April 2012

Always in Fashion: CIT Aligns With the LA Fashion Industry, Advocates Promotion of ‘LA Style’

CIT Trade Finance has had an office in Los Angeles for approximately 30 years. While the factoring company serves clients in a broad range of industries, its Los Angeles office is probably most closely aligned with the apparel industry. That’s why, when the Los Angeles Economic Development Corporation was looking for a sponsor of its Los Angeles Area Fashion Industry Profile, CIT seized the opportunity.

“The LA apparel industry certainly has a number of large, well-known brands. But the majority of the industry is comprised of smaller, privately held companies,” explains Mitch Cohen, CIT Trade Finance Western regional manager. “Most apparel companies are managed by owner-operators. They use factoring because they already have a significant portion of their net worth tied to their businesses. Extending large amounts of credit to their retail customers introduces risks they are unwilling or unable to take.

“CIT has worked with these apparel companies for years, so we understand them and we understand their needs. When we were offered the opportunity to sponsor the LA economic report, we immediately said yes because we knew the value it could provide to the apparel industry and to the city of Los Angeles,” he adds.

Sponsoring a report is one thing. But what do you do with the data once it’s released?

“We shared the report with a number of Los Angeles-based apparel industry leaders and Los Angeles mayor Antonio Villaraigosa and deputy mayor Matt Karatz,” explains Cohen. “There was such widespread interest in the findings, last fall CIT organized a roundtable discussion with the mayor’s office and apparel leaders. During that meeting, each fashion company talked about the business conditions and the challenges they are currently facing.”

“The mayor listened,” says Lars Viklund, founder of apparel company Big Strike. “Those of us who had an audience with the mayor developed a deeper understanding of the initiatives that the city of Los Angeles is exploring to make doing business in Los Angeles more attractive for fashion companies. It was clear to us that the office of the mayor wants to bring jobs back to Los Angeles. They’re aware that Los Angeles used to be a manufacturing center for apparel, but those jobs have moved offshore.”

While most Los Angeles-based apparel companies may no longer manufacture in Los Angeles, many of them still design their apparel there. And for the rest of the nation — and the world — Los Angeles evokes the notion of sun, surf and a casual lifestyle. Based on this, the fashion industry leaders agreed that “Designed in LA” might be a concept worth exploring.

Several fashion companies stated that their apparel commanded higher prices abroad than they do in the United States — a testament to the value of branding the “LA Style.”

Another idea that surfaced during the CIT meeting with the mayor was the concept of aligning the LA fashion industry with Hollywood. After all, not only the United States, but the whole world, watches Hollywood celebrities.

Should the LA fashion industry align more closely with Hollywood? That topic formed the basis of a second “CIT Apparel Industry Leader’s Breakfast,” which was held in March 2012. This time, the topic was how the Los Angeles fashion industry could more closely align with celebrities and with Hollywood.

Jane Siskin, president and chief executive officer of Jaya Apparel Group, was a panelist at CIT’s March event. Siskin collaborated with Mary-Kate Olsen and Ashley Olsen on apparel line Elizabeth and James. Siskin shared a wealth of experience regarding using celebrity endorsers.

Another panelist was Steve Reiner, an executive with the global footwear company Skechers where he is focused on strategy and business development. Skechers also uses a number of celebrity endorsers, and Reiner shared his experiences with the apparel companies and industry executives in the audience.

A theme that came out of this second meeting was that models are being used less and celebrities are being used more, at least in the West Coast apparel industry.

Why would a factoring company organize breakfast meetings with the mayor’s office of Los Angeles? “It’s in our interest for the LA fashion industry to grow and thrive,” explains Cohen. “The apparel industry and CIT are connected. When the LA fashion industry does well, we do well. So of course we want to do anything we can to support the apparel industry.”

How connected is CIT? “Last year, CIT’s West Coast clients sold over $6 billion in merchandise to over 75,000 retailers and wholesalers nation-wide,” explains Cohen. “That was not exclusively apparel, but fashion certainly made up a big portion of that. CIT also processed over three million invoices for West Coast clients last year.”

Some of the report’s findings are summarized below:

  • The “LA Style” is one of the LA apparel industry’s strengths.
    • In addition to New York, Paris and Milan Los Angeles is looked upon as a center of fashion. The worldwide prominence of Hollywood and the entertainment industry continue to drive demand for the “LA” brand.
  • While apparel industry employment has fallen across the United States, the share of employment captured by the apparel industries in LA County and Orange County had increased.
    • LA County accounts for 86% of the apparel manufacturing employment and 84% of wholesale merchant employment. (The five-county area surrounding LA includes LA, Orange County, Riverside, San Bernardino, and Ventura.)
      • Many of these companies are clustered around the fashion district in downtown LA.
      • Orange County has 12% of the apparel jobs, with a larger focus on surfwear and activewear.
    • In 2009, over 20% of apparel, piece goods and notion wholesalers were in LA and Orange County.
    • Apparel wholesalers added approximately 1,000 jobs over the past decade.
  • The LA Apparel Industry is dominated by smaller-sized companies.
    • When we analyze apparel and textile companies with annual sales of at least $1 million, we see there are 692 companies in Los Angeles County, with total revenues of almost $4.9 billion.
      • Total employees of almost 45,000.
      • Companies had average revenues of $7 million.
      • Companies averaged 65 employees.
  • International Trade:
    • Most of the apparel worn in the U.S. is imported. The Los Angeles customs district is an important gateway for that merchandise. Los Angeles Customs District (LACD) includes the twin ports of LA and Long Beach, as well as Port Hueneme, LAX, Ontario International and McCarran Field (Las Vegas).
    • In 2010, the U.S. imported $71.4 billion worth of apparel, $40.6 billion of which came through the LA Customs District.
  • LA exported $870 million in apparel to various countries. The largest recipients of those exports were:
    • Japan                $178 million
    • China                $97 million
    • South Korea    $92 million
    • U.K.                  $64 million
    • Belgium            $55 million
    • Australia          $41 million

A large portion of U.S. exports are often shipped by air, signaling these are high-value, often time-sensitive merchandise, including swimwear, dresses and logo items like Dodgers shirts.

  • U.S. exports of textiles ($3.16 billion) may return to the U.S. after a few weeks as finished goods, then they are counted as imports. The top destinations for U.S. textile exports were:
    • China               $1.78 billion
    • Indonesia        $238 million
    • Vietnam          $191 million
    • South Korea    $160 million
    • Taiwan             $112 million
    • Mexico (NAFTA) and Central America (CAFTA) also received exports.
  • Product differentiation is an important issue for apparel. The LA apparel industry can fill a need in the market for low-volume, high-fashion merchandise that has a very short concept-to-production time. This is because the LA apparel industry has a number of synergies:
    • Designs with limited production runs can command higher prices, as these garments require high-quality materials.
    • LA has agile manufacturing capabilities for a quick turnaround.
    • A close working relationship between the factory and the designer.
  • From concept to product, the turnaround time in LA could be as short as a few weeks. As soon as the public sees a movie star wear a new fashion, the public wants it. Some retailers place an initial order with LA contractors at the same time that they place a large order with an overseas factory, capturing sales to higher-priced retailers early and using mass-produced goods from overseas that will arrive months later to sell to the mid-priced markets.
  • Re-orders are another niche market filled by the LA apparel industry.
    • Sometimes, demand for a certain item is underestimated and additional production is needed fast. The LA apparel industry has the ability to fill this need.
  • Los Angeles and Orange County are two different trendsetters.
    • These neighboring counties are linked, yet different
    • LA County is strong in “contemporary” apparel.
      • Forever 21 is an example of a retailer based in LA County, with a strength in contemporary styles and a focus on the bringing the latest fashion trends to market quickly.
      • Some retailers that are based in LA County rely on a network of domestic suppliers.
    • Orange County is famous for its surfwear and active wear.
      • Tilly’s is an example of an Orange County retailer with 120 stores in 11 states.
        • Tilly has corporate offices in Irvine.
        • It sells LA County-brands like Volcom, Quicksilver, O’Neill, Billabong and Hurley.
  • Textile Manufacturing
    • Textile manufacturing is highly mechanized and far more capital-intensive than apparel manufacturing.
    • Shipping textiles is energy-intensive, making a location with high energy costs unattractive. There are also environmental concerns (dying and washing) which make textile manufacturing less viable for localities with stringent regulations.
    • The competitive advantages of the LA textile industry are:
      • Design
      • Ability to diversify product lines
      • Speed
      • A willingness to try new things
    • Knitting is a specialty in LA.
      • There are approximately 2,000 knitting machines in LA today

The Strengths of the LA Apparel Industry

“There are a number of strengths of the LA apparel industry,” says Cohen.  He goes on to explain that there is tremendous interest in the “LA Style.” Celebrities and Hollywood help define what is ‘in’ and LA is increasingly being seen as the contemporary fashion capital of the U.S.

The LA Fashion District, which has its own Business Improvement District (BID), is visible and geographically identifiable. LA has a geographic access to seaports and airports that are vital for distribution to the rest of the United States.

LA is the capital of apparel design and marketing in the middle of the “Ring of Sewing Machines” that are located in the Pacific Rim, Central America and South America. In addition, LA’s 15 fashion design schools provide the area with a steady stream of design talent. Fresh ideas in retailing are sprouting from LA-based retailers Forever 21, Love Culture and Papaya. Manufacturers like A.B.S., BCBG, Guess and True Religion are also going vertical, opening retail shops. Twenty five percent of the exhibitors at MAGIC (the largest international apparel trade show which happens to be held in Las Vegas) are from LA.

Areas for Improvement

But with all these advantages, Cohen notes that the LA apparel industry still has areas that could be improved.

Most media coverage focuses on runway shows, which do not showcase the more mainstream saleable designs of the broader industry. When it comes to buying, the real action is found in pre-selling in the “Marts.” Local high school students do not know of the abundant opportunities in the apparel/textile field, for design and marketing. The lack of major, public-accessible LA fashion shows results in lower public awareness of the strength and diversity of the industry. Plus, there could be an opportunity to bring back niche market trade shows, based on the strength of the sector. There is also a need to refresh the LAX airport terminal and the downtown Fashion Business Improvement District to create a more vibrant shopping experience for buyers.

Key Forces Affecting the LA Apparel Industry

Higher oil prices have driven up transportation costs, and rising inflation and wages in China are driving up the prices of apparel made in China. Increasingly, apparel manufacturers and textile producers are looking toward lower-wage countries like Vietnam and Bangladesh; however, their infrastructure is problematic. Both of these factors could be advantageous for Los Angeles-based manufacturing.

There is now a large population of consumers in China and India that are at the middle income level and the middle- to upper-class segments are growing as well. This could drive demand for “Made in California” apparel.

Another trend is that Europe is increasingly producing casual clothing to compete with SoCal brands.

What Could Be Done to Support the Industry?

CIT’s two roundtable discussions came to the conclusion that there is an interest in marketing “LA” and the “California” brand. This industry-wide branding effort could generate additional demand and boost the intrinsic value of the merchandise. A strong proprietary brand is something that can’t be easily replicated.

Another area of interest is the idea of upgrading the impact of LA’s “Market Week.” Local apparel companies would like to get more publicity and educate the community about local fashion. “Fashion is big business in LA, so make Market Week a big deal as well,” comments Cohen. “This will help to strengthen LA’s reputation as a center of fashion in America.”

“An additional benefit of publicizing LA’s Market Weeks to the professional and retail community will be the added hospitality revenue that buyers would bring to the LA area,” explains Cohen.

Successful apparel companies require top-notch talent in management. It would benefit apparel and fashion companies if colleges should offer apparel-related business management courses, in addition to design courses.

“We want to encourage the next generation of designers by introducing local high school students to opportunities in the apparel business through hands-on internship programs such as the Regional Occupational Programs (ROP) in high schools to get them interested in the field,” says Cohen.

Karatz summed it up at the CIT breakfast meeting in March, “Los Angeles is the creative capital of the world with fashion, film and entertainment at the forefront,” he stated. “LA’s creative industry is comprised of global conglomerates and small businesses, touching many lives and employing over one million people. The design talent of LA’s fashion companies is second to none and it is time to start recognizing and promoting this important asset on a world-wide platform.”

At CIT, we agree and we are delighted to help promote the creative talents of the Los Angeles fashion industry.

Ann-Margret Crater is vice president of Strategic Marketing for CIT Trade Finance, one of the nation’s largest factoring companies. Crater earned an M.B.A. in Finance from Georgetown University and a B.A. in Economics from New York University. She is currently pursuing a Master of Science in Public Relations and Corporate Communication from New York University. She has written on a wide range of financing and asset-based lending topics, but her favorite topic remains factoring. A complimentary copy of the LA Fashion Industry Report may be downloaded at www.CIT.com/Lafashion.