Industries In Transition

Overcoming foreign competition and shrinking profit margins, successful growth companies tailor thier products to a specialized customer base.

Tweet

The year was 1972 and the film was Save the Tiger. Jack Lemmon and Jack Gilford played middle-aged clothing manufacturers driven to desperation by inadequate working capital and the pressures of introducing a new line. Their solution was to burn down one of their plants for the insurance money.

The dark comedy may have seemed overstated to outsiders, but many businesspeople in the apparel industry found the predicaments all too familiar. Now, a decade later, there is even more cause for concern. In a 1980 survey of 20 industries, the "rag trade" placed last in terms of profit margin and return of equity. The price of clothes has not kept pace with other consumer goods, and imports have exacted a terrible toll; unemployment in the industry has more than doubled from 7% in 1973to 15.4% in 1982; and the U.S. apparel trade deficit has climbed from $1.9 billion to $7 billion during the same period. The government has begun to crack down on quotas, and a few designer lines prosper, but there seems little reason for optimism on Seventh Avenue. "Do you own any sweaters, do you have any suits?" asks Marty Freeman, executive vice-president of the Bureau of Wholesale Sales Representatives, an organization representing 20,000 U.S. clothing salespeople. "Go home tonight and look at the labels; I'll bet that they weren't made here."

Imports, says Freeman, now account for 40% to 50% of all U.S. sales. "This industry," he admits glumly, "is where the auto industry was a few years ago. What we need is another Lee Iacocca."

Despite the overwhelming odds and debilitating air of pessimism, 16 INC. 500 companies in the industry -- manufacturers, retailers, and, significantly, several importers -- have managed to survive without resorting to matches and gasoline. Some are still operating at a loss or break-even, but many are now safely into profits, and all have grown at impressive and promising rates. "We have the same growth pattern as a high-tech company," brags Steve Gilman, chairman of Style Auto Ltd. (#27), of Tarzana, Calif. "It is possible to make money in this country without going into computers."

The companies credit their success to many factors, but if there are common threads, as it were, they are these: You need to know your customer thoroughly; you must find a niche that fits your needs; and, as a competitor, you need to be two-fisted.

For three of the companies, the elements come together in a visceral way: Steve Gilman; Philippe de Lespinay, president of Euro Rep Inc. (#273); and Jerry Greenberg, president of The Finals (#147), all competed in the sports for which they now provide clothes. They know the customer and the field, and they know how to strive for the gold. Talking to them is a lesson in "the thrill of [business] victory, the agony of [business] defeat."

"In swimming, the difference between first and second place . . . is mental attitude," says Greenberg. "Physically, anybody in the pool could probably do it." His seven-year-old company, based in New York City, quickly captured the number-one spot as supplier of suits for swimming teams, and is now trying out for soccer and track, a diversification Greenberg expects will double his sales this year. A quality catalog, competitive prices, and celebrity advertising -- by Brian Godell, gold medalist at the 1976 Montreal Olympic Games -- contribute to the results, but Greenberg is adamant about the source of his success: "Mental attitude," he says again. "I went into training before I went into business."

Celebrities have also provided an edge for Gilman and de Lespinay, both of whom did serious sports-car racing before founding their companies. Gilman, who imports "macho" racing clothes and operates track concessions, once talked George Harrison and Ringo Starr into hawking his T-shirts at a race, and Clint Eastwood, Paul Newman, and Mario Andretti all wear Style Auto outfits. "A world championship three years in a row for Porsche hasn't hurt us," says Gilman, whose fashions also hang in upscale stores. De Lespinay, whose Tustin, Calif., company imports a variety of racing equipment -- from flame-retardant underwear to helmets -- outfitted Alain Prost, at press time the likely winner of this year's Formula one championship. "The wheels are turning our way," avers de Lespinay.

But it takes more than a star to put a company ahead, and both men acknowledge the importance of details: "computerization, competent personnel, superior management," says de Lespinay, as though reading from a mechanic's check-list. "Specialization" and "professionalism" are Gilman's catchwords, and he pays a special tribute to his accountant: "A good accountant gets you credibility, and credibility gets you money." Gilman went through several before he found one who knew his business well.

Three other INC. 500 companies -- Jack Young Associates (#213), Kappler Disposables (#97), and Memphis Glove (#169) -- qualify as niche specialists. Jack Young, of St. Albans, N.Y., is the only U.S. manufacturer certified to make sweaters for the post exchanges of the Army, Air Force, and Marines, a position that has yielded a $5-million backlog in orders. Chief executive officer Jack Young, a colonel in the U.S. Army Reserves, tracks government specifications closely, "engineers" his sweaters accordingly, and bids them competitively. Kappler, of Guntersville, Ala., produces disposable protective clothing for the medical and industrial markets -- an arena in which only 10 small companies compete. President George Kappler attributes his company's performance to "outstanding customer relations . . . We don't promise anything that we can't deliver," he explains, "and we deliver sooner than we've promised." Hilliard Crews, president of Memphis Glove, in Memphis, an importer of industrial work gloves, claims to owe his company's success to a competitive edge resulting from fairness. "There's a spirit of cooperation and fair play between management and employees, management and vendors," he asserts. "We tell it like it is, and we do what we say we are going to do."

The people aspect also figures prominently in the case of retail clothing operations among the INC. 500. Winona Knitting Mills Factory Outlets Inc. (#375), of Winona, Minn., operates 17 "good quality/true value" sweater stores, and although president Pat Woodworth can isolate a number of factors ("better wools," "quality controls"), the item he inevitably returns to is the consumer. "Talk to your customer; know her," he says. The sentiment is echoed, and amplified, by Rene Apack, vice-president of Boutique . . . Caprice Inc. (#476), a women's clothing and shoe store in Chicago, which is near the top of INC.'s apparel list in terms of profitability, with a 16% return on sales. "Salespeople," says Apack, provide the crucial customer connection. "Ours are incredibly important to us."

"Sometimes," he points out, "a customer will phone, ask to speak to a particular salesperson, and describe an outfit she needs. She knows she can make one trip to our store, and the perfect outfit -- everything she needs -- will be waiting there. That's how well our salespeople know their customers."

The customer, the niche, the competition -- they may not guarantee a win, but, in the apparel industry, they may make it possible for a company to survive. And, if worsteds are in, and if you have the look, and if you can get Paul Newman to wear one, it may even thrive.