The Los Angeles Area Fashion Industry Profile

Transcription

The Los Angeles Area
Fashion Industry Profile
Sponsored by CIT Group and
The California Fashion Association
CIT Commercial Services
CIT Commercial Services 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 ranging in size from $2 million
to $1 billion in annual sales that sell to a broad range of public and private retailers,
wholesalers, and distributors across the nation and abroad. CIT’s Internet-based
platform provides clients with real-time credit approvals and comprehensive
accounts receivable information.
To learn more, visit cit.com/commercialservices.
The California Fashion Association (CFA)
The California Fashion Association was organized in 1995, as a non-profit public
benefit 501(c)(6) Corporation. 20 years ago, the CFA was established to provide information for
the expansion and growth to the apparel and textile industry in California. The CFA is the forum
organized to address the issues of concern to our industry. Manufacturers, suppliers,
educational institutions, allied associations, and all apparel-related businesses benefit.
To learn more, visit www.calfashion.org.
Table of Contents
Executive Summary .................................................................................................................................. 1
Fast Facts .......……………………………………………………………….……………………………………………………………………….....5
Global in Three Ways: The Los Angeles Area Fashion Industry Profile — 2016 ............................................ 6
Perceptions and Misperceptions ..................................................................................................................... 6
Fashion Business Models, College Design Programs, and the Downtown Fashion Marts .............................. 7
L.A. Apparel Manufacturing: Niche Markets in Quick-Turn Merchandise..................................................... 10
Textile Manufacturing: Another Sunset Industry? ........................................................................................ 11
Tech Comes to the Rescue ............................................................................................................................ 14
The Importance of Global Licensing .............................................................................................................. 16
Topping It Off: Cosmetics, Jewelry, and Footwear ........................................................................................ 18
L.A. and O.C. – Two Distinct Trendsetters ..................................................................................................... 20
L.A. and N.Y.C.— Friends or Foes? ...................….…..………….…………….……..………………………………………..……. 22
Hoover’s Summary: Back-End Business Segments in the L.A. Five-County Metro Area .............................. 24
L.A. Industry by the Numbers ................................................................................................................. 25
Overall Employment Facts ............................................................................................................................. 27
Wholesaler, Manufacturer, and Textile Employment ................................................................................... 32
L.A. Wages and Earnings ................................................................................................................................ 38
Indirect Impacts ............................................................................................................................................... 43
A Demographic Profile of Apparel Manufacturing Workers.......................................................................... 45
Labor Burdens: A Barrier to Job Growth........................................................................................................ 46
Merchandise Prices........................................................................................................................................ 46
Finance........................................................................................................................................................... 51
The International Trade Effect ................................................................................................................ 55
Imports .......................................................................................................................................................... 56
Exports ........................................................................................................................................................... 66
The March Toward Free Trade Continues ..................................................................................................... 74
The Outlook for Los Angeles’ Apparel Industry ........................................................................................ 77
Pluses ............................................................................................................................................................. 77
Minuses.......................................................................................................................................................... 78
CFA/CIT Survey: The L.A. Apparel Industry Speaks for Itself ......................................................................... 79
Index of Statistical Tables ....................................................................................................................... 90
Executive Summary
THE LOS ANGELES AREA FASHION INDUSTRY PROFILE — 2016
To understand the importance of the L.A. apparel industry to the overall U.S. economy and the L.A.
region, it is vital to understand how it is the “driver” for other segments of industry.
“After movies, television, and music, FASHION is the fourth pillar of popular culture.”
– Robbie Myers, Editor-in-Chief, Elle Magazine.
Industries that serve consumers get grouped into two categories. The first group they call “consumer
staples.” This includes everyday spending on essentials — food, beverages, soaps, and cosmetics.
Apparel is NOT included in staples!
Clothing design, and the industries that manufacture or distribute it, end up in a second category called
“consumer discretionary.”
In this group, industries that serve consumers rely upon the discretionary, or extra, income earned by
consumers. The reason for apparel’s place as a discretionary purchase, and not a staple, is that apparel
is considered an aspirational commodity. Other products in the discretionary goods group include
automobiles, home furnishings, and consumer electronics.
What do apparel and textiles have that is unique, in comparison to automobiles, furnishings, and
electronics?
Clothes are cheaper; financing is not necessary! Knowledge of fabric design and the assembly involved in
fashion creations are easier to master and move than are the large, fixed capital expenditures involved
in an auto plant, or making sectional sofas, or assembling HDTVs. Manufacturing processes for apparel
require smaller machines.
This allows the location of apparel manufacturing to be footloose. In other words, apparel
manufacturers feel free to find the most convenient place on the globe to move, where labor costs are
in line for the producer, where speed-to-market is a benefit, and where there is a “cluster” of industry
participants.
People buy clothing to express their unique tastes, to show others their aspirations in life. Clothing
outgrew its essential demands long, long ago.
In today’s world, apparel trendsetters set aspirations globally.
Many “trendsetters” live and work in the Los Angeles area. These include our celebrities, models, actors
and actresses, notable executives, and designers. Online social media is a core tool trendsetters use to
touch others globally. People tap into this “aspiration” mode every day. It is global in its reach, but
entrenched in Southern California.
In its manufacturing footprint, the L.A. apparel industry sits at the vanguard of globalization a second
way.
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Fashion Industry Profile 2016
Extended chains of apparel manufacturing production lift developing economies by introducing
machines, assembly floors, and organized training to the unexposed masses. The more skilled create an
extended value chain of contractors and sub-contractors.
In the 19th century, organized apparel making was introduced in England. In the 1870s, it moved west to
capitalize on the U.S. immigrant pool on the East Coast. 1 A century later, apparel manufacturing shifted
to the West Coast, and then moved across the Pacific to employing the masses in China. Today, supply
chains can extend to all corners of the globe such as Bangladesh, Nicaragua, Vietnam, and the
Dominican Republic.
Los Angeles, with its proximity to lower-cost Mexico and the Pacific Rim countries, all with a migrating
pool of skilled workers, has always been a natural fit for textile making and cut-and-sew manufacturing;
a distinction it holds to this day.
International trade links make L.A. “global” a third way.
The twin ports of Los Angeles and Long Beach, and the major air and sea and trucking lanes, form this
region’s essential commercial backbone. Trade and transport logistics tie the global aspiration-setting
process in L.A. to its affordable global clothing supply chains.
The synergy of online aspiration-setting, a footloose manufacturing mix, and international trade logistics
in one place—these three lock the Los Angeles region in as an enduring fashion design center. This
Pacific coastal region will remain a dominant apparel manufacturing and fashion aspiration center in the
United States and beyond.
This 2016 Los Angeles Area Fashion Industry Profile shows you how it happens.
L.A. — Key Strengths as a Textile and Manufacturing Hub for Fashion
Creativity
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An extraordinary L.A. creative cluster sits atop all other industries. The creativity in the region
results from having 12 times more film and video editors than the national average; 12 times the
media and communication workers; 12 times the makeup artists and theatrical performers; more
than 10 times the fabric and apparel patternmakers; and nearly eight times the fashion designers
(Bureau of Labor Statistics, May 2014).
Constant sun and easy living inspire the enduring popularity of L.A.-based design. This “L.A. Style” is
propagated by the media’s obsession with Hollywood.
1
During the 1870s, the value of garments produced in New York City increased six-fold. By 1880, New York produced more garments than its
four closest urban competitors combined. In 1900, the value and output of the clothing trade was three times that of the city's second-largest
industry, sugar refining. New York's function as America's culture and fashion center also helped the garment industry by providing constantly
changing styles and new demand. In 1910, 70% of the nation's women's clothing and 40% of the men's was produced in the City. – Lower East
Side Tenement Museum, Tenement Encyclopedia, Chapter Six: Garment Industry
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Numbers
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L.A. brands and a constant influx of new designer names command a premium. A “Designed in L.A.”
or “Made in the U.S.A.” label commands a prestige factor. 75% of U.S. consumers would pay up to a
9% premium for it (Harris Interactive Survey, March 2014).
L.A., with deep strength in entertainment and design, can maintain its competitive advantage in
product design and marketing through global licensing. This is an important revenue-generating
tactic, with an average royalty rate of 5% of sales (LIMA, 2014).
E-commerce and social media swiftly reshaped global aspiration-setting. The shift to e-commerce is
7.2% for the United States overall, but in apparel the shift has been faster, reaching 15% of retail
sales or more.
Dynamics
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In L.A., Internet-only apparel retail is already common. Another movement is under way called
“Clicks-to-Bricks.”
Computer technology also helps L.A.’s designers and manufacturers stay competitive by shortening
product cycles and reducing costs. 3D fitting, 3D printing, and virtual reality are here.
The L.A. textile industry’s advantage? There is great design, the ability to diversify product lines, and
vertical operations, all in one area. Profitable L.A.-based textile processes involve many layers of
expertise, speed, and a willingness to try new things.
A Fresh Perspective on L.A. Fashion Jobs
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Geography and a marketable fashion statement are a powerful combination. $43B+ in apparel
imports enters our ports. Local companies capture $17.8B in revenues. $6.9B (1/3) flows to local
workers. (From USA Trade Online, Hoover’s, and estimates we develop inside this report.)
Front-end job growth looks solid. In May 2014, 4,130 fashion designers were employed in L.A. with
another 520 working in Orange County. Two years prior, 3,770 fashion designers worked in L.A.
That’s fashion designer growth around 9% over two years (+4.5 a year) (Bureau of Labor Statistics,
Occupational Employment Statistics).
In this up cycle, L.A. added the most establishments and jobs at operating wholesale firms.
Wholesaling apparel wages remain a strong spot at $24 an hour, though earnings have settled back
the last couple years, tracking along with apparel import prices. This global industry has sustainable
reasons for a permanent place in the region, with a well-paid employment base.
From 2012 to 2013, apparel manufacturing added 3,596 net jobs (42,483 to 46,439; a 7.7% rise).
Cut-and-sew apparel jobs offer $12.50 to $14.50 an hour. This is above current California and
federal minimum wage rates (Bureau of Labor Statistics).
L.A. back-end fashion businesses are doing better (+6.3% y/y) than national trends. Catching the
data is difficult because apparel-related jobs fall outside the data “catch-all” of manufacturing,
textiles, and wholesalers.
Location quotient data show L.A. women’s clothing manufacturers scored an incredible 17.2 LQ
(location quotient — meaning this sub-industry has 17 times the usual concentration in L.A. vis-à-vis
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the nation). Apparel contractors scored a 13.3; wholesale apparel had a 5.1; textile and fabric
finishing had a 4.1 (Clustermapping.us).
Sophisticated L.A. assembly operations work closely with designers and fill low-volume, quick-turn
orders. These command much higher prices. Hence, higher profit margins are in place. Sending such
orders to offshore factories is not economical, in terms of time and operational procedures.
The L.A. apparel industry of today has greatly improved working conditions from the apparel
industry of 10 years ago through self- and government monitoring. In contrast, the “second
migration“ to low-wage countries — from China to places like Cambodia or Bangladesh — created a
backlash from the consumer due to a lack of worker safeguards.
Entrepreneurs can start a business in the L.A. region — easily and quickly. All they need is capital.
Total L.A. fashion back-end employment impact sums to 212,923 jobs. That’s a cluster!
How to Support the L.A. Fashion 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? Better yet, how about a tax credit for
“new hires”? There is also a need for newer equipment, requiring equipment financing.
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 Week” fashion shows, which generate a variety of
additional spending and tax flows (meals, hotels, limo services, etc.). Use social media.
A successful apparel business requires more than just great designers. It needs top-notch
management talent. Post-graduate and graduate institutions should consider offering apparelrelated business management and merchandising studies, not just design and merchandising.
Introduce local high school students to the opportunities in the apparel industry through “realitybased” programs such as the Regional Occupational Program (ROP) in high schools. Interest in
fashion design and merchandising might catch their interest to stay in school!
Upgrade “Market Week” to get more publicity. Educate residents about the importance of the local
fashion industry. Fashion is big business in L.A. Make “Market Weeks” a big deal around here. Help
strengthen L.A.’s reputation as the center of street fashion in America... and the world.
Lower export barriers markedly. Tariff and nontariff barriers inhibit exports of L.A. apparel.
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FAST FACTS
Textile and Apparel Five-County Metro
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L.A. Customs District Imports
Company Revenues
Worker Incomes
$43+ billion
$17.8+ billion
$6.9+ billion
L.A. Pay
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Fashion Designers
Wholesalers (Importers)
Apparel and Textile Workers
$35 an hour
$23 to $24 an hour
$12 to $15 an hour
Job Counts
Apparel, Textile, and Wholesale (2013)
• SoCal Workers
• L.A. Metro Workers (includes Anaheim)
• N.Y.C. Workers
• SoCal Wholesalers
• Apparel Mfg.
• Textile Mfg.
102,311 (2013 +6.3% y/y)
99,230
69,555
48,842
46,439
6,799
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Independents
Fashion Designers
Cosmetics Workers
Jewelry Workers
Footwear Workers
8,995
4,130 in L.A., 520 in OC (May 2014, +4.5% y/y)
5,917
8,810
5,117
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L.A. Knitting Machines
Centers for Higher Education
2,000
20
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SoCal Establishments
Overall Fashion Jobs
Apparel, Direct & Indirect Jobs
11,000
135,800
213,923
Proportion of U.S. Jobs Located in Southland in 2013
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Apparel Manufacturing
Wholesaling (Importers)
Textile Mills
42%
24%
6%
L.A. County Companies with $1 Million or More in Revenues in 2015
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Textile Mills & Apparel Manufacturing
640
Wholesaling (Importers)
892
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GLOBAL IN THREE WAYS: THE L.A. AREA FASHION INDUSTRY PROFILE — 2016
A Design-Driven Industry...
The modern L.A. apparel industry is far more than just manufacturing. This is a highly sophisticated,
design-driven industry backed up by an extended value chain. It is fashion and market research, brand
licensing and intellectual property development, design, materials engineering (often classified under
“textiles” rather than “apparel”), product manufacturing, marketing, systems tech, and distribution.
Perceptions and Misperceptions
Los Angeles is indeed the nation’s top center for creativity.
Economists use location quotients to capture how an area’s distribution of employment, by industry,
compares to a “reference area.” In this case, the reference is the entire United States. If a location
quotient equals one, the area in question has about the same ratio of industry employees as the nation.
In the chart below, you can clearly see how L.A. is different.
An extraordinary L.A. creative cluster sits atop all industries in this region.
Creativity in the region results from having 12 times more film and video editors than the national
average; 12 times the media and communication workers; 12 times the average number of makeup
artists and theatrical performers; more than 10 times the number of fabric and apparel patternmakers;
and nearly eight times the number of fashion designers.
Table 1
Occupations with the Highest Location Quotients
in Los Angeles-Long Beach-Glendale, CA
Metropolitan Division, May 2014
Film and Video Editors
12.00
Media and Communication Workers, All Other
11.99
Makeup Artists, Theatrical and Performance
11.94
Occupation
Media and Communication Equipment Workers, All Other
10.85
Agents and Business Managers of Artists, Performers, and Athletes
10.78
Fabric and Apparel Patternmakers
10.20
Fashion Designers
7.71
Sound Engineering Technicians
7.43
Multimedia Artists and Animators
6.80
Producers and Directors
6.70
0
3
6
9
12
15
Location Quotient
Source: Bureau of Labor Statistics
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Feeding the frenzy, new fashion trade shows pop up all the time. L.A. has the greatest variety of new
retailers. Hollywood “star power” creates runway fashion. Social media builds consumer interest…not
Paris!
The region’s apparel manufacturing that supports this amazing design complex suffers from many
misperceptions.
The L.A. apparel industry of today has greatly improved working conditions from the apparel industry of
even 10 years ago through stringent self- and government monitoring. Sophisticated assembly
operations work closely with designers and fill low-volume, quick-turn orders. These command much
higher prices. Hence, higher profit margins are in place now. 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 commands a prestige factor. Designers and retailers
consider it when deciding on a source of supply. 75% of U.S. consumers would pay up to a 9% premium.
Variations of Fashion Industry Business Models
Fashion design and the apparel production industry in Los Angeles have taken on a rich variety
of business forms.
1. Large U.S. Conglomerate with Local Subsidiary – 7 for All Mankind (VF), Superba (PVH)
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
5. Separate Divisions of “Umbrella” Corporation – Joie for Dutch LLC
6. Owner/Entrepreneur/Domestic Production – Vertical / St. John
– With Contractors / Karen Kane, James Perse
7. Owner/Sales Executive – Self Esteem, Velvet Heart
8. Owner/Designer – Trina Turk, Sue Wong
9. Owner/Production Executive – Hudson, Stony
10. Owner/Entrepreneur/Importer – Body Glove, California Dynasty, KWDZ
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: Cherokee Group.
12. Internet-only apparel – Nasty Gal.
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Design Programs at Local Colleges
Los Angeles is the global leader in the field of fashion design college-level instruction.
These schools draw many international students and minorities. They add diversity and
international flavors to these programs.
In all, 20 private and public Los Angeles-area undergraduate schools offer programs dedicated
to apparel design and merchandising.
▫ Academy of Art University
▫ Long Beach City College
▫ Art Center College of Design
▫ Art Institute of California – L.A. and Hollywood
▫ California College of the Arts
▫ California Polytechnic State University, Pomona
▫ California State University, Long Beach
▫ Los Angeles Trade Tech
▫ Mt. San Antonio College
▫ Otis College of Art & Design
▫ Pasadena City College
▫ Saddleback College
▫ California State University, Los Angeles
▫ Santa Ana College
▫ California State University, Northridge
▫ Santa Monica University
▫ El Camino College
▫ Fashion Institute of Design & Merchandising — L.A.
▫ Woodbury University
▫ FIDM – Orange County and San Francisco
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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.
Marts in L.A. are distinct from other such buildings in other cities: they are open 52 weeks a
year, so potential buyers can visit anytime. Other marts around the country are only open
during designated “market” times.
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 St. and 9th St. in downtown L.A. Now that’s industry
clustering!
Inside each building the merchandise ranges from mass-market product to cutting-edge.
Some large retailers also have “buying offices” where representatives of designers and
manufacturers can go to showcase their latest offerings. At these marts, interested parties
mingle and deal. Billions of dollars in 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” and new technologies. Experts forecast trendy colors and styles
for the next two years, so designers and buyers can plan accordingly through “predictive
services,” while the latest technology can help implement those decisions quickly.
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 reserved for the “red carpet” styling in New York. L.A. residents are
largely uninformed about the significance of the marts and their special activities.
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L.A. Apparel Manufacturing – Niche Markets in Quick-Turn Merchandise
To some economists, apparel manufacturing should be considered a “sunset” industry for an advanced
economy. Apparel manufacturing is labor-intensive. It has low barriers to entry. There is a relatively low
level of up-front capital investment. As a result, it is often the first manufacturing industry established in
an underdeveloped country. Low labor cost in an underdeveloped country makes clothing production
there the most price-competitive in global markets. 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, Bebe, and Hot Topic are examples of the U.S. fastfashion industry. They, along with their global competitors like H&M, Zara and Primark, have
conditioned shoppers to want 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 after a couple of weeks. Apparel can be manufactured in two to three weeks. The new item can
get to stores in less than four weeks. 2
Most L.A. apparel “manufacturers” do not actually sew anything.
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. 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 reputations. Exclusivity also counts.
Designs with limited production runs command a higher 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 rooted and grown. These garments require high-quality
materials, agile manufacturing capabilities, a close working relationship between the contracted factory
and the designer, and quick turnaround. The Los Angeles cluster brings these factors together.
From concept to completion, production runs may be as short as just a few weeks. The latest fashion
craze must get to the market quickly. Some firms 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.
2
Alexa Hyland, Fit for L.A., Los Angeles Business Journal, August 8, 2011, Vol. 33, Num. 32.
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Another L.A. niche market is re-order. Firms can underestimate demand for a certain style and may
need additional production fast. If they go through the overseas channel, the style may become out-offashion by the time product arrives. In addition, the quantity needed may not be large enough to cover
the extra overhead involved in overseas sourcing. Thus, developing capabilities to adjust production
quickly is crucial for local firms seeking a piece of the re-order market.
In sum, domestically produced L.A. fashion merchandise focuses on higher cost/smaller lots and quick
turnaround. Domestic suppliers offer greater factory control and deliver more SKUs per clothing line.
Textile Manufacturing — Another Sunset Industry?
Until a decade ago, textile manufacturing had a significant position in local production. Decisions to
move textile-making out of L.A. had several drivers. Labor costs played a large part. But energy supply
and other rising costs, environmental regulatory concerns, and government regulation were the issues
reflected in the change.
Textile manufacturing is highly mechanized and far more capital-intensive and energy-intensive than
apparel manufacturing. A location with higher energy costs and an unreliable supply chain is avoided.
Environmental concerns (e.g., from dying and washing) and stringent regulations involved with textile
manufacturing make it less viable for advanced economies.
However, 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, textile manufacturing, also has
found extended life in niche markets.
The competitive advantage of Los Angeles' textile 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 locally. 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.
One L.A. textile specialty is knitting. Approximately 2,000 knitting machines whirl away in L.A. today. This
is significantly down from the 1993 high, but still a large number. In 1997, a large number of knitting
companies left L.A. with their machinery. Benefiting from NAFTA and CAFTA trade agreements, the
plants were re-created in Mexico and Central America.
In years past, rising energy costs hit the industry hard.
Looking forward, domestic natural gas supplies appear abundant, partly due to hydraulic fracturing
(fracking) technology. This pumps water into gas-rich areas previously found too difficult and expensive
to produce from. The technique then pushes out natural gas.
The L.A. textile industry is still seeking stabilization. While the cost of natural gas has dropped
significantly, other costs and restrictions have added complexity to local textile production.
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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.
California stands as one of the world’s biggest exporters of cotton. In 2015, cotton prices
headed back down to the high end of historical norms. In 2011, cotton prices soared 280% in
index terms, up from a long-term average of 100%. After that huge 2011 run-up, the run-up in
global cotton prices reversed. Weather and drought conditions are always a factor in global
pricing. Chart A on the following page shows the cotton export price index over the last 25
years.
Once the fibers are collected, they are 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 bats of cotton into
yarn.
Yarn that takes on the dark blue denim color are 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.
This is 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 undyed, 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 trademark, 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 rustic touch.
But NOT in California! 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 and cotton spinning, weaving, and finishing outside of
California.
For a fascinating, five-minute “How Cotton is Made” video, click the following link:
https://www.youtube.com/watch?v=kH_b3Heo48I
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Chart A: Cotton Export Price Indexes, 1990 to 2015
Even when incorporating swings in cotton prices, raw materials make up a small fraction of
the cost of a finished garment.
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Tech Comes to the Rescue?
E-commerce and social media are swiftly reshaping the game of global aspiration-setting.
While 7.2% for U.S. e-commerce retail might sound like just a sliver of total retail in 2015, remember:
there are still a lot of things you wouldn’t think of buying online, such as gasoline, cars, and restaurant
meals. E-commerce retail sales were 4.2% of the total in 2010. It has nearly doubled in five years.
Within apparel categories, the shift to e-commerce has been faster. Companies that generate the
largest portion of their sales from online are apparel retailers. According to ERetailer, their online sales
are often more than 15% of their total sales. The potential is enormous. Lululemon Athletica Inc.,
Express Inc., and Abercrombie & Fitch Co. are examples of international clothing retailers with ecommerce sales equal to at least 19% of total receipts. It is likely that 30+% of the total retail economy
will be online by 2025.
In the United States, Internet-only apparel retail is already common. Another movement is under way
called “Clicks-to-Bricks.” Once only digital, multiple Internet-only companies are also establishing an
offline presence. Amazon.com opened its first brick-and mortar store in 2015 at Purdue University. At
the same time Nasty Gal, Just Fab, Swimspot, Bonobos, and Warby Parker opened physical clothing
stores in L.A.
Chart B below shows the boom in e-shopping jobs in California.
Chart B: Retail Trade Employment — Electronic Shopping and Mail-Order Houses in California
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Technology helps L.A.’s design shops stay competitive. IT (Information Technology) can shorten product
cycles and reduce costs.
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 shortens the product cycle (the design-to-shelf time).
3. Computerized shipping modules enable manufacturers and retailers to control product flow
(including U.S. customs clearance). This reduces delays, uncertainties, and inventory costs.
4. Supply-side management technology (PLM & ERP) tightens up the design-to-manufacturing
process.
New technologies help designers, manufacturers, and retailers cut costs and maintain competitiveness.
Yet, the large capital investments can be very burdensome for smaller contractors.
New high-tech machinery is very expensive and requires trained workers. While these machines may be
efficient in the long run, apparel and textile firms are hesitant about investing in them when their own
business outlook is uncertain, especially during difficult 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.
Some countries offer assistance. Industrial policies can provide financial subsidies to a country’s
manufacturers.
To stay in business, L.A. firms must compete using their greatest strength. Creativity.
Chart C below gives you an idea of what 3D fitting is all about.
Chart C: 3D Fitting
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The Importance of Global Licensing
Los Angeles, with strength in entertainment and design, is able to maintain a competitive advantage in
product design and marketing through global licensing, an important revenue-generating tactic.
The primary source of strength is L.A.’s apparel design base
A large part of the strength is this amorphous concept of “L.A. Style.” This is propagated by constant
media obsession with Hollywood and design celebrities.
The perception of Los Angeles as one of the centers of fashion (along with N.Y.C., 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 Southeast Asia, its
reputation as a source of fashion design grows.
Entertainment award broadcasts and nightly “E! News” shows add to the perception that L.A. is fashion.
Celebrity selfies and fashion bloggers are hot. They help promote the “L.A.” brand and monetize its
influence.
Ponder an average royalty rate around 5% of retail sales. A license can excite retail sales across multiple
channels of interests.
See the monetization in Table 2 below.
Table 2: Retail Sales and Royalties of Licensed Merchandise,
by Property Type Worldwide, 2014 ($B US)
Property Type
Entertainment/Character
Corporate Brand
Fashion
Sport
Publishing
Collegiate
Celebrity
Music
Art
Nonprofit
Retail Sales
$107
$53
$29
$26
$13
$5
$3
$2
$2
$1
% Of Total
44%
22%
12%
11%
5%
2%
1%
1%
1%
0%
Total
$241
Source: Licensing Industry Merchants Association (LIMA)
Royalty
$6.2
$2.7
$1.7
$1.5
$0.6
$0.3
$0.2
$0.1
$0.1
$0.1
% Of Total
46%
20%
12%
11%
5%
2%
1%
1%
1%
0%
13.4
North America, at 60% of the total, and Europe with 25% make up most of the licensed merchandise
playing field. The rest of the world splits the remaining 15% in retail sales of licensed merchandise.
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U.S. apparel brand expansions to the rest of the world can happen, if nontariff duties permit.
The opportunities are outlined below.
•
•
•
•
•
•
•
Brazil – 60% of the population is under 30. Imports are not welcome.
China – Brand names are important, with different color palettes and design tastes.
India – Retail growth is rising. A booming middle class.
Turkey – A growing market for mid-market retailers.
Russia – If things calm down; still, a higher cost of operation.
Argentina – High-end retail would return with economic recovery.
United Arab Emirates (UAE) – No freestanding retailing. Brands must associate with real estate
developers.
What’s at the top of the latest “worldwide retail sales of licensed merchandise” list? Apparel.
Accessories come in at third place. Footwear secures a 12th-place spot in worldwide sales. Consult Table
3 below.
Table 3: Retail Sales of Licensed Merchandise,
by Product Category Worldwide, 2014 ($B US)
Category
Apparel
Toys
Accessories
Home Décor/Furniture
Software/Videogames/Apps
Food & Beverage
Other
Consumer Electronics
Health & Beauty
Publishing
Sporting Goods
Footwear
Gifts
Paper Products
Music/Videos
Housewares
Infant
Promotions
Total
CIT Group and CFA
Retail Sales
$39.4
$29.7
$27.6
$18.7
$16.0
$14.8
$11.3
$10.6
$9.7
$9.0
$8.9
$8.5
$8.4
$7.9
$6.8
$6.3
$4.0
$3.8
% Of Total
16%
12%
11%
8%
7%
6%
5%
4%
4%
4%
4%
4%
4%
3%
3%
3%
2%
2%
$241.5
Source: LIMA Annual Global Licensing Survey, 2014
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Topping It Off: Cosmetics, Jewelry, and Footwear
Other fashion industries in Los Angeles have individual clusters. Corporate giants, such as Estee Lauder,
often buy up fledging California brands like MAC and Stila.
In terms of location quotients (LQ), the L.A. area has high job concentrations tied to women’s handbags
and purses (LQ of 11.81); personal leather goods and luggage (LQ of 3.95); and wholesale jewelry,
watches, and precious stones (LQ of 2.65).
Table 4: L.A. Cosmetics, Jewelry, and Footwear Location Quotients
Sub-Industry and Cluster
Location Quotient (LQ)
Women’s Handbags and Purses
11.81
Personal Leather Goods and Luggage
3.95
Wholesale Jewelry, Watches, Stones
2.65
Jewelry Manufacturing Cluster
1.44
Footwear Manufacturing Cluster
1.07
Source: Clustermapping.us, March 2015
The L.A. cosmetics industry offered 6,493 jobs to the Southland in 2013. L.A. brands include Max Factor,
Merle Norman, Neutrogena, and Hard Candy. Many positions are in sales and marketing. Companies
now listed under “manufacturing” are based on how the firm classifies itself. Wholesaling data for
Cosmetics (now listed as Toilet Preparations) are not available but it is likely significant, due to the
dominance of trade-related activities in the L.A. area.
The L.A. jewelry industry has a significant cluster in downtown Los Angeles, just to the east of the
downtown financial district. The jewelry district has many retailers and wholesalers engaging in
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.
On the upper floors of these large 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 craftspeople; expertise hails from Eastern Europe.
L.A. fashion is made complete with typical L.A. footwear such as sandals for surfwear and swimwear. It’s
a significant business in L.A. Like cosmetics, a lot of footwear “manufacturing” jobs are really supporting
jobs in sales and marketing.
Three shoe trade shows happen in L.A. every year. They get bigger and bigger.
Visit the link below to learn about Transit, L.A.’s premier footwear trade show.
http://www.californiamarketcenter.com/transit/
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The late LAEDC economist Jack Kyser created an L.A. cosmetics/jewelry/footwear employment table in
December 2003. Comparing his job numbers to my more current effort shows the change afoot.
•
•
L.A. jewelry manufacturing jobs (3,223 to 2,549) dropped 20% the last 10 years, much less than
apparel manufacturing jobs.
L.A. jewelry wholesaling jobs (5,840 to 5,005) are down 14% over the last 10 years.
What else is notable?
L.A.’s footwear wholesaling jobs picked up dramatically. They rose from 1,913 to 3,368 jobs. Meanwhile,
L.A.’s footwear manufacturing jobs fell significantly. They went from 1,393 to 550 jobs.
Table 5: Other Fashion-Related Industries
L.A.
Orange
Riverside
16,435
2,325
436
San
Bernardino
391
Cosmetics
Cosmetics Manufacturing
4,963
446
319
60*
129
Jewelry
Jewelry Manufacturing
Jewelry Wholesaling**
Total
2,549
5,005
7,554
352
651
1,003
2
65
67
52
104
156
2*
28
30
Footwear
Footwear Manufacturing
Footwear Wholesaling
Total
550
3,368
3,918
113
763
876
20*
30*
50
20
155
175
0
98
98
Ventura
257
Source: U.S. Dept. of Commerce, Bureau of the Census, 2013 County Business Patterns
* Estimated from scaling up establishment data.
**Note: includes watches, precious stones, and metals.
Total for 2013: 19,844 jobs, Total for 2011: 18,479 jobs
Two-year “other” fashion job change: +6.9%, Annual average job growth: +3.4%
L.A. is a major center for marketing and advertising, too. This is where advertising materials (e.g.,
magazine photo shoots and TV commercials) in support of all fashion-related industries are created. Like
it or not, what Hollywood stars wear is more important than what is offered on the runway by Dior.
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L.A. & O.C. — Two Distinct Trendsetters
Although Los Angeles County and Orange County are economically integrated, they have distinct
personalities in niche apparel markets. Los Angeles County is strong in “contemporary” apparel (brands
such as Guess and BCBG). Orange County is famous for surfwear and activewear (brands such as
Oakley). In May 2014, the U.S. Bureau of Labor Statistics (BLS) counted 4,130 fashion designers at work
in the L.A. Metro area, with another 520 fashion designers in O.C.
Orange County Overview
California’s Department of Finance says O.C.’s population is near 3.14 million. Anaheim, Santa Ana, and
Irvine are 870,000 of that. In 2020, the O.C. population will be 3.2 million. L.A. County has 10.1 million.
From 1990 to 2010, the O.C. population increased by 600,000. Most growth happened from 1990 to
2000, at +17%, versus +5% from 2000 to 2010. Want to know a surprising fact? O.C. has a very high
proportion of minority residents. Together, Asians and Hispanics account for 53% of the population.
That’s a majority.
Orange County (OC) Workforce Indicators Report, 2014
Race
Number
Percent
White
1,326,325
42.6%
Hispanic or Latino
1,065,977
34.2%
Asian
583,117
18.7%
Two or more races
74,544
2.4%
African American
49,027
1.6%
Native Hawaiian
8,916
0.2%
American Indian
6,613
0.2%
Source: U.S. Census Bureau, Population Estimates Program
O.C. is also wealthier on average than L.A. County. The proportion of O.C. households making under
$75,000 a year continues to shrink. The two richest household income buckets continue to grow. In
recent years, a staggering 25% of O.C. households make over $125,000 a year.
The Orange County Economic Development Corp. last published its fastest job growth areas in 2013.
• International Trade: +165,218 (Mexico is 25% of O.C. exports, Canada 12%, China 10%, Japan 8%)
• Info Tech: +61,438
• Creativity: +51,050
• Green Tech: +18,350
Orange County has a long history of science- and technology-based business, beginning with the
prominent defense and aerospace companies that emerged to take advantage of the county’s educated
workforce in the 1960s and 1970s. Today, many of Orange County’s most prominent high-growth
industry clusters revolve around biomedical technology, software development, computer gaming,
consumer electronics, and electronic component manufacturing.
With increasing global competition, Orange County’s location provides it with distinct advantages
regarding international trade. Creativity is another key. O.C. government and education leaders used to
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focus on STEM (science, technology, engineering, math) as a critical competitive advantage. This 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 started operations in 1962. In 2015, it made $340 million in revenue and
counted 4,000 employees.
With respect to O.C. surf/activewear, the apparel retailer Tilly’s and PacSun support the O.C. “look.”
L.A. & O.C. — Conclusion
A key to success for California-based companies is to be a step ahead of the fickle fashion curve. The
industry should demand twists and turns quickly in both contemporary and 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.
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L.A. and N.Y.C. — Friends or Foes?
Two U.S. areas claim to be centers of year-round fashion: Los Angeles and New York City.
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 imports. L.A.
Metro has developed fast fashion. New York has little left in the way of manufacturing to compete with
L.A.’s manufacturing cluster. Both areas are facing labor-cost pressures and increased labor-law
restrictions, yet survive with smaller lot production.
New York City continues to plan 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 apparel production back to the N.Y.C. fashion district and midtown Manhattan.
N.Y.C. turnaround ideas could be equally compelling inside today’s L.A. apparel industry!
In May 2014, 7,030 fashion designers worked in N.Y.C. metro (#1), and 250 more in Nassau-Suffolk
metro (#5). 4,130 fashion designers work in the L.A. metro area (#2), and 520 more in O.C. (#3).
Table 6 below counts back-end fashion jobs in each region:
Table 6: Apparel & Textile Jobs — L.A. County MSA vs. New York MSA, 2013
L.A. County
Metro Area
46,170
Industry/Impact
New York Metro Area
Apparel Manufacturing (315)
14,593
Apparel, Piece Goods, and Notions
Wholesalers (4243)
46,539
51,788
Textile Mills (313)
6,521
3,174
Total of these three industry codes
99,230
69,555
Apparel wholesaling-to-apparel
manufacturing ratio:
1.00
3.54
Source: U.S. Dept. of Commerce, Bureau of the Census, 2013 County Business Patterns

From 2011 to 2013, L.A. metro apparel manufacturing (315) jobs went from 41,385 to 46,170,
an increase of 4,785 jobs (+10.4%). N.Y.C. metro went from 15,571 to 14,593, a decrease of 978
jobs and a decline of 6.7%. High rent, expensive entry-level costs, and limited available industrial
space within the N.Y.C. cluster all come into play. All of these factors make affordable casual
production uncompetitive. “Made in N.Y.C.” apparel winds up being a high-end product.

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.
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While getting a precise count of export agents is difficult, a comparison of apparel and textile
employment in Los Angeles County and the eight-county New York PMSA shows N.Y.C. 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 N.Y.C. 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 traderelated job count is historical. New York has the headquarters of most large multinational apparel firms.
N.Y.C. is not resting on its laurels!
According to the N.Y. Economic Development Corp. (NYEDC) and the Council of Fashion Designers of
America (CFDA), the N.Y.C. 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 N.Y.C., and 500,000 visitors
come to their stores and showrooms each year.
According to Fashionista in July 2015, Mayor Bill de Blasio has made an appearance at the beginning of
each New York Fashion Week since his inauguration in January 2014. In February 2015, he upped the
ante by announcing plans to triple the city’s investment in “Made in NY” fashion initiatives — programs
designed to benefit manufacturers, designers, emerging companies, and students — from $5 million to
$15 million. Where is all this money going? The announcement specified the programs would roll out
throughout 2015, but so far only initiatives put in place before de Blasio’s time have really benefited
from the additional funding, industry members say. One exception is the launch of
MadeinNYFashion.nyc, a home base of information for designers and manufacturers beyond the main
“Made in NY” site, which has been supporting film and television productions for many years. The mayor
expanded the program to include “Made in NY” fashion at the start of Fashion Week last September.
Otherwise, most programs outlined in the mayor’s announcement are still in the works: a fully funded
internship and scholarship program for students, seed funding to help existing companies explore
advanced technologies or services like knitwear, a “Production Summit” event, a digital production
platform, worker training sessions, funding for space at trade shows, pop-ups, and store
partnerships. The mayor also promised continued support for two major initiatives — the Fashion
Production Fund, a loan program, and the Fashion Manufacturing Initiative (FMI), run by the Coalition of
Fashion Designers of America (CFDA).
Meanwhile, a fresh mix is brewing in L.A.
The L.A. art scene has exploded in the last few years, along with the L.A. fashion scene. The desire to
showcase something unique and “out of the box” is the driving factor in all creative fields in L.A.
Many feel that Los Angeles offers designers and artists more creative freedom. In New York, there is
already a cemented infrastructure and hierarchy. In a city like L.A., emerging and established artists
alike have the chance to make it up as they go along. 3
3
See Hayley Phelan, “Could Los Angeles Be the Next Fashion Capital?” on Fashionista.com, August 2012.
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Table 7: Back-End Business Segments in the Five-County L.A. Area
Textile Manufacturing
Revenues ($ millions)
Employees (headcount)
Rev/Employee ($000)
L.A.
744
7,015
106
Orange
193
2,603
74
San Bern
8
37
230
Ventura
9
115
82
Riverside
3
2
125
Total
957
9,772
98
Revenues
Employees
Revenue/Employee
L.A.
1,477
17,289
85
Orange
699
12,244
57
San Bern
3
49
67
Ventura
5
60
87
Riverside
2
15
Total
2,186
29,657
74
L.A.
94
1,369
69
Orange
79
1242
63
San Bern
Ventura
4
36
110
Riverside
6
35
170
Total
183
2,682
68
L.A.
3,089
18,649
166
Orange
582
5,591
104
San Bern
2
40
60
Ventura
5
73
67
River
0
0
Total
3,678
24,353
151
Men’s Clothing Mfg.
Revenues
Employees
Revenue/Employee
L.A.
339
4,367
78
Orange
171
2,377
72
San Bern
4
32
130
Ventura
6
70
86
Riverside
25
374
68
Total
545
7,220
75
Wholesale Sector
Revenues
Employees
Revenue/Employee
L.A.
5,234
22,684
231
Orange
546
2,804
195
San Bern
228
882
260
Ventura
72
368
196
Riverside
21
136
153
Total
6,101
26,874
227
Grand Totals
Revenues ($ Millions)
Employees (headcount)
Rev/Employee ($000)
L.A.
10,977
71,373
154
Orange
2,270
26,861
85
San Bern
245
1,040
235
Ventura
101
722
140
Riverside
21
562
101
Total
13,650
97,384
113
Apparel Accessories Mfg.
Revenues
Employees
Revenue/Employee
Women’s Clothing Mfg.
Revenues
Employees
Revenue/Employee
Source: Hoover’s 2015 (only companies with revenues above $1M). Table 5 does not include Quiksilver in
Orange County, with $1.6 billion in revenues; or Guess, Inc. in L.A. County (#891 in Fortune 1000) with $2.4
billion in revenue.
ALERT: Revenue per employee is an economist’s concept. Total accounted-for revenue earned by a firm
can be distributed across its workforce to effectively “pay” that workforce and its other factors.
This topline ratio is helpful. You can better understand underlying wage setting in each segment of the
industry. Workers can only earn in income what they produce in revenue. Hence, wholesalers (227K
revenue/employee) earn twice what an apparel-manufacturing worker (74K revenue/employee) earns.
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L.A. INDUSTRY BY THE NUMBERS
Is the apparel manufacturing industry cluster still concentrated in Los Angeles today? Absolutely!
Consider location quotients (LQ). A 1.0 LQ means a region has the same job concentration as the nation.
Table 8: L.A. Location Quotients for Apparel Manufacturing and Textiles
Manufacturing Sub-Industry
Women’s Clothing
Apparel Contractors
Wholesale Apparel
Textile and Fabric Finishing
Men’s Clothing
Location Quotient (LQ)
17.2
13.3
5.1
4.1
1.2
Source: Clustermapping.us, March 2015
Data above shows the L.A. women’s clothing sub-industry scored an incredible 17.2 LQ (meaning this
sub-industry has 17 times the usual concentration in Los Angeles). Apparel contractors scored a 13.3.
Wholesale apparel has a 5.1. Textile and fabric finishing has a 4.1. Showing a lack of Los Angeles area
focus, men’s clothing manufacturing scored a nearly normal 1.2.
L.A. apparel-making businesses compete fiercely, thus reducing the trade-off between price and fashion.
Small, integrated manufacturers rely heavily on trade shows and personal contacts to market their
operations 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,
apparel manufacturers depend on sound relationships to avoid returns and price reductions.
Materials typically account for 35% in 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. 4
Several types of manufacturers exist.
•
•
•
4
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 may or may not be involved in the product development process, but
“rent” their brands to producers of fashion products.
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 at agreed-to cost structures and on time.
The manufacturer placing the order typically owns and supplies the materials used
by contractors.
Industry Profile: Apparel Manufacturing, First Research, May 16, 2011. © 2011, Hoover’s Inc.
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Most apparel is still sewn using specialized sewing machines.
Equipment is bought from makers like Yamato and Juki, or German and Swiss companies. Technology
has 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 (patternmaking and samplemaking). The pattern is then graded into
various sizes, typically four or six sizes (grading). The graded patterns are marked onto one long sheet of
paper (marking). Many layers of fabric are cut, based on the marker in a cutting facility, then sent to a
sewing contractor. The garment is 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.
Many manufacturers cut fabric in the United States and ship it overseas for sewing into final garments.
Such operators have benefited from the NAFTA and CAFTA treaties. Exporting non-Chinese textiles or
finished apparel into China is difficult as best.
Machinery that satisfactorily replaces workers’ hands has been elusive.
It’s because of the soft nature of the materials being handled. Some standardized articles made from
stiff material, mainly jeans, can now be sewn by semi-automated machinery that requires workers only
to position the material. Because of the different skills and equipment needed to produce different
types of clothing, contract manufacturers usually develop a specialty.
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Overall Employment Facts
In the Five-county SoCal area, new jobs and upbeat firm dynamics have surfaced.
 In 2013, many apparel manufacturers added jobs. Based on the data, it appears existing apparel
manufacturing firms increased operating scale. There was no increase in net establishments.
Smaller, existing 10–19-employee firms grew larger and added employees, not new firms.
 In 2013, there were modest net additions to textiles establishment numbers, too.
The North American Industry Classification System (NAICS) 315 establishment data shows that apparel
manufacturing firms with 20–49 employees and 50–99 employees increased in 2013. Firms in the 10–
19-employees category fell. The establishment size statistics hint that a number of 10–19-employee
firms scaled up and became larger. If there are economies of scale in apparel manufacturing, such
industry segmentation dynamics makes sense.
Look back to 2000–01 in the County Business Pattern data (shown below). You can observe global trade
job-loss dynamics. Apparel manufacturing and textile mill establishments and jobs started a decline,
spurred on by a steep rise in energy costs and implementation of NAFTA and CAFTA free trade treaties.
During the 2008–09 U.S. financial crisis, huge numbers of firms also expired. Apparel manufacturers shut
1,000 firms in a year, shrinking from 3,776 to 2,754 establishments.
Apparel Manufacturing Establishments
Apparel Establishments
5,000
Textile Establishments
4,500
4,000
3,500
3,000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
2,500
430
410
390
370
350
330
310
290
270
250
Textile Establishments
Circa 2013, SoCal Textile Establishments
Started a Comeback, Apparel Manufacturers Scaled
Source: County Business Patterns, 2013, Five-County LA Region
From 2012 to 2013, a net apparel manufacturing job addition of 3,596 (42,483 to 46,439 or a 7.7% rise)
was heartening to see.
In recent years, apparel manufacturing businesses have been bringing some jobs back to the SoCal
region from abroad, and/or growing fresh ones. L.A. County created 3,036 of those SoCal new jobs (85%
of the total adds). Tacking on apparel wholesale SoCal jobs raised the total from 95,585 to 102,062 jobs.
That’s an annual increase of 6,477 jobs or 6.3%.
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Circa 2013, Apparel Manufacturing
Jobs Started to Come Back, Textiles Jobs Less So
13,000
110,000
12,000
100,000
11,000
90,000
10,000
80,000
9,000
70,000
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
6,000
2003
40,000
2002
7,000
2001
50,000
2000
8,000
1999
60,000
1998
Apparel Employment
Textile Jobs
Textile Employment
Apparel Manufacturing Jobs
120,000
Source: County Business Patterns, 2013, Five-County LA Region
Apparel and textile manufacturing offer scale advantages.
The average size of an apparel manufacturing firm is around 18 or 19 employees. The average size of an
apparel wholesale (importer) firm is around 10. That’s twice the scale for the average manufacturer of
apparel over the average importer of the same goods.
Textile firms average an even larger number of employees: somewhere between 24 and 33. As owners
add better apparel and textile machines to their respective manufacturing processes, the scale
advantages ramp up.
Small companies can compete effectively with larger ones by specializing in a particular type of apparel
manufacturing. There are genuine economies of scale in apparel manufacturing. For example, as a
sewing machine operator 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.
With respect to apparel wholesaling, companies need fewer employees. It’s all about sales or
distribution jobs; mostly marking up imported goods. No scaled-up production is required. 60% of
wholesalers (importers) are very small firms — one to four employees.
Wholesalers/Importers Sell and Distribute.
They Have Few Economies of Scale.
Textile Factories Have the Most Heft.
Textiles
Apparel Mfg.
Wholesalers
0%
10%
20%
30%
40%
50%
60%
70%
Proportion of Firms with 1– 4 Employees (%)
Source: U.S. Census, 2013 County Business Patterns
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Entrepreneurs can start a business in this region easily and quickly. For a domestic designer or foreign
wholesaler looking to start a business — and keep costs down — many locales in the Los Angeles basin
are a viable choice. Proximity to small-lot apparel manufacturers and a cluster of textile designers open
learning opportunities. Designers based near the cluster have a clear advantage. They can communicate
directly with any factory supervisor to check on their lines. Importers save expenses by not incurring
transcontinental U.S. transport fees.
In sum, what drives individual apparel manufacturing profitability?
(1) Efficient operations.
(2) An ability to secure contracts with clothing marketers.
Domestic apparel manufacturers move operations to countries with lower wages, because of the tough
competition to do business with price-sensitive retail chains. Consolidation of retail chains is perhaps the
biggest obstacle to growing the L.A. fashion industry.
L.A. and O.C. Apparel and Textile Manufacturing Make Up
16% of L.A. & O.C. Manufacturing Firms,
10% of Employees, and 4.5% of Payrolls
20%
15%
10%
5%
0%
Establishments
Employees
Annual Payroll
Source: U.S. County Business Patterns, 2013
Manufacturing job losses can feel discouraging. Yet L.A. is doing much better than the national trend.
While apparel industry employment has fallen across the United States, the share of employment
captured by the L.A. and Orange County’s apparel industry clusters increased in relative terms. In 2002,
for example, L.A. and Orange County accounted for a 24% share of U.S. apparel manufacturing jobs.
In 2013, the SoCal proportions in U.S. apparel and textile manufacturing rose, as did wholesalers. Nearly
42% of U.S. apparel manufacturing jobs were located in the five-county SoCal region that year. Over 24%
of U.S. apparel, piece goods, and notions merchant wholesalers were found in L.A. or O.C., and over 6%
of all U.S. textile mill jobs were in L.A. or O.C.
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SoCal Five-County Share of Total U.S. Employment, 2013
Textile Mills
6.5%
Apparel, Piece Goods, and Notions Merchant
Wholesalers
24.5%
41.5%
0%
10%
20%
30%
40%
50%
Source: U.S. Dept. of Commerce, 2013 County Business Patterns
Many forms of L.A. employment in apparel fall outside the three broad catch-all categories.
For example, L.A. apparel industry experts count 1,050 independent fashion designers operating solo;
another 2,771 workers are employed in showrooms of multi-line sales agents; with approximately 840
textile reps and another 565 home-based agents and brokers working on commission.
Another category of L.A. employment can be found in a range of ancillary activities: packaging, labeling,
and other support roles (220 positions); custom computer programming (69 positions); fulfillment
support services to imports (1,100 positions); consulting services (130 positions); commercial rental (240
positions); and specialized local freight (560 positions). There are around 750 apparel educators
teaching in 21 different institutions in the five-county SoCal area.
The following table summarizes.
Related Industry Segments
# of Employees
# of Establishments
Independent Fashion Designers
1,050
1,050 (Contracted consultants)
Independent Showrooms
2,771
888 (All categories)
Textile Reps
1,240
1,240 (Wholesale trade agents and brokers)
Home-based Agents/Brokers
865
517 (No office address)
Outside Services
220
55 (Packaging, labeling, support)
Technology
69
22 (Custom computer programming)
Fulfillment
1,100
12 (Support services to imports)
Labor Compliance
130
4 (Consulting services)
Equipment Leasing
240
4 (Commercial rental)
Educators
750
21 (Teachers and administrators)
Distribution
560
6 (Specialized local freight)
Grand Totals
8,995
3,802
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Source: California Fashion Association survey, 2011
Including these activities means adding 8,995 workers operating in 3,802 establishments. This takes the
overall jobs tied to the L.A. Regional Fashion Industry to 131,000 workers. The number of
establishments is likely to be close to 9,400, not including Cosmetics, Jewelry, and Footwear. Total
establishments will near 11,000 when those categories are added. One should realize that 19,844 of jobs
in the grand total are not Apparel, Textiles, and Wholesale. They are in Jewelry, Cosmetics, and
Footwear.
Significant numbers of contract workers are not captured by official surveys.
Apparel employers rarely have sewing, cutting, marking, and grading on their own payrolls due to rising
workers’ compensation and health insurance costs. The reality of using specialty contractors is far more
complex than merely avoiding these payroll costs. Many sewing machine operators and cutters,
especially those who are fast and skilled, do not rely on one contract shop; they 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. Additionally, contractors are “specialists” in the type of machinery, adaptability to the fashionof-the-moment, and ability to handle the style at hand. 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 laborers. 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
laborers can lose their licenses and machinery.
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Wholesaler, Manufacturer, and Textile Jobs
Locating near other firms offers the chance for free information more often, and an ability to share paid
resources and keep design trends up-to-date. In recent years, L.A. County accounted for 92% (up from
90%) of the apparel manufacturing employment and 81% of wholesale merchant employment in the
five-county SoCal area.
The apparel industry (excluding retailing) is one of the larger industries in the Los Angeles five-county
area. Los Angeles County has the largest job count. Orange County is a steady, distant second at 7.5% of
regional apparel manufacturing jobs. Orange County has struggled to hold on to a stable proportion of
regional jobs over the years going back to 2004. L.A. has a classic manufacturing cluster surrounding the
fashion district of downtown Los Angeles, with Vernon and the City of Industry close by. In the case of
Orange County, the industry is more diffuse.
L.A. County Has 92% of Apparel Manufacturing
Jobs in the Region
100%
98%
96%
94%
92%
Ventura
90%
Riverside
88%
San Bernardino
Orange County
86%
Los Angeles
84%
82%
80%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Wholesaler Stats
Defining a wholesaling job is as much about what it is not, as what it is:




No design
No manufacturing
No production
No technical specs
Wholesale is activity involved in the purchase and resale of completed apparel.
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Wholesale apparel merchant jobs are more dispersed within the five-county area. Ventura, San
Bernardino and Riverside Counties claimed about 4.7% of apparel wholesale numbers. In recent years,
Orange County claimed 13.8%. L.A. County is the largest at 81.5%.
In the SoCal Region, L.A. and San Bernardino County Have
Grown Share of Apparel Wholesaling Jobs
100%
95%
90%
Ventura
Riverside
85%
San Bernardino
Orange County
80%
Los Angeles
75%
70%
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
As the latest data show, apparel merchant/wholesaling in L.A. County remains a pro-cyclical business.
Revenue grows with the overall strength in the U.S. consumer discretionary spending; slips backwards
when consumer confidence declines; and recovers along with the rest of retail sales.
Over the last eight years in the five-county area, wholesalers added roughly 1,500 jobs each year. There
were two negative years, one in 2009 and one in 2011. When an economist uses the word “structural,”
it implies more permanent “long-term change, as opposed to “cyclical,” when industry volumes move
with the business cycle.
The structural part is related to the growth of international trade imports from Asia. Wholesaling
employment benefits from both import and export activities, but imports matter more.
L.A.’s large local market is one reason why apparel wholesaling firms continue to prosper, even as L.A.
County apparel manufacturing and textile employment declines dramatically.
Third-party logistics (3PLs) are another source of L.A. County jobs for this industry. 5
Shipments from Asia are weeks faster to Long Beach and the port of L.A. than to the East Coast. This
offers better liquidity to an apparel manufacturer through faster inventory turns.
5
Attributed to Eric Fisch, Vice President, Commercial Banking and Sr. Apparel Analyst, HSBC in Los Angeles, CA.
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More and more apparel companies from around the United States are using 3PLs based in L.A. These
3PLs receive containers, break them down, and then do the type of prep work normally done in the
company’s own warehouses (hang tags, garment bags, hangers, and re-boxing). Then, they ship to the
wholesale customers.
Very often the 3PL has access to the company’s internal inventory management and electronic data
interchange (EDI) systems, making the process seamless. These shipments are booked as revenue for
the wholesaler wherever it may be located, but they contribute directly to the apparel industry in L.A.
A concentration of trade facilitators in the immediate L.A. area — customs brokers, freight forwarders,
and trade attorneys — make interaction with the 3PLs easier for Los Angeles-based importers.
In Mexico, the maquiladoras (maquilas) apparel operations have improved in terms of quality and labor
force skills in recent years. One’s initial inclination would be that these Mexican arrangements drained
jobs in SoCal. In many cases it is the opposite. Lower-wage apparel jobs would have gone to Asia, not
California.
What the maquilas have fostered is growth in wholesaler jobs in SoCal. Because of the mechanics of the
duty-free program (product needs to originate in the United States, have value added in Mexico, and
then return to the United States), apparel companies located in the rest of the country cannot use this
process as efficiently as the California cross-border entities.
SoCal Five-County Wholesale Apparel Jobs
Have Exceeded All-Time Highs
60,000
50,000
40,000
44885
33358
35351
37515
38039
2006
2007
41577
42902
42076
2009
2010
2011
45406
48824
30,000
20,000
10,000
0
2004
2005
2008
2012
2013
In this up cycle, L.A. County added the most establishments and jobs at operating wholesale firms.
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 The previous wholesale cyclical peak has been surpassed. At its peak in 2008, 44,885 workers
were busy at 4,133 establishments in Five-County SoCal apparel wholesaling. In 2013, that
number hit 48,824. Establishments got to 4,635. That is a new all-time high by about +10%.
 There is an important wholesale downshift to note inside the region. In 2008, Orange County
had 7,909 wholesaling jobs at 363 firms. In 2013, that number slid to 6,718 jobs at 265 firms.
 This up cycle has a clear winner. L.A. County had 35,317 jobs at 3,593 wholesale firms in 2008.
By 2013, L.A. County had 39,821 wholesale jobs at 4,015 firms. L.A. County gained, while Orange
County lost.
 Structural wholesaler change reached the desert warehouse scene, too. At the peak in 2008, San
Bernardino had 791 wholesaling jobs at 89 firms. With use of the triple-track Alameda rail
corridor, numbers grew to 1,237 wholesaling jobs at 109 firms in 2013.
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Wholesale apparel activity across California’s counties is more dispersed than apparel manufacturing.
Apparel, Piece Goods, and Notions Wholesale Jobs in
California Are Mostly Located in L.A. County, Though
Distributors Are Spread Throughout the Southland
Los Angeles County, CA
Orange County, CA
San Diego County, CA
San Bernardino County, CA
San Francisco County, CA
Alameda County, CA
Ventura County, CA
Stanislaus County, CA
San Mateo County, CA
Santa Clara County, CA
Riverside County, CA
Sonoma County, CA
Contra Costa County, CA
San Joaquin County, CA
Fresno County, CA
Butte County, CA
Santa Barbara County, CA
Santa Cruz County, CA
Marin County, CA
39,821
6,718
1,925
1,237
1,109
1,108
707
543
516
424
341
318
264
190
183
130
124
77
56
0
10,000
20,000
30,000
40,000
50,000
Source: U.S. Census, County Business Patterns, 2013
Apparel Manufacturer Stats
In 2013, L.A. County apparel manufacturing counted 42,659 workers at 2,289 firms.
Until two years ago, L.A. County apparel manufacturing saw both jobs and establishments cut by more
than half (83K in 2001 and 37K in 2011). Now, L.A. County tabs 43K jobs. The historic peak for apparel
manufacturing activity came with 105,300 jobs scored in 1996. (Source: LAEDC and Mayor Riordan’s
numbers in 1996.) The peak for L.A. County apparel manufacturing establishments came two years later
in 1998 at 5,300 firms. Until two years ago, in every consecutive year, both the L.A. County job and
establishment counts fell.
From a bottom in 2011, a noticeable rise began in job counts.
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Apparel Manufacturing NAICS 315:
L.A. County Dominates Across California
Los Angeles County, CA
42,659
Orange County, CA
3,511
San Francisco County, CA
1,236
San Diego County, CA
746
Alameda County, CA
420
San Bernardino County, CA
235
Fresno County, CA
63
Ventura County, CA
34
Sacramento County, CA
21
0
5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
Apparel Manufacturing (NAICS 315): Most Jobs in
L.A. County Are in Small Firms (1-4, 5-9, and 10-19
Employees). But Big Firms Are Growing
1400
1200
1000
800
600
400
200
0
1 to 4
5 to 9
10 to 19
20-49
50-99
100-249 250-499 500-999
1000 or
more
Textile Mill Stats
Textile mill hiring activity in L.A. County rose the last two years.
The 2013 data put this sub-segment at 5,932 jobs and 222 firms. At the 2011 bottom, L.A. County had
5,682 jobs at 220 firms. Call it 4.2% growth over two years, with the majority of that from 2011 to 2012.
Historically, textile mill jobs in L.A. County reached its peak in 1998–99. At that time, the L.A. mills
offered 14,300 jobs at 510 firms. In the current up cycle, textiles give us a weaker signal.
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L.A. Wages and Earnings
Important insight can be gleaned from the following L.A. County earnings table.
 Over the last decade, annual growth in incomes for apparel and textile workers barely exceeded
the annual consumer inflation rate, at +2.5% and +2.2% annually. Wholesalers fared better at
+3.6% annually.
 Average wholesale annual earnings peaked at $50K a year in 2010. They are now down to $48K
a year in 2013 data.
 Textile worker incomes rose above apparel worker incomes annually, starting in 2006–07. In
2013, as a result, textile workers earn close to $15 an hour, while the average apparel worker
earns around $12.50 an hour. Textile mills are trying harder to retain their remaining workers.
Table 9: Annual Earnings in L.A. County
Year
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Apparel
Mfg.
Annual
Income
21,106
23,087
21,880
24,554
25,510
25,797
23,762
24,979
26,204
25,876
Textile
Annual
Income
24,160
23,808
24,194
24,719
27,538
27,549
28,120
29,372
31,152
29,122
Wholesale
Annual
Income
36,846
38,295
42,830
45,332
45,923
43,661
46,313
50,625
49,121
49,983
2013
23,828
30,146
47,902
Annual
Income
Growth
‘03-’13
(%)
2.5%
2.2%
3.6%
Source: County Business Patterns, 2013
In 2013, County Business Patterns data show apparel manufacturing workers taking home $460 a week
on average. Textile workers take home $580 a week. Wholesalers take home $920 a week. Using 40
hours a week and 52 weeks a year to convert the data, 2013 average hourly wages are $11.50 to $12.50
an hour for apparel manufacturing, $14.50 an hour for textiles, and $23 an hour for wholesale.
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L.A. County Avg. Weekly Earnings: Wholesale Jobs Pay
Much Better, But Wholesale Pay Peaked in 2010
Avg. Weekly Wages ($/week)
Apparel Mfg Weekly Wage
Textile Weekly Wage
Wholesale Weekly Wage
1,000
900
800
700
600
500
400
300
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Cheaper international hourly wages force L.A. County sourcing to keep relationships with non-U.S.
suppliers.
Most L.A. firms source in China (average manufacturing wages in China today are $4.50 an hour). They
also source in countries such as, Vietnam, Cambodia, India, South Korea; countries in Central America;
and in Indonesia.
In the SoCal region, the remaining L.A. apparel manufacturing and textile mill jobholders increasingly
specialize. Any SoCal manufacturing worker has been surrounded by better-paying service jobs. These
two effects are related.
Finally, increases in statutory minimum wages have been implemented, so L.A. and California pay scales
have been forced up. In 2015, Los Angeles Mayor Eric Garcetti signed a bill raising the L.A. city minimum
wage from $9 to $15 an hour over the next five years. It will be $10.50 in July 2016, followed by annual
increases to $12, $13.25, $14.25, and $15. Small businesses and nonprofits would be a year behind. L.A.
County supervisors followed suit.
California’s minimum wage goes from $9 to $10 per hour effective Jan. 1, 2016. A bill that passed the
California Senate would bring that hourly rate to $13 in 2017.
President Obama is in favor of legislation to raise the federal minimum wage to $10.10. In 2014, he
signed an Executive Order to raise the minimum wage to $10.10 for individuals working on new federal
service contracts.
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Two charts share still more facts on the strength of L.A. County apparel industry wages and earnings.
First, the total L.A. County apparel wage bill:
Total Pay in the L.A. County
Fashion Back-End Businesses
Total Annual Payroll ($000)
Textile
Apparel Mfg.
Wholesalers
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Second, L.A. County apparel wage data are shown as the percent of all L.A. County private industry:
L.A. County Back-End Fashion Worker Incomes
(Expressed as Percent of All L.A. County Incomes)
1.90%
1.86%
1.80%
1.81%
1.78% 1.76%
1.72% 1.72%
1.70%
1.64%
1.57%
1.60%
1.60% 1.60%
1.51%
1.50%
1.40%
1.30%
1.20%
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
During the 2008–09 financial crisis, there was a collapse of consumer confidence for discretionary
groups like fashion. The enduring struggle has left the apparel industry in a weaker place (down about
15%) in the overall L.A. income landscape.
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In particular, manufacturers have not recovered as rapidly as wholesalers, due to long-term structural
issues — global sourcing, higher energy costs, and heavy government regulation.
L.A. appears to hold a U.S. cost advantage.
Using different data sources is risky. Nonetheless, the U.S. Bureau of Labor Statistics (BLS) Quarterly
Census of Employment and Wages (QCEW) offers salary insights on the three sub-industries:
1. Using May 2014 data, nationally, sewing machine operators made an average hourly
wage of $11.54, which amounts to $23,990 annually. The 90th percentile was $16.77.
Apparel accessories paid $10.87 an hour. Other textile product mills paid $11.91 an
hour.
2. Tailors, Dressmakers, and Custom Sewing Machine Operators: The national hourly rate
was $14.03, or $29,170 a year. Those specifically in cut–and-sew apparel manufacturing
made $14.68 an hour, or $30,530.
3. Textile winding, twisting, and drawing-out machine setters, operators, and tenders:
They made an average hourly wage of $12.83 an hour, or $26,680 a year. Inside this
category, the sub-industries of fiber, yarn, and thread mill operators paid $12.25 an
hour. Fabric mill operators made $13.30 an hour.
Economist’s Insight: Get to a more skilled position to raise your hourly wage by 20% or more.
Los Angeles County has kept a national cost advantage in all three major areas of the apparel industry.
The Los Angeles region appears to be a relatively cheaper place to hire apparel and textile workers.
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Front-End Jobs
Looking for a take on pay across the U.S. fashion industry in 2015?
Consider the 24/Seven “2015 Salary and Job Market Report” and its counterpart two years ago.
Their 2,000 respondents in 2015 came from across the United States. In 2013, their 4,000 respondents
fell into the following categories:
32% Design and Technical Development
15% Sales and Marketing
12% Planning and Merchandising
10% Store Level and Field Retail
9% Production/Sourcing and Product Development
7% Marketing/Creative
4% Corporate Retail
4% E-Commerce
3% Wholesale
2% Operations/IT
1% Research and Development
1% Retail Environment Design and Architecture
Source: 24/Seven, Inc., 2013
o
o
o
o
74% of respondents were female.
72% were Gen X.
65% were not managers (22% called themselves freelancers). 29% were managers.
64% worked in fashion/apparel/footwear/accessories. 34% worked in retail.
In 2013, the median fashion and retail salary at U.S. companies surveyed was $68,000.
For 2015, here are some sample job titles and updated salaries:
Creative Director (5+ years) – low $110,368 and high of $175,831
Design Director – low of $124,125 and high of $175,124
Associate Designer – low of $45,890 and high of $55,960
VP Supply Chain – low of $156,809 and high of $261,263
VP Merchandising – low of $173,353 and high of $221,222
E-Commerce Manager – low of $86,714 and high of $129,636
Store Manager – low of $73,001 and high of $91,893
VP – Supply Chain can make $261,263. The big 2015 breadwinner, once again!
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Indirect Impacts
Like all industries, the full economic impact of the apparel and textile industries goes beyond immediate
jobs in these industries and the paychecks they generate. For every job created, there are multiplier
effects in terms of earnings and jobs with second-stage job creation.
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 that the real impact on earnings almost doubled for the
industries in this report. While the direct, documented payroll in apparel and textiles in 2013 was
$3.72 billion, it generated a majority of the $3.15 billion in indirect earnings and thus accounted for a
majority of the $6.88 billion in total earnings. This means that if all the jobs under this analysis went
away, L.A. County would lose 90% of $6.88 billion in total income for its population. This does not
include the incremental 10% of well-paid workers in other apparel functions outside these three NAICS
codes, which would include the front-end designer jobs.
For the five-county metro area in 2013, we estimated direct and indirect earnings at $6.88 billion. 6
Table 10: Direct and Indirect Apparel/Textiles Earnings in Five-County SoCal Area, 2013
(Total change in household earnings due to change in apparel manufacturing earnings, in U.S. dollars)
Industry\Impact
Apparel, Piece Goods, and
Notions Wholesalers (4243)
Textile Mills (313)
Total of three industry codes
Direct
$1,110,847,000
Indirect
Estimated Total
$1,268,476,000 $2,359,830,000
$2,411,482,000
$203,548,000
$3,725,877,000
$1,686,108,000
$194,652,000
$3,149,237,000
$3,615,288,000
$417,482,000
$6,875,114,000
Note: Earnings multipliers include the original earnings. Overall wholesale multiplier used as substitute for
apparel wholesaling.
Sources: Earnings and jobs — U.S. Department of Commerce, 2013 County Business Patterns.
Looking at the issues in terms of jobs is another way of determining the total impact of the apparel and
textile industries. The documented employee count in these three NAICS codes was 102,062 in 2013.
6
Earnings and jobs estimates for the five-county Los Angeles area derived from L.A.EDC multipliers, 2011
CIT Group and CFA
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Their earnings and spending generated another 92,870 “indirect” jobs for the region. The total fivecounty employment impact was 194,933 jobs — not a small number by any measure.
Table 11: Direct & Indirect Apparel/Textile Jobs in Five-County SoCal Area, 2013
(Total change in number of jobs due to change in jobs in apparel manufacturing)
Industry/Impact
Apparel, Piece Goods, and Notions
Wholesalers (4243)
Textile Mills (313)
Total of three industry codes
Direct
46,439
Indirect
39,931
Estimated Total
102,348
48,824
6,799
102,062
48,076
4,862
92,870
41,022
15,614
194,933
Note: A two-digit wholesale multiplier substituted as apparel wholesaling.
Sources: Ibid.
At the five-county metro area level, in 2013, with 8,995 additional support jobs outside these
three NAICS codes, and a rough 1-to-1 multiplier for them,
…we estimated total L.A. fashion back-end employment impact at 212,923 jobs,
…absent 20K jobs in cosmetics, jewelry, and footwear,
…and without 4,650 fashion designers.
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A Demographic Profile of Apparel Manufacturing Workers
In 2014, according to the U.S. Census, Los Angeles County has the largest Hispanic population of any U.S.
county. It stood at 4.9 million. L.A. County has a total of 10.11 million people. Hispanics make up 48.3%
of the county’s population; L.A. City has 3.9 million. Hispanics make up 48.5% of the population.
Demographic data from Census 2000 provides 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,” which 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 Five-Percent Public Use Micro data Sample (5% PUMS) for the Los Angeles
five-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.
Consider demographics — Designers and Researchers: 31% Hispanic, 64% have a college degree, just
22% are non-citizens. Managers: 18% Hispanic, 52% have a college degree, just 25% are non-citizens.
The Visa Debate
The immigration debate the nation and California is having could be expanded to include the interested
parties in the textile and apparel manufacturing business. The immigration reform bill could implement
apparel visa laws akin to those in the California 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 by 5% a year.
Finally, consider this. In 2009, the Department of Homeland Security instituted further rules. The I.9
ruling requires that experienced sewing machine operators and cutters without proper documentation
must be fired. If Social Security numbers don’t match, the authorities can fire workers. A few years ago,
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.
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Labor Burdens: A Barrier to Job Growth
The L.A. apparel industry of today greatly improved working conditions from 10 years ago.
Most of the industry’s biggest profits are earned via strong brands that stand for quality. There is a huge
incentive to monitor all workplaces closely. 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 (AB 633). The concept of “joint liability” became law in 1997,
making the brand-carrying manufacturers equally responsible for wage and hour issues within their
contractors’ shops. This is meant to force manufacturers to monitor their contractors more closely.
Beginning in 2003, manufacturers also became liable for the workers’ compensation payments of their
contractors.
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 employees. Workers can still report any labor violations to the
proper authorities.
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 just for the apparel industry. It’s a
general social problem that covers other labor-intensive manufacturing, service, and construction
sectors.
Merchandise Prices
More and more U.S. apparel is being sold at value retailers (e.g., Wal-Mart and Target), “wholesale
clubs” (e.g., Costco and Sam’s Club), and off-price department store outlets (e.g., Macy’s Backstage).
Middle-income consumers have become more value-oriented in recent years. Discount chains upgraded
offerings to attract this huge segment of the population. In some cases, chain stores licensed designer
brands and have taken over manufacturing responsibilities (Tommy Hilfiger/Macy’s; Liz Claiborne/JC
Penney). Once-hot designer brands are now available at very low prices via these stores.
In Nov. 2014, specialty stores (26%) and mass merchants (18%) held the biggest U.S. market shares.
Department stores and national chains came next (12%).
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U.S. retail apparel selling is multi-channel —
Shifting production to lower-cost locales, multi-channel distribution in retailing, and general acceptance
of a more casual appearance for both workplace and social occasions: these factors have resulted in
stagnant or falling average prices for apparel.
For the last three decades, the apparel industry has battled stagnant retail prices. Average L.A.-area
apparel prices are now just 6% above 1984 levels. L.A. medical care is up by 424%. L.A. rent is up by
316%. Eating at an L.A. restaurant? Up 234%.
Table 12: Regional Consumer Price Indices
L.A. Area Expenditure
(1982–84 = BLS Index of 100)
Index
July 2015
Apparel
Household furnishings and operations
Transportation
Food away from home
All items
Food at home
Housing
Electricity
Unleaded Gas
Rent
Medical care
CIT Group and CFA
106.5
115.2
214.5
234.3
247.1
258.7
267.5
290.7
305.1
316.9
424.7
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% Change
July 2014
-2.8
-2.1
-0.2
2.6
1.4
1.2
2.4
-4.3
-2.1
3.6
1.9
% Change
July 2015
-1.6
-0.5
2.9
0.2
0.7
1.1
0.3
0
10.7
0.4
0.6
Global sourcing of apparel and footwear production has had a startling effect on U.S. consumer prices.
Below is a 25-year time series.
Chart D: Consumer Price Index for All Urban Consumers, Apparel, 1995–2015
Following the NAFTA trade pact of 1994, global sourcing resulted in 17 reductions in U.S. “Clothing and
Footwear” prices over 18 years.
However, as demonstrated in Chart D above, 2011 and 2012 showed apparel price inflation. Apparel
consumer price stabilized from 2013 to 2015. This is for global apparel prices charged to final clothing
discretionary consumers. A more recent, strong U.S. dollar effect is visible.
In the following charts, we show Textile Mill and Apparel Manufacturing Producer Price Indexes (PPIs).
PPIs measure the average change, over time, in wholesale selling prices received by domestic
producers.
Cotton prices do show up in textile producers’ price indexes.
From 2010 to 2011, textile mills increased prices from 140 to more than 170 in textile PPI index terms.
That’s a 21% increase. Previously, textile price increases had floated around +2% to +4% annually.
From 2012 to 2015, textile mills’ PPIs stabilized.
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Chart E: Textile and Fabric Finishing Mills PPI Over the Last 10 Years
What about the Apparel Manufacturers’ PPI? This index shows passing on of higher local labor costs.
Year-over-year, labor increases have been close to 1%. That’s well below the overall annual Consumer
Price Index (CPI).
Chart F: Producer Price Index for Cut–and-Sew Apparel Contractors, 2012–2015
If able, most U.S. apparel manufacturers pass any rising labor costs to customers. Some apparel
manufacturers can cut costs. They re-engineer fabric blends, make laces and trims in-house, and
streamline use of embellishments such as appliqués, bows, beading, and piping. A similar type of
material substitution is likely at some textile mills; they can use less expensive textiles and trims.
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Profit margins in the industry
Economists tell you each factor involved in production has to earn a competitive return. This includes
capital. At 10%, apparel industry pre-tax profit margins remain close to average U.S. non-durable
manufacturing profit margins. In comparison, textile mills earned a 4% pre-tax margin. Makers of
computer and electronic products earned a 23% pre-tax margin.
Last but not least: factor in exchange rates.
Foreign Exchange (FX) can make a big difference in final sourcing costs. Below is a time series table,
dated October 2015.
Table 13: Important FX Outlooks
Currency
2015
2016
2017
2020
Euro (US$ to 1 Euro)
1.10
1.08
1.13
1.23
China Renminbi (per US$)
6.50
6.71
6.55
6.32
16.89
16.41
15.98
15.82
Mexican Peso (per US$)
Source: Consensus Economics, London, U.K. This annual bank summary was taken in October 2015.
When the U.S. dollar gets stronger, the cost to import textiles and apparel from abroad falls. Prices for
export rise for people located outside the United States. Lately, a strong U.S. dollar has been making it
tougher to compete with international manufacturers.
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Finance
Revenue for many apparel manufacturers is seasonal. Spring and fall are the prime selling seasons.
Some manufacturers may finance the contractors who work for them. Domestically or internationally,
they make partial payments for shipments by agreement. Payments to foreign contractors are
sometimes completed via letters of credit, but this is changing into traditional banking agreements. In
turn, manufacturers often have financing needs for their receivables and inventory. Banks and specialty
finance companies often assist the larger manufacturers.
A lack of equipment finance has been a major issue in Los Angeles.
Even though equipment financing needs have decreased in recent years, due to the use of offshore
sourcing, many domestic manufacturers have not been able to update their equipment with financing.
Due to the loss of the California manufacturers’ tax credit in 2003, brand owners lost a longtime
incentive to finance new equipment for their contractors. Lack of available financing can result in the
inability to modernize local manufacturing.
Some banks and industry trade groups might disagree that there’s a lack of available equipment
financing in 2015. They indicate they would be willing to look at providing financing for domestic
manufacturers.
Overall, apparel in the United States remains a challenging business.
Net income earned is about 1% of revenues. 7
Net income is 0.9% for smaller firms. Despite offshore challenges, with the right mix of good design
ideas, strong management, and well-crafted business models, sizable returns are still possible for L.A.based apparel companies. In 2009, at the depth of the last downturn, the industry had a 6.9% increase
in the number of apparel-making companies registering with the California 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 2015 apparel and textile operations in California, 902 companies earned above
$1 million in revenue.
Of that number, L.A. County had 640 companies. Orange County had 99.
That is 82% of the California total.
7
Source: Dun & Bradstreet data, 2011, 2015.
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Table 14: Companies in California with Revenues of $1M and Greater, 2015
Apparel Manufacturing (NAICS 315) and Textile Mills (NAICS 313)
County
Total
Companies
Total
Revenues
($ Millions)
Total
Employees
Average
Revenues
($ Millions)
Average
Employees
Los Angeles County
Orange County
Riverside County
San Bernardino County
Ventura County
Alameda County
Contra Costa County
El Dorado County
Fresno County
Humboldt County
Imperial County
Kern County
Marin County
Merced County
Monterey County
Napa County
Nevada County
Sacramento County
San Benito County
San Diego County
San Francisco County
San Luis Obispo County
San Mateo County
Santa Barbara County
Santa Clara County
Santa Cruz County
Sonoma County
Other
640
99
8
7
9
11
2
1
3
1
2
1
6
1
1
1
1
3
1
48
21
2
6
2
7
3
4
11
$11,078
$3,348
$35
$18
$30
$87
$10
$1.4
$5.6
$7.6
$4.0
$1
$59
$2.4
$17
$1
$1
$7
$1.3
$258
$4,988
$3.2
$60
$6
$17.3
$6.5
$14
$51
92,650
30,487
426
158
354
1181
158
20
46
100
55
8
770
40
175
4
2
40
17
2,452
17,620
34
486
55
163
68
113
591
$17.3
$33.4
$4.4
$2.6
$3.3
$7.9
$5.2
$1.4
$1.9
$7.6
$2.0
$1
$9.8
$2.4
$17
$1
$1
$3.3
$1.3
$5.3
$238
$1.6
$8.6
$2.9
$2.5
$2.2
$3.4
$2.6
145
308
53
23
31
107
79
20
15
100
28
8
128
40
175
4
2
20
17
51
839
17
69
28
23
23
28
54
Grand Total
902
$20,118
148,273
Notes: San Francisco is home to Levi-Strauss, with revenue of $4.7B and 15K jobs.
Average revenue and Average Employees are skewed by the presence of big firms.
This Hoover’s 2015 dataset uses sub-categories: Apparel Accessories Mfg., Apparel Mfg., Men’s Clothing
Mfg., Textile Mfg., and Women’s Clothing Mfg., plus a small amount of Footwear and Sporting Goods.
Wholesale sector data are also available. In L.A. County, we counted 892 wholesale
companies, $5.2 billion in revenues, and 20,224 employees.
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Dun & Bradstreet data (shown below) were captured in 2011 and again in 2015. It showed the amount
of financial stress among apparel wholesalers (code 4243), apparel manufacturers (315), and textile mills
(313) in L.A. County. Firms ranked 4 or 5 and bankrupts have most financial stress. Those ranked 1, 2, or
3 have the least.
An ability to make payments and honor existing financing agreements is strongest for firms
ranked 1, 2, or 3 by Dun & Bradstreet. The formula is proprietary and used across industries.
•
•
•
•
•
In 2015, 46% of L.A. County apparel manufacturers and textile mills and 42% of wholesalers
operated under significant financial stress. In 2011, 46% of textile and apparel manufacturers
and 45% of wholesalers operated under significant financial stress. No real changes.
In 2015, 37% of L.A. County apparel and textile manufacturers and 33% of wholesale company
revenues were earned under conditions of financial stress. In 2011, 37% of L.A. County apparel
manufacturers and textile mill revenues, and 33% of wholesalers were earned under conditions
of financial stress. No real changes.
First implication: On average, textile and apparel manufacturers shoulder the same stress as
wholesalers.
Second implication. A smaller firm has a greater chance of operating under conditions of
financial stress. 3s in stress had average revenues of $2.9M. 4s had $1.6M.
Issues that appear relevant: Lower cash flow from lower revenues, less product and process
diversification, less access to credit, and a lack of experience.
Table 15: Conditions of Financial Stress in L.A. County, August 2015
4243 Apparel
Wholesalers
($ Millions)
313 & 315
Apparel
Manufacturing
and Textile Mills
4243 Apparel
Wholesalers
313 & 315
Apparel
Manufacturing
and Textile Mills
Risk Level
Firms
1
2
3
4
Unclassified/
Bankrupt
5
Total
12
670
1327
1355
78
40
3482
Revenues
$262
$1,341
$2,210
$1,721
$164
$32
$5,730
Risk Level
1
Firms
2
3
4
Unclassified/
Bankrupt
5
Total
19
334
772
872
84
29
2110
Revenues
$209
$745
$3,971
$1,818
$761
$308
$7,814
Risk Level
1
2
3
HIGH
RISK/4
HIGHEST
RISK/5
Unclassified/
Bankrupt
Firms
0.3%
19.2%
38.1%
38.9%
2.2%
1.1%
Revenues
4.6%
23.4%
38.6%
30.0%
2.9%
0.6%
Firms
0.9%
15.8%
36.6%
41.3%
4.0%
1.4%
Revenues
2.7%
9.5%
50.8%
23.3%
9.7%
3.9%
Source: Dun & Bradstreet
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Dun & Bradstreet data show that the L.A. apparel industry is largely small and middle-market companies
managed by owner-operators. Each has a great deal of personal capital invested in their business. This is
a driving force behind why they turn to a form of financing called factoring, or accounts receivable
financing. Privately owned businesses do not want to risk too much capital by extending too much credit
to their retail customers.
Factoring is an agreement between a financing company and the suppliers of goods —
typically in the retail industry. It helps with cash flow.
For a classic example, consider a small, owner-operated apparel manufacturer who supplies clothes to a
women’s dress retailer. The financing company (factor) purchases the accounts receivable from the
small apparel manufacturer. 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.
Accounts receivable financing.
Factoring helps companies of all sizes, from start-ups to mature companies, to:
•
•
•
•
•
Improve cash flow.
Eliminate credit losses.
Reduce operating expenses.
Expand working capital financing through advances.
Improve management information through online reports.
Major international banks focus their marketing efforts for factoring on larger apparel firms. That means
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 available for the smallest of firms.
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THE INTERNATIONAL TRADE EFFECT
In Los Angeles, long gone are many large factory floors full of sewing machines. These days, the division
of labor is based on this region’s cultural strength and economic realities.
Today, a piece of an L.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. The Internet is at your service!
The design gets modified during the marketing phase.
 The design is then sent overseas to contract factories in Central America, Asia, or Africa. These
factories may source fabric globally, including from the United States.
 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 sold to discounters and closeout retailers such as Big Lots and Ross.
Why use global sourcing?
 Large factories for commodity products
 Up-to-date, high-speed machinery, usually government funded.
 Labor-intensive production (trims, embroidery, multi-screening, etc.)
 Wider variety of textiles (silk, micro yarns, yarn dyes, linen, etc.)
In the face of fierce multinational competition, the L.A. apparel industry endures.
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A Global Market
Apparel and textile 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.
The World Economic Forum produces a global risk report with insights into important trading
countries.
The above report yearly ranks the significant, most problematic factors for doing business, including tax
rates, government bureaucracy, educated workforce, corruption, currency regulations, access to
financing, inflation, infrastructure, and labor regulations.
Business decisions for each company vary and are based on a myriad of factors in this global
marketplace.
The following page includes a historical chart that provides a good reference, demonstrating some of
the key factors for doing business in certain countries.
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Ranking the Five Most Problematic Factors for Doing Business in 2010
Turkey
Vietnam
Tax Rates
Inflation
Inefficient Government Bureaucracy Less Access to Financing
Tax Regulations
Policy Instability
Inadequately Educated Workforce
Foreign Currency Regulations
Foreign Currency Regulations
Inadequate Supply of Infrastructure
Pakistan
Government Instability/Coups
Corruption
Policy Instability
Inefficient Government Bureaucracy
Bangladesh
Corruption
Policy Instability
Less Access to Financing
Indonesia
Corruption
Policy Instability
South Korea
Policy Instability
Restrictive Labor Regulations
Tax Regulations
China
Inflation
Policy Instability
Corruption
Sri Lanka
Tax Rates
Tax Regulations
Inflation
Policy Instability
United States
Tax Rates
Tax Regulations
Inflation
Source: World Economic Forum
The world’s apparel exports totaled $571B in 2014.
International Trade Center 2014 data show the global apparel manufacturing industry generated $239B
in knit export revenues. $234B was not knit. ”Other” was $98B. An IBISworld industry report put the “allin” global apparel manufacturing number higher. Total revenue was $618B in 2015; 192K businesses
employed 5.8 million workers.
The world’s apparel revenue grew 0.6% annually over the last five years.
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According to IBISworld, “North Asia accounts for the largest share of apparel manufacturing revenue
with 35.8% of the industry’s total. Within this region, China accounts for the majority of production.
Many apparel companies across the globe have outsourced production to countries with lower
production costs. For example, China accounts for more than 45.0% of women’s and girls’ clothing
imports into the United States. China’s apparel manufacturing industry has recorded double-digit (+28%,
+5.7%, +18%, +9%) export revenue growth over the five-year period to 2014. In addition, demand for
higher-priced apparel has increased in China as the average income has risen.”
The largest segment: women’s and girls’ apparel. It accounts for 59% of industry revenue.
The top 10 knit apparel-producing countries in terms of export revenues are China, Bangladesh, Hong
Kong, Turkey, Vietnam, Germany, Italy, India, Cambodia and Netherlands. Major textile exporting
countries ranked this way: China, South Korea, Taiwan, and Hong Kong (these produced 2/3 of the
total). China’s textile and apparel market share on exports to the United States dropped from 41.2% in
2011 to 38.9% in 2014.
China
China makes up 41% of global apparel production. Export revenues more than doubled this 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 that compete for their
skills by offering better wages, hours, and working conditions.
China has also been facing lower-skilled, lower-paying jobs moving offshore. According to apparel trade
agent Li & Fung, this “second migration” is to 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.
What was the problem? China’s prosperity kept pushing up costs. Now, deflation is a new problem. The
economy has slowed. China’s consumer price inflation ran around 1.6% annually in 2014. From 1986 to
2013, consumer inflation averaged 5.8%. The target for U.S. inflation is 2%. In 2015, China undertook a
4% currency devaluation. A further 6% additional devaluation may be in the cards.
The 12th five-year plan lays out policymakers’ blueprint for China’s Textile & Apparel (T&A) industry.
Expect the following changes by 2015. (A 13th and final five-year plan is due March 2016.)
1. Achieve industry upgrading. — Reduce apparel products from 51% to 48%, and increase textiles
from 20% to 25%. Build 5 to 10 textile and apparel brands with international influence, 100
brands with ”high recognition,” and get overall branded products to no less than 50% of total
textile and apparel exports.
2. Move production to the western region. — By 2015, China’s western region shall account for
28% of total textile and apparel output, a significant increase from 17% in 2010.
3. Build a “greener” industry. — Energy, water, and pollution emissions shall fall by 20%, 30%, and
10% annually. Consumption of recycled textile fibers shall increase by 15%.
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4. Expand domestic consumption. — Domestic consumption for apparel, home textiles, and
industrial textiles shall increase by 3%, 3%, and 10% annually to 2015.
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.
International players dominate China’s luxury apparel market.
Top 5 China Apparel Enterprises by Sales, 2013
1. The Younger Group Co. Ltd., Ningbo
2. Heilan Group, Wuxi
3. Bosideng Co. Ltd., Suzhou
4. Peacebird Group Co. Ltd., Ningbo
5. Shandong Sinoer Group Co. Ltd., Weifang
Source: Fung Business Intelligence Centre, December 2014
China’s export dependency ratio for the textile and apparel industry has gone from 30% in 2000 to less
than 17% in 2011. This means over 80% of “Made in China” textiles and apparel are consumed
domestically, and/or shipped to other nearby countries.
The China Policy Institute shared these current facts on costs to import.
•
•
From 2006 to 2014, the average unit price of U.S. textile and apparel imports from China slightly
increased from $1.45/square-meter-equivalent (SME) to $1.46/SME (up 0.7%).
The average unit price of textile and apparel imports from the rest of the world increased from
$1.97/SME to $2.13/SME (up 7.9%).
Total landed cost of textile and apparel “Made in China” remains one of the lowest in the world, thanks
to China’s more efficient supply chain management, more modern infrastructure, and workers’ higher
productivity than competitors such as Vietnam and Bangladesh (OTEXA, 2015).
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U.S. Imports
The U.S. imports the bulk of textiles and apparel, and accessories like footwear, sold domestically.
U.S. Apparel Imports by Country
Percentage share of imports, 2014
Vietnam
11.6%
2014 Total U.S.
Apparel Imports:
$78.2 Billion; +2.2%
(or + $1 Billion) Yearto-Year
Indonesia
6.1%
China
35.6%
Bangladesh
6.0%
Mexico
4.5%
Other
10.0%
Thailand
1.3%
Philippines
1.4%
Jordan
1.4%
India
4.4%
Honduras
3.1%
Pakistan
1.7%
Italy
1.8%
Guatemala
1.7%
El Salvador
2.1%
Cambodia
3.1%
Sri Lanka
2.2%
Nicaragua
1.9%
Source: U.S. Census Bureau (USA Trade Online) and LAEDC, June 2015
Based on NAICS District-Level Data, General Imports
Notable Trends by Company
Year-to-Year Percent Changes (2013–2014)
U.S. Footwear Imports
#1: China*
#2: Vietnam
#3: Italy
#4: Indonesia
#5: Mexico
#6: India
#8: Spain
#10: Cambodia
#12: Portugal
#15: Bangladesh
#23: Nicaragua
* China includes Hong Kong and Macau
Source: LAEDC, June 2015
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U.S. Apparel Imports
+0.4%
+23.8%
+8.6%
+6.6%
-8.0%
+16.6%
+14.7%
+116.2%
+25.5%
+89.5%
+113.6%
-0.8%
#1: China
#2: Vietnam
#6: India
#9: Sri Lanka
#11: Nicaragua
+14.1%
+6.4%
+6.8%
+5.7%
#12: Italy
#20: Dominican Republic
#35: United Kingdom
+8.9%
+10.8%
+18.9%
Declines: Indonesia, Bangladesh,
Cambodia, Thailand, South Korea,
Costa Rica
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Higher prices on imports of apparel into the United States are finally here.
Chart G below tracks Apparel and Clothing Accessories Import Price Indexes. All apparel price indexes
rose strongly – up nearly 10% – from 2010 to 2011. Since, they have fallen back about 3%. The first
import price index chart (below) shows the import price surge and then the stabilization.
Chart G: Imports Prices on Apparel and Clothing Accessories, 1995–2015
Chart H below shows Import Prices for Apparel Manufacturing, Men’s and Boys’ Cut-and-Sew Apparel
Manufacturing, and Women’s and Girls’ Cut-and-Sew Apparel Manufacturing. Upward cut-and-sew
price movement was strong in 2011. Cut-and-sew apparel import prices stabilized from 2012 to 2015.
Since 2010, apparel manufacturing import prices rose +12.5% or +2.5% annually. This tracks just above
the CPI.
Chart H: Import Prices for Apparel Manufacturing, Going Back to 2006
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Chart I considers Import Prices for Apparel Accessories and Footwear going back to 2006. These show
more consistent increases annually. There has been a 15% rise since 2010. That’s 3.0% annually.
Chart I: Import Prices for Accessories and Footwear, Going Back to 2006
Chart J shows an Import Price Index for Apparel Manufacturing imported from Eastern Europe, Latin
America, OPEC countries, and other countries in Asia, Africa, and the Western Hemisphere.
Data only goes back as far as 2012.
Chart J: Import Prices for Apparel Manufacturing, Over the Last Three Years
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L.A. Imports
In 2014, the United States imported $116.5 billion worth of apparel and textiles.
$41.8 billion arrived via the Los Angeles Customs District.
To July 2015, the LACD was on track to import $43.4 billion in textile and apparel, at a 6.3% annual
increase. This growth is in line with annual import growth going back to 2005. The average annual
growth rate is 6.6%.
USD Billions
45
Can Los Angeles Customs District (LACD) Apparel
and Textile Imports Keep Growing 6.6% a Year?
38
40
39
41
43
35
35
28
30
25
42
31
30
29
25
20
2005
2007
2009
2011
2013
2015 E
Source: USA Trade Online LACD Data, Sept 2015
Most U.S. apparel imports come from Asia.
The significant portion that passes through the Los Angeles Customs District (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 $22.9B in
2014. Our definition of “China” can include Hong Kong ($53M) and Macau ($6M) for reasons explained
in the International Effects section. China is distantly followed by Vietnam ($6.8B), Indonesia ($3.1B),
Cambodia ($1.4B), Bangladesh ($836M), the Philippines ($620M), India ($607M), Thailand ($452M),
Taiwan ($171M), and South Korea ($100M).
In the 2004 L.A. Area Fashion Industry Profile, China accounted for 1/3 of apparel imports coming
through the L.A. area’s seaports and airports.
Using 2012 numbers, China accounted for 60% of apparel imports. In 2014, China was 58.4%. 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 #2, #4, #5, and #7, 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.
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USA Trade Online provided the San Diego, San Francisco, and Seattle data (see bullets below). These
imports make the size of Asian imports a bit murkier. Are any of these shipments from Asia to L.A.?
•
•
•
The San Diego Customs District area took $591M worth of apparel and $7M in textiles in 2014.
The San Francisco Customs District area took $3.6B in apparel and $65M in textiles in 2014.
The Seattle Customs District took $3.7B in apparel and $133M in textiles in 2014.
For textiles (not textile products such as carpets, rugs, etc.), China was also the largest source of imports
at $725M (46% of total $1.56B in LACD textile imports), followed by South Korea ($279M), Taiwan
($137M), Japan ($75M), Indonesia ($64M) and India ($69M). Italy ($57M) was the top European country
to import textiles.
Table 16: L.A. Customs District, Apparel and Textile Imports in 2014
Country
World
Total ($ Value)
41,846,672,030
Textiles ($ Value)
1,560,085,512
Apparel ($ Value)
39,284,734,779
23,669,028,470
6,794,498,142
3,115,425,438
1,384,951,935
836,754,873
725,265,866
24,816,829
64,907,561
1,283,397
6,181
22,943,762,604
6,769,681,313
3,050,517,877
1,383,668,538
836,748,692
India
Philippines
Thailand
South Korea
Taiwan
676,530,896
621,227,233
478,257,172
379,749,303
309,299,284
69,101,844
387,902
25,890,632
279,668,922
137,897,976
607,429,052
620,839,331
452,366,540
100,080,381
171,401,308
Japan
Hong Kong
Macau
Singapore
82,526,654
61,195,308
6,579,629
9,102,098
75,057,649
2,818,337
164,988
113,270
7,085,365
53,376,971
6,414,641
8,988,828
38,425,126,435
92%
938,052,653
445,506,708
1,407,381,354
90%
3,396,329
85,479,743
37,012,361,441
94%
934,656,324
360,026,965
China
Vietnam
Indonesia
Cambodia
Bangladesh
Asia
CAFTA
EU
Source: USATradeonline.gov, Sept. 2015
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)
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The big change since the last report — surging European textiles and apparel imports! 8
Table 17: European Union Textile and Apparel Imports
Surge into the LACD
600
$ Millions
500
400
300
200
100
0
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015 E
Source: USA Trade Online, Sept. 2015
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 at Table 16 (on the previous page) please keep in mind the following caveats:

A stark difference exists between the two columns listing apparel and textiles imports. Top
apparel exporters are very-low-wage countries. Be cautious. Future import volume coming from
the likes of very-low-wage Bangladesh and Cambodia is not a guarantee. There have been
serious labor issues. These countries could disappear from this list without successful reform.

Textile making is 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 E.U. data) adds the wealthy country of
Italy.

Comparing the apparel and textiles import columns suggests Asia has become two regions
within itself. The apparel column contains poor, less-developed Asian countries. The textiles
column includes better-developed Asian countries, and Italy is close behind.

Large portions of U.S. exports are shipped by air. These are high-value, time-sensitive
merchandise. What’s being exported? It’s anything from swimwear to designer dresses to
Dodgers shirts.
8
See this European article in Business of Fashion, London, Sept. 28, 2015 “LA Confidence”
http://www.businessoffashion.com/articles/bof-500/los-angeles-usa-emerging-fashion-destination
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U.S. Exports
The United States continues to get more and more involved with the global trade system. Chart K shows
the Share of GDP in U.S. Exports of All Goods and Services over the last 65 years. The United States
exported 11% of GDP in 2009. In 2015, it is around 13.5%. That’s a 25% increase.
Chart K: U.S. Exports as a Share of GDP
Table 18: U.S. Textile and Apparel Exports, 1990 to 2014
World
25
_W HEMI
_NAFTA
20
Billions of USD
Mexico
Canada
15
_CAFTA-DR
_EU28
10
_EU27
Honduras
5
China
_SAMERICA
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
Source: OTEXA
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Japan
Dominican
Republic
L.A. Exports
In today’s world, and in the future, L.A. apparel suppliers have a lucrative, massive, untapped source of
apparel consumers to ship to in China and other wealthy urban markets throughout Asia. Penetration
rates of “Made in California” clothing are low. Consumer interest is high.
Export sales and global expansions can substantially add L.A. jobs.
For example, before the recent restructuring, American Apparel retail operations in Canada, Europe, and
Asia were its most profitable. Sales abroad lead to more design, accounting, marketing etc. jobs in L.A.
Smaller companies will not typically create an administrative staff abroad until sales grow substantially.
Many apparel companies have also created overseas subsidiaries in low-tax jurisdictions, such as Ireland
and Hong Kong. They use these entities as sales vehicles globally. Goods are sourced from Asia. Then,
they are shipped directly to offshore entities. This revenue never hits the books of the U.S. entity. In
turn, this causes an under-representation of the true economic impact of California companies selling
abroad.
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Top L.A. Apparel Export Destinations
($965M in 2014)
Japan ($169M)
South Korea ($88M)
Australia ($76M)
United Kingdom ($69M)
China ($54M)
Belgium ($24M)
Top L.A. Textile Export Destinations
($2.16 billion in 2014)
China ($918M in 2014 vs. $2.5B in 2012)
Vietnam ($267M in 2014 vs. $141M in 2012),
Indonesia ($182M in 2014 vs. $138M in 2012),
South Korea ($155M in 2014 vs. $138M in 2012)
Taiwan ($84M in 2014 vs. $89M in 2012)
Textiles often return to the United States as finished products after a few weeks.
These take advantage of various Free Trade Treaties.
Finally, the 2014 import list includes the supra-low wage destinations of Guatemala ($61M), Bangladesh
($38M), and Pakistan ($21M). This is the “tell”. Contracting firms shop around the globe for labor costs.
Apparel items must now indicate the source of the material besides the location of sewing and
packaging. For many products, per U.S. customs regulations, the fabric source is more important than
where the product is actually stitched together. Exports to Mexico are under-reported for this reason.
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U.S. Imports vs. Exports
Apparel and Textiles – All Ports
86,188,366,416
90,499,280,210
88,313,623,149
85,316,216,049
Imports
Exports
Value $USD
22,872,358,012
2011
20,431,487,467
2012
20,285,153,662
2013
19,526,247,591
2014
Source: LAEDC, July 2015
U.S. Imports vs. Exports
– All Ports
Footwear
22,650,500,300
26,000,300,200
24,800,250,200
23,900,550,600
Imports
Exports
Value $USD
1,300,000,600
2011
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1,350,300,350
2012
1,400,400,250
2013
2014
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1,450,200,100
Source: LAEDC 02/12
The North American Free Trade Act (NAFTA) between the U.S., Canada, and Mexico was a
seminal event for the Los Angeles apparel cluster.
The 1990s
A look back at jobs data — apparel manufacturing in L.A. started a decline around 1996.
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 10
years, all U.S.–Mexico tariffs would be eliminated except for some U.S. agricultural exports.
For the L.A. apparel industry, 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 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. 1997 was a year tied to the Asian financial crisis. After the sudden pullback
of capital, import-export manufacturers located in Asia benefited 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 OSHA requirements, and for workers’ compensation. Taking both the
push and pull factors in combination, an already strong international 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 —
operations like apparel and textile manufacturing. Soon, Chinese activities became absorbed more
deeply into the global manufacturing fabric. This meant they captured the bulk of the U.S. market.
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, moving 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.
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The 2000s
On December 1, 2007, under 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 April 2013, another trade issue affected the SoCal apparel industry. The European Union (the EU)
announced that the duty on women’s denim trousers manufactured in the United States would go from
12% to 38%. After a successful legal challenge on a technicality, the extra 26% denim tariff disappeared
after one year. In May 2015, the EU had set this tariff at +13.5%.
In 2014, total U.S. jean sales came to $15.4 billion. The NPD Group, a consumer research firm, said
premium denim was the fastest-growing segment. It estimated sales of $1.4 billion in Feb. 2013.
The NPD Group estimates that 75% of high-end denim comes from the SoCal area.
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Barriers to L.A. Exports
Several tariff and nontariff barriers inhibit the export of L.A. apparel.
Apparel manufacturing is found in many developing countries. Some developing countries have special
tariffs to protect their domestic factories from foreign competition. The United States has not been as
aggressive as it could be on removing barriers for apparel, according to industry insiders.
Multilateral negotiations available through the WTO were supposed to be the answer to this problem.
Other countries put up a fight, if they believed their own apparel industries were threatened.
In 2010, the federal government announced The National Export Initiative (NEI).
The NEI targeted an ambitious 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.
This shaped the next phase of the NEI program: NEI/NEXT. It was launched in May 2014. The NEI/NEXT
programs aim to:
(1) Provide more customized and focused counseling to businesses, including improved research, data,
and identification of specific export opportunities.
(2) Streamline the export/import process (implementing the single window).
(3) Expand access to financing by working more closely with financing organizations.
(4) Foster local trade/investment ecosystems and business support networks by partnering with states
and communities; and
(5) Negotiate new access, enforce existing agreements, and build the capacity of developing countries,
thereby creating new customers for U.S. exports.
L.A.-sourced apparel hopes to benefit from this initiative.
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. They have long-term
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.
Is there an opportunity for online stores abroad?
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Three L.A. export topics you should know about.
(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
international buyers.
(2) Three financing solutions can improve an exporter’s capabilities.
•
•
•
Export factoring
Trade credit insurance
Working closely with a freight forwarding company.
(3) When a company does get an export order, it may find that it is 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 brand names being tarnished by low-quality imitators using their
trademarks illegally.
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The March Toward Free Trade Continues
Textile and apparel manufacturers remain concerned about the continuing flood of cheap imports into
the United States, believing it could kill remaining domestic jobs in apparel and textiles.
Manufacturers can ship fabric and textiles to a quota-free or quota-available country for final assembly.
In the case of China, on top of advantageous labor costs, Chinese exporters also get export tax rebates
(currently 17% across the board) from their government. This helps to subsidize their exports.
However, taking away China’s rebates will not offset their huge labor cost advantages or bring relief to
U.S. producers.
Here is what you need to know about the ongoing U.S. free trade agreements.
 The U.S. Office of Textiles and Apparel (OTEXA) monitors 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 from
2005 to 2008, depending on the product’s categories. 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. In 2006–2007, under this
program, CAFTA–DR entered into force for El Salvador, Honduras, Nicaragua, Guatemala, and
the Dominican Republic. These agreements were built on the 1995 implementation of the North
American Free Trade Agreement (NAFTA) for Mexico and the Caribbean.
 In his first term, President Obama concluded free trade agreements with South Korea, Colombia,
and Panama.
 Cuba could present opportunities down the road.
 In October 2015, multi-year negotiations were tentatively agreed to (awaiting Congressional
approval), concluding the 12-country Trans-Pacific Partnership (the TPP).
The U.S. Trade Representative (USTR) maintains the following eight talking points.
The USTR argues for Trans-Pacific Partnership benefits for U.S. manufacturing.
(1) It eliminates all foreign taxes in the form of tariffs on U.S.-manufactured goods exported to TPP
countries.
(2) It prevents other TPP countries from maintaining, expanding, or creating new trade barriers to
American manufacturers as they eliminate tariffs.
(3) Some countries require exporters to acquire licenses before they can send their goods to that
country. TPP ensures exporters have complete and updated information about import licensing
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requirements. They cannot be used as trade barriers, which hurt U.S. workers and businesses and
provide foreign companies with unfair advantages.
(4) “Rules of origin” determine if a product genuinely qualifies for TPP status. TPP establishes rules of
origin that provide incentives for companies to keep production and manufacturing jobs in the United
States.
(5) TPP helps to prevent long delays in customs processing for U.S. products.
(6) TPP creates export opportunities for made-in-America clothes, fabrics, and yarns, including for many
of the high-tech textile products in which U.S. producers are most competitive.
(7) TPP creates new opportunities for U.S. businesses and workers to compete in government
procurement contracts abroad.
(8) TPP enforces tough, new transparency rules and standards to cut down on corruption in TPP
countries, so that American manufacturers can compete on a fair playing field.
A Contrarian View
A) Countries such as Malaysia, Indonesia, Singapore, etc., do not have an infrastructure for source
materials and will have no alternative but to buy from China, shipping the finished product to the United
States duty free. This gives China inadvertent free trade access for these source materials (zippers,
specialty yarns, buttons, thread, etc.).
B) Statistics from the U.S. Customs Department state that apparel and textiles constitute more than 40%
of U.S. duty income. Currently, certain apparel items carry anywhere from a 19% to 32% duty charge,
depending on the item’s position in the ”Harmonized Code.”
How will U.S. Customs make up the difference in income? By raising duties on other incoming products,
of course. The U.S. consumer loses!
C) When, for example, a T-shirt or track suit will enter the United States with a “Made in Malaysia” or
“Made in Vietnam” label as ”duty free,” there may be as much as a 20% drop in its cost to the importer
(i.e., the retailer). Retailers get the benefit of this cheaper price, while the “spread” between the import
and a “Made in USA” product becomes even wider.
D) ”Winners” with TPP: Pharmaceuticals, Agriculture, and Retailing
”Losers” with TPP: U.S. Manufacturing and Environmentalists
Strong Closing Point
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 marketed, just as Italy found a niche in high-end, designerbased textiles, handbags, shoes, etc.
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The Outlook for L.A.’s Apparel Industry
Pluses
•
The apparel industry cluster in Los Angeles is very visible and geographically identifiable. The
“Fashion District” east of downtown is supported and promoted. It 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, particularly on social media. L.A. is
increasingly seen as the fashion capital of trends in the United States. Marketing 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 City, 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. L.A.-based designers 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.
•
In retailing, fresh ideas sprout from Los Angeles in reaction to retail consolidation (Forever 21,
Love Culture, Papaya). Large, national retail chains engage in “matrix purchasing.” This favors
existing, large suppliers. In response, some manufacturers (A.B.S., BCBG, Guess, Max Studio,
Trina Turk, True Religion) went vertical, opening retail shops — major and risky investments.
•
When the tradeshow MAGIC (Men’s Apparel Guild in California) moved to Las Vegas, it impacted
convention revenue in L.A. However, L.A.’s apparel businesses dominate 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 is now seen as the biggest advantage with 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.”
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Minuses
•
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, California. 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. More and more specialized women’s clothing
buyers come in from out of state and often outside the country. Refresh the LAX airport
terminal, the hotels, and the downtown fashion business improvement district (BID). They
become 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. 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 are 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. Enhance the chance for entrepreneurial expansion. That’s
the spirit of the West in a modern form.
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CFA/CIT Survey 2015: The L.A. Apparel Industry Speaks for Itself
In October 2015, the California Fashion Association (CFA) and CIT Group jointly launched the
inaugural L.A. apparel industry survey. It garnered 54 responses to 17 questions.
Background
Prominent L.A.-based apparel manufacturers spoke.
They selected women’s apparel (72%) as their prominent product category, followed by juniors (35%),
men’s (26%), and children’s (22%). Denim and activewear products came in around 10% each.
80%
70%
60%
50%
40%
30%
20%
10%
0%
72.2%
What Is Your Product Category?
(Select All that Apply)
35.2%
25.9%
22.2%
13.0%
Women’s
Juniors
Men’s
Children’s Activewear
11.1%
9.3%
Other
Denim
The size of companies varied from over-1000-employee outfits to one-employee sole proprietors. The
statistical mode — 18 responses — fell between 20 and 50 employees.
How Many Employees Do You Have?
Less than 20
12
20-50
18
50-100
8
100-200
9
200-500
5
1000 or More
2
0
CIT Group and CFA
2
4
6
8
10
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12
14
16
18
20
It’s a battle-hardened group of firms.
In terms of years in business, 16 responses fell between 20 and 30 years.
The majority of companies (34 of 54) have more than 20 years of experience. One has been in business
in L.A. for 62 years. Another just opened its doors last year.
How Many Years Has Your Company Been in Business?
Less Than 10
11
10 to 20
11
20 to 30
16
30 to 40
10
40 to 62
6
0
2
4
6
8
10
12
14
16
18
Hard-earned lessons from the point of view of senior executives get shared.
Their firms have survived a huge variety of adverse market environments: the NAFTA Free Trade
Agreement of 1994 and the financial crisis of 2008 among them.
Then, they positioned operations for the current period of social media-led growth.
Business leaders confirmed a deeply enmeshed global scene.
When asked where their goods are manufactured, 83% (4 out of 5) said internationally (48%) or in
combination with domestic production (35%). Sole domestic sourcing tallied 17%.
Where Are Your Goods Manufactured?
Domestic
17%
Combination of
the two
35%
International
48%
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Half of firms heavily depend on global licensing. 37% described themselves as branded apparel
licensors/owners of trademarks. 11% said they were licensees. 22% were private-label manufacturers.
Which of the Following Best Describes Your Firm?
Other (please
specify)
26%
Branded apparel
licensor/owner of
trademarks
37%
Textile
manufacturer
4%
Private-label
manufacturer
22%
Branded apparel
licensee
11%
Compelling Obstacles and Successful Strategies
Retail consolidation (31%) and wages (24%) top the list of the biggest obstacles to revenue expansion in
2016 and 2017, followed by consumer apathy (17%).
Logistics (7%) and regulations (6%) didn’t resonate. A substantial 15% chose “other.”
Industry-wide, What is the Biggest Obstacle to Revenue Expansion for
L.A. Apparel Companies in 2016 and 2017?
Regulations, 6%
Media Attention, 0%
Logistics Challenges,
7%
Retail Consolidation,
31%
Other (please
specify), 15%
Consumer Apathy,
17%
Wages,
24%
Below are some comments from the respondents:
•
•
•
•
•
Combination of wages and regulations
None. Opportunity only.
Stores closing
Soft retail
Combination of retail consolidation and buying patterns changing
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When asked what they saw as the most innovative technology for the future of the apparel industry, a
whopping 54% said “social media.”
This is followed by 24% that said integrated systems between manufacturers and retailers, and 13% that
said either 3D fitting or 3D printing.
What Is the Most Innovative Technology for the Future of
the Apparel Industry?
3D Printing, 4%
Universal
Measurement for
Tech Pack
Development, 4%
Other (Please
Specify), 5%
3D Fitting, 9%
Social Media, 54%
Integrated Systems
Between
Manufacturer and
Retailer, 24%
Industry-wide, what is the biggest growth opportunity for L.A. apparel companies in 2016 and 2017?
The Internet played a role in over half of responses. Online/Offline “Clicks-to-Bricks” business models
garnered 35% of responses. Online-only got 22%. New entrepreneurial concepts (19%) came in a close
third place. Export opportunities (11%) and off-price retailing (7%) wrap it up.
Industry-wide, What is the Biggest Growth Opportunity for
L.A. Apparel Companies in 2016 and 2017?
Other (Please
Specify) 6%
Off-price Retailing
7%
Export
Opportunities
11%
Online/Offline
35%
New
Entrepreneurial
Concepts
19%
Online only
22%
When asked about the most important step these executives will take to make their L.A. fashion business
more profitable in 2016 and 2017, 35% cited that they will broaden their product lines.
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22% will re-evaluate sourcing opportunities. 20% will change their business models. A very high 19%
chose “other.”
What is the Most Important Step You Will Take to Make Your
L.A. Fashion Business More Profitable in 2016 and 2017?
Review Employee
Value, 4%
Other (Please
Specify), 19%
Broaden the Product
Line, 35%
Change the Business
Model, 20%
Re-evaluate Sourcing
Opportunities, 22%
Below are some of their responses:
• A combination of sourcing; changes to one of our divisions; continue to expand
e-commerce; and control MD$ (marketing dollars)
• Advertising and marketing
• Re-evaluate sourcing opportunity and broaden the product line
• We are moving out of state due to wages and regulations
• Increase marketing
• Do more profitable business
• Control costs, expand high-margin divisions, and build drop-ship abilities
• Pursue retail opportunities
• Increase sales
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Which factors would negatively impact your businesses in 2016 and 2017?
47% said the cost of doing business. 43% said retail consolidation. 34% said product viability at
retail/competition concerned them. Consumer apathy garnered 25%.
Which of the Following Would Negatively Impact
Your Business in 2016 and 2017? (Select all that apply)
50%
46.9%
42.9%
40%
34.7%
30%
24.5%
20%
12.2%
10%
8.2%
Availability of
Appropriate Textiles
Other (Please Specify)
Consumer Apathy
Product Viability at
Retail/Competition
Retail Consolidation
Cost of Doing Business
0%
The Value of L.A.
What keeps their fashion business in the L.A. area?
47% answered access to L.A. ports. 37% said access to fashion designers. 31% said fast fashion. 20% said
access to local suppliers. A whopping 35% chose “other,” many of which may be reflected in comments
about having a preference for living in the area.
50%
40%
30%
20%
10%
0%
46.9%
What Keeps Your Fashion Business in the L.A. Area?
(Select All That Apply)
36.7%
34.7%
30.6%
20.4%
2.0%
Access to LA
Ports
CIT Group and CFA
Access to
Fashion
Designers
Other (Please
Specify)
Fast Fashion
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Access to Local
Suppliers
Access to
Hollywood
Celebrities
Here are some of their responses:
•
•
•
•
•
•
•
•
•
•
•
Too old to move to a better business climate.
Employees.
Customers like American-made, and we can turn clothes quickly. We like to oversee
and control production. But minimum wage threatens our ability to compete.
Production. QC is best done in person.
Infrastructure, vertical setup.
It’s home.
Fast to market and control of quality.
We are very flexible in a specialty market.
It’s the best place to live.
No desire to relocate.
Personal preference.
 Surprise! —2% (just 1 responder) chose “Access to Hollywood Celebrities.”
When asked how the apparel and textile industries benefit from being in LA, 53% said the Pacific Rim
location mattered, and an equal 53% said L.A. industry cluster advantages.
Other often-cited responses: 39% said L.A.’s image (39%) and entrepreneurial opportunities (33%)
mattered.
How Do the Apparel and Textile Industries Benefit from
Being in L.A.? (Select All that Apply)
60%
53.1%
53.1%
50%
38.8%
40%
32.7%
30%
20%
10%
4.1%
0%
Pacific Rim
Location
CIT Group and CFA
Industry Cluster
Advantages
Image
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Entrepreneurial
Opportunities
Other (Please
Specify)
How L.A. Policymakers Can Help
Which of the following proposed policy decisions would help operations the most?
•
•
•
•
47% would create tax incentives for job creation of “new hires.”
27% would raise the small-business tax exemption from $500K to $1M.
18% would eliminate the gross receipts tax.
8% would include a three-month “training wage” level, to encourage businesses to hire
inexperienced workers.
47% for tax incentives for “new hires” versus 8% for a three-month “training wage”? That suggests an
important insight. Keep starting wages higher for new workers. But directly compensate apparelmanufacturing businesses for training them.
27% in favor of a small-business tax exemption over 18% in favor of eliminating the gross receipts tax
shares? That’s another insight. Target small businesses under the most financial stress. That may work
better. The diffuse revenue tax breaks that benefit firms regardless of size, and outside this industry,
may be less effective to get growth.
Which of the Following Proposed Policy Decisions Would Help
with Your Operation the Most?
Include a ThreeMonth "Training
Wage" Level
to Encourage to Hire
Inexperienced
Workers 8%
Create Tax Incentives
for Job Creation of
"New Hires"
47%
Eliminate the Gross
Receipts Tax
18%
Raise the SmallBusiness Tax
Exemption from
$500,000 to
$1,000,000
27%
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Whither Global Sourcing?
(1) What countries will apparel and textile producers source from in 2016 and 2017?
Perhaps unsurprisingly, China leads the field (37%), followed by Vietnam (15%) and India. Mexico and
the United States each got 9%.
Italy, Peru, Indonesia, Cambodia, Burma, and Bangladesh came next, in that order.
From Which Countries Do You Plan to Source Apparel and
Textile Production in 2016 and 2017? (List the Top Three)
China
Vietnam
India
USA
Mexico
Italy
Peru
Indonesia
Cambodia
Burma
Bangladesh
Not Sure
Nicaragua
Europe
All Over
Thailand
Taiwan
South Korea
Philippines
Honduras
Canada
37
15
12
9
9
4
3
3
3
2
2
1
1
1
1
1
1
1
1
1
1
0
10
20
30
40
Looking Forward Beyond 2017?
While fewer people answered this question, China’s lead shrinks but it’s still dominant, with 29
responses. Vietnam and the United States got seven. Mexico and India got two. Africa and North Africa
(at some point) got two votes. Nicaragua and Cambodia got one vote.
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What Country Will Be the Most Important Source of
Production for the Apparel and Textile Industries
in 2017 and Beyond?
China
29
Vietnam
7
USA
7
Not Sure
2
India
2
Mexico
2
At Some Point N. Africa, Africa
2
No idea…
1
Nicaragua
1
Cambodia
1
Asia
1
0
5
10
15
20
25
30
Shifting to marketing, respondents were asked what “Designed in L.A.” marketing strategy would work
best. A whopping 55% said ”social media.” 22% chose “none of the above.” 12% chose traditional
advertising. 6% chose trade shows.
Which “Designed in L.A.” Marketing Strategy Would Best
Work for Your Company?
Other (please
specify)
4%
Trade shows
6%
Advertising
12%
Social media
55%
None of the above
23%
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Conclusion—What New Marketing Innovations Will Have the Greatest Impact
on the L.A. Fashion Industry?
That answer couldn’t be more clear — social media by a mile!
Think blogger-sponsored e-commerce, social media in its next phase, social media buzz and direct-tomarket, Snapchat, selling on the Internet, possible fashion blogs, and digital technology.
Other ideas — Pay attention to new lines and L.A.-based manufacturers. Collaboration for Omni-channel
partners with retailers looks promising. Innovative product designs help.
Famous brands, events like trade shows, and managing L.A. perceptions matter, too.
What New Marketing Innovation Will Have the Greatest
Impact on the L.A. Fashion Industry?
Social Media
18
Don't Know
6
Blogger Sponsored e-Commerce
2
Social Media in its Next Phase
1
Social Media Buzz and Direct-to-Market
1
Snap Chat
1
Selling on Internet
1
Possible Blogs
1
Pay Attention to New Lines & Local LA Based Mfrs…
1
LA Perception
1
Internet Sales
1
Innovative Product Designs
1
IDK
1
Famous Brands Involvement
1
Events (trade shows etc.)
1
Digital Technology
1
Creativity and Technology
1
Collaboration for Omnichannel Partners with…
1
Automation in Sewing
1
Automate the Processes to Reduce Employees
1
3D Printing/Fitting
1
0
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5
10
15
20
Index of Statistical Tables
Table 1: Highest Location Quotients for L.A.–Long Beach-–Glendale Metro .............................................. 6
Tables 2 and 3: Retail Sales of Licensed Merchandise ......................................................................... 16-17
Table 4: L.A. Cosmetic, Jewelry, and Footwear Location Quotients ......................................................... 18
Table 5: Other Fashion-Related Industries (Shoes, Cosmetics, and Footwear) ........................................ 19
Table 6: Apparel and Textile Employment in Los Angeles County vs. New York PMSA, 2013 .................. 22
Table 7: Hoover’s Business Segments in the Five-County L.A. Area .…………....…………………..…………………. 24
Table 8: L.A. Location Quotients for Apparel Manufacturing and Textiles ..…………………….….…….…………. 25
Table 9: Annual Earnings in L.A. County 2003–2013 ……….……………………………………..…………..…………..…… 38
Table 10: Direct and Indirect Apparel/Textile Earnings in Los Angeles County, 2013 ..…….…………………. 43
Table 11: Direct and Indirect Apparel/Textile Jobs in Los Angeles County, 2013 …………….………………….. 44
Table 12: L.A. Area Consumer Price Indexes ............................................................................................. 47
Table 13: Important FX Outlooks .……….……………………………………..……………………………………….…..………….. 50
Table 14: Companies in California with Revenues of $1 Million and Greater, 2013 ................................ 52
Table 15: Conditions of Financial Stress in L.A. County Apparel Industries, August 2011 ........................ 53
Table 16: Los Angeles Customs District: Textile and Apparel Imports, 2012–13 ...................................... 64
Table 17: European Union Textile and Apparel Imports, 2015 ................................................................. 65
Table 18: U.S. Textile and Apparel Exports ............................................................................................... 66
Data Notes: This report depends heavily 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) NAICS 3-digit code 313 is “Textile Mills.” NAICS 3-digit code 315 is “Apparel Manufacturing.” NAICD
4-digit code 4243 is “Apparel, Piece Goods, and Notions Merchant Wholesaler.” The “Piece Goods and
Notions” portion of sales located within this wholesale trade category makes up around 10% of the
code.
(2) The report will not cover the textile products industry, which includes home decoration products
such as linen and carpet. It also doesn’t discuss apparel retail sales.
(3) Do you want to update any FRED (Federal Reserve Economic Data) charts in this report? This is easy.
Go to the St. Louis Fed’s website. It has 268,000 U.S. and international time series from 80 sources.
Here is the web link: https://research.stlouisfed.org/fred2/
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Written by John J. Blank, Ph.D., Chief Equity Strategist at Zacks
Follow me on Twitter @johnblank100
Very special thanks go out to Ilse Metchek, President of the California Fashion Association, for key
guidance and insights. Special thanks go to CIT for its sponsorship and participation in this report.
To California Fashion Association members, I really appreciate your vibrant industry. It is a pleasure to
write about. I want to acknowledge Jack Kyser of the LAEDC, whose early ideas permeate the first
section.
I earned a Ph.D. in economics from MIT. Currently, I am the editor of “The International Trader” at Zacks
and am Chief Equity Strategist there.
I was the author and lead economist for the 2011 and 2014 Los Angeles Area Fashion Industry Profiles.
The first was done while serving as Deputy Chief Economist of the Los Angeles Economic Development
Corp. This 2016 report is a two-year update of the 2014 report.
I live near the beach in Los Angeles, California, and wrote this report there.
The California Fashion Association (CFA) is a nonprofit 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. They 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.
To pass on any comments or media inquiries, please contact us at info@calfashion.org and
213-688-6290 or jblank@zacks.com and 213-248-5899.
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The Los Angeles Area Fashion Industry Profile

Transcription

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