The Los Angeles Area
Fashion Industry Profile and 2014 Outlook
Sponsored by CIT
CIT Commercial Services
CIT is one of the nation’s leading providers of factoring and financing to the apparel industry. CIT tailors financial solutions that help companies of all sizes increase sales, improve cash flow, reduce operating expenses, and eliminate customer credit losses. CIT serves apparel companies that range in size from $2 million to $1 billion in annual sales and that sell to more than 300,000 wholesale and retail customers nationwide. CIT’s Internet‐based platform provides clients with real‐time credit approvals and comprehensive accounts receivable information. To learn more, visit www.cit.com/CommercialServices. ABOUT THE CALIFORNIA FASHION ASSOCIATION
The California Fashion Association (CFA) is a non‐profit organization established to provide information for business expansion and growth to the apparel and textile industry of California. The international mission of the CFA is to define the industry’s economic impact and to outline its global opportunities. http://www.calfashion.org/ Table of Contents Executive Summary: The Los Angeles Area Fashion Industry Profile ..................................................................... 1 L.A. Apparel Manufacturing: An Industry Under Siege ......................................................................................... 4 Niche Markets in Quick‐Turn Merchandise .............................................................................................................. 4 A Design‐Driven Industry .......................................................................................................................................... 6 Dominated by Immigrants ........................................................................................................................................ 6 Perceptions and Misperceptions .............................................................................................................................. 6 Technology Comes to the Rescue?......................................................................................................................... 10 Textiles Manufacturing: Another Sunset Industry .................................................................................................. 11 Topping It Off: Cosmetics, Jewelry, and Footwear .................................................................................................. 13 Los Angeles and Orange Counties: Two Distinct Trendsetters ............................................................................... 15 Los Angeles and New York: Friends or Foes? .......................................................................................................... 18 Hoover’s Summary: Business Segments in the L.A. 5‐County Metro Area………………………………………………………… 20 L.A. Industry by the Numbers ............................................................................................................................ 21 Overall Employment Facts ..................................................................................................................................... 22 Wholesaler, Manufacturing, and Textiles Employment ......................................................................................... 26 Wages and Earnings ............................................................................................................................................... 32 Indirect Impacts ..................................................................................................................................................... 36 A Demographic Profile of Apparel Manufacturing Workers .................................................................................. 38 Labor Burdens: A Barrier to Job Growth ................................................................................................................ 40 Merchandise Prices ................................................................................................................................................ 41 Finance ................................................................................................................................................................... 46 A Truly Global Industry ...................................................................................................................................... 50 International Trade ................................................................................................................................................ 55 Barriers to Exporting .............................................................................................................................................. 59 The March Toward Free Trade Continues .............................................................................................................. 61 The Outlook for Los Angeles’ Apparel Industry .................................................................................................. 63 Pluses ..................................................................................................................................................................... 63 Minuses .................................................................................................................................................................. 64 Items to watch ....................................................................................................................................................... 65 What Can Be Done to Support the Industry? ..................................................................................................... 66
Executive Summary THE LOS ANGELES AREA FASHION INDUSTRY PROFILE – 2014 Fashion remains the most under‐appreciated industry in Los Angeles. It truly has a global reach. The mere mention of apparel manufacturing, unfortunately, can conjure up very dated images – images of sweatshops, full of minority women who operate sewing machines, next to a mountain of cut fabric, and under the eye of abusive bosses. What’s the true picture? Consider these images: design entrepreneurs sit in a well‐lit design studio located somewhere downtown. They imagine new clothing designs and send them electronically to offshore factories or to a local contractor. Graphic artists digitally draw sketches for the next set of online ads. Logistics experts arrange for merchandise to be shipped to distribution centers or specialized clothing stores around the world. Fashion photographers take pictures against the backdrop of Pacific beaches. Fashion models walk down runways. Freight forwarders electronically sign customs papers accepting a shipping container full of finished merchandise from distant shores. L.A.’s apparel industry success has long been driven by the pull of design talent; favorable cost economics; the appeal of casual clothing (particularly denim); fashion; and speed to market. Over $46 billion in apparel imports comes through L.A. ports. Local operators earn at least $18 billion in revenue from within the L.A. region’s apparel wholesale, textile, and apparel manufacturing businesses. And their workers earn over $6.4 billion in direct, indirect, and induced income. The business makes great use of the sophisticated skills, talents, and customer insights offered by local design entrepreneurs. In order to preserve profit margins, it uses differently skilled workers to cut and sew ever‐higher volumes of product in far‐flung regions of the world. Impact on the Los Angeles Region: Strength as a Fashion Apparel and Textile Sector 
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$46B+ in apparel enters as imports. Local companies capture $18B+ in revenues. $6.4B (over one‐
third) flows to local workers. This global industry has sustainable reasons for a permanent place in this region, with a well‐paid employment base. Geography and a marketable fashion statement is a powerful combination. The enduring popularity of L.A.‐based design, inspired by the sun and a vision of easy living. “L.A. Style” is constantly propagated by the national media’s obsession with Hollywood celebrities. L.A. brands and the constant influx of new designer names command a premium in the capital markets. Technology helps L.A.’s designers and manufacturers stay competitive, shortening product cycles and reducing costs. CIT Group and CFA P a g e | 1 Fashion Industry Profile 2014 
L.A.'s textile industry’s advantage? Design; the ability to diversify product lines and take on vertical operations. These processes involve many layers of expertise, speed, and a willingness to try new things. Employment cycles: 
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L.A. is doing better (+3.2% y/y) than national trends in the turnaround of employment data. Catching the data is difficult because apparel‐related jobs fall outside the data “catch‐all” of manufacturing, textiles, and wholesalers. Cases in point: in May 2012, 3,770 independent fashion designers worked here. They earned about $30 an hour in Orange County, and $35 an hour in L.A. County metro. Wholesaling apparel wages remain a strong spot at $25 an hour. Basic manufacturing (cut‐and‐sew) apparel jobs offer $15 an hour. This is above the current California and Federal minimum wages. The L.A. apparel industry has greatly improved working conditions since 1995. In contrast, the “second migration” to low‐wage countries – from China to places like Cambodia or Bangladesh – has created a backlash from the consumer for a lack of worker safeguards. What Could Be Done to Support the Industry? 
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Immigration/work permits top the list to grow the industry. An Employment Development Department adjustment for small training grants for small companies. For the unskilled, could there be a training wage? There is also a need for newer equipment requiring financing for equipment upgrades deployed in L.A. Marketing, marketing, and more marketing of the “L.A.” or “California” brand. Successful marketing generates additional demand and boosts the intrinsic value of the merchandise. Intense marketing also brings in more buyers to local market weeks, which will generate a variety of additional spending and tax flows (e.g., meals, hotels, limo services, etc.) A successful apparel business requires more than just great designers; it needs top‐notch management talent. Post‐graduate and graduate institutions should consider offering apparel‐
related business management and merchandising studies, not just apparel design and merchandising. Introduce local high school students to the opportunities in the apparel industry through “reality‐
based” programs such as the Regional Occupational Program (ROP) in high schools. Upgrade the impact of “Market Week” to get more publicity, using it to educate the residents about the importance of the local fashion industry. This will help strengthen L.A.’s reputation as the center of street fashion in America. CIT Group and CFA P a g e | 2 Fashion Industry Profile 2014 FAST FACTS Textile & Apparel 5‐County Macro L.A. Customs District Imports Company Revenues Worker Incomes L.A. Pay Fashion Designers Wholesalers (Importers) Apparel & Textile Workers Job Counts $46+ billion $18+ billion $6.4+ billion $35 an hour $25 an hour $15 an hour Apparel, Textile, & Wholesale (2012–13) SoCal Workers 97,384 (or 94,276 in a 2011 data breakdown) L.A. County Workers 77,512 NYC Workers 47,069 SoCal Wholesalers 23,723 (or 42,076 in a 2011 data breakdown) Apparel Mfg. 62,774 (or 45,500 in a 2011 data breakdown) Textile Mfg. 10,887 (or 6,700 in a 2011 breakdown) Independents 8,995 Fashion Designers 3,770 Cosmetics Workers 5,590 Jewelry Workers 6,985 Footwear Workers 5,904 L.A. Knitting Machines 2,000 Centers for Higher Ed. 12 SoCal Establishments 10,000 Overall Fashion Jobs 127,578 Apparel Direct & Indirect Jobs 191,635 Proportion of U.S. Jobs in Southland in 2011 Apparel Manufacturing 36% Wholesalers (Importers) 18% Textile Mills 6% L.A. County Companies with $1 Million or More in Revenues in 2013 Textile Mills & Apparel Manufacturing Wholesale (Importers) CIT Group and CFA 667 870 P a g e | 3 Fashion Industry Profile 2014 INTRODUCTION: THE LOS ANGELES AREA FASHION INDUSTRY PROFILE – 2014 L.A. Apparel Manufacturing – An Industry Under Siege To some industry economists, the apparel industry should be considered a “sunset” industry for an advanced economy. Apparel manufacturing is a labor‐intensive industry. It has low barriers to entry. There is a relatively low level upfront capital investment. As a result, it is often one of the first manufacturing industries to be established in an underdeveloped country. Low labor costs make them more price‐competitive. Based on common business sense, industries like apparel manufacturing should not survive in a high‐cost environment such as Los Angeles. This has not been the case. Los Angeles regional retailers such as Forever 21, Inc., Love Culture, bebe, Hot Topic, Wet Seal, and Papaya dominate the U.S. fast‐fashion industry. They have conditioned shoppers to see fashionable apparel on store shelves much sooner than in the past. It takes three to four months to get a new item from China. In Los Angeles, fast fashion firms can get fabric within a couple of weeks. Apparel can be manufactured in two to three weeks. The new item gets to stores in less than five weeks.1 Many of these L.A. apparel “manufacturers” do not manufacture anything. Brand‐less private label contractors, similar to the Original Equipment Manufacturers (OEMs) and parts supplier relationships in the auto and computer industries, actually do the cutting and sewing. The manufacturers are legally responsible for fulfilling their contracts with retailers, the quality of their products, and their contractors’ labor practices regarding wage and overtime issues. By using contractors, the manufacturers are able to adjust their apparel production rates depending on market demand and fabrications dictated by current fashion. Thereby, they structure cost systems that are more variable and less fixed. Contractors can bid for work orders from many manufacturers. And many are highly specialized and efficient at their core competencies. In this report, data for “apparel manufacturing” refer to both manufacturers and contractors. It’s hard to separate the two in official statistics. We will focus on particular circumstances when appropriate. Niche Markets in Quick‐Turn Merchandise Product differentiation is very significant to L.A. apparel, more so than any other business. Brands and designer names command a premium based on their reputation. Exclusivity also counts. Designs with limited production runs command a high price tag. In this kind of environment, the Los Angeles apparel industry finds a niche. The market for low‐volume, high fashion merchandise that has a very short concept‐to‐product time has become rooted and grown. These garments require high‐quality materials, agile manufacturing capabilities, a close working relationship between the factory and the designer, and quick turnaround. The Los Angeles cluster brings together such synergies. 1
Alexa Hyland, “Fit for L.A.”, Los Angeles Business Journal, August 8, 2011, Vol. 33, Num. 32. CIT Group and CFA P a g e | 4 Fashion Industry Profile 2014 Just how fast is turnaround in this market? From concept to product, production runs may be as short as just a few weeks. Once people forget what the latest “hot” movie star wore at the Oscars, the perceived value of the dress drops exponentially. Therefore, the “knock‐off” must get to the market quickly. Some firms like Tilly’s place an initial order with local contractors at the same time they place a larger order with overseas firms. This allows them to capture the higher‐priced retailers early on, and use the mass‐production goods that come months later to sell to the mid‐priced markets. It also allows a “test” for new fashions to predict and project future lots for global sourcing. Another L.A. niche market is that of re‐orders. Some firms underestimate the demand for a certain style and need additional production fast. If they go through the overseas channel, the style may become out‐
of‐fashion by the time the product arrives. In addition, the quantity needed may not be large enough to cover the extra overhead involved in overseas sourcing. Thus, developing the capabilities to adjust production quickly is crucial for local firms seeking a piece of the re‐order market. Brands Born in California 7 For All Mankind A.B.S. by Allen Schwartz American Apparel
BCBG Max Azria David Meister
Dreamgirl
Elizabeth & James Equipment
Forever 21
GUESS?
Hudson Clothing
J Brand
James Perse
Joe’s Jeans
Joie
Karen Kane
LRG
Lucky Brand
Manhattan Beachwear
Skechers Max Studio (Leon Max)
Nasty Gal
Neff
Not Your Daughter’s Jeans (NYDJ)
Oakley
PacSun
Paige Denim
Quiksilver
Robert Rodriguez
Roxy
RVCA
Self Esteem
Splendid/Ella Moss
Stussy
Sue Wong
Tadashi Shoji
Trina Turk
True Religion
Velvet by Graham & Spencer
Vince CIT Group and CFA P a g e | 5 Fashion Industry Profile 2014 A Design‐Driven Industry . . . In reality, the modern apparel industry is far more than just manufacturing. It is a highly sophisticated industry involving fashion and market research, brand licensing/intellectual property rights, design, materials engineering (often classified under “textiles” rather than “apparel”), product manufacturing, marketing, systems technology, and distribution. Los Angeles, with strength in entertainment and design, is able to maintain a competitive advantage in product design and marketing. In some cases, it is also able to sustain a manufacturing capacity for the high‐value, high fashion, quick‐turn orders. What is the primary source of strength in L.A.’s apparel design base? A large part of the strength is the amorphous concept of “L.A. Style.” This is propagated by constant media obsession with Hollywood and entertainment celebrities. The perception of Los Angeles as one of the centers of fashion (along with New York, Paris, Milan, London, and Tokyo) continues to support demand for things designed in and reflective of Los Angeles. Even as Los Angeles loses traditional apparel manufacturing to Central America and East Asia, its reputation as the source of fashion grows. Entertainment award broadcasts and nightly Access Hollywood news shows reinforce the perception. L.A. is fashion. A new effort to formally promote the “L.A.” brand kicked off in October 2012. This will help monetize the influence. Dominated by Immigrants Minorities, especially Asian entrepreneurs, own many of the contracting firms. Korean‐American apparel firms even have their own association – the Korean Apparel Manufacturers Association (KAMA). Workers on the factory floor are mainly of minority origin. They are mostly Hispanics and Asians. Non‐
skilled workers can enter this teeming ecosystem, learn basic skills of manufacturing, and move up a ladder within or outside the apparel industry. Perceptions and Misperceptions The local apparel industry suffers from many misperceptions. The L.A. apparel industry of today has greatly improved working conditions from the apparel industry of even ten years ago. Stringent self‐ and government monitoring help ensure that “exploitation” occurs very rarely. In place now are shops that work closely with designers and fill low‐volume, quick‐turn orders that command much higher prices and, hence, higher profit margins. Sending such orders to offshore factories is simply not economical, especially in terms of time. A “Designed in L.A.” or “Made in the U.S.A.” label still commands a prestige factor that designers and retailers consider when deciding on their source of supply. CIT Group and CFA P a g e | 6 Fashion Industry Profile 2014 Variations of Fashion Industry Business Models Fashion design and the apparel production industry in Los Angeles have taken on a rich variety of corporate forms. Eleven are worth mentioning by name. An example of a company (or set of companies) that executes their business strategy using each of the 11 specific corporate forms follows. 1. Large U.S. Conglomerate with Local Subsidiary: Lucky Brand, 7 For All Mankind 2. International Corporation with U.S. Brand Entity: Billabong, Speedo 3. Licensee of International Corporation: Jerry Leigh (Licensee of Disney) 4. Manufacturing Exclusively for Retail: bebe, Gap, Forever 21 5. Separate Divisions of ‘Umbrella’ Corporation: Roxy for Quiksilver/ JOIE for Dutch, LLC 6. Owner/Entrepreneur/Domestic Production – Vertical: American Apparel, St. John – Using Contractors: Karen Kane, James Perse 7. Owner/Sales Executive: Hard Tail, Stony Apparel (the Great Escape) 8. Owner/Designer: Trina Turk, Sue Wong 9. Owner/Production Executive: Hudson, KWDZ Manufacturing, LLC (private label children’s wear developers) 10. Owner/Entrepreneur/Importer: Body Glove, California Dynasty, Miss Me 11. Brand Companies: Entities that own intellectual property and license their brands to other manufacturers. Such entities have driven the rise of several prominent brands in recent years utilizing various marketing techniques. Example: the Cherokee Group and Modern Vintage 1960. Sometimes, the L.A. apparel industry benefits from misperceptions. “Designed in Los Angeles” is seen as a statement of cutting‐edge fashion. Industry insiders who go to the trade shows and the “Marts” know what’s designed locally and what’s not. Some designer labels play to the entertainment factor. They hire Hollywood starlets to represent their merchandise in paid advertisements. What celebrities wear to award shows is often perceived as designed in Los Angeles (even though it’s just the shows themselves that have been produced in Los Angeles). Some of these garments are not designed locally. But this connection helps link the idea of “celebrity fashion” with Los Angeles. CIT Group and CFA P a g e | 7 Fashion Industry Profile 2014 Design Programs at Local Colleges Los Angeles is perceived globally as a leader in the field of fashion design. This helps specialty design schools such as Los Angeles’ Fashion Institute of Design & Merchandising (FIDM) and Otis College of Art and Design attract the top candidates. These schools draw many foreign students and minorities. They add diversity and international flavors to these programs. And many foreign graduates stay to work in this area. This reinforces the competitiveness of the region’s apparel design industry. In all, 12 private and public Los Angeles area undergraduate schools offer programs dedicated to apparel design and merchandising: ▫ Art Center College of Design ▫ California Polytechnic University, Pomona ▫ California State University, Los Angeles ▫ California State University, Northridge ▫ El Camino College ▫ Fashion Institute of Design & Merchandising ▫ Long Beach City College ▫ Los Angeles Trade Technical College ▫ Mt. San Antonio College ▫ Otis College of Art and Design ▫ Pasadena City College ▫ Santa Monica College ▫ Woodbury University CIT Group and CFA P a g e | 8 Fashion Industry Profile 2014 The L.A. Fashion “Marts” To know the story of Los Angeles’ apparel industry, one must understand the role of the “marts.” Behind the façade of these ordinary‐looking office buildings is the heart of the Los Angeles’ fashion industry. These are the physical marketplaces for designers, manufacturers, wholesalers, and retailers to meet and connect. Most of their “shows” are not open to the general public. There are special public events where one can purchase sample items. Marts in L.A. have two distinct characteristics: they are open 52 weeks a year, and potential buyers can visit any time. Other arts around the country are only open during designated “market” times. Surprisingly, New York, which also has a sizable apparel industry, does not have a main building called a mart. There are four main mart buildings in Los Angeles: California Market Center (formerly the California Mart), Cooper Design Space, the Gerry Building, and the New Mart. They’re located at the four corners of Los Angeles and 9th Streets in downtown L.A. Now that’s industry clustering! Inside each building the merchandise ranges from mundane to cutting edge. Some large retailers also have “buying offices” where representatives of designers and manufacturers can go and showcase their latest offerings. At these marts, interested parties mingle and deal. Billions of dollars of contracts are awarded annually thanks to the interactions inside these marts. It takes a trip to one of the marts, and perhaps to a trade show within, to appreciate the sophistication of the industry. There are products that outsiders would not have imagined, such as “predictive services.” These experts forecast trendy colors and styles for the next two years, so designers and buyers can plan accordingly. No predictive services expert can ignore what’s going on in L.A. because L.A. leads in youth trends and grabs more attention, thanks to the Hollywood connection. A “Market Week” is a week of fashion shows. It’s also a time to attract more distant buyers and press from all over the world. Market Weeks (held five times a year) and textile shows (twice a year) are a great time to promote L.A.’s fashion industry. Unfortunately, they do not get the media attention they deserve. L.A. residents are largely uninformed about the significance of the marts and their special activities. CIT Group and CFA P a g e | 9 Fashion Industry Profile 2014 Technology Comes to the Rescue? Technology plays a major role in helping L.A.'s design shops stay competitive. It shortens product cycles and reduces costs. Here are four examples: 1. Computer‐aided design and manufacturing (CAD/CAM) products and services help designers quickly turn concepts into prototypes and samples. 2. Advanced computer‐aided videoconferencing affords better communication between designers, manufacturers (sometimes located overseas), and retailers. This helps improve product creation. And it shortens the product cycle (a.k.a. the design‐to‐shelf time). 3. Computerized shipping modules enable manufacturers and retailers to control product flow (including U.S. customs clearance); that reduces delays, uncertainties, and inventory costs. 4. Supply side management technology like product lifecycle management and enterprise resource planning (PLM and ERP) tightens up the logistics. New technologies help designers, manufacturers, and retailers cut costs and maintain their competitiveness. But large capital investments can be very burdensome for smaller contractors. New high‐tech machinery can be very expensive and requires trained workers. Apparel and textile firms become nervous about investing in them when their own business outlook is uncertain, especially during difficult economic times. Financially constrained firms often find it difficult to invest in new equipment, even though the long‐term savings may be substantial. One option for smaller firms has been to rent equipment facilities at shared‐service technology centers. Remember, there are no barriers to keep firms in developing countries from using advanced technologies to their own advantage. Some countries even have government assistance and industrial policies to provide financial assistance to their manufacturers. In order to stay in business, L.A. firms must compete using their greatest strength: Creativity. CIT Group and CFA P a g e | 10 Fashion Industry Profile 2014 Textiles Manufacturing – Another Sunset Industry? Just as the apparel industry in Los Angeles is sustained by a strong design base and a niche market in contemporary and quick‐turn merchandise, its sister industry, textiles manufacturing, also has found extended life in niche markets. Textile manufacturing is highly mechanized and far more capital‐intensive than apparel manufacturing. It is energy‐intensive. Thus, a location with high energy costs and unreliable supplies is often avoided. There are environmental concerns (i.e., from dying and washing) involved with textiles manufacturing, which make it less viable for advanced economies with stringent regulations. The competitive advantage of Los Angeles’ textiles industry is in design; in the ability to diversify product lines, involving processes with many layers of expertise; speed; and a willingness to try new things. In printing, once a basic design is created, it has to be turned into a repeat pattern with the final color choices. Different repeat patterns and color choices can be made. A basic design idea can yield many different versions. Years later, the same basic design can be given different colors and emerge as a new design concept. Our L.A. specialty is knitting. There are approximately 2,000 knitting machines whirling away in L.A. today. This is way down from the 1993 high, but still a large number. In 1997, a number of knitting companies de‐camped with their machines. They went to Mexico and Latin America to benefit from the North American Free Trade Agreement (NAFTA) and the Dominican Republic‐Central America‐United States Free Trade Agreement (CAFTA). In years past, rising energy costs hit the industry hard. Most of the lost jobs have not come back, even though the cost of energy, particularly natural gas, has dropped significantly from the highs. Looking forward, things look much less bleak. Domestic natural gas supplies are now projected to rise dramatically, due to the use of hydraulic fracturing (fracking) technology, which basically pumps water into gas‐rich areas to push out more natural gas. The textiles industry is still seeing contraction. Labor costs play a large part in that. Energy supply, labor and any other rising costs, and environmental regulatory concerns are the issues on the minds of most local textile manufacturers today. Note: The Textile Association of Los Angeles (TALA) provides the California apparel and textile industry with a network of assistance for domestic and international markets. TALA offers information to manufacturers, importers, agents, and allied global associations. TALA is affiliated with the California Fashion Association. CIT Group and CFA P a g e | 11 Fashion Industry Profile 2014 From Cotton to Denim The word “cotton” comes from the word Qutun, or “fine fashion” in Arabic California cotton is often the luxurious upland or pima cotton variety. A single California cotton crop is typically planted in March and harvested in October. Two consecutive years of thirsty cotton planting is often followed by a crop rotation for one year into a different crop, like garlic. To get cotton’s fibers separated from cotton’s seeds, a machine called a cotton gin is used. Once the fibers are collected, they’re then packed into a huge bale of cotton ready for transport. The machine‐separated seeds are turned into oil, feed, fine paper, and other uses. To transform a bale of cotton (it has always been 485 pounds, by the way) into bobbins of cotton yarn, it is necessary to twist cotton’s fibers into strands. This is known as spinning cotton. These days, air‐jet Vortex spinning machines can create a synthetic tornado to spin batts of cotton into yarn. Yarn that takes on the dark blue denim color is made from cotton strands dyed with indigo; which then must oxidize in a “skying room” for some time before being sent on for what is called slashing – a dipping process in a starch bath that stiffens the dyed cotton yarn for weaving. The warp is the blue indigo–dyed spun yarn. The weft is un‐dyed white cotton spun yarn. An ultra‐rapid combination of warp and weft by a power loom (think 778 picks a minute) creates a stiff weave that has the hallmark, mostly dark blue weave with a white jeans weft, seen in denim fabric. There are vintage looms that can leave in some of cotton’s imperfections to imbue the finished cloth with that certain rustic touch. But not in California! As you can imagine, this process absorbs loads of electric power and water and leaves behind massive quantities of dangerous dyes and chemicals. Regulations that restrict the creation, use, and discharge of the dyes and chemicals are a primary force behind the relocation of a lot of textile making outside of California. Complicated rights to water access, whether clean or dirty, is another huge problem. All jeans start from the same fabric. Premium denim jeans that “L.A. Style” depend on for its look and profitability get their added style in a washing treatment. A state‐to‐state, county‐by‐county, regulatory gauntlet to get water here makes getting access nearly impossible. For a fascinating 45‐minute “How Cotton is Made” video, click the following link: http://www.youtube.com/watch?v=Y9ezDusZT_Y CIT Group and CFA P a g e | 12 Fashion Industry Profile 2014 Topping It Off – Cosmetics, Jewelry, and Footwear Other fashion industries in Los Angeles have their own clusters. The cosmetics industry has nearly 5,600 workers in the Southland. Big names include Max Factor, Merle Norman, Neutrogena, and Hard Candy. Many jobs are probably in positions such as sales and marketing. They are listed under “manufacturing” based on the classification of the corporation in general. Cosmetics wholesaling data is not available. But it is likely significant, due to the dominance of trade‐
related activities in the area. One boost to the cosmetics industry has come from the entertainment industry. It has unique makeup needs. Corporate giants, such as Estée Lauder, often buy up fledging California brands like MAC and Stila. The jewelry industry has a significant cluster around Hill Street and Broadway, just to the east of the Downtown Financial District. The Jewelry District has many retailers and wholesalers engaging in wholesale distribution. It’s quite a sight to see. The bazaars are full of merchants selling diamonds, gold chains, and other precious stones. Bargaining is acceptable at many shops. Buyers should come knowing current market prices for precious metals and stones. Upstairs in many of the buildings in and around the Jewelry District are jewelry designers, manufacturers, and wholesalers. Some of these firms choose to have their mass production done elsewhere. Others keep their production lines local in order to maintain quality control and provide speedy service. Nearly all designers and manufacturers have small shops making samples or special custom orders. The jewelry industry requires skilled crafts people. L.A. expertise often hails from Eastern Europe. No fashion is complete without the proper footwear. Think about sandals for surfwear and swimwear. It’s a significant business in L.A. Like cosmetics, a lot of the footwear “manufacturing” jobs are really supporting jobs in sales and marketing. Three shoe trade shows (e.g., TRANSIT Los Angeles Footwear & Accessories Show) happen in L.A. every year. They get bigger and bigger each time. L.A. is a major center for marketing and advertising, too. This is where advertising materials (e.g., magazine photo shoots, TV commercials, etc.) in support of all fashion‐related industries are created. Like it or not, what Hollywood stars wear is more important than what is on the runway at Dior. Economist Jack Kyser of the Los Angeles County Economic Development Corporation (LAEDC) visited the employment data in Table 1 (on the next page). It was first collected ten years ago (in December 2003). Comparing that report to this one shows the change afoot. 
L.A. jewelry manufacturing jobs (3,223 to 1,285) dropped significantly, much like apparel manufacturing jobs. CIT Group and CFA P a g e | 13 Fashion Industry Profile 2014 
L.A. jewelry wholesaling jobs (5,840 to 4,919) are down 20%. They held up comparatively well. What else is notable? L.A.’s footwear wholesaling jobs picked up dramatically, rising from 1,913 to 3,883 jobs. Meanwhile, L.A.’s footwear manufacturing fell off a cliff, going from 1,393 to 660 jobs. Table 1: Other Fashion‐Related Industries L.A. Orange Riverside San Bernardino Cosmetics 32,562 Cosmetics Manufacturing 4,828 290 278 5* Jewelry 33,9911 Jewelry Manufacturing 1,285 100* 4* 15* 4,919 42,394 Jewelry 516 17 99 Wholesaling** Total 6,204 616 21 114 Footwear 3,162 Footwear Manufacturing 660 112 n/a n/a 42,434 Footwear 3,883 881 80* 200* Wholesaling Total 4,543 993 80 200 All data is 2011 vintage. 2012 is not available. *Estimated from number of establishments’ data. **Note: includes watches, precious stones, and metals. Source: U.S. Dept. of Commerce, Bureau of the Census, 2012 County Business Patterns CIT Group and CFA P a g e | 14 Fashion Industry Profile 2014 Ventura 189 8* 22* 30 n/a 88 88 Los Angeles and Orange Counties – Two Distinct Trendsetters Although Los Angeles and Orange Counties are economically integrated, they do have their own distinct personalities and niche apparel markets. Los Angeles County is strong in “contemporary” apparel. Orange County is famous for surfwear and activewear. A great example of contemporary style in L.A. County is the retailer Forever 21. By staying connected with the L.A. design scene, it has identified hot fashion trends and acted on them quickly. The product cycle is so short in this part of the industry that the company must rely on a network of domestic suppliers. The History of Forever 21 The chain, originally known as Fashion 21, was intended for mostly kids and teens. Korean American Do Won Chang (Hangul: 장도원) and his wife, Jin Sook (Hangul: 진숙) founded the chain in Los Angeles, California in 1984. The first Fashion 21 store opened in 1984. It was located at 5637 N. Figueroa Street in the Highland Park district of Los Angeles. The store was only 900 square feet. It is still in operation and bears the chain’s original name. Trendy designs seen in South Korea were sold and targeted to the Los Angeles Korean American community. However, people from many other ethnicities began noticing the trend‐setting fashion designs and the store became increasingly popular. By the end of the first year, sales had risen from $35,000 to $700,000. Fashion 21 eventually expanded at the rate of a new store every six months and changed the Fashion 21 brand name to Forever 21. In 1989, Forever 21 opened its eleventh store (and its first located in a mall) at the Panorama Mall in Panorama City, California. Forever 21 increased its presence by expanding the average size to 5,000 square feet per store. Since then, Forever 21 has been running specialty stores in major mall locations nationwide. In 1995, the chain opened its first location outside of California, at Mall of the Americas in Miami, Florida. Adding new stores every six months, Forever 21 had reached a total of 40 stores by 1997, employing its proprietary design concepts to all its stores since then. By this time Forever 21 also increased its average size to 9,000 square feet per store in prime spots of top‐tier malls. The retail chain expanded internationally recently. The first European Forever 21 stores opened in Ireland in Dublin’s Jervis Shopping Center, and in Birmingham, U.K. in late 2010. The grand opening of the London flagship store occurred in July 2011. Forever 21 stores also opened in several places in Asia (such as Bahrain, Beijing, and Hong Kong, China), as well as in India, Israel, Japan, Kuwait, Malaysia, Philippines, Saudi Arabia, Singapore, South Korea, Thailand, and the U.A.E. Wikipedia contributors, Forever 21, Wikipedia, The Free Encyclopedia, http://en.wikipedia.org/wiki/Forever_21 (accessed August, 2013.) Verified with Forever21.com/Company/history.aspx?br=f21 CIT Group and CFA P a g e | 15 Fashion Industry Profile 2014 Orange County Overview California’s Department of Finance says Orange County’s population is near 3.1 million. Anaheim, Santa Ana, and Irvine make up 900,000 of that. In 2020, the population will be 3.4 million. L.A. County has 9.88 million. From 1990–2010, the population increased +600,000. Most growth happened from 1990–2000, at +17%, versus +5% from 2000–2010. Want to know a surprising fact? Orange County has a very high proportion of Asian residents. Together with Hispanics, they count for 52% of the population. That’s a majority. Orange County Workforce Indicators Report, 2012 Race Number Percent White 1,330,314 43.5% Hispanic or Latino 1,042,752 34.1% Asian 549,227 18.0% Two or more races 70,587 2.3% African‐American 47,486 1.6% Native Hawaiian 8,766 0.3% American Indian 6,613 0.2% Source: U.S. Census Bureau, Population Estimates Program Orange County is also wealthier on average than L.A. County. The proportion of Orange County households earning under $75,000 a year continues to shrink. The two richest household income cohorts continue to grow. In 2010, a staggering 25% of Orange County households made over $125,000 dollars a year. The Orange County Economic Development Corporation published its fastest job growth areas in 2011. • International Trade: +156,997 • Info Tech: +66,236 • Creativity: +37,200 • Green Tech: +18,258 Orange County’s location provides it with distinct advantages regarding international trade. And creativity is key. Their leader’s focus on STEM (science, technology, engineering, math) as a critical competitive advantage has evolved to emphasize STEAM (science, technology, engineering, arts, math). Applying its location and its creativity, Orange County has unique strengths in apparel. The largest apparel manufacturing company in Orange County is the women’s apparel manufacturer St. John Knits. The company made $346 million in revenue and counted 4,000 employees in 2012. Yet, the apparel retailer Tilly’s is a better example. CIT Group and CFA P a g e | 16 Fashion Industry Profile 2014 Their corporate office and distribution center are located in Irvine. Their first retail store was built in Los Alamitos in 1982. Its retail stores are important to the young and active adults. While Tilly’s customers may not all skateboard, surf, or ride motocross bikes, they like to be associated with such “California‐
lifestyle” activities. Wearing trendy activewear or surfwear makes a statement about one’s personality. Tilly’s sells branded merchandise from other California‐focused companies such as Volcom, Quiksilver, O’Neill, and Hurley for men, women, and children. In August 2013, it operated 146 stores in 20 states that also sell accessories and different brands of sandals. Offering one of the largest assortments of brands and merchandise allowed Tilly’s to become an expert in inventory control, and to benefit more certainly from any peculiar shift in fashion trends. Conclusion The key to success for California companies is to be a step ahead of the fickle fashion curve. It twists and turns quickly in both the contemporary and the activewear sectors. The Southland’s strength in these two sectors is a shining testimony to its living environment. And to the creative design talents who flock here to enjoy the weather. CIT Group and CFA P a g e | 17 Fashion Industry Profile 2014 Los Angeles and New York – Friends or Foes? Two areas in the United States claim to be centers of fashion year‐round: New York and Los Angeles. L.A. (including Orange County) has a claim to be the leader in contemporary wear, activewear, and surfwear. New York is strong in women’s outerwear, tailored clothing, and high fashion. L.A. has developed fast fashion, while New York does not have L.A.’s manufacturing cluster. Both areas are facing various cost pressures and trying to survive with design‐based production. New York City is also planning for the future of its Garment District, which it considers “the heart of American fashion.” Just like L.A., New York’s fashion leaders are hungry for good financial models to bring back production to the NYC fashion industry and Midtown Manhattan. Many NYC ideas can be equally compelling inside today's L.A. apparel industry! Editorial: The two areas should stop seeing each other as competitors, but as partners who face the same tidal wave. The future of U.S. apparel manufacturing and the overall vitality of the wholesale sector depend on the health and growth of fashion firms in both Los Angeles and New York. See the table below to appraise job counts in each region: Table 2: Apparel & Textiles Employment – L.A. County vs. New York Primary Metropolitan Statistical Area (PMSA), 2011 L.A. County New York Industry/Impact PMSA PMSA Apparel Manufacturing ‐ 315 37,872 12,227 Apparel, Piece Goods, and Notions Wholesalers – 4,243 33,956 33,423 Textile Mills ‐ 313 5,684 1,419 Total of these three industry codes 77,512 47,069 Apparel wholesaling‐to‐
0.78 2.45 manufacturing ratio: Source: U.S. Dept. of Commerce, Bureau of the Census, 2012 County Business Patterns Fact 1: See Table 2’s low number of NYC apparel manufacturing workers. High rent, expensive entry level costs, no available industrial space within their cluster. All make the casual product not competitive. Any “Made in NY” apparel winds up being a high‐end product. Fact 2: New York has a disproportionate number of apparel export agents. The largest holding companies are there (Hanes, Fruit of the Loom, PVH, VF, etc.). The overall industry in L.A. is bigger. CIT Group and CFA P a g e | 18 Fashion Industry Profile 2014 While getting a precise count of export agents is difficult, a comparison of apparel and textiles employment in Los Angeles County and the eight‐county New York PMSA shows New York has relatively more jobs in apparel wholesaling. This leads to a much higher wholesaling‐to‐manufacturing ratio. Wholesaling activity is trade related. Job strength in NYC wholesaling is an indirect way of showing the relative strength of New York in trade‐related services for apparel. One of the reasons for the big trade‐
related job count is historical: New York has more headquarters of large multi‐national apparel firms. New York City is not resting on its laurels Mayor Bloomberg has worked hard on behalf of the industry in New York City. He launched Fashion.NYC.2020, a ten‐year plan that has a manufacturing incentive, as well as Fashion Draft NYC and Design Entrepreneurs NYC. Both of the latter programs are geared to cultivating the next generation of talent. However, some have criticized him for not re‐zoning the fashion district. In September 2013, the NYC Economic Development Corporation (NYEDC) and the Council of Fashion Designers of America (CFDA) announced a Fashion Manufacturing Initiative. According to these groups, the NYC fashion industry employs 173,000 people, accounts for 4.8% of the City’s workforce, generates $10 billion in annual wages, and hands over $2 billion in taxes. These groups say the wholesale fashion markets generate $72 billion in wholesale sales for New York City. Half a million visitors come to its stores, showrooms, and stores each year. According to these groups, what are the major challenges faced by New York City‘s apparel manufacturing industry? They have outdated facilities and technology due to a lack of investment in infrastructure; limited opportunities to train workers; and difficulty finding locations to produce. The City of New York pledged $1 million toward this new fund. Theory, and its parent company, Fast Retailing, pledged another $500,000. The funds will be fashioned into matching grants for infrastructure and equipment upgrades, as well as workforce training. Applications to the first year of the program, which starts to dispense funds in early 2014, were made available. Meanwhile, a new mix is brewing here in L.A. The L.A. art scene has exploded in the last few years along with the L.A. fashion scene. The initiative to showcase something unique and “out of the box” is the driving factor in all creative fields in L.A. In fact, many feel that Los Angeles offers designers and artists more creative freedom. In New York, there is already a cemented infrastructure and hierarchy. In a city like L.A., however, emerging and established artists alike have the chance to make it up as they go along.2 2
See Hayley Phelan, “Could Los Angeles Be The Next Fashion Capital,” on Fashionista.com, August 2012. CIT Group and CFA P a g e | 19 Fashion Industry Profile 2014 Hoover’s Summary: Business Segments in the L.A. 5‐County Business Segments In the 5‐County L.A. Area Textiles Manufacturing Revenues ($ millions) Employees (headcount) Rev/Employee ($000) Apparel Manufacturing Revenues Employees Revenue/Employee Apparel Accessories Mfg. Revenues Employees Revenue/Employee Women’s Clothing Mfg. Revenues Employees Revenue/Employee Intimate Apparel Mfg. Revenues Employees Revenue/Employee Men’s Clothing Mfg. Revenues Employees Revenue/Employee Wholesale Sector Revenues Employees L.A. 783 7917 99 L.A. 4,848 Orange 379 San Bern 147 Ventura 75 Riverside 24 Total
933
10,887
86
Total
2157
28,780
75
Total
224
3,161
71
Total
3,061
22,725
135
Total
127
811
156
Total
579
7,297
79
Total
5,473
20,870 1,645 753 344 111 23,723
Orange 110 2518 44 L.A. 1473 16559 89 Orange 671 12077 56 L.A. 146 1,809 81 Orange 67 1,236 54 L.A. 2,531 17,069 148 Orange 2 28 68 L.A. 385 4,726 82 San Bern Riverside 3 35 Ventura 9 104 90 Riverside 0 0 San Bern 8 32 San Bern 2 40 Orange 149 2,095 71 Riverside Ventura 8 81 100 Riverside 6 7 786 Ventura 9 95 91 Orange 519 5,512 94 L.A. 125 783 160 Ventura 13 115 111 San Bern 4 49 78 San Bern 21 330 65 Ventura 6 70 87 Riverside 31 374 Revenue/Employee 232 230 196 219 216 Grand Totals L.A. Orange San Bern Ventura Riverside Revenues ($ Millions) 10,292 1,897 183 120 63 Employees (headcount) 69,733 25,111 1,204 809 520 Rev/Employee ($000) 148 76 152 149 121 Source: Hoover's 2013 (only companies with revenues above $1M are in this database) CIT Group and CFA P a g e | 20 Fashion Industry Profile 2014 231
Total
12,555
97,377
129 L.A. Industry by the Numbers The L.A. apparel marketing business is highly competitive, based on both price and fashion. Small, integrated manufacturers rely heavily on trade shows and personal contacts to market products to merchandise buyers. Larger companies have a sales force. Some manufacturers depend on a few large customers for the bulk of their business. Under supply agreements with larger retailers, companies must depend on their relations to avoid canceling returns and price reductions. Materials typically account for 35% of apparel manufacturing costs. Although a few textiles are bought from a single supplier, most textiles are available from numerous sources. Fabric imports have increased steadily for several years, including large increases from China.3 Several types of manufacturers exist. 


Integrated manufacturers design and market their own clothing brands, and make products in their own manufacturing plants and in those of independent contractors. Most clothing designers market their own brands, but contract out the actual garment production. Licensees operate their own product development facility and market clothing under license from the brand owner. Contract manufacturers may have long‐standing relationships with designers and marketers, or may use brokers to get new business. Contract manufacturers get business on their ability to produce goods on time and at agreed‐upon cost structures. The manufacturer placing the order typically owns and supplies the materials used by contractors. Most Apparel is still sewn using specialized sewing machines. Equipment is typically bought from either Asian manufacturers like Yamato and Juki, or German and Swiss companies. Computer systems have had a limited effect on the manufacturing side of the industry, although computerized machines may be used to produce patterns and cut materials. To compete effectively for the best contracts, domestic apparel manufacturers have moved to greater automation, specialty production, and superior service. The operations of most apparel manufacturers are similar. Designs for a piece of clothing are converted into cloth patterns along with a plan for the sewing steps needed to produce the product. Cloth is cut in various sizes (typically four or six sizes) in a cutting facility, and is then sewn into finished items by individual workers at sewing stations, in a series of assembly‐line steps that may require special sewing equipment. Finished goods are pressed, inspected, and packaged for delivery. 3
Industry Profile: Apparel Manufacturing, First Research, Copyright 2011, Hoover’s Inc., May 16, 2011. CIT Group and CFA P a g e | 21 Fashion Industry Profile 2014 Many manufacturers ccut fabric in th
he United Sta
ates and then ship it overseeas for sewing
g into final ed from the N
NAFTA and CA
AFTA treaties.. Exporting no
on‐Chinese garments. Such operattors benefitte
textiles orr finished app
parel into Chin
na is difficult at best. Machinerry that satisfa
actorily replacces worker's h
hands has beeen elusive. It’ss because of tthe soft nature of the materrials being handled. Some standardized
d articles madde from stiff m
material, main
nly jeans, can
n now be sewn b
by semi‐autom
mated machinery that requires worker s only to posiition the material. Becausee of the differe
ent skills and equipment n
needed to pro
oduce differe nt types of clothing, contrract manufacturers usually develop a sp
pecialty. Overall Em
mployment FFacts A collapsee in apparel m
manufacturing
g and textile eestablishmennts took downn sector emplo
oyment acrosss the 5‐county SSoCal area. Look backk to the year 2
2000–2001. YYou see both apparel man ufacturing an
nd textile mill employmentt started itss decline, spu
urred by a steep rise in ene
ergy costs andd implementaation of NAFTTA and CAFTA
A treaties. FFor the past ten‐plus yearss, the numberr of establishm
ments in both
h apparel manufacturing aand textile mills in this 5‐co
ounty SoCal area declined.. After the 20008 U.S. financial crisis, thee number of b
both types of firms stabilized (somewhatt) at a lower level. See below
w: Apparel M
Mfg.
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Textil es
450
400
350
300
250
200
150
Texitle Firms
Apparel Firms
Numb
ber of Estaablishme
ents in 5‐C
County So
oCal Areaa
100
50
0
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
Source: U.S. County Busiiness Patternss, 2012
When we looked at tw
wo apparel ind
dustry sub‐segments in thee 5‐county So
oCal area during the period
d from 2004
4 to 2011 (the
e North Amerrican Industryy Classificatioon System [NA
AICS] apparel manufacturiing codes 315
5, and appare
el wholesalingg 4243), we fo
ound total em
mployment drropped from 111K workers to 84K workers, a decline
e of ‐25%. The
e average num
mber for esta blishments in
n the 5‐countty SoCal areass for CIT Group
p and CFA P a g e | 22 Fash
hion Industry y Profile 2014
all industry groups was around 6,400 firms. This implied that an “average” L.A. regional apparel firm is small. The average one employs 13 to 15 workers. 110,000
15,000
100,000
14,000
13,000
90,000
12,000
80,000
Textile Mills, 11,000
6,700
10,000
70,000
9,000
60,000
Apparel Manufacturing, 45,500
50,000
7,000
6,000
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
40,000
8,000
Textile Employment Apparel Employment Beginning in 2011, Apparel Manufacturing and Textile Employment Stabilized
Year Source: California Employment Development Department
A private set of wholesale and apparel manufacturing data offered up these facts. According to Dun & Bradstreet data drawn in August 2011, the NAICS code 4243 for apparel wholesale jobs in L.A. County proper came in at 29,454 (42% of the cluster). The NAICS for apparel manufacturing came in at 39,382 jobs (58% of the total for the cluster) for a total of 68,836 jobs. What drives individual company profitability? (1) Efficient operations (2) An ability to secure contracts with clothing marketers Small companies can compete effectively with larger ones by specializing in a particular type of apparel manufacturing. The same is true for wholesalers; however, there are genuine economies of scale in apparel manufacturing, for example. As a sewer gets up toward the 500th pair of jeans, the level of expertise keeps rising. In business speak, output per unit of time increases with expertise. Making apparel is labor‐intensive; that causes a company’s profitability to be closely tied to labor costs. Tough competition for these profits is why domestic apparel manufacturers move operations to countries with lower wages. With respect to apparel wholesaling, fewer employees are needed. No scaled‐up production is required. When you count the wholesalers (importers), a large proportion of L.A. County and Orange County apparel firms are very small firms – one to four employees. See the chart on the next page to confirm this. CIT Group and CFA P a g e | 23 Fashion Industry Profile 2014 Further U
Up the Value
e Chain , Litttle in the W
Way of Econo
omies of Scale and Capital Intensityy Exists, as EEvidenced b
by oyee Firms
the Proportion of Small 1‐4 Emplo
Wholesaalers
Apparel M
Mfg.
Textile M
Mills
0
10
20
30
40
50
60
Proportion
n of Firms with
h 1‐4 Employeees (%)
Source: U.S. Ce
S
ensus, 2012 Co
ounty Businesss Patterns
70
Having th
hree activities in one spot iss key. You can
n start a businness in this reegion very easily and very quickly. Fo
or a designer or wholesale
er looking to sstart a busineess – and keep costs down
n – the sprawlling city of Loss Angeles is a very viable choice. Most iimportant is tthe proximityy to apparel m
manufacturerss and the cluste
er of textile faactories. Desiggners based n
near their maanufacturers h
have a clear aadvantage. Th
hey communicate directly with the facto
ory superviso
or and check oon the product. They also save money on transport and shippingg fees, as welll as taxes and
d tariffs. Los Angeles and Orangge County Ap
pparel and TTextile Manu
ufacturing Industry M
Make up:
17% of A
All Manufactturing Firms, 10% of Em
mployees, an
nd 5% of Annual P
Payrolls
20%
15%
10%
5%
0%
Establish
hments
Employees
Annnual Payroll
unty Business P
Patterns, 20122
Source: U..S. Census Cou
Job lossess here are dish
heartening. YYet L.A. is actu
ually doing m uch better coompared to th
he national trrend. While app
parel industryy employment has fallen across the Uniited States, th
he share of em
mployment captured by the L.A. an
nd Orange Co
ounty apparell industry incrreased. In 20002, for examp
ple, L.A. and ounty accoun
nted for a 24%
% share of U.SS. apparel maanufacturing jjobs. In 2011,, this proporttion Orange Co
rose. Over 36% of U.S. apparel man
nufacturing jo
obs were locatted in L.A. or Orange Coun
nty that year;; over merchant whoolesalers weree found here; and almost 6
6% of 18% of U.S. apparel, piiece goods, and notions m
all U.S. textile mill jobss. CIT Group
p and CFA P a g e | 24 Fash
hion Industry y Profile 2014
See below
w: LA and Orange Co
ounty App
parel Indusstry
Share of Total U..S. Employyment ‐ 20011
Apparel Manufa
A
acturing
Apparel, Piece Goods, aand Notions M
Merchant
Wholesalers
Texttile Mills
0%
5%
10% 15% 20%
%
Source: U.S. Dept. of Comm
merce, 2012 Co
ounty Busines s Patterns
25%
30%
35%
40
0%
Many form
ms of L.A. em
mployment in a
apparel fall o
outside the thrree broad cattchall categorries. For examp
ple, L.A. appaarel industry e
experts countt 1,050 indeppendent fashio
on designers operating so
olo; another 2
2,771 workerss are employe
ed in their ind
dependent shhowrooms; an
nd then 1,240
0 textile reps and another 8
865 home‐bassed agents an
nd brokers are
e out workingg on commisssion. Anotherr bucket of L.A
A. workers ccan be found in a range of ancillary activvities like pacckaging, labelling, and otheer support rolles (220 posittions); in custtom compute
er programming (69 positioons); in fulfillm
ment supportt services to imports (1
1,100 position
ns); in consulting services (130 positionns); in commeercial rental (2
240 positionss); and in spe
ecialized local freight (560 positions). There are arouund 750 appaarel educatorss teaching in 21 different institutions in
n the five cou
unty area, too
o. The subseq uent table su
ummarizes. Related Industry Segme
ents Independ
dent Fashion Designers Independ
dent Showroom
ms Textile Re
eps Home‐based Agents/Brokers Outside SServices Technology Fulfillmen
nt Labor Com
mpliance Equipmen
nt Leasing Educatorss Distribution Grand Totals # Of Employe
ees 1,050 2,771 1,240 865 220 69 1,100 130 240 750 560 8,995 # Of Esstablishments
1,050 (contracted consultantss) 888 (all categgories) 1,240 (wholesale trade agentss & brokers) 517 (no officee address) ng, labeling, su
upport) 55 (packagin
22 (custom ccomputer proggramming) 12 (support services to imports) ng services) 4 (consultin
4 (commerrcial rental) 21 (teacherss and administration 6 (specialized local freight) 3,819
Source: Calif
ifornia Fashion A
Association surveey, 2011 CIT Group
p and CFA P a g e | 25 Fash
hion Industry y Profile 2014
Including these activities means adding 8,995 workers operating in 3,819 establishments. This takes the overall jobs tied to the fashion industry to 125,000 workers. And the number of total establishments is likely to be close to 10,000. But remember this: 31,244 of those jobs are not in apparel, textiles, and wholesale; they are in jewelry, cosmetics, footwear, and design, etc. Significant numbers of contract workers are not captured by official surveys. With rising worker’s compensation and health insurance costs, some may think employers might be tempted to hire contract workers instead of having them on permanent payrolls. The reality is far more complex. Many workers, especially those who are fast and skilled, constantly look for better opportunities among different contracting firms for additional compensation. As a result, the workforce is very fluid in the cut‐and‐sew section of the apparel industry. Under these circumstances, benefits such as employer‐financed (wholly or partially) health insurance programs are difficult to manage. Job counts are no easier to capture. Contract workers cannot work from their homes. Home sewing is only allowed for craft items like household‐used knitting and pillows. Retailers face fines under Federal law if they buy sewn apparel from home sewers. The practice of using home labor for commercial apparel manufacturing is illegal because power sewing machines are dangerous to children. Contractors who give work to home labor lose their license and machinery. Wholesaler, Manufacturing, and Textiles Employment Data show us a genuine cluster exists in Los Angeles County! Locating near other firms offers the chance to gain free information often, an ability to share paid resources, and to keep design trends up‐to‐date. In recent years, L.A. County accounted for 91% of the apparel manufacturing employment and 81% of wholesale merchant employment in the 5‐county area. The apparel industry (excluding retailing) is one of the larger industries in the Los Angeles 5‐county area. Los Angeles County has the largest job count. Orange County is a distant second at 8.5% of regional apparel manufacturing jobs. Orange County has held steady as a proportion of regional jobs over the years going back to 2004, due to the acceptance of the surfer style. L.A. has a classic manufacturing cluster surrounding the Fashion District of Downtown Los Angeles. In the case of Orange County, the industry is spread out. CIT Group and CFA P a g e | 26 Fashion Industry Profile 2014 Los Anggeles Coun
nty Has 90
0% of Appaarel Manuffacturing Jobs in tthe Region
n
100%
95%
Ventura
90%
San B
Bernardino
85%
Riverrside
Oran
nge County
80%
Los A
Angeles
75%
2004
200
05
2006
2007
2008
2009
2010
201 1
Source: U.S. Censu
us, 2012 County Bunsiness Paatterns
Wholesale apparel datta Defining a
a wholesaling
g job is as mucch about wha
at it is not, ass what it is: 



No design N
No manufactu
N
ring No production
N
No technical sp
N
pecs. Just activiity involved in
n the purchasse and re‐sale
e of completeed apparel. Wholesale
e apparel merchant jobs aare somewhatt more disperrsed within th
he five countyy areas. Ventura, San Bernaardino, and Riverside Coun
nties claimed about 5% of apparel wholesale numbeers. In recent years, Oraange County cclaimed 14%.. One‐stop wholesale hu
ub activity keeps growing tthe L.A. Counnty share. I noted on
ne fresh chan
nge versus two
o years ago: tthe port’s Alaameda corrido
or has been aadding hundreds of wholessale jobs arou
und San Bernaardino Countyy’s teeming w
warehouse deepot. See the ch
hart on the ne
ext page. It w
will confirm Saan Bernardinoo’s relative grrowth in the 5
5‐county areaa wholesale
e apparel biz tthese last two
o years. Asia trade flows m
matter. CIT Group
p and CFA P a g e | 27 Fash
hion Industry y Profile 2014
Los A
Angeles Cou
unty and SSan Bernarrdino Coun
nty Have Bee
en Growing Their Share of Appaarel Whole
esaling Job
bs
100%
95%
Ventura
90%
San Bern
nardino
85%
Riversidee
80%
Orange C
County
75%
Los Angeeles
70%
2004
200
05
2006
2007
2008
2009
20010
2011
Sourcce: U.S. Censuss, 2012 Countyy Business Pattterns
Apparel m
merchant who
olesaling in L.A. County rem
mains a cycliccal business. R
Revenues gro
ow with the o
overall strength in the U.S. eco
onomy, slip b
back when it d
declines, and recover alon
ng with the reest of retail saales. Apparel w
wholesale jobss grow in a lo
onger term “sttructural” moode, as well aas in a “cyclica
a”’ way. Overr the last eight years in the 5
5‐county areaa, wholesalers added +8,7000 jobs in eigght years. Thaat’s a rate of aabout holesaling job
bs a year for tthe region. W
When an econoomist uses th
he word strucctural, it impliies +1,100 wh
more permanent “longg‐term” changge, as oppose
ed to cyclical,, when industtry volumes m
move with thee business ccycle. The structural part is related to the growth of f internationaal trade. Wholesaliing employment benefits ffrom both import and expport activities.. Small lot job
bbers are tuned into the faastest growth
h end marketss, i.e., speciallized retailerss selling conteemporary wo
omen’s clothees. Demand is mostly regional – in Califfornia and Western statess – but there iis a substantial national an
nd onal traffic. L.A.’s large locaal market is o
one reason w hy apparel‐w
wholesaling firrms continue to internatio
prosper, e
even as L.A. C
County appare
el manufacturing and text ile employmeent declines d
dramatically.
Third‐partty logistics (3PLs) are anotther source off L.A. County jjobs for this iindustry4. The very ggeography off L.A. and its p
proximity to A
Asia creates aa natural driveer of growth in the industrry. Shipmentts from Asia are weeks fastter to Long Be
each than to the East Coasst. This offerss better liquid
dity to an appare
el manufacturrer through faaster inventory turns. Furthermore, a growin
ng number of apparel companies from aaround the U
United States are using 3PLLs ntainers, breaak them dow n, and then d
do the type off prep work based in LL.A. These 3PLs receive con
normally done in the ccompany’s ow
wn warehouse
es (i.e., hang ttags, garmen
nt bags, hangeers, and re‐
olesale custom
mers. Very oftten the 3PL h
has access to tthe companyy’s boxing). TThen, they shiip to the who
internal in
nventory man
nagement and
d electronic d
data interchannge (EDI) systtems, makingg the process a 4
Attributed to Eric Fisch,, Vice Presiden
nt, Commercial Banking and SSr. Apparel Anaalyst, HSBC in Los Angeles, CA. CIT Group
p and CFA P a g e | 28 Fash
hion Industry y Profile 2014
seamless one. These sh
hipments are
e booked as re
evenue for thhe wholesalerr, wherever th
hey may be But they contrribute directly to the appaarel industry i n L.A. located. B
A concenttration of trad
de facilitatorss in the immeediate L.A. areea – customs brokers, freig
ght forwarderrs, and tradee attorneys – m
make interacction with the 3PLs easier ffor Los Angelees–based imp
porters. The nearb
by Mexican m
maquiladoras (or maquilas)) apparel ope rations have improved in terms of quality and labor force skills in
n recent yearss. They are also a source foor apparel co
ontracting. One’s initial inclination
n would be th
hat this arranggement has ddrained jobs in SoCal. In many cases it iss the opposite. These lower‐‐wage appare
el jobs would have otherw
wise gone to A
Asia, not California. What tthe maquilas have fostered
d is growth in
n wholesaler jjobs in SoCal.. Because of tthe mechaniccs of the duty‐free ds to originatte in the Unite
ed States, havve value addeed in Mexico,, and then retturn program ((product need
to United States), appaarel companie
es located in the rest of thhe country do
o not utilize it as efficientlyy as the cross‐‐border entities. This helpe
ed to foster growth in SoCal wholesalerrs. 5‐Countty SoCal W
Wholesale A
Apparel Jo
obs Are Still Off Theirr 2008 Pree‐crisis Peaak
50000
448885
40000
33358
35351
2004
2005
3
37515
38039
2006
20
007
415777
42902
42076
2009
2010
2011
30000
20000
10000
0
20008
Sourcce: U.S. Censuss, 2012 Countyy Business Pattterns
n Bernardino C
County showeed a modest iincrease in th
he number of Over this cycle, L.A. County and San
g wholesale firrms. operating


The cyclicaal peaks are still behind us. At the indusstry’s peak in 2008, 35,317
7,600 workerrs at 3,593 firms were busy iin L.A. Countyy apparel whoolesaling. In 22011, that number slid to 33,956 job
bs at 3,596 firms. In 2008, Orange Countyy had 7,909 w
wholesaling joobs at 363 firm
ms. In 2011, tthat number sslid obs at 360 firm
ms. to 5,951 jo
CIT Group
p and CFA P a g e | 29 Fash
hion Industry y Profile 2014

But the strructural change is obvious. At the indusstry’s peak in 2008, San Beernardino had
d 791 wholesalin
ng jobs at 89 ffirms. With grrowth of globbal apparel traade and use o
of the triple‐ttrack Alameda rail corridor, n
numbers grew
w to 1,310 whholesaling job
bs at 92 firms in 2011. Wholesalee apparel acttivity across C
California's counties is more
re dispersed thhan apparel m
manufacturin
ng. See the su
ubsequent ch
hart to confirm
m: Apparel, P
Piece Goodss, & Notionss Wholesaler Jobs in Callifornia are Mostlyy Located in
n LA County, Though Disstribution is Spread Thrroughout the
e Southland
d
Marin, CA
124
Fresno, CA
139
San Joaquin, CA
162
Santta Clara, CA
215
Contraa Costa, CA
245
Rivverside, CA
319
San Mateo, CA
322
V
Ventura, CA
540
San Fraancisco, CA
778
San Bern
nardino, CA
1,310
Allameda, CA
1,557
San
n Diego, CA
1,912
O
Orange, CA
5,9
951
Los A
Angeles, CA
33,956
0
5,000
10,000
1
15,00
00 20,000 2 5,000 30,0000 35,000 40
0,000
Source: U.S. Census Countty Business Paatterns, 2012
CIT Group
p and CFA P a g e | 30 Fash
hion Industry y Profile 2014
Apparel M
Manufacturin
ng Data In 2011, LL.A. County ap
pparel manuffacturing jobss came in at 337,872 workerrs at 2,465 firrms. Over the llast decade and more, L.A. County appaarel manufaccturing saw bo
oth jobs and establishmen
nts cut in halff. In Los Ange
eles County, the peak for apparel manu facturing activity came wiith 105,300 jo
obs scored in 1996. The pe
eak for L.A. Co
ounty apparel manufacturring establishm
ments came ttwo years later in every consecu
utive year, booth the L.A. County job and
d establishmeent 1998 at 5,,300 firms. Since then, in e
counts haave fallen. Increasingly, the
ere have been
n consolidatioon and restru
ucturing efforrts. Appare
el Manufaccturing 3115: L.A. Co
ounty Cleaarly Leads the Way in
n Californiia
San Mateo
Marin
Ventura
Sacramento
San Bernardino
Sonoma
Alameda
A
Saan Diego
San FFrancisco
Orange
Loss Angeles
36
6
80
0
12
29
14
40
19
93
337
352
965
9
1691
3513
40000
35000
30000
25000
20000
15000
10000
0
5000
377872
So
ource: US Censsus, 2012 Coun
nty Business Paatterns
Apparel M
Manufactu
uring 315 Jobs In L.A. County aare in Small Firms (1‐4, 5‐9 & 10‐19 Employees)
1400
1200
1000
800
600
400
200
Sou
urce: U.S. Censsus, 2012 Coun
nty Business Paatterns
CIT Group
p and CFA P a g e | 31 Fash
hion Industry y Profile 2014
1000 or more
500 999
500‐999
250‐499
100‐499
50‐99
50 99
20‐49
10 to 19
5 to 9
5 to 9
1 to 4
0
Textiles Mill Data Textiles mills in Los Angeles County performed under similar stress over the last decade. The 2011 data put this sub‐segment at 5,684 jobs and 220 firms. Again, this was a cut of more than half. Textiles mill employment in L.A. County reached its peak in 1998–1999. At that time, the L.A. mills offered 14,300 jobs at 510 firms. Wages and Earnings Paradoxically, the average level of wages increased in recent years. More highly skilled specialty jobs remained in the U.S. factories, while lower‐skilled, lower‐paying jobs moved offshore. The annual performance of wages and earnings in L.A. County offers a good vantage point. Since 2000, U.S. Census data show apparel manufacturing workers have taken home rising weekly earnings in L.A. County. In 2011, an average apparel manufacturing worker is making over $620 a week. In 2000, that same worker earned $380 a week. Putting in 40 hours each week in today’s L.A. County means L.A. County cut and sew apparel manufacturing jobs pay around $15 for one hour's worth of work. In 2011, apparel wholesalers earned close to $980 a week. This runs close to $25 an hour. In 2000 in comparison, apparel wholesalers operating successfully in L.A. County pulled in $650 a week offering the same labor hour. A cyclical recovery in wholesaling wages since 2008 shows up in data. The subsequent chart shows the relentless upward wholesaling increase . . . quite clearly! L.A. County Average Weekly Wages: Apparel Wholesaling Pays Much Better
Apparel Mfg.
Apparel Wholesaling
2011
2010
2009
2008
2007
2006
2005
2004
1100
1000
900
800
700
600
500
400
300
2003
Average Weekly Wage ($)
Textile
Source: U.S. Census, 2012 County Business Patterns
Could higher‐paying wholesaling jobs be masquerading as apparel manufacturing jobs? The Bureau of Labor Statistics in May 2011 put the national average for apparel manufacturing jobs at $11.69 an hour, versus the $15 an hour we calculated from the government data for L.A. County. That’s a notable difference. CIT Group and CFA P a g e | 32 Fashion Industry Profile 2014 Cheaper fforeign hourlyy labor costs fforced L.A. Co
ounty manufaacturing and ccontracting fiirms to form relationsh
hips with outsside suppliers. Most L.A. firms source in China. Butt they also source in counttries such as, Vietnam, Meexico, India, SSouth Korea, Lattin America, aand Indonesiaa. Why? Because in this region, the remainin
ng L.A. appare
el manufactu ring and texttile mill emplo
oyment opportunities have beccome increassingly specialized. Additionnal workers arre surrounded by better p
paying jobs in service industries. These two
o effects have
e been seen aacross the Un
nited States economy in all regions. FFinally, increases in minimu
um wages have been impl emented, forrcing up the rrest of hourly pay scales witth it. California’s minimum wage goes frrom $8 to $9 per hour effeective July 1, 2014, and fro
om $9 to $10 per hour effe
ective January 1, 2016 (approved by Goovernor Brow
wn on Septem
mber 25, 2013
3). more President Obama is saiid to be in favvor of legislattion to raise t he federal minimum wagee to $10.10, m
than the $
$9.00 he originally proposed.
The follow
wing two charrts provide ad
dditional factss on the overaall strength oof L.A. Countyy apparel indu
ustry wages and earnings. First, the ttotal L.A. Cou
unty apparel w
wage bill: Tottal Wages o
of L.A. Cou
unty Apparel Industrry
Total Annual Payroll ($'000)
Textile
Apparel Mfg.
Apparel W
Wholesaling
$3,5
500,000
$3,0
000,000
$2,5
500,000
$2,0
000,000
$1,5
500,000
$1,0
000,000
$5
500,000
$0
03
200
2004
2005
2006
2007
20008
2009
2010
201
11
U.S. Census , 2
2012 County B usiness Patterrns
Source: U
CIT Group
p and CFA P a g e | 33 Fash
hion Industry y Profile 2014
Second, L.A. County ap
pparel wage d
data is shown
n as the perceent of all L.A. County privatte industry: L.A. Countty Apparell Industry TTotal Wages (as Percen
nt of All Prrivate Indu
ustry Wagees)
2011
2010
2009
2008
2007
2006
2005
2004
2003
1.90%
%
1.85%
%
1.80%
%
1.75%
%
1.70%
%
1.65%
%
1.60%
%
1.55%
%
1.50%
%
1.45%
%
1.40%
%
Source: U
U.S. Census, 20
012 County Bussiness Patterns
The 2008 financial crisis left the app
parel industryy in a weaker place in the ooverall L.A. in
ndustry landsccape. In particular, the manu
ufacturers of apparel and ttextiles are noot recoveringg as rapidly ass the wholesaalers. One mustt also conclud
de that the job losses at the manufactu ring level did not recover, due to the lo
ong‐
term structural issue o
of global sourccing, higher e
energy costs, and heavy go
overnment reegulation. One Facto
or Helping a LLot? L.A. Hold
ds a U.S. Costt Advantage. The Bureaau of Labor Sttatistics (BLS) Quarterly Ce
ensus of Emp loyment and Wages (QCEW
W) offered th
hese salary insiights on the tthree sub‐industries: 1. Using Q1‐11 data, L.A. Coun
nty textile mill jobs paid $228K a year. O
Orange Countyy jobs paid 24K a year. Nationally, succh jobs paid $
$30K a year. $2
2. Apparel manuffacturing jobss: L.A. Countyy paid $24K a year and Oraange County paid $27K a year. Nationaally, “cut and sew” jobs paaid $24K a yeaar. 3. L..A. County wh
holesale appaarel jobs: Theyy paid $46K aa year. Orange County jobss paid $5
57K a year. Nationally, wh
holesale apparel jobs paid $52K a year. Los Angeles County has kept a natio
onal cost advaantage in all tthree major aareas of the aapparel industtry. Angeles region
n is a simply aa cheaper placce to hire appparel and texttile workers. The Los A
See the su
ubsequent ch
hart for a sum
mmary comparing L.A. Counnty and U.S. p
pay: CIT Group
p and CFA P a g e | 34 Fash
hion Industry y Profile 2014
Showing Los Angeles County has a cost advantage, U.S. worker pay levels are higher in all three apparel industries US Pay
LA Pay ($000)
Apparel, piece goods, and notions
merchant wholesalers
Apparel manufacturing
Textile mills
0
10
20
30
40
50
Source: BLS (QCEW)
60
Looking for a Take on Pay in High‐End Jobs Across the U.S. Fashion Industry in 2013? Consider 24 Seven, Inc.’s 2013 Salary and Job Market Report. Their 4,000 respondents came from all across the United States. Big firms were well‐represented in this survey: 42% of people worked in apparel and footwear firms of greater than $500 million in sales; 11% in firms with $250 million to $499 million in sales; 19% in firms with $50 million to $249 million in sales. Small firms are less well represented: 18% of respondents came from firms of $5 million to $49 million in sales. Just 10% came from firms of $5 million in sales or less. Small firms are the bread and butter of L.A.’s entrepreneurial apparel industry. Their 4,000 respondents fell into the following categories: 34% Design & Technical Development 15% Sales & Marketing 12% Planning and Merchandising 10% Store Level & Field Retail 9% Production/Sourcing & Product Development 7% Marketing/Creative 4% Corporate Retail 4% E‐Commerce 3% Wholesale 2% Operations/IT 1% Research & Development 1% Retail Environment Design & Architecture Source: 24 Seven, Inc., 2013 CIT Group and CFA P a g e | 35 Fashion Industry Profile 2014 



74% of respondents were female. 72% were Generation X. 65% were not managers (22% called themselves freelancers); 29% were managers. 64% worked in fashion/apparel/footwear/accessories; 34% worked in retail. The median fashion and retail salary at U.S. companies surveyed was $68,000. In Los Angeles, specifically, here are a few sample titles and their 2013 salaries: Creative Director – $152,143 Design Director – $125,111 Associate Designer – $45,330 EVP Sourcing – $172,000 VP Merchandising – $186,250 E‐Commerce Manager – $107,929 Store Manager – $74,908 VP, Supply Chain – $211,944. The Winner! Pay tells a whole lot about what matters in L.A. today. Indirect Impacts Like all industries, the real economic impact of the apparel and textile industries goes beyond the immediate jobs in these industries and the paychecks they generate. For every job created, there are multiplier effects in terms of either earnings or additional jobs. When a worker takes home a paycheck, he spends a portion of it. Part of his or her spending becomes other people’s income, and they in turn spend a portion of what they make. Different industries have different average indirect effects on earnings, which are indicated by earnings “multipliers.” The differences come from the different spending patterns of workers in various industries. For instance, a highly educated computer engineer may make a lot of money but also invest a large portion of his earnings, while a factory worker may be forced to spend most of his income. Their purchases are also different, and that means their spending in effect goes to different people who spend their incomes differently, and so on. Therefore, different industries in different regions have different multipliers for earnings. Using L.A. County’s multipliers, one can see the real impact on earnings almost doubled for the industries in this report. While the direct, documented payroll in apparel and textiles in 2011 was $3.4 billion, it generated a majority of the $3.0 billion in indirect earnings and thus accounted for a majority of the $6.4 billion in total earnings. This means that if all the jobs under this analysis went away, L.A. County would lose 90% of $6.4 billion in total income for its population. And this does not include the incremental 10% of well‐paid workers in other apparel functions outside these three NAICS codes. CIT Group and CFA P a g e | 36 Fashion Industry Profile 2014 At the 5‐county metro area in 2011, we estimated direct and indirect earnings totaled $6.4 billion5. Table 3: Direct & Indirect Apparel/Textiles Earnings in 5‐County SoCal Area, 2011 (Total change in household earnings due to change in apparel manufacturing earnings, in U.S. dollars) Industry/Impact Direct Indirect Estimated Total Apparel Manufacturing ‐ 315 $1,101,746,000 $1,258,084,000 $2,359,830,000 Apparel, Piece Goods, and Notions Wholesalers ‐ 4243 $2,127,641,000 $1,487,647,000 $3,615,288,000 Textile Mills ‐ 313 $213,404,000 $204,078,000 $417,482,000 Total of these three industry codes $3,442,791,000 $2,949,908,000 $6,392,600,000 Note: Earnings multipliers include the original earnings. Overall wholesale multiplier used as substitute for apparel wholesaling. Sources: Earnings and jobs – U.S. Dept. of Commerce, Bureau of the Census, 2012 County Business Patterns. Looking at the issues in terms of jobs is another way of determining the total impact of the apparel and textiles industries. The documented employee count in these three NAICS codes was 91,097 in 2011. Their earnings and spending generated another 82,548 “indirect” jobs for the region. The total 5‐county employment impact was around 173,645 jobs – not a small number by any measure. Table 4: Direct & Indirect Apparel/Textiles Jobs in 5‐County SoCal Area, 2011 (Total change in number of jobs due to change in jobs in apparel manufacturing) Industry/Impact Direct Indirect Estimated Total Apparel Manufacturing ‐ 315 41,848 35,984 102,348 Apparel, Piece Goods, and Notions Wholesalers – 4,243 42,076 41,432 41,022 Textile Mills ‐ 313 7,173 5,130 15,614 Total of these three industry codes 91,097 82,546 158,984 Note: A two‐digit wholesale multiplier was used as substitute for apparel wholesaling. Sources: Ibid. 5
Earnings and jobs estimates for the 5‐county Los Angeles area derived from LAEDC multipliers, 2011. CIT Group and CFA P a g e | 37 Fashion Industry Profile 2014 At the 5‐county metro area, in 2011, with 8,995 additional support jobs outside these three NAICS codes, and a rough 1‐to‐1 multiplier for them, we estimated total employment impact at 191,635 jobs. A Demographic Profile of Apparel Manufacturing Workers In 2012, according to the U.S. Census, Los Angeles County has the largest Hispanic population of any U.S. county. It stood at 4.8 million. It saw the largest annual numeric increase at 55,000. L.A. County has 9.88 million people. That means Hispanics make up 49% of the county’s population. Demographic data from Census 2000 provide a glimpse into the apparel‐manufacturing sector. (Census 2010 data are still not available.) Unfortunately, we are unable to distinguish between apparel “manufacturers” and “contractors,” who do most of the actual production work. Most data being discussed here are likely from apparel‐manufacturing contractors. 

Hispanics (81%) and Asians (16%) dominate the ranks of production workers. Roughly two‐thirds are women. The results from the Census’s 5‐Percent Public Use Micro data Sample (5% PUMS) for the Los Angeles 5‐
county area affirm some of the perceptions about the apparel manufacturing industry. Most industrial workers did not complete high school and do not speak English proficiently. Random studies show that three‐quarters are non‐citizens but may have permanent residency status and thus employment authorization. They work, on average, 40 hours per week. In the apparel industry, even technical personnel – a list that includes engineers, computer programmers, and mechanics – are still dominated by minorities. But they have a higher educational attainment. For comparison, consider the demographics of the following: Designers and Researchers: 31% are Hispanic, 64% have a college degree. Just 22% are non‐citizens. Managers: 18% are Hispanic, 52% have a college degree. Just 25% are non‐citizens. CIT Group and CFA P a g e | 38 Fashion Industry Profile 2014 The Visa Debate California’s $43.5 billion agriculture business is the nation’s largest. It accounts for 15% of total U.S. receipts for crops. The state’s 80,000 farms and ranches employ 380,000 people. A U.S. Senate bill would scrap the unpopular H‐2A Temporary Agricultural Worker (migrant worker) visa and create a new “W‐visa,” under which at least 336,000 guest workers could come to the United States to work. Thousands of undocumented workers could also apply for “Blue Cards” to obtain legal status quickly, and later seek Green Cards to become permanent residents and eventually become naturalized citizens. The Senate bill also proposes a special employer‐verification system for agricultural employers separate from the E‐Verify system other industries would have to use. No one in the negotiations has disputed that the current farmworker visa system is inefficient and prone to abuse. Apparel and textile manufacturing in the SoCal area face a similar situation. Leaders from the United Farm Workers union seek higher wages. The American Farm Bureau Federation, representing farmers, seeks to expand the number of visas. Most seasonal California farmworkers are Hispanic men. Most apparel‐manufacturing workers are Hispanic women. That sounds like a natural fit, uniting a Mexican family structure with dual incomes. Seventy‐three percent of California’s Agricultural workers are non‐citizens – the highest in any state. A majority of them are undocumented workers. About half of the nation’s migrant farmworkers do not hold visas or work permits, according to the Department of Agriculture. Barely 6% are hired through the current agricultural visa system (the H‐2A) because growers find the process cumbersome and unreliable. This immigration debate could be expanded to include the interested parties in the apparel and textile manufacturing business. The immigration reform bill could implement apparel visa laws akin to those in the agricultural industry. These allow migrant workers to live and work in the United States on a visa basis. If that were to happen, the L.A. apparel and textile industry work force could rise to +5% growth a year. And finally, consider this: in 2009, the U.S. Department of Homeland Security instituted further rules. The I‐9 ruling requires the firing of experienced sewers and cutters without proper documentation. If Social Security numbers don’t match, the authorities can fire workers. American Apparel lost 1,400 workers in one day. No industrial training program is in place for companies to hire unskilled unemployed workers to replace them. CIT Group and CFA P a g e | 39 Fashion Industry Profile 2014 Labor Burdens: A Barrier to Job Growth The L.A. apparel industry of today greatly improved working conditions from ten years ago. Most of the industry’s biggest profits earned via strong brands that stand for quality. There is a huge incentive to closely monitor all workplaces. Many U.S. brands and companies in the apparel, footwear, and toy industries, have created codes of conduct for suppliers. Yet, the apparel and footwear industries have been creating an ever‐expanding production chain, amounting to a global web of contractors and sub‐contractors. Labor abuses are difficult to police. In an attempt to prevent labor exploitation, the State of California has labor regulations that specifically target the apparel manufacturing industry: Assembly Bill 633. The concept of “joint liability” became law in 1997, making the brand‐carrying manufacturers equally responsible for wage and hour issues within their contractor’s shops. This is meant to force manufacturers to monitor their contractors more closely. Beginning in 2003, manufacturers also became liable for the worker’s compensation payments of their contractors. Is there a positive consequence? Retailers feel safer using California manufacturers. On the other hand, these two laws make manufacturers more sensitive about having production done in California. Some factories went underground (i.e., not registered with the state). However, this doesn’t mean all such factories exploit their workers. Workers can still report any labor violations to the proper authorities. What’s the net result of burdens? Manufacturers can only produce the higher‐margin lines in California. These are typically the small quantity, quick‐turn garments. There may still be undocumented workers exploited by rogue contractors. However, this is not a problem for just the apparel industry; it’s a general social problem that covers other labor‐intensive manufacturing, service, and construction sectors. CIT Group and CFA P a g e | 40 Fashion Industry Profile 2014 Merchand
dise Prices For two decades, the aapparel industry has had to
o do battle w
with falling pro
oduct prices. Falling averagge ector are delivered by shiffting productiion to lower‐ccost locales, cchanges in prices in tthe apparel se
retailing, and a general acceptance of a more casual appeara nce for both workplace an
nd social occasionss. More and
d more appare
el has been so
old at value rretailers (e.g.,, Wal‐Mart an
nd Target) and “wholesalee clubs” (e.gg., Costco and
d Sam’s Club)). Mid‐income
e consumers have becomee more value‐‐oriented in recent years, and disco
ount chains upgraded their offerings too attract this h
huge segment of the on. In some caases, chain sto
ores licensed designer braands and havee taken over m
manufacturin
ng populatio
responsib
bilities (Tomm
my Hilfiger/Maacy’s; Liz Claib
borne/JCPennney). Now, so
ome once‐hott designer braands are available at very lo
ow prices thro
ough these sto
ores. In 2010 an
nd 2011, the apparel make
ers experiencced rapid rise s in commodity prices succh as cotton aand linen. The
ese raw material costs werre passed on tto consumerss whenever th
hey hit the reetailers, and w
when consumerrs could accep
pt the higher costs. Re
etail App
parel Pricces in Lo
os Angelles
4%
3%
2%
1%
0%
‐1%
‐2%
‐3%
‐4%
‐5%
2002
2
2003
2004
200
05
2006
2007
2008
2009
20010
2011
2012
Source; U.SS. Dept. of Lab
bor, Bureau of Labor Statisticcs
The follow
wing chart sho
ows an explossion in cotton
n prices. California stands as one of the world’s biggest exxporters of cootton. At onee point in 2011, cotton pricces in dex terms, up
p from a long ‐term averagge at 100%. Affter this hugee run‐
export maarkets stood aat 250% in ind
up, a rapid cooling too
ok over. Cotto
on’s price headed down in the first half of 2011. CIT Group
p and CFA P a g e | 41 Fash
hion Industry y Profile 2014
In 2011,Cotton Export Indices Surged
400
350
300
250
200
150
100
50
2006
2007
2007
2007
2007
2007
2007
2008
2008
2008
2008
2008
2008
2009
2009
2009
2009
2009
2009
2010
2010
2010
2010
2010
2010
2011
2011
2011
0
Source: U.S. Dept. of Labor, Bureau of Labor Statistics
Cotton prices have now fallen all the way back to $0.86 cents per pound in August 2013, close to long‐
term levels seen before. A year from now, the cotton futures market sees $0.81 cents a pound, or even less. Cotton prices spiked to $2.30 per pound in 2011 because of a bad crop brought on by inclement weather in key regions. In addition to this spike, consider the effects of oil price spikes. They boost prices for apparel raw materials such as nylon and polyester. Raw materials make up a small cost fraction in a finished garment. But when price moves are strong, they are felt. Cotton prices had a major impact on the textile industry. Toward the end of 2011, many wholesalers realized their impact, too. They had committed to purchasing cotton months earlier, when cotton prices were highest. The run‐up made textile mills in Asia more conservative. They forced wholesalers to pre‐
pay for cotton. More recently, many retailers have requested price reductions to mirror reductions in cotton prices. This pressured wholesalers once again. The combination of these factors can cause both profit margin and cash flow issues for them. In the following two charts, we show the Textile Mill and Apparel Manufacturing Producer Price Indexes (PPIs). PPIs measure the average change, over time, in wholesale selling prices received by domestic producers. Higher cotton prices showed up in textile producer's price indexes. From 2010 to 2011, Textile Mills increased prices from 115 to over 130 in textile PPI index terms. That’s a +13% increase. Previously, textile prices increases had floated around +2% to +4% annually. In 2012 and 2013, when the price of cotton fell, textile mills lowered finished product prices by between ‐2.6% and ‐0.6% each year. See the subsequent chart: CIT Group and CFA P a g e | 42 Fashion Industry Profile 2014 Annual Index Change (2004=100)
Prod
ducer Price
e Indexes ((PPI) for Teextile Millss Show P
Pass‐Through of the 2
2011 Cotto
on Price Sp
pike
16.0
0
14.0
0
12.0
0
10.0
0
8.0
0
6.0
0
4.0
0
2.0
0
0.0
0
‐2.0
0
‐4.0
0
2005
2006
2007
7
2008
2009
20100
2011
2012
2013
3
Source: U.SS. Bureau of Laabor, Bureau o
of Labor Statisttics
What abo
out the Apparrel Manufactu
urer’s PPI? It ccaptures effe cts from passsing on higherr local labor ccosts. Year‐on‐yyear labor increases had be
een close to +
+1%. Little preessure from C
Chinese supp
pliers likely heelped. Then, thiss PPI index piccked up notably in 2011. Annual Index Change (2004=100)
See the su
ubsequent ch
hart: PPI for Apparel M
Manufactu
uring Recent Wholesale
e Apparel Price Increeases Are N
Near the Fed's +2% Inflation Tarrget
2.5
50
2.0
00
1.5
50
1.0
00
0.5
50
0.0
00
‐0.5
50
2005
2006
200
07
2008
2009
20110
2011
2012
201
13
Source: U.S. Bureau of LLabor, Bureau o
of Labor Statisstics
If able, mo
ost U.S. apparel manufacturers pass on
n rising labor costs to custo
omers. But so
ome apparel manufacturers can cutt costs. They rre‐engineer faabric blends, make laces aand trims in‐h
house, and streamline use of embellishments ssuch as appliq
qués, bows, bbeading, and p
piping. A simiilar type of material ssubstitution iss likely at som
me textile mills. They can uuse less expen
nsive textiles and trims. CIT Group
p and CFA P a g e | 43 Fash
hion Industry y Profile 2014
What’s ou
ur final stop o
on the value cchain? Profit m
margins. The chart below shows “Appaarel and Leath
her Products”” profit margins. This marggin marked prrofit at 10% inn the five quaarters up to th
he end of Maarch 2011. At 1
10%, apparel industry pre‐‐tax profit maargins remainn close to averrage U.S. non
n‐durable manufacturing profit m
margins. In co
omparison, Te
extile Mills eaarned a 4% prre‐tax margin. Computer aand Electronicc Products Maakers earned a 23% pre‐taax margin. Percentagge of Profit Per Dollar of SSales Before IIncome Taxess ‐
Apparel and Leather Prod
ducts are Closse to the Oveerall Mfg. Aveerage
12
10
8
6
4
2
0
1Q 2010
2Q 2010
0
3Q 20
010
4Q
Q 2010
1Q 2011
Source: U.S. Census Bure
U
eau
Global sou
urcing of apparel and foottwear production had a staartling effect on U.S. consu
umer prices. The following is a 23‐year ttime series. Itt shows “Clothing and Foo twear” annuaal price increaases. The Fed
deral Reserve B
Bank of St. Lou
uis produces this series. Annual Price Increase
After the NAFTA trade pact in 1994,, global sourccing brought 117 reductionss in U.S. “Clotthing and 8 years. Howe
ever, note thiss: the last twoo years of datta are different. There hass Footwearr” prices in 18
been a change seen in global apparrel markets. N
Now, modest annual price increases aree passed on to U.S. retail consumers. See tthe chart: 5.000
4.000
3.000
2.000
1.000
0.000
‐1.000
‐2.000
‐3.000
‐4.000
U.S.. Clothing aand Footw
wear Annuaal Price Inccreases Show
w the Effects of Globaalization
Source: FRED Databasse, St. Louis Fed
d
CIT Group
p and CFA P a g e | 44 Fash
hion Industry y Profile 2014
Monthly price data at the apparel manufacturing import level is shown below. You can see how ruthless price competition is. The China and Pacific Rim data series moved ‐0.6% and ‐1.3% in 12 months’ time to June 2013. Mexico moved down ‐1.0%. Monthly Apparel Manufacturing Import Price Indexes for China, Mexico, and Pacific Riim
Monthly Price Increase (%)
1.5
China
Mexico
Pacific Rim
1.0
0.5
0.0
‐0.5
‐1.0
‐1.5
Source: FRED, St. Louis Fed
Last but not least, factor in expected exchange rates — they might make a huge difference to sourcing cost. Below is a time series table. It has relevant exchange rates for the L.A. apparel Industry. The path of FX prices shows one important reason why Mexico has been able to build up sourcing traffic. Currency 2000 2005 2009 2013 2014 (Expected Year‐end) Euro (US$ to 1 Euro) 0.9 1.35 1.6 1.36 1.28 China Renminbi (per US$) 8.2 8.2 6.8 6.08 6.01 Mexican Peso (per US$) 9.0 11.0 15.5 13.1 12.5 Sources: St. Louis Fed and Zacks Investment Research, Inc. Expectations data are from a London FX market consensus. Collected in December 2013. CIT Group and CFA P a g e | 45 Fashion Industry Profile 2014 Finance Revenue for many apparel manufacturers is seasonal. Spring and fall are the prime selling seasons. So, manufacturers may finance the contractors who work for them. They make partial payments for shipments as mandated by law. Payments to foreign contractors are often completed via letters of credit. In turn, manufacturers often have financing needs for their receivables and inventory. Banks often assist the larger manufacturers. A lack of equipment finance has been a major issue in Los Angeles. Meanwhile, equipment‐financing needs have decreased in recent years. More manufacturers use foreign contractors. But that’s not the only problem. Due to the loss of the California manufacturer’s tax credit in 2003, brand owners lost a long‐time incentive to finance new equipment for their contractors. Finance availability can keep modernization for local manufacturing at bay. Overall, apparel in the United States remains a challenging business. Net income earned is about 1% of revenues6. Net income is 0.9% for smaller firms. However, strong new business entry figures in difficult economic times provide ample evidence. Sizeable returns are available to L.A.‐based apparel companies. You just need good design ideas, strong management, and well‐crafted business models. In 2009, at the depth of the last downturn, the industry had a +6.9% increase in the amount of apparel‐making companies registered with the California Division of Labor Standards Enforcement, or DLSE. (DLSE Data 2010) On the next page, we break down each California county to determine the share of industry‐wide revenues. We used NAICS industry code 315 for apparel manufacturing and NAICS industry code 313 for textile mill revenues. Revenue data on the next page show L.A. and Orange County are the clear industry leaders. If you count all 2013 apparel and textiles operations in California, 929 companies earned above $1 million in revenue. Of that number, L.A. County had 667 companies. Orange County had 86. That is 81% of the California total. 6
Source: Dun & Bradstreet data, 2011. CIT Group and CFA P a g e | 46 Fashion Industry Profile 2014 Table 5: Companies in California with Revenues of $1 Million and Greater, 2013 Apparel Manufacturing (NAICS 315) and Textile Mills (NAICS 313) County Total Total Total Average Average Companies
Revenues Employees
revenues employees
($ millions)
($ millions) Los Angeles County 667
$10,727
75,163
$16.1 112
Orange County 86
$1,682
24,204
$19.5 281
Riverside County 8
$39
416
$4.9 52
San Bernardino County 7
$35
451
$5.0 64
Ventura County 11
$45
465
$4.1 11
Alameda County 17
$39
1445
$2.3 85
Contra Costa County 3
$13
24
$4.2 8
El Dorado County 1
$1.4
17
$1.4 17
Fresno County 5
$9.5
131
$1.9 26
Humboldt County 2
$9.4
110
$4.7 55
Imperial County 2
$4.1
55
$2.1 28
Kern County 1
$1
8
$1 8
Marin County 6
$49
663
$8.1 111
Merced County 1
$2.3
40
$2.3 40
Monterey County 2
$17
175
$17 175
Napa County 1
$1
4
$1 4
Nevada County 1
$1
2
$1 2
Sacramento County 3
$7
61
$2.3 20
San Benito County 1
$1.2
17
$1.2 17
San Diego County 41
$134
1,567
$3.3 38
San Francisco County 22
$4,902
19,583
$10 117
San Luis Obispo County 1
$1.8
24
$1.8 24
San Mateo County 6
$56
423
$9.3 71
Santa Barbara County 4
$15
109
$3.8 27
Santa Clara County 6
$16
157
$2.6 26
Santa Cruz County 3
$7.3
68
$2.4 23
Sonoma County 4
$14
113
$3.6 28
Other 17
$55
676
$3.2 40
Grand Total 929
$17,830
125,495
$5 54
Note: San Francisco is home to Levi Strauss & Co., with revenue of $4.7B and 17K jobs. Source: Hoover’s. Hoover’s data uses these categories: Apparel Accessories Mfg., Apparel Mfg., and Intimate Apparel Mfg., Men’s Clothing Mfg., Textile Mfg., and Women’s Clothing Mfg. CIT Group and CFA P a g e | 47 Fashion Industry Profile 2014 Wholesale sector data is available. In L.A. County, they counted 870 wholesale companies, $4.8 billion in revenues, and 20,870 employees. The Dun & Bradstreet data (shown below) was captured in 2011. It showed the amount of financial stress among apparel wholesalers (4,243), apparel manufacturers (315), and textile mills (313) in L.A. County. 



45% of L.A. County apparel wholesalers, apparel manufacturers, and textile mills operated under significant financial stress. 25% of company revenues were earned in conditions of financial stress. In light of these numbers, a key implication emerges: a small‐sized firm in L.A. has a great chance of operating under conditions of financial stress. Issues that appear relevant: less product and process diversification, lower access to credit, and a lack of experience. Table 6: Conditions of Financial Stress in L.A. County Apparel Industries, August 2011 4,243 Apparel Wholesalers Risk Level 1 2 3 4 5 Unclassified/ Bankrupt Total Firms 19 844 1447 1,670 143 68 4,191 $304 $1,436 $2,301 $1,360 $213 $22 $5,635 1 2 3 4 5 Unclassified/ Bankrupt Total 27 455 885 961 138 69 2,535 $412 $3,619 $1,639 $960 $197 $556 $7,383 ($ Millions) Revenues Risk Level 313 & 315 Apparel Manufacturing Firms And Textile Mills Revenues 4243 Apparel Wholesalers Risk Level 1 2 3 HIGH RISK/4 HIGHEST RISK/5 Unclassified/ Bankrupt Firms 0% 20% 35% 40% 3% 2% Revenues 5% 25% 41% 24% 4% 0% 1% 18% 35% 38% 5% 3% 6% 49% 22% 13% 3% 8% 313 & 315 Apparel Manufacturing Firms And Textile Mills Revenues Source: Dun & Bradstreet The data show the L.A. apparel industry is largely small and middle‐market companies managed by owner‐operators. Each has a great deal of their own capital invested in their business. This is one of the driving forces why such companies turn to a form of financing called factoring. Privately owned businesses do not want to risk additional capital by extending large amounts of credit to their retail customers. CIT Group and CFA P a g e | 48 Fashion Industry Profile 2014 Factoring is an agreement between a factoring company and the suppliers of goods, typically the retail industry. For a classic example, consider a small, owner‐operated apparel manufacturer who supplies clothes to a women’s dress retailer. The factor purchases the accounts receivable from the small apparel manufacturer in this case. In doing so, the factor assumes responsibility for the retailer’s ability to pay (the women’s dress retailer in this case). This financing activity combines: 



credit protection and advice; accounts receivable bookkeeping, including electronic invoice and payment processing; collections, cash management, and lockbox processing; and accounts receivable financing. Factoring helps companies of all sizes, from start‐ups to mature companies: 




improve cash flow; eliminate credit losses; reduce operating expenses; expand working capital financing through advances; and improve management information through online reports. Major international banks focus marketing efforts for factoring on larger apparel firms, i.e., those above $2 million in annual sales. If a firm is smaller than $ 2 million, a smaller, locally based factor may pick up the business. These smaller factors tend to charge much higher commission rates, due to the greater risks their clients face. Purchase Order financing is also available for the smallest of firms. CIT Group and CFA P a g e | 49 Fashion Industry Profile 2014 A Truly Global Industry Looking at the International Trade Center 2012 data, we see the global apparel manufacturing industry generated $212 billion in knit export revenues. Another $195B was not knit. That sums to a total of $407B in world apparel exports. An IBISWorld group industry report put the “all‐in” global apparel manufacturing number even higher. Their total was $578B in revenue in 2013. 153K businesses employed 9.2 million workers. Annually, global apparel revenue growth has been weak, at ‐0.2%. According to IBISWorld, “Volatile cotton prices and recession‐induced drops in consumer spending caused the industry to decline slightly in the past five years. However, increasing population and disposable income growth will bolster industry revenue in the five years to come. Companies will also continue moving production to low‐wage‐cost countries to offer more competitive prices.” The largest segment is women’s and girl’s apparel. It accounts for 59% of industry revenue. The top ten knit apparel‐producing countries in terms of export revenues are China, Hong Kong, Bangladesh, Germany, Turkey, Italy, Vietnam, India, Cambodia, and Belgium. Major textile exporting countries ranked this way: China, South Korea, Hong Kong, and Taiwan (these produced two‐thirds of the total). See page 54 for the details attached to the Los Angeles Ports. In 2012 and 2013, the Commerce Department’s Office of Textiles and Apparel (OTEXA) listed the top five suppliers to the United States as follows: Apparel to U.S. 1. China 2. Vietnam 3. Indonesia 4. Bangladesh 5. Mexico Textiles to U.S. 1. China 2. India 3. Pakistan 4. Mexico 5. Canada Look Back to the Jobs Data – Apparel Manufacturing in L.A. County Started a Decline around 1996. CONCLUSION: The North American Free Trade Act (NAFTA) between the United States, Canada, and Mexico was a seminal event for the Los Angeles‐centered apparel cluster. The 1990s On January 1, 1994 the Implementation of NAFTA brought the immediate elimination of tariffs on more than one‐half of U.S. imports from Mexico and more than one‐third of U.S. exports to Mexico. Within ten years, all U.S.‐Mexico tariffs would be eliminated except for some U.S. agricultural exports. For the L.A. apparel industry, the NAFTA made it easier for apparel manufacturers to make finished products with cheaper labor. At first, the early apparel outsourced to Mexico was often shipped back CIT Group and CFA P a g e | 50 Fashion Industry Profile 2014 late, service was poor, and fabric quality was not up to par. But the door to a global outsourcing business had been opened a crack, and that door would be opened wider and wider. Move on a few more years. The year 1997 was tied to the Asian Financial Crisis. After the sudden pullback of capital, import‐export manufacturers located in Asia benefitted from the pull of depreciating Asian currencies. Collapsing internal demand flattened Asian low‐skilled hourly wage profiles. A strong push came from higher U.S. hourly wages and regulations, too. In 1997, as just an example, California enacted AB 633. This state law said that brand holders have joint liability with contractors for issues like age discrimination and Occupational Safety and Health Administration (OSHA) requirements, and for worker’s compensation. Taking both the push and pull factors in combination, and an already strong foreign cost advantage found new traction. The L.A. apparel industry shifted more and more labor‐intensive production offshore to Asia, specifically to China. During the mid to late 1990s, China implemented an aggressive five‐year central plan to develop as a market economy. This phase of plans opened China’s coastal cities to greater import‐export trade. More and more, China’s manufacturing and assembly operations participated in globally sourced industries – a.k.a. operations like apparel and textile manufacturing. Soon, Chinese activities sunk more deeply into the global manufacturing fabric. And this meant they captured the bulk of the U.S. market. See Page 54. The 2000s On December 1, 2007, under World Trade Organization (WTO) rules, quotas on apparel shipped from China to the United States were dropped. Apparel import volumes to the United States from China took another step up. But interestingly, manufacturing the basic low profit margin items in apparel lines in China began to compete with other Chinese industries for the services of expert sewing – causing a rise in apparel manufacturing wages in China. Recently, on April 17, 2013, another trade issue affected the SoCal apparel industry: the European Union (the EU) announced the duty on women’s denim trousers manufactured in the United States would increase from 12% to 38%. Consumer research firm, NPD Group, said premium denim is the fastest‐growing segment of the jeans market. It estimated sales of $1.4 billion to February 2013, up +17.3% from a year earlier. The California Fashion Association estimates 75% of high‐end denim in the world comes from the SoCal area. During this extended migration of activity, L.A. apparel manufacturing firms could only stand and watch as cheap imports flooded ports. Some capitulated and closed their domestic factories and moved production outside the United States. Quicker turnaround, smaller volumes, and more frequent design output have been the only tactics industries facing intense import competition from places like China could employ to survive. Using these tactics, half the L.A. apparel‐manufacturing base has been able to stay local. CIT Group and CFA P a g e | 51 Fashion Industry Profile 2014 China China is 41% of the global apparel market. Export revenues more than doubled over the last decade. According to the National Bureau of Statistics of China, the Chinese apparel manufacturing industry includes about 18,000 companies, with combined annual revenue of about $200 billion. However, China’s wages are rising. Apparel workers are going into other Chinese industries, which compete for their skills by offering better wages, hours, and working conditions. China has been facing the issue of lower‐skilled, lower‐paying jobs moving offshore for some time now. According to apparel trading agent Li & Fung Limited, this so‐called “second migration” is occurring in countries such as Bangladesh, Cambodia, Indonesia, Laos, and Vietnam. Bangladesh and Cambodia have the lowest wages in the world. In both E.U. and U.S. apparel import markets, China started to lose market share in 2010. Vietnam and Mexico have begun to equalize the cost advantages over China. What’s the problem? The overall effect of China’s prosperity drive keeps pushing up a full range of Chinese costs. China’s consumer price inflation ran at around 2.7% annually in mid‐2013. That low rate was achieved only by slowing the economy down. From 1986 to 2013, consumer inflation averaged 5.8%. For comparison, the target for U.S. inflation is 2%. The 12th five‐year plan lays out policymakers’ blueprint for China’s Textile and Apparel (T&A) industry. Expect the following changes by 2015: 1. Achieve Industry upgrading. – Reduce apparel products from 51% to 48%, and increase textiles from 20% to 25%. Build five to ten T&A brands with international influence, 100 brands with “high recognition” and get overall branded products to no less than 50% of total T&A exports. 2. Move production to the western region. – By 2015, China’s western region shall account for 28% of total T&A output, a significant increase from 17% in 2010. 3. Build a “greener” industry. – Energy, water, and pollution emissions shall fall ‐20%, ‐30%, and ‐
10% annually. Consumption of recycled textile fibers shall increase +15%. 4. Expand domestic consumption. – Domestic consumption for apparel, home textiles, and industrial textiles shall increase +3%, +3%, and +10% annually to 2015. In 2011, over 83% of China’s Textile and Apparel output was consumed domestically; 17% was exported. By the end of 2010, China’s Textile and Apparel industry accounted for 11.5% of China’s manufacturing, 5.7% of sales revenue, and 4.4% of assets. These numbers are much lower than five years earlier. The industry is following a pattern of development seen in Japan, Germany, and South Korea. Inside China, domestic brands dominate the mass market, especially in lower‐tier cities, and in rural areas. These companies have more extensive sales channels than foreign counterparts here. Foreign players dominate China’s luxury apparel market. CIT Group and CFA P a g e | 52 Fashion Industry Profile 2014 Top 5 China Apparel Enterprises by Sales, 2011 1. The Younger Group Co. Ltd., Ningbo 2. Hongdou Group Co. Ltd., Wuxi 3. Heilan Group, Wuxi 4. Shanshan Enterprise, Shanghai 5. Bosideng Co. Ltd. Suzhou It is in the face of this fierce, multi‐national competitive backdrop that the L.A. apparel industry endures. THE INTERNATIONAL EFFECT If globalization allows all countries to benefit from their comparative advantage, then L.A.’s apparel industry can be upheld as a poster child of this trend. In Los Angeles, long gone are the large factory floors full of sewing machines. Today, the division of labor is based on each region’s cultural strength and economic realities. Now a piece of a garment can take a very long journey before it reaches the customer’s closet. The design work, including the necessary market and trend analysis, can be done in Los Angeles. Marketing efforts through various channels begin immediately, if needed. The design may be modified slightly during the marketing phase. The design is then sent overseas to contract factories in Central America, Asia, or Africa. These factories may source fabric from the United States or elsewhere. When finished, the merchandise is most often shipped back to the name‐bearing “manufacturer,” which in turn ships the orders to retailers’ distribution centers or wholesalers all around the world. Surplus inventories are also sold to certain discounters and closeout retailers such as Big Lots and Ross. Apparel and textiles manufacturing is a dynamic, fully global market space. It’s a value chain that touches all countries, interacting with all governments. Their politics, regulations, and taxes can be dysfunctional, sometimes severely so, particularly in the developing countries. This can present serious challenges to any U.S. export development businesses – wholly different than in the United States. CIT Group and CFA P a g e | 53 Fashion Industry Profile 2014 Inspect the World Economic Forum Insights into Important Apparel and Textile Countries in 2010... Ranking the Five Most Problematic Factors for Doing Business in 2010 Turkey Vietnam Tax Rates Inflation Inefficient Government Bureaucracy Access to Financing Tax Regulations Policy Instability Inadequately Educated Workforce Foreign Currency Regulations Foreign Currency Regulations Inadequate Supply of Infrastructure Pakistan Bangladesh Government Instability/Coups Inadequate Supply of Infrastructure Corruption Corruption Policy instability Inefficient Government Bureaucracy Inadequate Supply of Infrastructure Policy Instability Inefficient Government Bureaucracy Access to Financing Indonesia South Korea Corruption Inefficient Government Bureaucracy Inefficient Government Bureaucracy Policy Instability Inadequate Supply of Infrastructure Access to Financing Policy Instability Restrictive Labor Regulations Access to Financing Tax Regulations China Sri Lanka Inflation Tax Rates Access to Financing Tax Regulations Inefficient Government Bureaucracy Inflation Policy Instability Inefficient Government Bureaucracy Corruption Policy Instability United States Tax Rates Inefficient Government Bureaucracy Access to Financing Tax Regulations Inflation Source: World Economic Forum CIT Group and CFA P a g e | 54 Fashion Industry Profile 2014 International Trade The United States imports the bulk of apparel and textiles sold domestically. In 2012, the United States imported $109.2 billion worth of apparel and textiles; $46.2 billion arrived via the Los Angeles Customs District (LACD). As of May 2013, the LACD was on track to import $44.4 billion in annualized apparel and $1.94 billion in textiles. So, the value of annualized May 2013 imports looks equal to actual full‐year 2012 data. Can Los Angeles Customs District (LACD)
Apparel and Textiles Imports Keep On Growing?
20.3%
15.7%
12.2%
9.0%
8.8%
4.3%
1.8%
2005
2006
2007
2008
2009
2010
‐6.7%
2011
2012
Source: USA Trade Online LACD Data
Most U.S. apparel imports come from Asia. The significant portion that passes through the LACD includes the twin ports of Los Angeles and Long Beach, Port Hueneme, LAX, Ontario International, and McCarran Field (Las Vegas). Down the line, a wider Panama Canal, and a big push from Mexico to modernize Baja/Pacific ports could pressure the LACD hub’s growth. Of the top source countries for apparel imports to the LACD, China was by far the largest, with $27.3 billion in 2012. Our definition of “China” includes Hong Kong and Macau for reasons explained in the previous International Effects section. This country is followed by Vietnam ($6.0 billion), Indonesia ($3.5 billion), Cambodia ($1.7 billion), Bangladesh ($1.3 billion), Philippines ($776 million), India ($637 million), Thailand ($617 million), Taiwan ($233 million), and South Korea ($117 million). In the 2004 L.A. Area Fashion Industry Profile, China accounted for one‐third of apparel imports coming through the L.A. area’s seaports and airports. Using 2012 numbers, China accounted for 60% of apparel imports. It’s six to seven times the dollar value of 2004. Vietnam, Cambodia, Bangladesh, and India did not receive mention in 2004. In this report, they rank as number two, number four, number five, and number seven, respectively. L.A.–Canada and L.A.–Mexico trade data are severely skewed. Much of this trade passes through border customs districts like San Diego and Seattle. According to insiders, Mexico is the second largest source of L.A.’s apparel imports behind China. CIT Group and CFA P a g e | 55 Fashion Industry Profile 2014 USA Trade Online provided the San Diego and Seattle data in bullets below. It makes the actual size of Asian imports a bit murkier. 

The San Diego customs district area took in $514 million worth of apparel and $5 million in textiles in 2012. That put it in ninth place (at best). The Seattle Customs District, interestingly, took in $7.2 billion in apparel and $171 million in textiles in 2012. Are any of these shipments from Asia to L.A.? For textiles (not textile products such as carpets, rugs, etc.), China was also the largest source of imports at $932 million (out of a total of $1.975 billion in textile imports to the LACD), followed by South Korea ($351 million), Taiwan ($189 million), Japan ($130 million), Indonesia ($89 million) and India ($77 million). Italy ($46 million) was the first European country in the textile import list. See below. Table 7: Los Angeles Customs District, Textile and Apparel Imports in 2012 Country World China Vietnam Indonesia Cambodia Bangladesh India Philippines Thailand South Korea Taiwan Japan Hong Kong Macau Singapore Asia CAFTA EU Total ($ Value) 46,231,654,196 28,131,592,238 6,030,509,333 3,577,322,191 1,739,742,134 1,278,078,387 714,509,296 776,548,148 644,505,829 469,103,203 423,292,213 137,523,051 81,119,571 17,269,225 12,197,734 44,033,312,553 95% 805,580,352 293,744,711 Textiles ($ Value) 1,975,343,636 932,456,537 24,504,118 89,598,871 1,248,044 40,395 77,424,282 455,385 27,376,200 351,757,132 189,698,610 130,502,289 3,400,952 214,491 200,906 1,828,878,212 93% 3,291,468 72,024,393 Apparel ($ Value) 44,256,310,560 27,199,135,701 6,006,005,215 3,487,723,320 1,738,494,090 1,278,037,992 637,085,014 776,092,763 617,129,629 117,346,071 233,593,603 7,020,762 77,718,619 17,054,734 11,966,828 42,204,404,341 95% 802,288,884 221,720,318 Source: USATradeonline.gov Textiles: 50 (Silk, Including Yarn), 51 (Wool and Animal Hair), 52 (Cotton, Including Yarn), 54 (Manmade Filament), 55 (Manmade Staple Fiber), 58 (Spec. Woven Fabric), 60 (Knitted or Crochet) Apparel: 61 (Apparel Articles and Accessories, Knit or Crochet), 62 (Apparel Articles, Not Knit), 64 (Footwear, Gaiters) CIT Group and CFA P a g e | 56 Fashion Industry Profile 2014 Trade data for the L.A. Customs District does not reflect actual SoCal production or consumption. But it is the most comprehensive data available. It provides a good picture of the overall trend. When looking through these tables, keep in mind the following caveats. First, a stark difference exists between the two columns listing apparel and textile imports. Top apparel exporters are very low‐wage countries. But be cautious: The future import volume coming from the likes of very low‐wage Bangladesh and Cambodia is not a guarantee. There have been serious labor issues. They could disappear from this list without successful reform. Second, textile making is both capital‐ and technology‐intensive. Top textile importers are higher wage, higher education, and more developed Asian economies. How do you drive home this point? The list of top textile importers (if you break out Europe’s EU data) adds the wealthy country of Italy. Third, comparing the apparel and textile import columns suggests Asia has become two regions within itself. The apparel column contains poor, less‐developed Asian countries. The textile column includes better‐developed Asian countries more like Italy. Fourth, large portions of U.S. exports are shipped by air. These are high‐value, time‐sensitive merchandise. What’s being exported? Anything from swimwear to designer dresses to Dodger’s shirts. See below. Top L.A. apparel export destinations (a total of $967 million in 2012) Japan ($241 million) South Korea ($98 million) United Kingdom ($76 million) Australia ($67 million) China ($51 million) Belgium ($43 million) L.A. textile export destinations (a total of $3.54 billion in 2012) Textiles often return to the United States after a few weeks as finished products. These take advantage of various free trade treaties. See below. China ($2.51 billion) Vietnam ($141 million), Indonesia ($138 million), South Korea ($138 million) Taiwan ($89 million) Finally, the 2012 import list includes the telling supra‐low‐wage destinations of Guatemala ($62 million), Bangladesh ($35 million), and Pakistan ($32 million). Apparel items must now indicate the source of the material besides the location of sewing and packaging. For many products, the fabric source is more important than where the product is actually stitched together, per U.S. customs regulations. Exports to Mexico are under‐reported for the same reason. CIT Group and CFA P a g e | 57 Fashion Industry Profile 2014 A major ittem to reportt: a higher price on apparel imports andd exports is finnally here. The follow
wing charts sh
how articles o
of apparel and
d clothing acccessories imp
port and expo
ort price indexxes. All appare
el price indice
es rose stronggly – up +15%
% – from 20100 to mid‐20111. They’ve since stabilized. The first impo
ort price indexx chart (below
w) shows the price climb a nd then the sstabilization w
well. Harmonized
d System Import Pricce Index ‐
of Apparell and Cloth
hing Showss a Rise for Articles o
Accesso
ories
2012‐02‐01
2011‐04‐01
2011
04 01
2010‐06‐01
2009‐08‐01
2008‐10‐01
2007‐12‐01
2007‐02‐01
2006‐04‐01
2005‐06‐01
2004‐08‐01
2003‐10‐01
2002‐12‐01
2002‐02‐01
2001‐04‐01
2000‐06‐01
1999‐08‐01
1999 08 01
1998‐10‐01
1997‐12‐01
1997‐02‐01
1996‐04‐01
1995‐06‐01
1994‐08‐01
1993‐10‐01
1992‐12‐01
120
115
110
105
100
95
90
So
ource: FRED D
Data, St. Louis FFed
A second chart (below) shows recen
nt price stability in cut‐andd‐sew appareel imports, bu
ut upward pricce nt on apparel accessories imports. Thatt’s interestingg. movemen
Other Imp
port Indexxes Show aa New High
her Price R
Regime Underw
way
Appare
el Mfg
Cut and Sew A
Apparel
Apparel Accessories
120.0
115.0
110.0
105.0
100.0
2013‐04‐01
2012‐12‐01
2012‐08‐01
2012‐04‐01
2011 12 01
2011‐12‐01
2011‐08‐01
2011‐04‐01
2010‐12‐01
2010‐08‐01
2010‐04‐01
2009‐12‐01
2009 08 01
2009‐08‐01
2009‐04‐01
2008‐12‐01
2008‐08‐01
2008‐04‐01
2007‐12‐01
2007‐08‐01
2007‐04‐01
2006‐12‐01
2006‐08‐01
2006‐04‐01
2005
12 01
2005‐12‐01
95.0
Source: FRED
D, St. Louis Fed
d
CIT Group
p and CFA P a g e | 58 Fash
hion Industry y Profile 2014
The third and final chart shows the rise in appare
el export pricces up to 2012. In the last two years, exxport hart. prices rosse more slowly. Some would say they sttabilized, lookking at the ch
Exporrt End‐use Price Indeex ‐
Ap
pparel, Foo
otwear, an
nd Househo
old Goods
115.0
110.0
105.0
100.0
95.0
2013‐06‐01
2012 09 01
2012‐09‐01
2011‐12‐01
2011‐03‐01
2010‐06‐01
2009‐09‐01
2008‐12‐01
2008‐03‐01
2007 06 01
2007‐06‐01
2006‐09‐01
2005‐12‐01
2005‐03‐01
2004‐06‐01
2003‐09‐01
2002‐12‐01
2002 03 01
2002‐03‐01
2001‐06‐01
2000‐09‐01
1999‐12‐01
1999‐03‐01
1998‐06‐01
1997‐09‐01
1996 12 01
1996‐12‐01
90.0
S
Source; FRED D
Data, St. Louis Fed
Barriers to Exporting In today’ss world, and in the future, L.A. apparel ssuppliers havve a lucrative,, massive, unttapped sourcce of apparel co
onsumers to ship to in China and otherr wealthy urbaan markets th
hroughout Assia. Penetration rates of “M
Made in Califfornia” clothin
ng are low. Co
onsumer inteerest is high.
Export salles and global expansions ccan substantiially add L.A. jobs. For examp
ple, American
n Apparel retaail operationss in Canada, EEurope, and A
Asia remain itts most profittable. Many app
parel companies have also created overrseas subsidiaaries in low‐taax jurisdiction
ns such as Ireeland and Hongg Kong. They u
use these enttities as sales vehicles globbally. Goods aare sourced frrom Asia. Theen, they are sshipped directly to offshorre entities. Th
he revenue neever hits the b
books of the U.S. entity. This causes an
n under‐representation of tthe true econ
nomic impactt of Californiaa companies sselling abroad
d. ot Sales abro
oad lead to m
more design, aaccounting, m
marketing, etcc., jobs in L.A. Smaller com
mpanies will no
typically ccreate an adm
ministrative sttaff abroad un
ntil sales grow
w substantially. CIT Group
p and CFA P a g e | 59 Fash
hion Industry y Profile 2014
Several tariff and non‐tariff barriers inhibit the export of L.A. apparel. The local industries’ own lack of experience in exporting hinders progress, too. Apparel manufacturing is an industry found in many developing countries, so some of them have special tariffs to protect their domestic factories from foreign competition. The United States has not been as aggressive on barrier removal for apparel as it could, according to industry insiders. The multi‐lateral negotiations available through the WTO may be the answer to this problem. However, other countries will surely put up a fight if they believe their own apparel industries are threatened. Certain barriers to importing U.S. apparel products are not explicitly sanctioned by foreign governments. In many cases, they are just part of the accepted local business practices. For instance, sometimes it is hard to get shelf space at some foreign retailers because they have long‐
term In 2010, the Federal government announced the National Export Initiative (NEI). The NEI will help meet a goal of doubling exports over the next five years by working to remove trade barriers abroad, by helping firms – especially small businesses – overcome the hurdles to entering new export markets, by assisting with financing, and, in general, by pursuing a government‐wide approach to export advocacy abroad, among other steps. L.A.‐sourced apparel hopes to benefit from this initiative.
relationships with existing suppliers/wholesalers. If those suppliers refuse to carry the merchandise for a variety of reasons, the exporting manufacturer does not have access to retail shelves. Some larger manufacturers enter foreign countries with their own retail stores. This is not an option for smaller manufacturers with limited financial resources. It is always safer to test the market by going through existing retail channels first, but many manufacturers find that option to be extremely limited. Here are three topics to be made aware of: (1) Many firms in L.A. simply are not very knowledgeable about the details in exporting. The lack of export expertise in some companies may partly be the result of the United States being a large enough market to tackle on its own. Some firms are too busy supplying U.S. retailers to pay attention to exporting. In addition, some may be overly concerned with the documentation needs or creditworthiness of foreign buyers (2) Three financing solutions can improve an exporter’s capabilities. They are export factoring, trade credit insurance, or working closely with a freight‐forwarding company. (3) Finally, when a company does get an export order, they may find that they are ill‐prepared for issues such as trademark protection. Some firms do not realize that their names may have already been “registered” by someone else until they try to export. Other firms also have to deal with their tarnished brand names caused by low‐quality imitators using their trademarks illegally. CIT Group and CFA P a g e | 60 Fashion Industry Profile 2014 The March Toward Free Trade Continues 
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The U.S. Office of Textiles and Apparel (OTEXA) monitor the import and export of apparel. In addition, the U.S. Department of Labor regulates working conditions under the Fair Labor Standards Act (FLSA) and can make unannounced inspections. The World Trade Organization (WTO) Agreement on Textiles and Clothing lowered many tariffs on apparel. Under the WTO, import quotas on textiles and apparel products were lifted in 2005, except in the case of some specific categories of items from China. Quotas on some Chinese products (e.g., gloves, bras, and sleepwear), euphemistically called “safeguards,” were not lifted until 2008. (A few other non‐WTO members saw later removal dates, including Vietnam, Bangladesh, and Cambodia.) President Bush signed into law the U.S./Central America‐Dominican Republic Free Trade Agreement (CAFTA‐DR) with five countries in Central America. Under this program, CAFTA‐DR entered into force for El Salvador on March 1, 2006; Honduras and Nicaragua on April 1, 2006; Guatemala on July 1, 2006; and the Dominican Republic on March 1, 2007. These agreements built on the 1995 implementation of the North American Free Trade Agreement (NAFTA) for Mexico and the Caribbean, and the May 2000 passage of the African Growth and Opportunity Act (AGOA). In his first term, President Obama concluded free trade agreements with South Korea, Columbia, and Panama. Negotiations are underway on furthering the Trans‐Pacific Partnership (the TPP). The 13th round took place in San Diego, CA in July 2012. The 19th round took place in August 2013 in Brunei. There’s a lot of wrangling to do. Some manufacturers remain justly concerned about the ongoing flood of cheap imports into the United States. It can kill the remaining high hourly wage domestic jobs in apparel and textiles. The current quota system was breached long ago. Manufacturers can ship fabric and textiles (if not nearly finished products) to a quota‐free or quota‐available country for final assembly. Some merchants go as far as setting up factories in Third World countries to literally circumvent the quota system. Despite their advantageous labor costs, Chinese exporters are also getting export tax rebates (currently 17% across‐the‐board) from their government, which helps to subsidize their exports (their rationale: to offset the value‐added taxes imposed by foreign governments). During the Asian financial crisis over a decade ago, the Chinese government initiated these export tax rebates to help exporters in a successful attempt to avoid having to devalue its currency. With the United States and other developed countries demanding China continually reset its currency peg toward purchasing power parity, and the country facing budget pressures and inflation, reducing the export tax rebates can serve two causes at the same time. However, taking away rebates will likely not offset their cost advantage and bring relief to U.S. producers. The market‐determined differential can be too large. CIT Group and CFA P a g e | 61 Fashion Industry Profile 2014 A Key Point: Further reductions of trade restrictions only further reinforce the need for U.S. apparel manufacturers to tighten their links to successful fast‐fashion designers and higher‐end merchandising activities. L.A.’s design‐based apparel industry can fare much better than areas that are not design‐driven. This region’s strength must be promoted and exploited, just as the Italians found a niche in designer‐based automobiles, eyeglass frames, and shoes. CIT Group and CFA P a g e | 62 Fashion Industry Profile 2014 The Outlook for L.A.’s Apparel Industry Pluses 
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The apparel industry cluster in Los Angeles is very visible and geographically identifiable. The “Fashion District” to the east of the Downtown is supported and promoted and has its own Business Improvement District (BID). Real estate owners in the district are proactively working together to upgrade the Fashion District for the region. Perception can become reality if it’s propagated relentlessly. L.A. is increasingly seen as the fashion capital of trends in the United States. Thus, marketing efforts should focus on that. Design talent coming out of L.A.’s schools is one of the greatest assets of the fashion industry. Some of these students come from faraway places and are attracted by both the real assets (i.e., the schools themselves) and by the perception about L.A. Furthermore, it is easier for young designers to get attention in L.A. than in New York because the industry is less structured and always looking for new talent. There is tremendous interest in the “L.A. Style,” an amorphous concept that’s open to interpretation. Los Angeles has strength in contemporary designs, because L.A. helps define what’s hot and what’s “in.” In recent years, Orange County has also established itself as a center for surfwear and activewear design. Fresh ideas in retailing are sprouting from Los Angeles as a reaction to retail consolidation (Forever 21, Love Culture, Papaya). Large national retail chains engage in “matrix purchasing,” which favors existing, large suppliers. In response, some manufacturers (A.B.S., BCBG, GUESS?, Max Studio, Trina Turk, True Religion) are going vertical, opening retail shops, with major and risky investments. When the tradeshow MAGIC moved to Las Vegas, it impacted convention revenue in L.A. However, L.A.’s apparel businesses dominated the show. Of the approximately 4,000 companies displaying their wares at the 2012 show, 24% were from L.A. Any sales booked at the show become sales in L.A. Access to seaports and airports needed is an advantage for Los Angeles. The Pacific Rim (not just East Asia but also Central America) is the center of apparel manufacturing in the world. L.A. is effectively the capital of apparel design and marketing in the middle of this “Ring of Sewing Machines.” CIT Group and CFA P a g e | 63 Fashion Industry Profile 2014 Minuses 
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The lack of major, public‐accessible L.A. fashion shows means lower public awareness of the strength of this local industry. The Men’s Apparel Guild in California (MAGIC) is the nation’s largest apparel show. Their first shows were put on in Palm Springs, CA. Only one MAGIC show was held in downtown L.A. The organizers then moved MAGIC to Las Vegas because the Los Angeles Convention Center was not adequate. New, young designers seek to enter this business. And more and more specialized women’s clothing buyers come in from out of state and often outside the country. The need to refresh the LAX airport terminal and the L.A. Fashion District Business Improvement District (BID) becomes more important with every passing year. Most media coverage focuses on the trendy runway shows. These do not showcase well the more mainstream, saleable designs of California’s producer brands. Not many local high school students know about the abundant opportunities in apparel design and marketing. Thus, they fail to take advantage of the available educational resources here. They end up choosing college majors with limited career opportunities. And they miss out on the vast opportunities in apparel and other consumer product development. Our own export capabilities need to be enhanced. There are barriers to exporting. Both government and business cooperation is necessary to overcome such barriers. One possibility is to create retail channels focusing on the “L.A.” brand. Another is to get cooperation from American retailers operating overseas. A hard look at how regulatory decisions are imposed on employers in the apparel and textile area is needed. Steps that reduce financial stress on small companies (less than $2 million in revenues) never falls out of fashion. Let us look to enhance the chance of entrepreneurial expansion. That’s the spirit of the West in a modern form. CIT Group and CFA P a g e | 64 Fashion Industry Profile 2014 Items to Watch What are the key forces in today's apparel landscape versus six or eight years ago? Costs abroad are rising. A steady +3% inflation rate in China (linked to higher labor cost) can spill onto fresh apparel import contracts originating from there. The rise in China labor cost pushes more and more apparel manufacturing and textiles contractors into lower‐wage countries like Vietnam, Cambodia, and Bangladesh every year. High oil prices can drive up sea, land, and air shipping costs. Higher energy prices can drive up textile operating costs. Temporary immigrant work visas and an I‐9 fix look critical. Do you want to build back apparel and textile manufacturing employment inside the SoCal region? Start here. Costly hassles (unnecessary zoning or waste disposal red tape, onerous tax regimes, other clumsy permitting) emanating from a multi‐tier regulatory structure are worth a second look. Water access for denim washing is critical. Less discouraging and complex regulatory snafus means less hassle and more excitement. That builds more industry. Major urban areas of Asia are “dynamic.” There is a large class – in the tens of millions – of middle‐
income consumers in Mainland China. Ditto for Singapore, Taiwan, and South Korea. By 2015, about 27% of Mainland China’s households could be upper middle class or better, according to McKinsey and Co. In 2005, that percentage was 10%. Asian cities of all sizes and shapes offer huge new markets for quick‐turn and “Made in California” apparel. Efforts to find a way through red tape to successfully display and sell product in Asia could be worthwhile. The paltry $50 million in apparel exports leaving L.A.’s ports to China in 2012 is laughable.
Our marketing efforts must become more effective, too. CIT Group and CFA P a g e | 65 Fashion Industry Profile 2014 What Could Be Done to Support the Industry? 
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Immigration/work permits top the list to grow the industry. I‐9 reform is a close second. An Employment Development Department overhaul that positions small training grants for small companies could help. For the unskilled, could there be a training wage? There is also a need for fresh equipment financing for equipment upgrades to be raised and deployed in L.A. Marketing, marketing, and more marketing of the “L.A.” or “California” brand. Successful marketing generates additional demand and boosts the intrinsic value of the merchandise. Strong, proprietary local brands are not something that can be easily transferred to another location. Intense marketing also brings in more buyers to local market weeks, which will generate a variety of additional spending and tax flows (e.g., meals, hotels, limo services, etc.). A successful apparel business requires more than just great designers; it needs top‐notch management talent. More colleges should consider offering apparel‐related business management and merchandising studies, not just apparel design and merchandising. Introduce local high school students to the opportunities in the apparel industry through “reality‐based” programs such as the Regional Occupational Program (ROP) in high schools. Once they see the process of fashion design and merchandising, some might be hooked! The apparel community should work to upgrade the impact of “Market Week” to get more publicity, using it to educate the residents about the importance of the local fashion industry. Fashion is big business in L.A., so let’s make market weeks a big deal around here. This will help strengthen L.A.’s reputation as the center of street fashion in America. CIT Group and CFA P a g e | 66 Fashion Industry Profile 2014 Index of Statistical Tables Table 1: Other Fashion‐Related Industries ................................................................................................. 14 Table 2: Apparel & Textiles Employment In Los Angeles County vs. New York PMSA, 2011 ..................... 18 Table 3: Direct & Indirect Apparel/Textiles Earnings in Los Angeles County, 2011 .................................... 37 Table 4: Direct & Indirect Apparel/Textile Jobs in Los Angeles County, 2011 ............................................ 37 Table 5: Companies in California with Revenues of $1 Million and Greater, 2013 .................................... 47 Table 6: Conditions of Financial Stress in L.A. County Apparel Industries, August 2011 ............................ 48 Table 7: Los Angeles Customs District: Textile and Apparel Imports, 2012–13 ......................................... 56 Data Notes: This report heavily depends on data from the North American Industry Classification System (NAICS). This harmonized industry classification system was set up under the NAFTA trade pact. In other words, Mexico and Canada apply the same industry codes as the United States. (1) “Textile Mills” data is in NAICS code 313. (2) “Apparel Manufacturing” data is found in NAICS code 315. At the four‐digit level of this category, NAICS 3159, “Apparel Accessories and Other Apparel Manufacturing,” is left footnoted and empty for L.A. County. From 2013 Hoover’s data for L.A. County, the data suggest 1,260 jobs are in “Apparel Accessories and Other Apparel Manufacturing.” Totals are not too different. County Business Patterns says there are 37,872 jobs in code 315. Hoover’s has 38,324. But Hoover’s cutoff is above $1 million in revenues. How many Apparel Manufacturing jobs are there below that cutoff? There is one more source for this data: Dun & Bradstreet. They counted 39,382. They may have it right. (3) The report also deploys “Apparel, Piece Goods, and Notions Merchant Wholesaler” data. This is NAICS code 4243. Be aware the “Piece Goods and Notions” portion of sales located within this wholesale trade category makes up around 10% of the code. The report will also not cover the textile products industry, which generally includes home decoration products, such as linen and carpet. (4) Finally, this report does not delve into many details on L.A. apparel retailing. CIT Group and CFA P a g e | 67 Fashion Industry Profile 2014 Written by John J. Blank, PhD, Chief Equity Strategist, Zacks Investment Research, Inc. Very special thanks to Ilse Metchek, President of the California Fashion Association, for key guidance and insights, as well as to CIT for its sponsorship of this report. To California Fashion Association members, I really appreciate your vibrant industry. It is a pleasure to write about. I also want to acknowledge Jack Kyser of the LAEDC, whose early ideas permeate the first section. John Blank earned a PhD in economics from the Massachusetts Institute of Technology. He was the author of and lead economist for the 2011 Los Angeles Area Fashion Industry Profile, while serving as deputy chief economist of the Los Angeles Economic Development Corporation This is a two‐year update of that report. Currently, Mr. Blank is the editor of The International Trader at Zacks. He resides in Los Angeles, CA. The California Fashion Association (CFA) is a non‐profit organization established to provide information for business expansion and growth to the apparel and textile industry of California. The international mission of the CFA is to define the industry’s economic impact, and to outline its global opportunities. Disclaimer: The opinions, statements, and information that appear in this report are solely those of Dr. John J. Blank and do not necessarily reflect the views or outlook of CIT. CIT does not endorse or certify the accuracy of such opinions, statements, and information. This report is also not to be construed as investment advice provided by Zacks Investment Research, Inc. To pass on any comments or media inquiries, please contact us at info@calfashion.org and 213‐688‐
6288 or jblank@zacks.com and 213‐248‐5899. CIT Group and CFA P a g e | 68 Fashion Industry Profile 2014