Tackling a Tough Economy: Crisis vs. Opportunity

The slow economy may not be as bad for decorators as for other industries, but any economic downturn will affect some businesses more than others. Here's how you can make the best of the situation.
July 1, 2008

By Mark L. Venit

The Mandarin Chinese character for crisis, wïi j¥ (Figure A), looks similar to the Chinese character for opportunity, or j¥ huay (Figure B). This similarity, in addition to other factors I'll leave to the linguistic experts to argue over, has led to the mistaken notion that in Chinese culture, a crisis is regarded not merely as a danger but also as an opportunity.

John F. Kennedy, Richard M. Nixon and, most recently, Condoleezza Rice and Al Gore number among those who have misused what Victor H. Mair, professor of Chinese Language and Literature, University of Pennsylvania, describes as a "grossly inaccurate formulation." Even Homer Simpson once joined in the game, coining the word "cris-atunity."

Whether or not the oft-quoted interpretation is correct, those of us who are more optimist than pessimist will acknowledge that the context of crisis vs. opportunity certainly bears great relevance in dealing with today's uncertain economy — and what's likely in store for apparel decorators in the months ahead.

The Year That Is
Many companies in our industry will undoubtedly face tough going, and some are already feeling the pain. The second quarter is historically the strongest for those of us in the custom decorating sector of our trade, but the sailing this summer might be bumpy. Factors likely to exacerbate general softness in the economy:

• mushrooming prices for gas and food,
• the continuing drought in some regions of the country,
• the lingering effects of hurricanes Katrina and Rita along the Gulf Coast and across the South Central states,
• the staggering impact of a decline in U.S. auto manufacturing in Michigan and nearby states,
• and the troubles in the general housing and construction markets.

Thus, if you own a screen printing business in southeastern Michigan or northern Ohio, many of your customers own businesses that are experiencing dramatic losses. The unemployment rate in the region is the worst in the nation, engendering a precipitous further decline in sales and unit volume for decorators and promotional products distributors.

If your region is suffering from unprecedented drought, orders from just about every firm in landscaping and related industries have shrunk dramatically.

If your account base includes a lot of small construction companies, you're also feeling the hurt.

Moreover, economic activity in other businesses in these diverse "food chains" also is undergoing strain and dislocation.

Equipment manufacturers and vendors of ink, thread and other consumables are feeling the pinch, too.

The Year That Could Be
So much for the news you already knew, and the "buzz" in the trade that things are not looking good.

The reality, however, is somewhat different from the perception, and the possible outcome considerably brighter. Here are some facts you should know to put the conventional wisdom and the downer syndrome in perspective.

Historically, our industry has proven remarkably resilient to economic downturns in the U.S. economy. For those of you who have only recently joined the decorated apparel industry, it may help to take a stroll down memory lane:

> During the recession of the late 1970s, our industry experienced undiminished growth, occasioned by the mushrooming of the T-shirt phenomenon.
> During the 1980s recession — when the prime interest rate eclipsed 20%, precipitating one of the largest tax cuts in history — decorated apparel sales volume and unit increases still grew by 1% to 3% annually in all categories.
> During the 1990-91 recession that plagued the presidency of the first President George Bush, we continued to add dollars and volume.
> During the late Clinton-era recession, the industry experienced a slight dip in overall dollar volume but not in unit sales.
> Except for the two quarters immediately following 9-11, we've continued to weather whatever storms, actual or economic, blew across America and Canada.
> During the past six years, as the economy has continued to grow, our industry's sales and units have steadily grown as well, trending slightly ahead of most economic indicators.

Though the case that our industry is recession-proof cannot be advanced, especially now with some heavy braking underway, we've certainly demonstrated that sales of decorated apparel are indeed recession-resistant.

Historically, the sales of teamwear evince little, if any, decline in tough times. Folks still play their favorite sports, leagues continue to operate year after year, and young boys and girls keep growing bigger and taller. Athletic garments are among the safest bets, come what may, in the general economy.

Casual workwear will still be mandated and accepted wherever it already is today, and the trend toward more comfortable workplace apparel will continue, albeit considerably slower in acceleration given that decorated workwear in the workplace is approaching saturation levels. Yes, any increase in unemployment will likely cause a decline in unit sales, but even in the worst of times during the past three decades, the unemployment rate rarely went much higher than 6%. It has mostly been 4% to 5% during the past six years and now stands at 5.5%.

Whether we're about to experience a recession — defined as two consecutive quarters of negative GDP (Gross Domestic Product), and we haven't had even one yet — is a matter for conjecture. Whatever lies ahead for the North American economy, apparel decorators will weather it largely intact, and those who can use it to their advantage will weather it rather well!

Finding Opportunity
Here's my advice for joining those companies turning possible crisis into potential opportunity.

1. Ignore the bad buzz. Inevitably, some say, "This is the worst year in a long time." Others will report they're having record good times, complaining only that, "Our biggest headache is finding good help."

The truth boils down to a situation in which we're all looking at the same set of variables but experiencing them differently, as we're viewing them from different angles. Actually, everyone will be correct in his or her assessment, since truth is often only our own perception of it, and that perception becomes our reality. Finally, remember that buzz — good or bad — may become a self-fulfilling prophesy.

So, who will fare well and who won't? If the past is prologue, the demand for custom embroidered garments will, by and large, be more resilient than that of screen printed garments. That's because embroidered garments are more entrenched as workwear and affordable casualwear and therefore less subject to being eliminated or significantly reduced.

T-shirts, particularly those units used in promotional campaigns, will see some shrinkage in order volume. Historically, orders for custom-decorated apparel used for general promotion do take a hit in lean times. But garments sold for applications in athletics, events merchandising, fundraising, school spirit, summer camps, required dress/uniforms and recreation, among other sectors, will see little reduction in demand, if any, and, in some cases may actually experience increases in volume.

Retail sales of licensed products, which won't affect the average screen printers and embroiderers in our industry, will take big hits, as consumers tighten their belts by stretching out the wearable life of the garments of their favorite teams, characters and celebrities. However, once the economy turns around, pent-up demand will restore normal order volume. Big contract operators who serve accounts that sell popular licensed categories in apparel will be those most adversely impacted in the short term.

2. Eliminate excess labor sooner rather than later. No one wants to lay off staff members if they don't have to, but smart businesspeople weigh the financial damage of carrying employees for any time longer than necessary and make the hard calls when they need to be made. Waiting too long may jeopardize the company's survival. Ask any veteran business owner and he'll tell you the economic security of the organization supersedes a bleeding, albeit caring, heart.

Most of us old guys learned this lesson the hard way, but we learned it for keeps. Remember that you're running a business, not a social service organization. If you're not sure of the situation, first trim hours, explaining to your staff the realities, the forecast and what you're planning to do to bring everyone back on full employment. At least you're providing information so that they can better effect their own decisions, as necessary, for their own well-being.

3. Tighten your belt where possible. You already know where you can cut corners. What are you waiting for? You should do it anyhow if you're a good manager. But most belt-tightening measures are small. It's the big expenses that require your real attention. One of them is healthcare benefits. If you offer a plan to your employees, you've undoubtedly seen your costs increase in recent years. It's probably long overdue, but it may be time to ask your employees to help defray costs by assuming a higher percentage of the premiums. Yeah, it hurts. But the alternatives are worse.

Scheduling production more efficiently also will yield savings. Don't let dryers run idle with the temperature up, because they're usually the biggest juice suckers in your shop. Cutting out a day of production instead of letting work expand to fit the time allotted will yield measurable economies in energy usage and payroll costs.

4. Consider purchasing labor-saving, more efficient equipment. Is this the right time to actually automate your pressroom or add a multihead embroidery machine? Do the math, compute your estimated labor savings and improvements in quality and efficiency, and the sooner you buy better equipment, the faster your recovery time and return on investment. Automation also includes looking at upgrading your office equipment and management software, as well as pre-production technology for art, screen making and digitizing.

5. Upgrade your staff's skills and cross-train where possible. Your employees are more valuable when they can do more and do it better. You may even have to pay more, too! But the efficiencies of having staff that knows more, can do more things and produce more are worth the investment. If you don't have in-house trainers, technical consultants may be the solution here. Also, many technical supply salespeople will give free clinics on how best to use the products they sell. Offer the training as a benefit and, wherever possible, ask employees to attend after-hours classes or clinics on a voluntary basis.

Those who care most about their jobs and the company's well-being will respond gratifyingly. They'll be the first ones you'll remember when things get better.

6. Farm out big orders. If it's worth the savings, contract out work that's more efficiently and logically completed offsite. The urge to bring back staff to do it is a good thing but not always the best financial decision.

It's your call.

7. Increase your advertising and marketing endeavors. "Huh, and maybe even spend more money when I should be cutting expenses?" Yes. Pros know advertising and marketing are expenses only when they don't work or aren't at work. Effective campaigns don't cost money, they make money!

I hope these guidelines help you plan an effective strategy in this time of crisis and opportunity.

Mark L. Venit, MBA, is president of Apparel Graphics Institute Ltd., Ocean Pines, Md., and is chairman of ShopWorks Software LLC. Venit teaches pricing, strategic marketing, salesmanship and other business management topics at the Imprinted Sportswear Shows. He will be teaching a new all-day workshop, "Getting to the Next Level: Surviving and Thriving in Good Times and Bad," at the upcoming shows. For more information or to comment on this article, e-mail Mark at markvenit@cs.com.

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