-delivered presentations.
Retailer Forever 21 has been consistently plagued by accusations its private label contractors violate labor laws. A federal judge ruled March 4 the company was not jointly liable in a case involving six contractors. Forever 21 has since filed a countersuit against several civil rights groups who brought the lawsuit on behalf of 19 plaintiffs.
In a separate case, One Clothing, a major supplier to Forever 21, recently agreed to pay $175,000 for violations at one of its sewing facilities. The company issued a press release saying it’s conducting “extensive audits on all of its contractor’s facilities” and requiring all its contractors to attend seminars on state and federal labor laws.
Observers say these cases, as well as the vague language in AB-633, the state law that could hold retailers jointly liable with manufacturers and contractors for labor violations, has made large retailers across the board wary.
“Retailers feel uneasy dealing directly with Korean manufacturers,” said one denim executive who asked for anonymity. “They worry about everything that’s attached to ‘Korean’ — minimum-wage violations, cash transactions and the like.”
For these reasons, Korean-American executives are enlisting design school graduates, establishing operations outside the San Pedro Mart and hiring English-speaking sales reps — lured by gifts of new cars or hefty signing bonuses.
Mitch Cohen, CIT’s senior vice president and Western regional manager, said this process of developing and marketing brands to large retailers is the “last piece of the puzzle” for the Korean-American segment of the apparel industry.
“When you start to see a company like One Clothing that’s been a private label manufacturer for years create a brand at retail in juniors, that’s a major breakthrough,” Cohen noted.
Because the second generation is fluent in English and immersed in the American culture, they are particularly comfortable with brand building, added accountant Victor Pak. “They aren’t worried about how long it takes to build a brand, because they’re still doing private label on the side.”
Peter Kim — who requested his receptionist to greet callers in English — and his younger brother Tony Kim exemplify efforts of the younger generation to retool inherited businesses. Together they helm Saymee K., the moderates business their parents founded two decades ago and that also serves as the umbrella for new brands the brothers develop.
Since taking over the ceo role from his father five years ago, Peter Kim has broadened the supplier base with non-Korean vendors and added a knits program to diversify their Nicola misses’ line.
The Kim brothers also launched young men’s streetwear Drunkn Munkey. Projected to reach $8 million this year, the line counts fans among top music acts Linkin Park, Cypress Hill and Method Man, not in the least due to grassroots brand building such as sponsoring raves and the notorious rap-rock concert tour “Smokeout.”
“Our parents came here and they were learning new rules, new language, new businesses. They had limited resources and their backs were against the wall,” said Tony Kim, dressed for the interview in a mesh jersey and backwards ball cap. “We have a whole different set of obstacles. The second generation is breaking out of the community. It’s up to us to change the stereotypes and grow the companies. We want to expand. We want to use the Internet.”
His brother agreed. “A lot of Korean businesses are trying to stay only with what they know and finding that the market is saturated. If you don’t look outside the community, you’ll fail.”
Though some, like the Kim brothers, are barreling toward the mainstream, more Korean-owned business are becoming powerful hybrids of the two cultures.
Newport Apparel Corp., a $60 million producer of junior brands Newport and Moa Moa (which means “gathering” in Korean), was a pioneer selling and sourcing outside the Korean-American apparel community 10 years ago.
Today, when Macy’s West and Dillard’s buyers come to town, they see the corporate side of Newport: a lofty showroom appointed with copies of art masterpieces painted by cfo Kimberly Kim.
Retailers from Mexico and South America visit Newport at Silvergate, a wholesale store in the San Pedro Mart packed with immediate goods. The store collects small orders and batches them for production, clears old inventory and recuts fabric left over from large programs into new styles.
Prices are slightly lower at the store than at headquarters, said Newport vice president Ted Park. “We try to avoid sending the same styles to a jobber area. Maybe similar, but not the same.”
In addition to operating its San Pedro store, Newport has remained culturally Korean, staffing its design studios with young Korean-Americans and speaking Korean in the office.
The efforts to keep a foot planted in each world appear to have paid off: The Moa Moa division has grown at 35 percent for the last four years.
More manufacturers — Gemini, One Clothing, Dit Toe — are following Newport’s lead. They are working with larger retailers without relinquishing important ties to business and production in their ethnic community.
Edmund Kim, ceo of his namesake $100 million company, which was among the first to work for the industry’s big players, predicted that combination holds staying power. “Retailers hold the power, so working with them is the trend for the survivors,” he said. “Instead of remaining simple contractors, the companies that survive will be the ones to add merchandising capability. We are competing with every country in the world.”