VALLEYSMALLBIZCOL/1stjc/mark2nd Local apparel manufacturers have been hit with a series of challenges in recent years including the 1994 Northridge quake and the minimum wage hike that forced many to change the way they do business. When you have loans out to these manufacturers, you must help the client find solutions to their challenges. Restructuring and re-thinking the way a company does business is a process that takes time, practice and creative insight. By the time you’ve received your final loan default notice, it’s too late. The company’s resources already have been tapped and the owner is operating one day at a time. Some apparel industry suppliers believe that less competition awaits them if they can just hang on though they also understand that they need to change, and change now. One manufacturer figured out that retaining a domestic work force was no longer possible. He had a good design, strong name recognition, an excellent track record and large, bankable clients that he could depend on for sales at the right price. He slashed overhead, leased out his plant to cover the mortgage and moved to a smaller office. He stopped manufacturing and kept his design and marketing operations not easy for a guy who considered his workers family, but it was either that or dissolve his business. The results of this upheaval have yet to be realized. He may lose accounts, see a drop in personal income or be forced to work for someone else. He only knew that he could not continue losing money. He had to change. Another company restructured through the painful process of a Chapter 11 bankruptcy. It wrote off quake-damaged inventory, consolidated debt and laid off a third of its work force. Company officials emerged from bankruptcy quickly by taking the following steps: 1. They evaluated every sales order by judging profitability. In the old days, sales growth for the sake of sales was enough they learned that sales cost money and that it’s easy to sell yourself into trouble with unprofitable orders. 2. They assessed on a daily basis whether they were meeting their targets for sales, profit margins, costs and delivery times. It’s too late to find out you’re not making money when you can’t afford a bill you need to take action as soon as you’re budget gets out of whack. 3. They passed on all costs of doing business to the customer. Late payments, shipping costs and customized orders are all examples of costs that a company can’t absorb. A customer has to pay for these extras or you can’t afford to have him as a customer. 4. They replaced ineffective staff and fired people who satisfied their own self interest at the expense of the good of the company. 5. They only bought inventory if it was 70 percent pre-sold, even when they had ‘once in a lifetime’ buying opportunities. 6. They made profit considerations their management guide if one line has higher margins, sell more of it and dedicate more resources to it. All the above may sound simple and easy when laid out in the abstract, but it’s hard to change habits. Increasing sales is considered an absolute good by many small companies no one stops to re-evaluate that assumption every time the phone rings. Change is sometimes next to impossible for some established, historically successful companies. The single largest obstacle is denial especially when the business owner didn’t cause the problem. I see lots of apparel people who have become victims and can’t accept the responsibility to change. Here are some of their typical complaints: “Were it not for the quake, we would have been fine.” “Were it not for minimum wage increases that caused all my workers to want increases, I would have been fine.” Were it not for the federal government and this North America Free Trade Agreement thing, we’d still have a business.” But that’s just denying what is. Apparel companies of the future are looking ahead to catch trends and ride them. They’re trying to forecast demographics and how it relates to fashion. They also are re-thinking factoring arrangements in light of insurance developments. They are exploring catalogue sales contract, TV home shopping outlets and even sales possibilities through a Web site. If retailers can ignore loyalty in favor of price and think nothing of exploiting a supplier relationship then maybe its time to find alternatives. It’s tough to adopt to change under stress and when a lot of pressure is already being applied, but then, the rag business has never been easy and no one expects that to change anytime soon. Bruce Dobb is the chief credit officer for the Valley Economic Development Center’s revolving loan fund.