www.apparelmag.com • FEBRUARY 2010 5

businessinsight INDUSTRY INTELLIGENCE

How CompetitiveStrength is Being

Attained These Days

Gary A. Williams, the founder and ownerof independent stock research firmwRatings and the keynote speaker

at Apparel’s recent Tech Conference held inNew York, came to the event armed with sober-ing economic numbers — which he immedi-ately followed with a wealth of constructiveadvice for overcoming the downturn, defyingthe business cycle and outmaneuvering rivalsfor market leadership.

At the event, Williams, a former Harvard Busi-ness Review author, opened with grim (thoughnot surprising) 2009 statistics revealing that theUnited States’ gross domestic product was aboutto contract for the first time since 1949.

“It really has been a tough year, the tough-est in 60 years,” Williams acknowledged ashe addressed the Fashion Institute of Tech-nology auditorium filled with apparel execu-tives. “I know there are diverse companies here,but I have to believe everyone in this roomshared in feeling the pain of that. But I believethe worst is over. We expect to see the rise inGDP from here. And it’s going to be every-one in this room who helps turn that around.”

Throughout the keynote presentation, titled“The Hunt for Competitive Strength,” Williamsoffered a blueprint for that rebound. He sharedanecdotes and common success stories on com-panies that have all received the highest marksfrom his wRatings set of indicators. The wRat-ings system, which was developed by Williamsin 1999, relies on a consistent framework across

industries as well as an algorithmic formulato measure the competitive strength of famil-iar companies and brands. wRatings studiesboth consumer and executive buying behav-ior to project the future earnings perfor-mance of companies.

Following his initial analysis 11 yearsago of more than 2,600 companies, Williamsand his team at wRatings shaved that list downto an elite group of 15 companies that he saysare now exemplifying true “competitive advan-tage” based on four criteria they are all realiz-ing. Those are: high revenue share; high economicprofit; the ability to meet consumer expecta-tions (for this, wRatings analyzed 135,000 inter-views with consumers); and a proven ability toconsistently outperform rivals.

Among the top 15 are Anheuser-Busch,Coca-Cola, Walgreen, Microsoft, UPS and oneapparel company, TJX Companies, the retailerthat operates TJMaxx and Marshalls.

Beyond “cutting price” Beyond today’s accepted economic chal-

lenges and consumer reluctance, Williams said,price pressure remains among a top concern— but one he indicated is overstated: “When-ever I receive a call from a CEO it is about ‘achallenge in our pricing power.’ Something hashappened where ‘we’ve been undercut andwe’re going to have to continue to lower ourprice.’ But consumer demand still exists. Theworld is constantly changing and the smartest

At Apparel’s Tech Conference, the founder of a stock research firm shared his own uniqueformula for industry success — a system he says distinguishes the top companies fromthe rest of the pack even in the most challenging of economic times.

wRatings founder and CEO Gary A.Williams says building pricing powerentails tapping into nine sources ofcompetitive advantage his firm hasidentified — the nine are dispersedthrough the supply chain, productionand the delivery chain. “Competitiveadvantage is easy when you knowwhere to look,” he says.

businessinsight

FEBRUARY 2010 • www.apparelmag.com6

companies, including those top 15, areinstead focusing on adapting to new cus-tomer expectations, new needs.”

Williams suggested that while manu-facturing proficiencies such as developingscale (globalization) and TQM (total qual-ity management) were still integral strate-gies, successful companies on his ratingslist are also more attuned to grabbing mar-ket share by capitalizing on built-in strengthssuch as competency of staff (UPS), brandleadership and trust (Coca-Cola) and prod-uct usefulness (he cited Dell, which he notesoffers comparative quality at a fair price).“The question is what can your companydo that your rivals cannot?” Williams said.“There’s a lot that you can tap into.”

He cited Under Armour for instance,which, undeterred by price pressures,emerged as a pioneer in the sports apparelmarketplace by focusing on its “designdominance,” and by fortifying its stupen-dous brand perception.

“Strategy is all about focusing on thethings you choose to,” Williams said. “Mostcompanies today have enough money todo just about anything they want. The ques-tion is where are you going to focus?”

Making “moats”Williams, who is a frequent speaker and

co-author of the book The 5 Paths to Per-suasion: The Art of Selling Your Message, dur-ing his presentation related nine identifiable“moat” categories to his wRatings approach,characteristics that he said the top compa-nies have established as barriers to entryfor their competition. The moat conceptis adapted from Warren Buffett, who sayshe won’t invest in a company unless ithas a moat — that is, a competitive advan-tage around its core business — to pro-tect his profits.

Williams said to establish moats, the topcompanies on his wRatings list are look-ing beyond the traditional roadmap forbusiness success, one that once centeredon building and selling great products; addi-tionally, they’re investing in technologyand services “to defy the business cycle.”Beyond great product, Williams says, theyare also leading the way with superior busi-ness ecosystems (supply chain) and fig-

uring out the best ways to captivate theircustomers (delivery chain).

To illustrate his point, Williams citedMicrosoft Windows’ early market-share tri-umphs over Apple and its MacIntosh. “Whydidn’t the best product win?” asked Williams.He noted that Microsoft capitalized on thesuperior delivery of its operating systemthrough its agreement with IBM and otherPC companies — an advantage Apple ineffect never overcame as it offered a richlyengineered experience but relied on highprofit margins and failed to establish anequally strong delivery strategy.

Williams and wRatings have identifiednine “moat makers” divided between sup-ply chain (economies of scale, economies ofskill, cost containment); products (designdominance; brand perception; routine reliance)and delivery chain (channel lockout; switch-ing lock-in and network effect). With thedelivery chain, Williams lauded compa-nies including Microsoft and eBay, the lat-ter succeeding at “bi-nodal communitygrowth” as it masters connecting buyers andsellers online.

Alluding to the nine “moat maker” cat-egories, Williams said, “growth is easierwhen you know here to look.”

Today, said Williams, truly innovativecompanies are partnering with other com-panies to leverage their own core compe-tencies. They are also overcoming their ownrelative weaknesses by tapping into the com-plementary strengths of other firms for aneven more decisive competitive advantage.

He cited the Nike+iPod sports kit, adevice that measures and records the dis-tance and pace of a walk or a run. The kit

consists of an “accelerometer” attached toor embedded in a specialized Nike shoe;iTunes software can be used to view walkor run history.

The successful Nike and Apple part-nership capitalized on the former’s economiesof scale and supply chain capabilities andleveraged Apple’s strengths including prod-uct uniqueness and consistency, reputa-tion in the marketplace and product quality.

Combined, Williams said, Nike+iPodsports kit has captivated the customer andthe two companies built an enviable deliv-ery chain that connected the pair’s prod-ucts with new customers and establisheda niche consumer community that sharesfitness data with one another.

Williams also pointed to PetSmart, whichconsulted the Ritz-Carlton Hotels a fewyears ago before launching its PetSmartHotels for dogs and cats. Transcendingbeyond products into services propelled acomeback for the franchise, which hadstruggled financially earlier in the decade,and helped the retailer improve in estab-lishing a more simplified and unified shop-ping experience that deepened itsrelationships with customers.

“The moat makers are the ones that cre-ate and think beyond just ‘what my prod-uct does’ and focus on ‘what is my brandgoing to be,’ Williams said. “If you startthinking about how you can partner, youcan build that pricing power. ... You canbeat the business cycle by using technol-ogy to extend your product into service.You can grow revenues and build com-petitive strength by tapping into all ninesources of competitive advantage and finally,you can-out maneuver rivals to become aleader by borrowing proven ideas fromother industries.” n

Michael D. Cole is associate editor of Apparel. He can be reached atmcole@apparelmag.com

With the launch of Nike+ipod in 2006, thesuccessful Nike and Apple partnershipcapitalized on Nike’s economies of scaleand considerable supply chain capabilitiesand leveraged some of Apple’s pronouncedstrengths including product uniqueness andconsistency, reputation in the marketplaceand product quality.