Strategies to succeed in a period of Industrial Decline III: The Road to Failure — The Customer Side

With the possible exception of Italian restaurants, the garment industry has the highest bankruptcy rate of all commercial endeavors.

Clothing stores open and close, at a mind boggling rate. New fashion labels appear only to disappear almost instantaneously. People filled with hope and great vision spend months and sometimes years to plan the first step in their evolution to become the next H&M, North Face, or Zara. “If they did it, why can’t we?”

Regrettably while it is undeniably true that almost all successful retail groups and global fashion labels were built on modest structures, it is equally true that for every H&M, North Face and Zara, there are hundreds if not thousands of start-ups that fail within the first year of operation.

We should not be surprised to hear that start-ups usually fail.  This is true of most industries.

What makes the garment industry different is the large number of long established, previously profitable companies that go broke.  We have a pattern: We create Innovative companies that rise and prosper only to decay and die.

Our industry, particularly in the United States is built on the dead bones of yesterday’s winners.

Have you ever heard of Rosenthal & Kalman or Samuel Parnes?

What about David Schwartz (Jonathan Logan) or Freddie Pomerantz (Leslie Fay)?

Rosenthal & Kalman and Samuel Parnes were the leading companies in the early 20th century. These people built the world’s first ready-to-wear women’s fashion garment industry.

David Schwartz (Jonathan Logan) and Freddy Pomerantz (Leslie Fay)  were the  industry leaders from 1947-1970. Both are forgotten[1].

Surely you have heard of Sears and Liz Claiborne.

Sears used to be the world’s largest department store group. For all practical purposes Sears invented the consumer catalog.  More importantly it was the single most trusted retailer in the United States.  Quality was impeccable and prices reasonable. Today Sears is quickly moving towards oblivion.

Liz Claiborne was a remarkable company.  Starting from nothing, in 10 years Liz Claiborne and her husband, Art Ortenberg built the greatest fashion brand of its generation.  Liz Claiborne was the first fashion brand importer to go public on the New York Stock Exchange.  Its management and technicians were perhaps the best in the world.  Their sourcing people included Bob Zane, Gary Ross  the super stars of the era.

There is every likelihood that within the next 10  years both company will be either sold to be broken-up or go out of business.

Why do so many of our leading companies fail?  Why is our industry so different than others?

The short answer is change:

Companies succeed because they provide value to the target customers.  Their core competencies are geared to understanding their customers’ needs and providing for those needs.

However over time,  the world changes and so too  do our customers’ needs.  We are the fashion industry and in our industry either you are in the forefront of change or you are on your way out.   

All of us are aware of the currents changes which will affect the global garment industry

Demographics change:

Our population is aging.  Middle and upper middle class families are having fewer children while those in the lower economic class are having more children.  People who previously moved from city centers to the suburbs are returning the city centers.  Clearly if you operate a chain of designer label children’s wear boutiques located in suburban malls, you might to do well to change your business model.

Technology changes:

We live in the 21st century internet age, yet our internet strategies differ little from the 19th  Sear Roebuck catalog.  The new generation of consumers are computer literate, who expect to buy by internet. They will need physical stores at best only to try-on garments.  Selling via internet reduces costs and therefore should reduce prices.  Until and unless retailers recognize they are playing a new game with new rules, they will simply be sending their business to those who are computer savvy.  10 years from now Amazon may have a greater garment retail volume than Wal-Mart.

Customer psychology changes:

Today, our customers govern the market place.  We can no longer tell the customer what to  buy. Our role is to determine what our customers want and provide those products at a price they are willing to pay.  To try to sell the customer something else,  whether through clever advertising or enticing price reductions is more than foolish, it is an expensive way to commit suicide.

All of us recognize the need to change.  Yet many retailers and brand importers cannot adapt, let alone be in the forefront of change

If we can understand why some companies embrace change while others reject change, we can begin to understand why companies which previously had been vibrant, profitable and successful reverse course and move towards total failure.

Garment Company Pathology

A company is legally defined as an artificial person.  It is certainly an organism.  As with any organism, companies are susceptible  to disease. I suggest that previously successful companies fail because they become infected with one or more diseases that are ultimately fatal.

Corporate Sclerosis CS):

This is a disease where middle and senior management are not just unable  to react to change, they will fight against change and even lapse  into a psychotic state where they believe they are operating the 1970s a time when customer bought what we told them to buy; internet did not exist; customer-base grew because the population grew;  and when the brand-importer and retailer was in charge.  The disease is potentially fatal.

Liz Claiborne is a prime example of CS.  The organization of highly qualified innovative professionals is gone;   either replaced by a string of second raters or their work outsourced entirely.  Today the company no longer has any definable core competencies.  Everyone’s single goal has become survival — to hold on to their jobs for another year, or even month.  Here there can be no reaction to change because the company must operate at the level of the competency of its current management.

Pathological Ego (PE). 

This is a pathological state where senior management is right because they are senior management, and where any idea not their own was a bad idea.  Regrettably our industry is genetically prone to PE.  Ours is a difficult industry where those who succeed ultimately believe they are specially blessed.  A person who runs a garment company successfully for 10 years, believes he talks to G-d.  After 15 successful years he thinks that G-d is listening.  After 20 successful years he thinks G-d is talking back.

Sears is an equally prime example of PE.

Successful companies exist to provide value to their customers.  In this sense profit is a measure of value compared with costs.  When customer value exceeds costs you make money.

Sear current controlling management believes that their company exists to make money and that providing customer value is an unnecessary extravagance. They believe that with the proper advertising campaign customers will pay more for less.  Management does not believe that they are the smartest people in the world, but rather that everyone else is stupid.

Neither Liz Claiborne nor Sears will survive unless each undergoes a radical cure.

Regrettably they but two of many. Just look around

[1] Those who have graduated The Fashion Institute of Technology (FIT) know David Schwartz just as those who have graduated Parsons School of Designer know the name Freddie Pomerantz because the main building of each their respective schools carry the name of their benefactor. However few if any of them, know just who were these people.

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