Liz Claiborne: The US Apparel Retailer's "Three-M's" Strategy

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Themes: Strategy
Pub Date : 2007
Countries : US
Industry : Women's Clothing

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Case Code : CSB0018
Case Length : 10 Pages
Price: Rs. 200;

Liz Claiborne: The US Apparel Retailer's Three-M's Strategy


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Global Apparel Industry: The Trends Cont...

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In 1975, only 12% of the apparel sold by the retailers in the US was imported but by 1984, the imports doubled.5 Other developed countries also experienced the same trend. In order to control the increasing imports and protect the domestic textile industries, developed countries like the US, Canada and western European countries imposed quotas on the import of apparel and textile products. Multi-Fiber Arrangement6 (MFA), which applied to most developed and developing nations, was renegotiated in 1986 to control international trade in textiles and apparel. Quota restrictions made apparel companies to outsource their production to countries, based on the availability of quotas rather than on the competitiveness of the manufacturers.

Trade preferences through Free Trade Agreements7 (FTAs) also influenced the apparel companies. As an FTA allowsmember countries to import goods without any tariff, apparel companies were able to reduce costs by outsourcing their production. For instance, some companies in the US shifted their production facilities fromAsia to LatinAmerican countries, as US signed FTAwith them. This shift facilitated companies to respond faster to the changing fashions and shorten the production and distribution cycles.

In January 2005, the quota restrictions imposed by the developed countries on developing nations were eliminated. With the removal of quotas, companies started importing fromlocations that offer quality products and services at competitive prices. The competition in the apparel industry intensified with many new players entering the market, subsequently lowering the prices of apparel. This pressurised textiles and apparel manufacturers in developed nations as they were unable to compete with the growing number of international suppliers who supplied the same quality at lower costs.

These changes in the international apparel trade dynamics had a profound effect on the apparel retailers in the developed economies. Rapidly changing trends and styles affected the apparel retailers who used to carry huge inventories. Richard Romer, executive vice president of CIT Group8 said, "Just when you think you've figured out exactly what your customers want, everything changes - sometimes overnight."9 Apparel retailers who were unable to identify these changes and anticipate demand, experienced lower sales, excess inventories and decreased earnings. The changing trends created demand uncertainty, which complicated production planning, forecasting, inventory management, production system and distribution. To reduce the risk of demand uncertainty, retailers introduced various innovative techniques such as 'lean retailing' and 'quick response manufacturing'. Lean retailing practices gainedmomentumas they helped retailers in streamlining supply chain activities, improving operational efficiencies through various technological advancements and manufacturing the products according to the changing trends and customer preferences. Proliferation of Internet-based communication networks enabled companies to improve coordination between all activities of the supply chain making it easier to respond to the changing trends.

Despite these initiatives, apparel retailers faced troubles due to decrease in the average selling prices of the apparel, especially in matured markets like the US and western Europe. These price pressures decreased margins of most US companies making them implement new ways to improve the profitability. Apparel companies in the US diversified into new product lines, segments and channels to survive competition

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5]Gereffi Gary, "GLOBAL SOURCING IN THE U.S. APPAREL INDUSTRY", Journal of Textile and Apparel, Technology and Management, Volume 2, Issue 1, Fall 2001
6]Multi-Fiber Arrangement was introduced in 1974 which provided the basis on which developed countries restricted imports from developing countries. It was designed to protect the domestic companies in the developed countries against low cost competition from developing countries.
7]A free trade area - as defined by the GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) - is a group of two or more customs territories in which duties and other restrictive regulations of commerce ... are eliminated on substantially all the trade between the constituent territories in products originating in such territories.
8]It is a New York-based credit protection and lending services provider for apparel manufacturers.
9]"Trends analysis", http://www.highbeam.com/doc/1G1-60377448.html, March 15th 2000 .