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When Gap (GPS) was forced to slash its 2011 profit forecast by 22 percent on May 19, Chief Executive Officer Glenn Murphy blamed soaring cotton and labor costs. Retailers from Target (TGT) to Family Dollar Stores (FDO) have cited similar margin-squeezing pressures. All of this came as a shock to apparel company executives, many of whom have experienced only stable or falling costs for the past 20 years.
Retailers realize that they don't have much pricing power with budget-conscious consumers these days. That's why apparel makers are turning to "deconstruction" experts like Peter Brown, who shows clients how to tear garments apart and put them back together with cheaper and fewer materials. Companies are loath to talk about their cost-cutting for fear of damaging relationships with consumers. "They're working through this minefield," says Brown, who is the vice-chairman of retail consulting firm Kurt Salmon and says he works with most of the big clothing makers and sellers.
Brown is currently working with garment makers that will ship to stores in July 2012. (He declines to identify his clients.) There's a fair amount of nipping and tucking to be done, he says, because Kurt Salmon anticipates costs surging as much as 15 percent in the second half of this year.
Because only so much can be cut out of a garment, cost savings amount to a few pennies here, a few pennies there: eliminating cuffs and pleats, scrimping on linings inside coats, switching to coarser material for pockets. Fabric comprises as much as 50 percent of a garment's costs. Cutting it more carefully to reduce waste can reduce by 50¢ or more the cost of a pair of $195 men's wool dress slacks, Brown says. Zippers that come in a big roll are cheaper than ones custom-made for specific garments.
"For big apparel companies that make hundreds of thousands of men's suits a year, saving 20¢ or 50¢ a garment is a lot of money," says Salvatore Giardina, a men's suit designer and adjunct professor at the Fashion Institute of Technology in New York. Brown recently examined a pair of men's khakis that sell for $29.50 and spotted a coin pocket. Eliminating it zaps a nickel, he says. Watch pockets are an easy cut, since few men use them anymore. So are logos and decorative stitching inside the waistband—visible to men only when they put on their pants.
There's an art to this, designers say, at a time when many shoppers are watching their budgets. Consumers notice fixes that go too far. One no-no, says Giardina: making pants' pockets so shallow that loose change escapes. A simpler waistband with less material and stitching can make the top of a pair of slacks roll over. Switching to plastic buttons that crack after a few washings and using coarser wool can send shoppers elsewhere, says Giardina.
Most garment manufacturers take care to make changes that won't be spotted easily by consumers, according to Brown. "It's not the objective of any designer to say, 'How cheaply can we make these things?'" he says. "Most retailers don't want to cheapen the product. They're asking, 'Would dropping the watch pocket redefine this pair of pants? I don't think so. So knock off the watch pocket.'" In some cases, fashion trends can make life easier. The slim silhouette favored in suits and shirts by young men (and older hipsters), for instance, saves a lot of fabric.
Still, Brown says, the inflationary environment is exacerbating the usual tension between designers, who want to produce beautiful clothes, and manufacturers and apparel executives, who want nice togs with nice profit margins. "On one side of the table, you've got a designer who says, 'You can't destroy my beautiful product by lopping the watch pocket off,'" says Brown. "On the other side, you've got the manufacturing executive saying, 'You say you want to keep these things under $30. Tell me what you want to do.' "
Recently, Giardina's sister, Concetta, who is a button sales representative in New York, met with production managers from a major retailer to discuss the cost of a men's dress shirt that will appear in stores next spring. Did they want real shell buttons or imitation pearl? Concetta asked. "What's the price difference?" Concetta recalled them inquiring. About 20¢ a button for shirts that would need a dozen of them, she said. They took the imitation.
The bottom line: With fabric and labor costs projected to grow 15 percent in the second half of 2011, apparel makers are redesigning clothing to extract savings.