FTADIRECT’S AIM: MARKET EFFICIENCY
Byline: Scott Malone
NEW YORK — E-commerce start-up FTADirect.com marched out some of the industry’s top names Monday to unveil its new business-to-business platform.
The brainchild of a pair of recent Harvard Business School graduates, the Web site aims to allow fiber makers, yarn spinners and mills from around the world to do business electronically, closely monitor one another’s needs and cut costs. It’s being shepherded by Nick Hahn, textile-industry veteran and former chairman of Cotton Incorporated, and has also allied itself with i2 Technologies Inc., the software company that launched the softgoodsmatrix.com Web site for apparel makers and the WorldWide Retail Exchange for merchants.
FTADirect.com’s industry advisers agree that the pieces are in place. The only question that remains, they note, is whether the industry is ready for it.
In a Manhattan press conference, Hahn — now chairman of the venture — recounted his initial meeting with Frank Baker, 27, and Nadeem Elahi, 31, at his Darien, Conn., home on a Saturday morning in early February. While he found their idea for a Web exchange service for the apparel industry compelling, he was more impressed by their focus.
“When was the last time we saw young minds coming from our best schools and thinking about this Old Economy industry?”
In a sign that Hahn might have been impressed by their tenacity as much as by their intelligence, Baker, who now serves as president of the venture, added that the initial meeting was preceded by “about three weeks of begging and pleading with him to meet with us.”
Rather than taking the build-it-and-they-will-come approach, Baker and Elahi wanted to round up industry advisers to tell them what’s needed. Relying on Hahn’s contacts, they gathered an 11-member advisory board including Allen Questrom, chairman and chief executive officer of Barneys New York; Robert Adler, chairman of Kellwood’s Halmode Inc. division; Joseph Murray, former vice president of strategy at DuPont; Larry Pugh, former chairman and ceo of VF Corp.; Patrick Danahy, former chairman and ceo of Cone Mills Corp.
The plan had initially been to serve the entire apparel supply chain — the first three letters of its name stand for fibers, textiles and apparel — but the team soon realized that they would be better off focusing on a niche.
“There is a lot going on through the supply chain and there is no way we could master all of it,” Baker said.
Kellwood’s Adler said that he was heartened by that decision: “Initially I was concerned about their ability to cover the whole supply chain. I’m glad they decided to focus.”
The company has now lined up the first round of member-investors: U.S. and Pakistani textile companies who provided its second round of financing and who will be the initial participants in the Web exchange service.
As reported earlier, those companies include the U.S.’s Springs Industries Inc., Inman Mills, National Spinning Co., Harriet & Henderson Yarns and Pakistan’s Mayfair Group, Sapphire Group, Dar Es Salaam Textiles Mills and Quetta Group.
The Pakistani connection comes through co-founder and chief of international operations Elahi, whose family owns Sapphire Group. Elahi also spent five years as director of plant operations at his family’s Tanveer Dyeing & Bleaching Mills (Pvt.) Ltd. between his graduation from Brown University and his return to business school.
The site plans to generate revenue in three ways. Members will pay a subscription fee and also per-transaction fees. In addition, Baker said, it will seek to provide ancillary “value-added” services, such as transaction financing.
While a number of major retailers have signed on to various pilot e-commerce exchange services started this year — including J.C. Penney Co., Kmart Corp. and Target Corp., who’ve joined i2’s WorldWide Retail Exchange — other top retail officials have expressed skepticism about the idea, precisely because their lifeblood will be fees imposed on the industry.
Notably, Tom Cole, chairman and ceo of Federated Logistics and Operations, a division of Federated Department Stores, in a June speech called the fees “a tax on the supply chain.” Noting that in today’s apparel industry, cutting costs is a key part of improving profits, he suggested that retailers and vendors should develop their own e-commerce systems.
FTADirect.com ceo Alfred Sherk said he understood why executives would have such concerns, but said that his venture’s plan was to help suppliers reengineer the supply chain to take other costs out.
“Every process has an inherent cost structure, but unless you actually change the process, you’re not going to change the cost structure,” he said. FTADirect.com he contends, will help companies change the process.
Kellwood’s Adler said the exchange program’s first challenge will be proving to the trade that they actually do cut more costs than they introduce.
“The first thing they need is to get transactions running. They need to show the industry that there is some value added,” he said.
Adler said he believes the exchange technology — which can allow companies up and down the chain to share information about production and consumption — could allow businesses to work more efficiently.
But he acknowledged that advances in communications technology can outpace increases in trust among businesses.
Kellwood hasn’t signed up for any exchanges, he conceded, adding that the company has recently begun to integrate its sourcing practices across divisions to buy more efficiently.
Barneys’ Questrom said he believed that if large numbers of companies participate in the service, exchanges will be able to help the industry cut costs over time. He compared it to the long process of integrating computers into business operations, which initially resulted in additional costs but over time helped companies save substantial amounts of money.
While Barneys isn’t currently participating in any retail exchange programs, Questrom said it might do so later on.
“We will see opportunities in the future to change how we communicate with our international suppliers,” he said.
Hahn said that FTADirect.com’s pricing strategy is set up to ensure its members save money, since fees will be determined by savings.
“Say Springs saves 10 percent. Our fee will be a percentage of that,” he said.