TCF businesses set up to fail

NATIONAL: One in three textile, clothing and footwear (TCF) manufacturing businesses will not see out their first year, new data has shown.

Figures released by the Australian Bureau of Statistics and compiled by industry body The Council of Textile and Fashion Industries (TFIA) have shown that of the TCF manufacturing businesses that entered the market in 2003, only 68 per cent of companies survived their first 12 months in business.

After 24 months of operation just 53 per cent were still around to celebrate their second anniversary. By the third year the chances of success had dwindled to 46 per cent.

The performance rate was significantly below that of what the TFIA termed the "similar" manufacturing industries of metal products, printing and publishing where 80 per cent survived their first year, 59 per cent survived their second and 51 per cent were still around for their third.

The figures showed TCF businesses set up in Queensland had the best chance of survival with 70 per cent of these set up in 2003/04 still operating in 2006/07. New South Wales TCF manufacturers had the poorest chance with a 34 per cent survival rate during the same period. TFIA economist Lachlan Caddy said the figures represented the global trading environment in textiles and clothing.

"New TCF businesses in Australia are not just competing against other Australian manufacturers and designers for a section of the market. They are competing against product produced in China, Vietnam, India and a myriad of other TCF powerhouses.

They are also competing against highly technical products from the US and Europe. Other manufacturing industries are not by any means immune to this, although in some cases natural barriers can occur, which restrict the level of competition such as the physical size and weight of product."

While environmental problems such as the 2007 equine flu outbreak or economic issues such as this year's US subprime mortgage crisis are difficult to anticipate, experienced business owners argue most other problems faced by TCF manufacturers are preventable.

Sydney-based designing duo George Gross and Harry Who, who have operated a high-end wholesale and retail business together for 35 years, said too many business owners started without sufficient industry experience and too little capital.

Both of which, they argued, were deciding factors in the success of a business. Gross and Who said they learnt the hard way when in the 1970s their business grew more than 700 per cent in one 12-month period.

"This became both a funding problem and a production problem. The bank helped out with the first and putting on an extra 20 machinists helped with the second." The duo said it was important TCF business owners were able to swallow their pride and look to professionals well before they began staring down the barrel of a dead end business.

"Outsource as much as possible. Get your accountant to check your costings to ensure your margins are correct and make your designs more appealing than your competitors." Australian Fashion Partners head Dominic Beirne, who has spent his entire career working within the industry, blamed inadequate planning and poor pricing structures for the fact so many TCF businesses fail to get off the ground.

Beirne, whose family operated department stores throughout Queensland but now owns his own TCF consultancy service, said new entrants to the trade generally boasted a distinct lack of business acumen.

"It seems as if graduates/new entrants feel their 'good idea' or concept should work on the basis of their idea and not solid business principles. This is reflected in the current belief and approach that public relations is more important than substance and, generally, a total lack of systems in the new businesses starting out." Many manufacturers start off on the wrong foot by pricing themselves too low, Beirne said.

"This means there is not enough gross profit to run the business when costs increase. Compromising on price early in the process sets an expectation among customers for future price inhibiting growth if customer numbers are restricted."
Other issues included an inability to "sell" effectively, failure to heed advice and a lack of forward planning, he said.
Caddy said as a representative of an industry body he was "amazed" by how many people came to the TFIA asking how to set up a business in the fashion sector.

"An amazing number of people come to us in the belief that if they put a new design on a T-shirt they will be immediately able to sell it into David Jones and Myer. So, in some respects it is not surprising that many new businesses do not succeed in the long-term."

By Tracey Porter