Heads Above Water

For a tough year, 2005 didn't amount to the absolute bloodbath for U.S. suppliers many predicted a year ago.

Sales and profits declined — for some, substantially. As anticipated, suppliers found themselves increasingly competing for business against both their customers and their offshore manufacturing sources. Yet another cycle of retail consolidation wreaked havoc with planning and allocation — and further eroded long-standing supplier/retailer alliances.

But the wave of supplier bankruptcies that had been expected to unfold over the past 11 months failed to materialize. Why?

First, most U.S. suppliers recognized by mid-2004 that a brutal campaign lay ahead and planned accordingly. Some struck camp and cleared out. Some forged exclusive partnerships or joint ventures with offshore manufacturers to keep themselves in the loop as more replenishment programs shifted to the retail-direct model.

Most dug in, kept a grip on spending and became shrewder about which pieces of business they chose to take on.

The idea that “any volume is good volume” evaporated. With surprising frequency, established suppliers talked about turning down business that offered little long-term promise and a boatload of risk. (A raft of newbies, mostly offshore importers or manufacturers, set up shop to chase those programs. How many will be around a year from now? Stay tuned.)

On the other side of the globe, many manufacturers weren't quite as eager to push their U.S. supplier accounts out the door as suppliers had feared and retailers had hoped.

Save for a coterie of enterprises that laid the ground for 2005 over a few years, offshore manufacturers were dismayed to be handed a set of retailer demands post-January. No more letters of credit? Terms? Distribution center? Open a U.S. office? A bill for independent lab testing? A chargeback for the quality inspector's travel expenses?

OEM suddenly looks pretty good.

So that was this year. What of the next?

The pressure's still on — and will remain so. Planning and allocation systems among consolidating retailers will be a dog's breakfast for at least another year. New offshore sources will continue to pop up out of nowhere. More capacities will be coming on line in a global textiles community that already owns an overabundance of them.

Survival mode does not a long-term strategy make, and there was progress during the year by U.S. suppliers — from the very largest on down — repositioning themselves to serve a relevant purpose in the new order.

Next year will be another difficult one for U.S. suppliers, certainly. But those that made it through the tumult of this one have likely made most of the painful changes that will enable them to soldier through the coming one.

Hang tough.