Recession Survivors Reveal Strategies for Staying in Business

INDUSTRY OUTLOOK

Recession Survivors Reveal Strategies for Staying in Business

No decorated apparel business was left unaffected by the recession of the past few years. Veterans share how they survived the worst of it, and how it has helped them get stronger. June 07, 2011
By Deborah Sexton, Contributing Writer

Kevin Kelly, right, president, Blue Heron Industries, Little Falls, N.J., purchased a Kornit digital printer right before the recession hit, and he partially credits that move with saving his business.

To get a pulse on how today’s decorators are faring three years after the start of the Great Recession, we interviewed six decorators from Rhode Island to the California coast. Some of our panelists saw sales drop in fall 2008, while others began to feel its effects in early 2009. But regardless of when these shop owners felt the recession affect their businesses, they all experienced a significant plummet in sales.

The recession forced owners to take a hard look at their business practices and make necessary — and often hard-to-swallow — changes. Some held massive layoffs, reduced the production workweek and sold equipment. Others stayed afloat with new business opportunities such as referrals and digital technology.

While the jury is still out on whether the worst is over, all our panelists agree that the landscape of the decorated apparel industry has changed forever. Business owners must be smarter, savvier and more efficient with time, resources and staff. The recession has demanded that they not just make do with less, but make more with less. 

Impressions: How did the recession impact your business?

Coudray: In January 2008, we moved into a new building with twice the overhead of our old building. The first five months of that year, we weren’t meeting our sales goals, but [we] attributed it to slowing down in production and proficiency because of the move. By November 2008, we realized that all of our customers were cutting back, and sales were 50% of what they were in November 2007. In February 2009, 75% of our customer base stopped buying, went out of business or were so damaged by the recession that they couldn’t pay their bills.

Anytime something starts to change, you begin to look at one or two variables as the source of the problem. In our case, we had so many variables that had changed, it was hard to determine the source of the problem. As a result, we were slower to figure out what was happening.

Kitson: Four years ago, we were fat and happy, but didn’t realize it. We were doing a lot of things OK, which I tolerated because we were making money. Throughout 2007 and 2008, the economic downturn hadn’t affected us much. But in early 2009, we began to feel its effects and I realized we had become too complacent. We had single days in 2005 and 2006 that generated more revenue than the entire month of January 2009. Even then, I kept a full staff, which, in retrospect, dug the business into a deeper hole.

Roth: In 2008, I noticed that people would wait until the last minute to place an order and, even then, they were ordering smaller amounts. They were afraid they wouldn’t have a job the next day because their businesses would fail. We had a couple months with no work whatsoever.

Kelly: We first noticed the downturn in October and November 2008. We felt the impact in our wholesale area because those customers were aware of what was happening and were already starting to scale back their purchase orders. This happened long before general public orders began to decline.

On our wholesale side, we supply entertainment events with products. Though event attendance remained high, people would not pay that extra $50 for branded products at the events. Our wholesale business dropped 40% in sales in 2009.
Miller: [I think] 2009 was the worst year I’ve ever had. Business was down 25% from 2008. Many owners felt the effects much more, but being in a niche market (catering to all-terrain vehicle riders coming to Little Sahara State Park, Waynoka, Okla.) really helped my company.

Smothers: More than a lack of customers, what really affected us was when money locked up around November 2009. We were carrying receivables, so I had to provide credit to them. People who had paid fantastically before got locked up, and there was no money to borrow.

Impressions: What changes did you make to get through the recession?

Coudray: In February 2009, we had massive layoffs and cutbacks, and it took three months before we saw any type of improvement. To cut back, we eliminated expenses, slowed the payment of bills if possible, stepped up collections, lowered the work week to three or four days and increased the requirement for cash deposits.

We also began investigating how people were using our products. We looked at how people used our shirts, and what they bought along with our shirts. Based on this research, we delved into complementary sales. If we found a company selling banners for an event, we teamed up to offer T-shirts so we could profit from cross promotion, new exposure and more business.

Kitson: By November 2009, we had to make major layoffs and we resorted to short work weeks with every-other-day production. I also spent a lot of time working my trade show contacts. When I go to trade shows, there are times that I never hit the floor. Instead, I’m having coffee with a contact outside, meeting a contact for dinner or breakfast, or making mid-day appointments with people.

I asked my blank apparel contacts if they had any customers who couldn’t handle production because of layoffs or sold equipment, and spread the word that we could act as back-up capacity. Instead of buying another press to use for only half the year, my goal was to let us worry about it for other printers.

Through my contacts, I started to get referrals. By June 2010, 30% of the dollars we billed were to customers that were less than a year old. If we hadn’t been proactive in getting out and contacting people, we might still be in trouble.

As of April and May 2010, we started to see production increase. August and September 2010 blew us away. We enforced a “no-overtime” rule and started looking at asset utilization, which is how to get the most out of the money you’ve invested. Currently, our asset utilization is at 75% to 80%, and my goal is to reach 100% with no overtime.

Roth: I downsized my business by selling off equipment, laying off employees and generally trying to make do with less. When the economy is bad, you need workers who are flexible and willing to do whatever is needed. Gone are the days when you have a shipper/receiver and that is his only job. If employees don’t want to be flexible, then we don’t need them anymore. We also focused on what we do well and got rid of things we didn’t do well or were not profitable.

I learned to work with my vendors and the people I trusted to build goodwill through communication. Even if you can’t pay people, you have to tell them when you plan to pay them or that you can’t pay them the way they’re expecting. They appreciate the forthrightness. It can be “dog-eat-dog,” or it can be “we’re all in this together.” For me, I’d rather it be the latter and figure out how to get through it ethically and practically.

Kelly: We were fortunate to make capital investments at a time when most people weren’t doing so. We were able to fund a Kornit digital printer in 2007 before the banks tightened up. Without our digital printer, the economic impact would have been significant, if not devastating.

At the time of the downturn, our custom sales on the Internet started to increase dramatically. Because of digital printing, we increased our volume and reduced our workforce. We know that with each production machine, we need only one operator because we use return-feed dryers. But with screen printing, we need a loader, an unloader and someone at the back of the belt.

Initially, our digital sales increased on the retail side, and then we saw an opportunity to convert our wholesale customers to more digital products. Our wholesale customers needed larger quantities, but were unwilling to commit to bigger purchase orders. So we created products that only could be printed digitally because they had high price points and margins. By altering the landscape for our existing customer base, we actually changed our own sales demographic.

Miller: I made many cutbacks and learned to ask myself if something was a want or a need. I had a problem with extra inventory, but I’ve cleared that out. Now, I try to order exactly what I need to print.

I also started creating YouTube videos and promoting them through our company’s Facebook page. I follow a job through the printing process — this has been great for exposure.

Impressions: Do you think the worst of the recession has passed?

Coudray: With so many foreclosures on the market today, I don’t think we’re out of the recession just yet. I agree with the idea of conspicuous consumption, which occurred after the Great Depression. People started saving and didn’t trust the banks, so they buried cash in tin cans in their yards. We’re seeing the same type of behavior now; people don’t trust the banks, so they are driving cars two years longer than they should and doubling the amount they used to save.

Roth: I think the worst is over, but I think some things have changed forever. No one will pay a lot for screen printing anymore. For a long time, there will be an over-capacity; there are many screen printing machines out there and many jobs are now offshore, and I don’t think much of it is coming back.

Kelly: I think the worst of it has passed. The economy is in a holding period, but people often become numb to the fact that we’re in a recession and feel better. One of the simplest ways to do that is to buy extras. On our wholesale side, business is up and people are spending again.

Smothers: I think that people are going to be in for a surprise. I’m not even sure we’ve seen the worst of it yet. I think we’re going to see a second round of foreclosures. The economy is going to affect us all. Customers may not be able to pay their bills. The cost of commodities, such as gas and milk, may continue to rise so that the economy affects everyone to an extent.

Impressions: Are you seeing signs of business improving?

Kitson: I’m seeing the light at the end of the tunnel. With the changes we’ve made, we’re not up to our previous staffing level, but we never will be. The units we are producing are comparable to when we had 40% higher staffing levels. It all comes down to asset utilization, and we’re making sure we’re using what we have.

Kelly: Overall, business is on the upswing. We have seen a 30% to 40% decline in screen printing, but a 200% increase in digital printing on the wholesale side. On our retail side, we’ve seen a 400% increase.

We’re adding customers four times faster than we did in 2007. Roughly 75% of those orders are facilitated online and the other 25% are interacting with customer service, but it is all Internet-based. We commonly take one-piece orders and 500-piece orders on the same day.

Miller: In 2010, revenue was up 28% from 2009. Things are turning around. It’s the expectation about tomorrow that drives spending for a lot of people.

Smothers: For my company, we refocused and redefined ourselves by going back to our roots. We no longer private label T-shirts. In 2009, I spent $100,000 less on T-shirts, but my sales were up 6%. I expect business to continue to increase. I don’t necessarily think there’s more business out there, but I’m going out and drinking other people’s milkshakes. I’m making sure I’m better than the next guy so I can take his business from him.

Impressions: How will companies benefit from the recession? How has the recession made you leaner and meaner?  What lessons have you learned?

Coudray: The recession has forced people to get down to business. When there is business everywhere, there is an old saying that a rise in tide lifts all boats. When the economy is good, even the inefficient companies do well, but when the economy weakens, the companies that are on top of things survive and the weak fall.

Kitson: We are leaner and meaner. We have set the expectation with our staff that they will work hard during their shifts, and if in the rare exception you want overtime, you’ll have to justify it by telling us why you didn’t get the job done during regular hours. The recession was a reality check and gave us a reason to implement much-needed changes.

Kelly: The phenomenon of the recession is that we have encountered more people who want to start their own T-shirt companies to sell their own shirts. They want to design their own line of T-shirts and make a payday. It’s easy to start your own business, but very tough to make ends meet.

Deborah Sexton, the former editor of Impressions, has been writing about the decorated apparel industry for nearly 30 years. For more information or to comment on this article, e-mail Deborah at dsexton@sbcglobal.net.

Impressions thanks the following decorators for sharing their insights:

Mark Coudray - president, Coudray Graphic Technologies, San Luis Obispo, Calif.
Greg Kitson - president, Mind’s Eye Graphics, Decatur, Ind.
Rick Roth - president, Mirror Image, Pawtucket, R.I.
Kevin Kelly - president, Blue Heron Industries, Little Falls, N.J.
Donnie Miller - owner, Miller Graphics, Waynoka, Okla.
Bob Smothers - president, Sports Designs & Graphics, Effingham, Ill.

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