The Business Of Clothing: Part III
Posted by James F. Brown on May 3, 2009 - 8:22:37 PM
VARIOUS—What is the next step after clothes are manufactured and packaged? It’s shipping and distribution. The clothes must be moved from the plant where they’re made to the stores where they will be sold.
When clothes are made overseas, they’re usually shipped to the
US by sea. It’s not cost effective to do it any other way. Shipping by air is expensive and reserved for perishables and high-cost/low volume goods such as small electronics. A clothing shipment is assembled. As much as possible, shipments that will be going to the same place or to a small geographic area are placed in a single cargo container. This cuts down on downstream distribution costs and saves time, money, and the need for additional redistribution.
Seaborne shipping takes time, especially if the goods are coming from Asia, Africa, or the
Middle East. Once the clothes arrive at a
US port on the East Coast, West Coast, or
Gulf of Mexico, they must be unloaded and transferred to trucks or rail cars for further shipping.
However, if the clothes are made in
Mexico, shipping is much easier and far less costly. They can be shipped directly anywhere in the
US via truck in a few days. Combined with favorable currency exchange rates and the benefits conferred by NAFTA, clothing made next door to the
US can have a significant cost advantage.
Once the clothes have been shipped to the
US, distribution is next. Streamlining and simplifying distribution is important to keep costs down, and the principle of “Just In Time” distribution also lowers inventory costs. There are several possible paths that distribution of goods can take.
At the port of entry, clothes can be trans-shipped to a major chain’s warehouse, then redistributed to individual stores, or “drop shipped” directly to individual stores. Often, this is how major department stores get their merchandise, especially house brands. There are no wholesalers involved. (That’s one reason house brands are usually cheaper than designer labels.)
Designer labels also work this way when clothes go to their own stores and factory outlets. But designer labels sold through department stores and clothing chains are marked up; the designers get their cut of the profits up front.
Smaller, stand-alone clothing stores generally obtain their merchandise from a wholesaler who carries several different lines of clothes. This wholesaler represents these lines in a defined geographic area. For example, a number of wholesalers have sales offices in the Los Angeles Garment District and supply clothing to stores in the Western states.
The fact that small stores have no economies of scale or negotiating clout, and that their wholesalers must also make a profit is why these stores must charge more than the big boys. They make up for this by offering personalized service and higher quality goods; that is their “stock in trade” and how they compete with the majors.
In the next column, we’ll take a look at the final act of the clothing business: the retailers where the public buys what they’ll be wearing.