Going Global:Going Global:Meeting the Demands of Meeting the Demands of an International Industryan International Industry

March 21, 2009March 21, 2009

Nate HermanNate Herman

American Apparel & Footwear American Apparel & Footwear AssociationAssociation

What is AAFA?What is AAFA?

About AAFAAbout AAFA

• The American Apparel & Footwear The American Apparel & Footwear Association is the national trade Association is the national trade association representing apparel, association representing apparel, footwear and other sewn products footwear and other sewn products companies, and their suppliers companies, and their suppliers which compete in the global market.which compete in the global market.

• We accomplish our mission through:We accomplish our mission through:– EducationEducation– AdvocacyAdvocacy

AdvocacyAdvocacy

• We all use lobbyistsWe all use lobbyists

Check Your TagsCheck Your Tags

• Consumers care most about:Consumers care most about:– BrandBrand– PricePrice– StyleStyle

• Geography is typically an Geography is typically an afterthought, if a thought at afterthought, if a thought at allall

The Global MarketplaceThe Global Marketplace

• The apparel and footwear The apparel and footwear industry is truly globalindustry is truly global

• 95% of the world’s consumers live 95% of the world’s consumers live outside the United Statesoutside the United States

• We buy everywhere and sell We buy everywhere and sell everywhereeverywhere

• The global marketplace requires The global marketplace requires that we be competitive to survivethat we be competitive to survive

Two Years AgoTwo Years Ago

• US consumers bought $370 billion worth of clothes and shoes in 2007.

• Americans purchased 20 billion garments and 2.4 billion pairs of shoes in 2007.

• That means that every man, woman, and child in the United States, on average, spent over $1,200 each on 67 new garments and 8 pairs of shoes in 2007.

TodayToday

Comparable Store Sales Jan. 2009 VS. Comparable Store Sales Jan. 2009 VS. Jan. 2008Jan. 2008

• Macy’s – Down 4.5 percentMacy’s – Down 4.5 percent• Target – Down 3.3 percentTarget – Down 3.3 percent• American Eagle Outfitters – Down 22.0 percentAmerican Eagle Outfitters – Down 22.0 percent• Gap – Down 18.0 percentGap – Down 18.0 percent• Old Navy – Down 34.0 percentOld Navy – Down 34.0 percent• Abercrombie & Fitch – Down 20.0 percent Abercrombie & Fitch – Down 20.0 percent • DSW – Down 7.2 percentDSW – Down 7.2 percent• Saks Fifth Avenue – Down 23.7 percentSaks Fifth Avenue – Down 23.7 percent

Remaining CompetitiveRemaining Competitive

• Responding to competitive Responding to competitive pressure, the apparel and pressure, the apparel and footwear industry moved footwear industry moved production from the U.S. to the production from the U.S. to the developing worlddeveloping world

• The apparel and footwear The apparel and footwear industry has been on the move industry has been on the move since the 1970ssince the 1970s

US Apparel ImportsUS Apparel Imports• 50% of U.S. market in 199150% of U.S. market in 1991• 97% of U.S. market today97% of U.S. market today

97%

50%0

5,000

10,000

15,000

20,000

25,000

1991 1994 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008*

Mill

ion

s o

f Gar

men

ts

US Imports US Production

US Footwear ImportsUS Footwear Imports

99%

53%0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

1978 1980 1985 1990 1995 2000 2001 2002 2003 2004 2005 2006 2007 2008*

Th

ou

sa

nd

s o

f P

air

s

US Imports US Production

•53% of U.S. market in 197853% of U.S. market in 1978•99% of U.S. market today99% of U.S. market today

Fashion Sense is Business SenseFashion Sense is Business Sense

• Manufacturers became brands Manufacturers became brands – Shifted focus to design, quality, Shifted focus to design, quality,

marketing and managing the supply marketing and managing the supply chainchain

• Brands became retailers Brands became retailers – Now able to control the supply Now able to control the supply

chain and brand imagechain and brand image

Innovation in the Supply ChainInnovation in the Supply Chain

• Product Lifecycle ManagementProduct Lifecycle Management• New Technology:New Technology:

– Radio Frequency Identification (RFID)Radio Frequency Identification (RFID)

• Better Design & QualityBetter Design & Quality– Improved FabricsImproved Fabrics– Better ConstructionBetter Construction– Perfect FitPerfect Fit

• Getting the right product to the right Getting the right product to the right market market

at the right time.at the right time.

Overall Retail Prices Have RisenOverall Retail Prices Have Risen

• 30 percent in the last 11 years 30 percent in the last 11 years

150

160

170

180

190

200

210

220

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

CP

I In

dex

Overall Retail Prices

Apparel & Footwear Prices Have FallenApparel & Footwear Prices Have Fallen

Apparel Prices fell

10.6%

ShoePrices Fell

3.0%

115

120

125

130

135

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

CP

I In

de

x

Apparel Prices Footwear Prices

What Does That Mean?What Does That Mean?

• Americans spend less to buy more clothes & Americans spend less to buy more clothes & shoesshoes

$1.03 T

$10.06 T6.84%

3.71%

0

2

4

6

8

10

12

1975

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Tri

llio

ns

of

Do

llar

s

0.00%1.00%2.00%3.00%4.00%5.00%6.00%7.00%8.00%

Clo

thes

an

d S

ho

es a

s a

Per

cen

t o

f T

ota

l

Personal consumption expenditures

Clothing and Shoes As % of Total PCE

Educating the FutureEducating the Future

• Fashion designers can’t do it aloneFashion designers can’t do it alone• The apparel and footwear industry The apparel and footwear industry

needs support along the entire supply needs support along the entire supply chainchain– Sourcing SkillsSourcing Skills– Product Safety KnowledgeProduct Safety Knowledge– Logistics ExperienceLogistics Experience– Understanding GovernmentUnderstanding Government– Social & Environmental ComplianceSocial & Environmental Compliance– Overseas Marketing UnderstandingOverseas Marketing Understanding– Technological ProwessTechnological Prowess– Understanding FinancingUnderstanding Financing

The Future of EducationThe Future of Education

• Dramatic shift to international Dramatic shift to international focusfocus

• Incorporation of business Incorporation of business strategiesstrategies

• New language skill requirementsNew language skill requirements• More experiential learning More experiential learning

opportunitiesopportunities• Technology training mandates Technology training mandates

Lifelong LearningLifelong Learning

• ““When we were in school…”When we were in school…”• Things changeThings change

– New Technological DevelopmentsNew Technological Developments– New Social & Environmental IssuesNew Social & Environmental Issues– New Government RegulationsNew Government Regulations– New Materials and ResourcesNew Materials and Resources– New Buyers/New SuppliersNew Buyers/New Suppliers

• AAFA helps keep members AAFA helps keep members informed about new trends and informed about new trends and issuesissues

Member EducationMember Education

• International Product Safety International Product Safety & Restricted Substances & Restricted Substances

• International Sourcing & International Sourcing & LogisticsLogistics

• Sustainability: Turning Sustainability: Turning Responsibilities into OpportunityResponsibilities into Opportunity

ConclusionConclusion

• The U.S. apparel and footwear The U.S. apparel and footwear industry is extremely industry is extremely competitive because:competitive because:– Effective supply chain managementEffective supply chain management– Openness to change to help the Openness to change to help the

bottom linebottom line

• But we must work hard and play But we must work hard and play smart to remain competitivesmart to remain competitive

ConclusionConclusion

Clothes make the man. Clothes make the man. Naked people have little or Naked people have little or

no influence in society.no influence in society.

— Mark Twain— Mark Twain