In my last post concerning Mag Instrument, Intense Cycles and American Apparel, I wrote about how the people at the top are remarkable in their hands-on approach to running a business. Jeff Steber of Intense and Toni Maglica of the much bigger Mag Instrument both get involved not only with creating prototypes for new products, but physically making those prototypes. Marty Bailey, AA’s president of manufacturing, actually demonstrates to workers how they can sew garments more efficiently. I think this is one of the reasons for the success of these companies.
But there’s another reason, and it has nothing to do with the factory floor – and everything to do with distribution.
Many small manufacturers would do just about anything to get distribution through big box chains like Target, Wal-Mart and K-Mart. But that kind of distribution is a double edged sword. As Lee Schwarz, Professor of Management at Purdue University puts it, “If you want to do business with Wal-Mart, you play by Wal-Mart’s rules.”
Those rules bear a eerily strong family resemblance to the rules that prevail in large, purely industrial supply chains, such as those of the Detroit 3. Marty Bailey puts it a little more colorfully. “They will squeeze you like they were trying to get blood out of a turnip.”
The big box chains are focused on price. This means if you figure out a way to produce a T-shirt five seconds faster (to use an AA example), there will be pressure for you to concede a little on price, rather than profit from your improved efficiency.
In addition, when you choose the big box route as a distribution channel, you instantly put yourself in competition with Chinese manufacturing companies where wages are about $1.30 per hour, not to mention Mexico, Viet Nam, etc. etc. etc. (There are a lot of numbers out there about the “average Chinese wage,” by the way. The one I’m using is in about the middle of the ballpark.)
Finally, when you deal with big box chains, you need to spend a considerable amount of time and effort linking up with their IT systems, which in the case of Wal-Mart could even mean implementing a complex RFID tagging system.
All of these factors chip away at your bottom line.
For AA, they’re a non-issue. The company sells through its own retails stores. They’re also a non-issue for Intense. Most dealerships see carrying the Intense line as adding to their prestige. I can’t speak for Mag Instrument. Distribution is about the only subject that Tony Maglica is reluctant to discuss.
Of these three companies, AA has the most interesting story. Few people know it, but AA began as an “imprintables” company, manufacturing plain T-shirts designed to receive a logo, slogan, etc. That’s a price-driven business, and AA evolved beyond it.