LARRY KANTER Staff Reporter
Frustrated by high local labor costs and encouraged by the North American Free Trade Agreement, L.A. clothing manufacturer Tony Podell decided two years ago to try his luck in Tijuana.
He located a large factory and began hiring Mexican crews to produce some of the company’s less-expensive lines of shirts, dresses and pants.
“I’ve yet to make a profit,” said Podell, whose Podell Industries Inc. makes high-end womenswear. “I’ve found very few large factories down there that can produce consistently.”
Podell’s south-of-the-border adventure points out the difficulty of apparel manufacturing in Mexico and suggests some of the challenges that may lie ahead for Guess Inc.
Guess the region’s largest apparel manufacturer dropped a bombshell last week when it announced plans to move the bulk of its production from Los Angeles to Mexico and South America.
The news has spurred fears that the apparel industry long considered a bright spot in the local economy could be headed south, with L.A. firms shifting more of their contracting work to growing numbers of maquilidoras sprouting up in Mexico and elsewhere in South America.
Local economists and manufacturers acknowledge that some job losses are inevitable, as local shops seek the low-cost and regulation-free producers in Mexico.
But they also suggest that the apparel industry is more resilient than it might appear.
It’s certainly been one of the fastest growing segments of L.A.’s economy, now accounting for 114,000 jobs, second only to high technology in manufacturing employment. Although the rate of that growth has been tapering off in recent years, Los Angeles still is rapidly outpacing the rest of the country in generating apparel industry jobs, said Goetz Wolff, a professor of urban planning of UCLA who focuses on the garment industry.
“There are going to be significant amounts of production remaining here,” said Wolff. “The low wage in Mexico is not as low as it appears once you start looking at the other costs involved.”
That’s what Podell found when he sought to move his operations to Tijuana.
“You can make t-shirts for K-Mart or Wal-Mart there,” said Podell, whose clothes are sold in department stores under the Laundry by Shelli Segal label. “But for our product, you just can’t do it.”
Though labor costs in Mexico can be as much as 70 percent lower than those in Los Angeles, such expenses account for only about 20 percent of the cost of a garment.
Any savings in labor, analysts say, are often offset by increased shipping expenses, a vexing and inefficient Mexican bureaucracy and a much slower turnaround time.
Those Mexican headaches spell good news for L.A.’s apparel industry which is known for the kind of high-quality, high-fashion goods that are not easily produced in foreign countries.
The California Fashion Association estimates that 90 percent of L.A.’s 750 garment manufacturers are small, specialized businesses with fewer than 50 employees. Although substantially smaller than a behemoth such as Guess, such firms, according to Ilse Metchek, the association’s executive director, nonetheless employ the bulk of the region’s garment contractors and production workers.
“They can’t afford to make 100,000 (items) at a clip, which is what is required to go to Mexico,” said Metchek. “You can’t do small runs or high-fashion (in Mexico) and that’s what the majority of the firms here do.”
One of those firms is Wearable Integrity Inc., which produces women’s casual dresses under the Barbara Lesser label.
“The smaller guy anyone from $1 million to $30 (million) or $40 million (in sales) is going to have a hard time going down there,” said Mark Lesser, the company’s president and co-owner.
According to Lesser, apparel firms live or die by their ability to react quickly to ever-shifting fashion trends and get their products from the factory to the store shelves while demand is still sizzling.
“The logistics of moving everything back and forth is not going to be beneficial,” he said, “especially for people dealing in smaller quantities.”
It’s a different story for a company the size of Guess. With annual revenues of more than $400 million, it produces millions of garments a year, often cranking out several hundred thousand items in any single production run.
The company’s signature product designer denim is the kind of item more easily made and shipped from overseas producers.
Guess estimates that it saves $1.50 to $2 a garment by sending cut fabric to five sewing factories in Mexico, as well as to plants in Peru and Chile.
But it’s not just labor costs that are driving firms such as Guess to look south.
Dramatically stepped up enforcement of labor laws by state and federal regulators in the local garment industry and an increasingly aggressive apparel workers union is making Mexico more attractive, and poses more significant problems for remaining in Los Angeles, apparel manufacturers say.
“We’re experiencing tremendous pressure from a very effective Department of Labor wage-and-hour division,” said Richard Reinis, an attorney whose firm represents about 300 local apparel companies. “It’s causing a sea change in an industry that has operated virtually untouched for 60 years. The conditions here are making it inhospitable.”
Indeed, Guess’ move comes after months of labor woes.
The national apparel workers union, Unite, has mounted a high-profile and increasingly bitter campaign against the company, posting pickets outside its retail stores and filing a class-action lawsuit against Guess and its contractors, alleging violations of a number of labor laws.
Meanwhile, in late November, the Department of Labor put Guess on probation, temporarily removing the company from its “Trendsetter” list of apparel firms that shun sweatshops.
And in December, the company agreed to a settlement with the National Labor Relations Board to reinstate 20 workers allegedly fired for union activities.
Guess denies that such issues led to the decision to shift production offshore.
“The move is being made for competitive reasons,” said Guess spokesman Michael Sitrick. “The union issue did not force the move.”
But a number of other apparel firms say that regulatory pressures are becoming difficult to ignore.
“Although we agree with the Department of Labor and what they’re trying to do, I don’t think they’re looking at the big picture,” said Chris Bryer, vice president of CMG Inc., which produces women’s wear under the Chazz label.
“At a certain point, people in the industry are going to throw up their hands and say, ‘OK, we’re leaving,” added Metchek, of the California Fashion Association. “And that’s exactly what Guess did.”