Levi's struggles to be a regular fit for GeNext; rivals like US Polo, Benetton on faster growth track

Teenager Aniruddha Aggarwal keeps nearly a dozen pairs of jeans stacked up in his cupboard. The brands range from international labels such as Wrangler and Lee to local ones like Killer and Flying Machine.
But one brand that is barely visible in Aniruddha's closest is Levi Strauss. Reason? Aniruddha's father swears by the denim brand that sports the leather tag with the iconic two-horse design - virtually every denim in his wardrobe has the Levi's stamp on it. "Levi's is a good brand, but it's what my father and his generation wears. I like to wear jeans that are fashionable and trendy rather than going purely by brand value of the past," says Aniruddha, who owns just one pair of Levi's jeans.

The divergence in the father-son's sartorial preferences succinctly portrays the 160-year-old denim maker's predicament in India. After dominating the organised denim market - estimated to be worth about Rs 2,200 crore - over the past decade, courtesy its historical leadership status worldwide, competition from other global brands as well as a rash of local labels have resulted in its disconnect with the youth.
After being in India for 18 years, Levi's is the country's largest denim brand with revenues of Rs 741 crore in fiscal year 2012, as per recent filings with the Registrar of Companies. Sales grew 23% in the last fiscal year through its network of over 400 stores, adding over Rs 250 crore to its top line since 2010.
That's the good news. The not-so-good part is that the Indian operation is losing money, with accumulated losses of some Rs 127 crore.
What is more, rival jeans brands seem to be on a faster growth track. US Polo, which opened its first store just last year with India partner Arvind Brands, has already reached the Rs 200-crore sales mark. "We will cross Rs 250 crore by end of this fiscal year, making US Polo the fastest-growing retail brand in the country," claims J Suresh, managing director & CEO, Arvind Lifestyle Brands, which has over 100 US Polo stores and plans to add 40 shops each year. A year ago, Arvind sold off its entire stake in the joint venture that sells Lee and Wrangler apparel brands to partner VF Mauritius.
Then there's Italian fashion brand Benetton, which almost two years ago changed its India strategy and became a pure-play wholesale trading entity; franchisee owners have taken the store count to over 600 now. The gambit has worked nicely: Benetton, which entered the country around the time Levi's did, has doubled sales from two years ago by adding Rs 300 crore since then. "Like a true Italian fashion brand, Benetton always appealed to the younger lot by having hip and trendy styles. This, along with faster store expansion, added to the revenues," said a senior official at Benetton India who didn't wish to be quoted.
More agile competitors are just one half of the problem. Levi's has also suffered because of shift in strategy at the San Francisco headquarters - from chasing market share till a few years ago, Levi's has now chosen to boost profit margins across global markets.
In India, this meant cutting brands such as Dockers, Sykes, Signature and, two months ago, mass brand Denizen, which had been adding substantially to the company's top line. "Levi's globally is acting more like an FMCG company than a fashion or retail firm. Even their top management comprises veterans from the consumer goods space with very little experience in retail," said a senior official of a rival firm who did not wish to be quoted.

He is referring to Levi's global president & CEO Chip Bergh, who spent over 28 years with Procter & Gamble, as well as its India head Sanjay Purohit, who spent more than a decade with Cadbury. "That's why you see the company shedding non-profitable brands, a move which generally an FMCG company would make," he added.
The rationalisation, however, has done little to contribute to the Indian operation's profitability. The Indian company attributes the piled-up loss partly to a higher royalty payment to its parent company. "India is a very important market for Levi Strauss & Co and we believe in the long-term potential of the Indian market," said a Levi Strauss spokesperson for Asia-Pacific. "We are focused on growing the Levi's brand in India by driving innovation, service and the brand experience. We are working to elevate the consumer's experience through a globally designed line of clothing that has the right amount of localisation for the Indian consumer."
The problem, though, is Levi's may not be the only denim marketer doing all this. "What has changed in the last two years is that many international brands have entered or become aggressive in the market. While Levi's has been maintaining a price differential compared to its local rivals till now, global brands have come with a similar positioning," Devangshu Dutta, chief executive of retail consultancy Third Eyesight, said. "There is also a novelty factor for the newer brands."
Levi's plays on premium positioning and sells at an average price of Rs 2,200 a pair. That may help boost its margins, but doesn't help in the market place when rivals US Polo and Benetton have priced their wares Rs 300-500 cheaper, making them more accessible to the youth. At the premium end, labels from Calvin Klein and Tommy Hilfiger have been able to establish a sense of fashion excitement in the past two years, justifying their higher average price tag of Rs 4,000.
Meantime, local brands such as Flying Machine from Arvind Brands and Kewal Kiran's Killer jeans could benefit from Denizen going off the shelves. "The biggest challenge for any jeans maker in the country is at what price to sell. We have been primarily focusing on smaller towns, which has helped us get volume and economies of scale," said Kewalchand Jain, chairman, Kewal Kiran Clothing.

Niche: Suits For Short Men

First there was the big and tall, now there are options for the height challenged. Jimmy Au may have started out as an accidental entrepreneur, but now he provides suits to some of the biggest names in Hollywood.

“My professor was my first customer, and I made $400 with 40 orders, so I told myself I wasn’t going to go back and work at Dole pineapple cannery anymore,” he said of his job stacking cans. “I was working my way through college full time and studying full time, and after a year and a half, felt like I had to work so hard for $1 an hour.”
By the time he graduated, Au was making more money selling suits than his fellow graduates could expect to make at their first jobs, so the 5-foot-2 entrepreneur kept going, specializing in suits for short men like himself who had trouble finding clothes that fit. Most mainstream designers work with 5-foot-10 to 6-foot-tall models, shortening sleeves and pant legs for smaller sizes without adjusting for fit, meaning knees and elbows fall in the wrong place.
Today, Jimmy Au’s for Men 5’8 and Under is a well-known fixture in Hollywood, where the company’s clientele includes a lengthy roster of diminutive actors, including Martin Sheen, Al Pacino, Mark Wahlberg, Danny DeVito, Joe Pesci, Seth Green, Jason Alexander and David Spade. His suits are also worn by cast members in more than 30 television shows this season, from “True Blood” to “The Office,” “30 Rock” and “The Mentalist.”

Selling Designer Jeans Through Home Parties

Companies find many different ways to market their product to consumers. A popular and effective way is through direct sales. That is the approach taken by Vault Jeans. Their passionate Fashion Consultants sell their product and have the opportunity to earn a little money, too.
I recently spoke with Shannon Misener one of their consultants about the company, and what inspired her to join.
Tell us a little about Vault Denim.

Vault Denim is set up like a party business but it’s a little different! We offer Brand name, top of the line, no knock offs, never been worn, ladies designer jeans at up to 50% off retail prices! It’s set up like a purse party where consultants bring about 130 pairs of jeans to the hostesses home. Jeans are laid out for her guests to try on, buy, and take home that night! It allows women to experience shopping with family/friends and receive honest feedback without a pushy sales clerk!! It’s a time for ladies to listen to music, catch up on the “who, what, where, and when”, drink some wine, and laugh!!
Our CEO, Douglas Brady, started this company with his sister in mind. She was in jeopardy of losing her home and needed a job that would allow her to keep her house and also take care of her autistic son. Unfortunately, when she went looking for work she was told she was too old/big to do anything but retail which doesn’t offer a whole lot in wages. So Doug and two of his friends founded Vault Denim in the hopes of providing women an opportunity to grow personally, professionally, and empower them financially!
This started as a family run business and after experiencing 5200% growth in its first year, it still operates like family and consultants are treated like family. It’s a company like no other!

What inspired you to join the company?

This question made me chuckle out loud a little bit! The truth is I wasn’t to gung ho to start right off the bat. My husband and I both were unhappy with our jobs at the time, Jason working night shifts, and myself working in a place with an uncertain future. After much discussion we decided that I would publish my resume out on the web and we’d also begin asking around about non-traditional ways to earn an income. My husband’s co-worker introduced us to a popular direct sales company that she was having a lot of success with so we decided to give it a go.
I would be the primary and my husband would sign up under me, however, we learned that only one person may sign up per address. We were extremely disappointed because we work as a team in just about everything we do, but we always put in 110% so I joined and we were moving forward anyway.
In the meantime I was offered a job I couldn’t refuse which allowed Jason an opportunity to really look at how his night job was impacting his health. He would wake up with bloody eyes, migraine headaches, and tendon cysts on the balls of his feet from working in the factory. Something had to give! As it happens another co-worker’s fiancé just signed up with Vault Denim and was having fun with it. She invited Jason to come to her launch party just to check it out. Now my new job is based out of Minneapolis, MN which is 1.5 hours away from us, thank goodness for telecommuting!! Her launch party was the same night I started my new job and I was scheduled to be In-the-office for several days. Jason was able to attend and he loved the concept!! He also made a risky decision to buy me a new pair of designer jeans….without me there….lucky for him they fit! We talked about the concept and to be honest I just didn’t want to take on anything more that was new, but I support him and we signed up with me as the primary and he under me.
At the end of May we did our own Vault Denim launch party and it was ok. I was there to help out but it wasn’t my primary focus, yet. In June we scored our first home party and I have to admit to be nervous but I’m so glad we went!!
We found the place easy enough and set out over 120 pair of jeans. The first thing I noticed was our hostess was very down on herself and I mean every five minutes we heard “do you have anything made by Awning the tent maker?”, or “do you carry size 56?” It really pulled at my heart strings so I think I looked at my husband and told him that I’d be getting her into a pair of jeans tonight!! I didn’t care how many we had to go through or how many didn’t work, but I was finding something that made her feel beautiful….period!!
I noticed that she would take a few upstairs, try them on, and come down saying they didn’t work because she was too big so I asked if she’d be willing to try on a pair so I could see what wasn’t working for her. She was agreeable and we took a pair upstairs and she put them on. I have to say I saw NOTHING wrong with these jeans, rather the issue was with how she saw herself in them. It took me about ten minutes to reassure her that the family and friends she had downstairs loved her and would never say anything hurtful. In fact, they would provide honest and caring advice regarding how she looked in these jeans. When she got to the bottom of the stairs I could hear the response – all positive! She looked great and I could physically see the transformation in her step, her face, and her body language. That was the defining moment for me!! I knew I had found something that allowed me to change how a women felt about herself if even for a moment in time. It was amazing!!

What are some of the products you offer?

We currently offer a wide selection of ladies designer jeans! Skinny, boot cut, flare, bell bottoms, capris, shorts, skirts etc. Our standard sizes range between 0 and 13 and our extended sizes range between 15 and 24. Whether ladies are looking for simple and classic designer jeans or boutique jeans with as much embellishment as any booty can handle, we have something for everyone!!
In addition to the designer jeans we also carry four exclusive lines only found with Vault Denim: Ten Denim, Project Denim, Rock Paper Sexy (RPS) and Emerson Edwards (premium). We cannot keep these jeans in our inventories because they sell as soon as we get them in! The fit, comfort, style and price of the jeans is amazing!!
Vault denim is brining on board mens, maternity, and tween jeans this fall!

Tell us a little about your opportunity.

Consultants offer men/women three opportunities:

• Save money by purchasing designer denim at up to 50% retail prices;
• Earn denim credit off a favorite pair of jeans by hosting a party; or
• Join a team and start building a business.

What are the requirements?

Vault Denim offers FREE inventory, FREE personalized website, NO deliveries, NO monthly quota and a LOW start-up cost of $159.00!
Each new consultant receives a welcome kit with training materials, customer order forms, 100 personalized business cards, one 50% off coupon to get his/her first pair of jeans – after all our butt is our billboard, etc. Each kit will provide everything necessary to start a personal Vault Denim business that day!

What separates Vault Denim from the competition?

As far as product goes we have very little in the way of competition! Right now Vault Denim prices will undercut anything and everything sold in high-end retail outlets, specialized boutiques, and local malls!
From the business structure stand point we are highly competitive! We don’t require consultants to purchase his/her own inventory, we have a sound compensation structure, an investment team that believes money should be saved before it can be spent, and this is the only direct sales business where our product is sold for less than what you find it for out on the street!

What are some goals you’d like to accomplish over the next year or so?

Success doesn’t come with being selfish, therefore, my goals are simple: to share Vault Denim with as many people as possible! Whether they’re looking to save money by purchasing deeply discounted jeans, earning free denim credit by hosting a party, or to find financial security by building a business, whatever that goal might be, I’d like to help accomplish that.
In the past four months we‘ve built a team of over 30 consultants in 8 different states and I can’t think of anything more rewarding than to see and hear their success stories! Every one of them has something they are seeking to overcome, to build up, to push through, and not one of them has failed! We are dialed into a great network of corporate and local leaders – no one is left behind!
When everything is said and done I want to look back and smile! I want to know that I made a difference in someone’s life one pair of jeans at a time!

What are some lessons your business has taught you?

What most do not know about me is I’m exceedingly shy and the thought of intermingling with people that I don’t know is uncomfortable for me! However, with Vault Denim I’ve found that in the last four months I’ve learned to navigate through social situations and ‘appear’ confident, comfortable, and knowledgeable. Vault Denim has allowed me to approach men/women with an opportunity. It’s given me an automatic in because we already have something in common, jeans!

Do you have any advice you’d like to offer anyone considering an opportunity like this one?

I would encourage anyone who is interested in Vault Denim as a business opportunity to do their homework! Look at the designer jeans found in high-end stores and specialized boutiques and check with the Better Business Bureau and/or Google. We do not offer hype or promise rewards that are impossible to achieve. What we do offer is an opportunity to make a positive impact on someone’s life. Even if it’s just one night during a pants party.

How to Think Creatively

People often associate innovation with a light bulb. Forget that. Creativity isn't an on/off switch or a sudden burst of light. It's a process, and you can learn to control it and master it.

Tom&Kwikki /Shutterstock
I grew up hungry to do something creative, to set myself apart. I also believed creativity was magical and genetically encoded. As early as the age of 8, I began sampling the arts, one after another, to see if I'd inherited some gift.
Eventually, I became a journalist. For many years, I told other people's stories. I was successful, but I rarely felt truly creative.
The first hint I might have sold myself short came in the mid-1990s. In the course of writing a book called What Really Matters, Searching for Wisdom in America, I took a five-day seminar on how to draw, led by Betty Edwards, author of Drawing on the Right Side of the Brain.
When Edwards peered down at the self-portrait I had drawn on the first day, she smiled. My artistic development, she told me gently, seemed to have been arrested somewhere around the age of six. This was, she hastened to add, no evidence of lack of ability, but rather of training.
From an early age, we're taught in school to develop the logical, language-based, rational capacities of the left hemisphere of our brain, which is goal oriented and impatient to reach conclusions.
The left hemisphere gives names to objects in order to reduce and simplify them. One nose is like another, for example, so when we're asked to draw one, we retrieve the symbol we have for "nose" from our memory, reproduce it and move on.
The right hemisphere, by contrast, is visual rather than verbal. It's capable of seeing more deeply and subtly than the left, immersing itself in what's actually there, in all its richness. Once you learn to do that, Edwards told us, drawing what you see is -- relatively speaking -- a breeze.
Sure enough, by the fifth and final day of the workshop, I was able to produce a self-portrait that was undeniably me, and surprisingly realistic. After several months of practice, I was able to draw myself with a significant degree of skill, and even expressiveness. I had effectively begun to learn a wholly new and non-verbal language.
But what did that have to do with creativity?
A little more than a decade ago, I switched careers, and began collaborating with a sports psychologist, to define what makes it possible for people to perform sustainably at their best. Over the years, working with other colleagues, I've turned these ideas and strategies into a curriculum that my company, The Energy Project, delivers today in corporations, government agencies, schools, hospitals and public workshops.
Our curriculum is grounded in a series of ancient and enduring universal principles and it's buttressed by the findings of modern science. But it's also been profoundly shaped by a series of insights and intuitive leaps I've had about how to work in ways that are more productive, sustainable and satisfying.
To nurture and sustain my own creativity, I've followed a systematic process and it's one I believe anyone can learn.
Over the past hundred years, researchers have reached a surprising degree of consensus about the predictable stages of creative thinking. It was Betty Edwards who first pointed out to me that the stages move back and forth between right and left hemisphere dominance:
1. Saturation: Once the problem or creative challenge has been defined, the next stage of creativity is a left hemisphere activity that paradoxically requires absorbing one's self in what's already known. Any creative breakthrough inevitably rests on the shoulders of all that came before it. For a painter, that might mean studying the masters. For me, it involves reading widely and deeply, and then sorting, evaluating, organizing, outlining, and prioritizing.
2. Incubation: The second stage of creativity begins when we walk away from a problem, typically because our left hemisphere can't seem to solve it. Incubation involves mulling over information, often unconsciously. Intense exercise can be a great way to shift into right hemisphere in order to access new ideas and solutions. After writing for 90 minutes, for example, the best thing I can do to jog my brain, is take a run.
3. Illumination: Ah-ha moments - spontaneous, intuitive, unbidden - characterize the third stage of creativity. Where are you when you get your best ideas? I'm guessing it's not when you're sitting at your desk, or consciously trying to think creatively. Rather it's when you've given your left hemisphere a rest, and you're doing something else, whether it's exercising, taking a shower, driving or even sleeping.
4. Verification: In the final stage of creativity, the left hemisphere reasserts its dominance. This stage is about challenging and testing the creative breakthrough you've had. Scientists do this in a laboratory. Painters do it on a canvas. Writers do it by translating a vision into words.
The first key to intentionally nurturing our creativity is to understand how it works. I've found the stages often unfold in unpredictable sequence, and wrap back on one another. Still, keeping them in mind lets me know where I am in the creative process, and how to get to where I need to go.
Ultimately, the highest creativity depends on making frequent waves - learning to engage the whole brain by moving flexibly and intentionally between the right and left hemisphere, activity and rest, effort and letting go. That's also a pretty good prescription for how to live.

Tony Schwartz - Tony Schwartz is the president and CEO of The Energy Project and the author of Be Excellent at Anything. Become a fan of The Energy Project on Facebook and connect with Tony at Twitter.com/TonySchwartz and Twitter.com/Energy_Project.

Selling on Value Rather Than Price- 5 Ways to Be Known as a Groundbreaking Thinker

Everyone has ideas; it's how you execute them that will get you noticed. Adopting these five principles will help.

 

Would you like to be seen as a groundbreaker and a visionary? Want to be the Seth Godin of your field or the Malcolm Gladwell (possibly with a different hairstyle) of your industry?
You can—but it’s not easy. And it takes a lot more than sitting at a computer while the children are nestled all snug in their beds and visions of thought leadership dance in your head.
How do I know? Some of my clients are truly visionaries and leaders in their fields. I know what they’ve done to set themselves apart. In a few cases I’ve helped, but mostly I’ve marveled at their approach, energy, and most importantly persistence.
To be seen as a groundbreaking thinker, here are a few principles you must embrace:
You must start with show, not tell.  Everyone has ideas. Ideas are cheap. Talk is even cheaper. We listen to leading thinkers because their ideas have been validated by success. Think about it: Would anyone consider Tony Hsieh to be a leading thinker in customer service and employee engagement if Zappos hadn’t experienced tremendous growth? Sure, occasionally a Chris Anderson will popularize a concept like the Long Tail, but he had already built a platform at Wired where he could share his ideas. (A visionary without a platform is a tree that falls in the forest and makes no sound.)  When you prove your vision is valid, gaining recognition for visionary thinking is much easier.
If everyone agrees, you’re preaching to the choir. Most of us follow basic business principles. How we apply those principles may be (slightly) different because each of us is unique… but not really. To be a groundbreaker you must take a very different approach, and that means many people will disagree with your thinking even after you’ve proven you’re right. See push back as a sign you may really be on to something. But also make sure you’re prepared to take the heat when others attack—because they will.
You have to start small. Cobbling together a platform and building a following is incredibly hard. The Wall Street Journal won’t take your calls, but trade publications, local papers, radio stations, and moderately influential bloggers may, especially when you have something different to say and a story that proves your point. In some cases smaller mainstream media outlets not only don’t mind when you reach out, they want you to reach out, because many are starved for content. Be humble and speak and write for just about anyone who will have you. If you’re only willing to start at the top, you’ll never get started.
For a while no one will listen. And that’s okay. Groundbreakers not only have great ideas, they effectively communicate those ideas. You must be able to write and speak extremely well. Unless you have the resources to hire a ghostwriter to write articles, books, speeches, etc., it’s all on you. That’s another reason starting small is important; not only do you get to refine your message but you also get lots of practice writing and speaking.
And most importantly…
You must be sure the effort is worth it. If you’re a consultant or an author, being seen as a groundbreaking thinker can have a direct payoff. Heightened credibility and increased visibility can create broader opportunities, drive higher fees, and boost revenues. But in many cases the only boost you can receive is to your ego. Building a platform and an audience for your ideas is really, really hard. You’ll invest countless hours writing, speaking, promoting, and networking, possibly for very little return. Take a hard look at the tangible benefits you expect to receive. If you can’t quantify the return, put your time into other activities that will produce a real return.
If it’s just about your ego, you’ll never succeed, and in fact probably shouldn’t—because groundbreaking thinkers place all the emphasis on their ideas, not on themselves.

Apple's Supply-Chain Secret? Hoard Lasers

The iPhone maker spends lavishly on all stages of the manufacturing process, giving it a huge operations advantage

By Adam Satariano and Peter Burrows

About five years ago, Apple (AAPL) design guru Jony Ive decided he wanted a new feature for the next MacBook: a small dot of green light above the screen, shining through the computer’s aluminum casing to indicate when its camera was on. The problem? It’s physically impossible to shine light through metal.
Ive called in a team of manufacturing and materials experts to figure out how to make the impossible possible, according to a former employee familiar with the development who requested anonymity to avoid irking Apple. The team discovered it could use a customized laser to poke holes in the aluminum small enough to be nearly invisible to the human eye but big enough to let light through.
Applying that solution at massive volume was a different matter. Apple needed lasers, and lots of them. The team of experts found a U.S. company that made laser equipment for microchip manufacturing which, after some tweaking, could do the job. Each machine typically goes for about $250,000. Apple convinced the seller to sign an exclusivity agreement and has since bought hundreds of them to make holes for the green lights that now shine on the company’s MacBook Airs, Trackpads, and wireless keyboards.
Most of Apple’s customers have probably never given that green light a second thought, but its creation speaks to a massive competitive advantage for Apple: Operations. This is the world of manufacturing, procurement, and logistics in which the new chief executive officer, Tim Cook, excelled, earning him the trust of Steve Jobs. According to more than a dozen interviews with former employees, executives at suppliers, and management experts familiar with the company’s operations, Apple has built a closed ecosystem where it exerts control over nearly every piece of the supply chain, from design to retail store. Because of its volume—and its occasional ruthlessness—Apple gets big discounts on parts, manufacturing capacity, and air freight. “Operations expertise is as big an asset for Apple as product innovation or marketing,” says Mike Fawkes, the former supply-chain chief at Hewlett-Packard (HPQ) and now a venture capitalist with VantagePoint Capital Partners. “They’ve taken operational excellence to a level never seen before.”
This operational edge is what enables Apple to handle massive product launches without having to maintain large, profit-sapping inventories. It’s allowed a company often criticized for high prices to sell its iPad at a price that very few rivals can beat, while still earning a 25 percent margin on the device, according to the estimates of Piper Jaffray analyst Gene Munster. And if the latest rumors are to be believed, Apple’s operational expertise is likely part of what gives the company enough confidence to enter the notoriously cutthroat television market by 2013 with a TV set that would tightly integrate with existing Apple software like iTunes. The widespread skepticism over Apple’s ability to compete in such a price-sensitive market, where margins are often in the single digits, is “exactly what people said when Apple got into cell phones,” says Munster.
Apple began innovating on the nitty-gritty details of supply-chain management almost immediately upon Steve Jobs’s return in 1997. At the time, most computer manufacturers transported products by sea, a far cheaper option than air freight. To ensure that the company’s new, translucent blue iMacs would be widely available at Christmas the following year, Jobs paid $50 million to buy up all the available holiday air freight space, says John Martin, a logistics executive who worked with Jobs to arrange the flights. The move handicapped rivals such as Compaq that later wanted to book air transport. Similarly, when iPod sales took off in 2001, Apple realized it could pack so many of the diminutive music players on planes that it became economical to ship them directly from Chinese factories to consumers’ doors. When an HP staffer bought one and received it a few days later, tracking its progress around the world through Apple’s website, “It was an ‘Oh s—’ moment,” recalls Fawkes.
That mentality—spend exorbitantly wherever necessary, and reap the benefits from greater volume in the long run—is institutionalized throughout Apple’s supply chain, and begins at the design stage. Ive and his engineers sometimes spend months living out of hotel rooms in order to be close to suppliers and manufacturers, helping to tweak the industrial processes that translate prototypes into mass-produced devices. For new designs such as the MacBook’s unibody shell, cut from a single piece of aluminum, Apple’s designers work with suppliers to create new tooling equipment. The decision to focus on a few product lines, and to do little in the way of customization, is a huge advantage. “They have a very unified strategy, and every part of their business is aligned around that strategy,” says Matthew Davis, a supply-chain analyst with Gartner (IT) who has ranked Apple as the world’s best supply chain for the last four years.
When it’s time to go into production, Apple wields a big weapon: More than $80 billion in cash and investments. The company says it plans to nearly double capital expenditures on its supply chain in the next year, to $7.1 billion, while committing another $2.4 billion in prepayments to key suppliers. The tactic ensures availability and low prices for Apple—and sometimes limits the options for everyone else. Before the release of the iPhone 4 in June 2010, rivals such as HTC couldn’t buy as many screens as they needed because manufacturers were busy filling Apple orders, according to a former manager at HTC. To manufacture the iPad 2, Apple bought so many high-end drills to make the device’s internal casing that other companies’ wait time for the machines stretched from six weeks to six months, according to a manager at the drillmaker.
Life as an Apple supplier is lucrative because of the high volumes but painful because of the strings attached. When Apple asks for a price quote for parts such as touchscreens, it demands a detailed accounting of how the manufacturer arrived at the quote, including its estimates for material and labor costs, and its own projected profit. Apple requires many key suppliers to keep two weeks of inventory within a mile of Apple’s assembly plants in Asia, and sometimes doesn’t pay until as long as 90 days after it uses a part, according to an executive who has consulted for Apple and would not speak on the record for fear of compromising the relationship.
Not every supplier gives in. An executive who works with a major parts manufacturer says that Apple’s bargaining tactics tend to exert downward pressure on prices, leading to lower profits and margins. After months of negotiations, the company declined a $1 billion payment from Apple that would have required the supplier to commit much of its manufacturing capacity to Cupertino’s products. The executive familiar with these talks, who asked not to be named because the discussions were not public, says that while deals featuring $1 billion in cash up front are basically unheard of, his company didn’t want to be too dependent on Apple—and didn’t want to help it deflate prices.
Apple’s control reaches its crescendo in the leadup to one of its famed product unveilings, a tightly orchestrated process that has been refined over years of Mac, iPod, iPhone, and iPad debuts. For weeks in advance of the announcement, factories work overtime to build hundreds of thousands of devices. To track efficiency and ensure pre-launch secrecy, Apple places electronic monitors in some boxes of parts that allow observers in Cupertino to track them through Chinese factories, an effort meant to discourage leaks. At least once, the company shipped products in tomato boxes to avoid detection, says the consultant who has worked with Apple. When the iPad 2 debuted, the finished devices were packed in plain boxes and Apple employees monitored every handoff point—loading dock, airport, truck depot, and distribution center—to make sure each unit was accounted for.
Apple’s retail stores give it a final operational advantage. Once a product goes on sale, the company can track demand by the store and by the hour, and adjust production forecasts daily. If it becomes clear a given part will run out, teams are deployed and given approval to spend millions of dollars on extra equipment to get around the bottleneck.
Apple’s enormous profits—its gross margins were 40 percent last quarter, compared with 10 to 20 percent for most other hardware companies—are in large part due to this focus on operations, which is sure to remain a priority under Cook. The new CEO is known to give colleagues copies of Competing Against Time, a book about using supply chains as a strategic weapon in business. According to Martin, the logistics executive, Cook uses a catchphrase to hammer home the need for efficiency: “Nobody wants to buy sour milk.”
The bottom line: Apple plans to double spending on its supply chain, to $7.1 billion, continuing its focus on streamlining and controlling manufacturing.

With High-Tech IDs, Qantas Fliers Get a Fast, Practically Paperless Experience

The Qantas system in domestic terminals is largely self service, so ground workers now roam the lobby to assist customers.

Sydney
Platinum-level business traveler Jake Coverdale breezed through the airport lobby, stopping momentarily at a Qantas Airways kiosk. In five seconds, he was checked in and on his way to the gate. When he has a bag to check, he just drops it on a belt. When it's time to board, he just walks on the plane.
Qantas has created practically paperless airports, rolling out new technology in 2010 at all of its domestic stations that eliminates many long lines and speeds passengers all the way to their seat. No paper itinerary. No sticky luggage tag. No boarding pass.
"It's bloody good, actually," Mr. Coverdale said of the Qantas system. "I go to America and Europe a lot and I think this is the best check-in in the world. It's incredibly efficient."

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Qantas

The system, built around radio-frequency ID cards (RFID), is similar to toll tags used on highways and bridges. Top-level frequent fliers get an ID card that is flashed at a kiosk in the ticketing area. In seconds, the system finds the reservation for that day, assigns a seat based on personal preferences if one wasn't pre-selected and checks the passenger in. When everything is good to go, a beacon illuminates.
To check luggage, the passenger goes to a baggage drop point, flashes the frequent-flier card in front of a reader and drops luggage on a baggage belt. The bag is weighed, and lasers measure its dimensions to make sure it complies with limits.
Top-level frequent fliers have heavy-duty RFID tags called "Q Bag Tags" for their bags that replace paper luggage tags. The technology reads the bag's "identity" as it moves from luggage belts to carts to airport tarmacs. This ensures luggage gets loaded on the same flight as its owner. Other travelers get a paper tag for their bag with an imbedded RFID chip.

Passengers without a Qantas ID card can get a printed boarding pass or scan their mobile phones.

Finally, the ID card is flashed at the gate—no boarding pass needed—and agents there hand the traveler a receipt with the seat number printed on it.
"It's reduced congestion and queuing. Check-in can be quite stressful for customers. They want to feel like they are in control and not stuck in line," said Tanya Bulkin, head of customer experience at Qantas.
RFID technology has been around for many years, and while it has revolutionized some forms of transportation and many areas of inventory-control for businesses, it has been slow to catch on with airlines. Carriers have sent representatives to Sydney to check out the futuristic setup, but none have announced plans to implement a similar system. One reason may be cost. For example, the cost of baggage tags has come down sharply from more than $1 apiece to less than 20 cents, but they're still more expensive than paper tags currently used by airlines.
Qantas won't disclose data on performance of the new technology, such as baggage-handling numbers or changes in average wait in airport check-in lines. The company said in a statement simply that customer feedback has been "overwhelmingly positive."
Development of the system began several years ago. Qantas was running out of room at its large domestic terminal in Sydney and needed to come up with something new to reduce frequent backups at counters. The airline studied customer habits and worked on finding ways to eliminate lines. The conclusion: eliminate the "pain points" in the airport, such as checking in, checking bags and lining up to board, Ms. Bulkin said.
The carrier decided to invest in technology rather than adding floor space. With kiosks positioned in four V-shaped patterns, it's almost impossible for travelers to bunch up in a long line. There's still an old-fashioned check-in counter, but most of the baggage drop points are self service.
The technology could reduce an airline's cost to reimburse passengers for lost and delayed luggage. Through October, U.S. airlines mishandled the bags of about 1.6 million passengers on domestic flights. That translates into one passenger out of every 287 on domestic flights who arrive without the luggage they checked.
The worst airline for baggage handling in the U.S. this year: American Eagle, the regional affiliate of AMR Corp.'s American Airlines. Both carriers are currently in bankruptcy reorganization.
A few other airports have limited RFID systems, absorbing the cost to improve service. Las Vegas and Hong Kong both have baggage systems in which paper bag tags have RFID chips imbedded in them, but the technology hasn't spread.
Now Qantas hopes to help drive change internationally. The airline is expanding its new system to its stations in New Zealand, which will be the first to incorporate passport information.
"International is much more complex. I think that's one reason why it hasn't caught on," said Ms. Bulkin.
Frequent fliers get free ID cards and Q Bag Tags, with bag tag colors denoting status level at the airline (black for platinum, gold, silver and bronze). The tags have become something of a status symbol among frequent fliers. Customers who don't have top-level status with the airline's frequent-flier program can buy a Q Bag Tag for about $51 at Qantas.com or from special vending machines in airports.
If they don't have a frequent-flier ID card, travelers check in online or at kiosks and get a bar code on a printed boarding pass or on a mobile phone, just like at other airlines. They also print their own baggage tags at the kiosks, speeding up the process at baggage drop points. When they get to the drop point, they just scan their bar code and place the already-tagged bag on the belt.
Qantas has been embroiled in a bitter labor dispute over pay cuts and job protections that resulted in the airline shutting down earlier this year. (Government officials ordered it back into service.) The year-old airport system required extensive retraining of staff, but didn't result in layoffs, which the union confirms. The system is largely self service for customers, so ground workers now roam the lobby to assist with things like directions and kiosk help.
"This wasn't about self-service at the expense of staff," said Gabriella D'Alessandro, Qantas's head of technology operations. "We wanted to improve the customer experience."
Sydney asset manager Kingsley Barker, who has gold Q Bag Tags on his luggage, said the new system hasn't failed him yet. "I think it's brilliant. There are no queues," he said.
While his wife, traveling with him on a recent flight to Dallas, thought the airline should have been using better technology long ago, Mr. Barker was just happy to have something better now.
"Qantas has so many other problems," he said. "Anything like this that improves service to customers is good."

What's behind the bargains at T.J. Maxx?

Shelly Levy could be T.J. Maxx and Marshalls' dream customer.
The Houston legal assistant shops at the stores once or twice a week, lured by the chance of getting buys like the Nanette Lepore dress she had seen a year earlier at Neiman Marcus, designer jeans by Seven and Joe's and an Isabella Fiore handbag at Marshalls that all her friends were envious of.
"Treasure hunting" attracts many to the off-price retailers, according to TJX, which owns both stores, along with the home furnishings chain HomeGoods. Off-price stores sell name-brand clothing, jewelry, luggage and other items found in other stores, but at prices that are often far lower. They can do this, in part, because they sell merchandise from a previous year or season that a store or brand couldn't sell and unloaded for pennies on the dollar to a liquidator. Or so the thinking goes.
In a rare interview, TJX CEO Carol Meyrowitz explained how conventional wisdom is wrong when it comes to T.J. Maxx and Marshalls. Meyrowitz, 57, has been with TJX for almost 30 years, rising from a buyer in 1983 to CEO in 2007. During that time, the chain has turned into a retail powerhouse, with more than 1,700 stores -- nearly as many as Target. She says 85% of what the stores sell is from the same season and same year it was designed for, and 85% is purchased directly from manufacturers. Much is identical to what the brands sell in department stores, she insists. Less than 5%is irregular.
These distinctions are more significant than ever for consumers looking for a "good buy" in a sea of deals.
TJX's sales were down only once in the last 34 years -- 1995 -- but the competition for bargain-hunting shoppers is coming from an increasing number of sources. Outlet stores now occupy 68 million square feet of retail space, up from 56 million in 2006, according to Value Retail News. Outlet stores typically only sell one retailer or manufacturer's brand, but that difference is fast getting muddled, too. When you add Web-only off-price stores such as O.co (formerly Overstock.com) and sites with short-term deals known as "flash sales," you have a consumer bombarded with purported bargains and a demand for discounted goods that couldn't possibly be satisfied with last year's leftovers and manufacturers' mistakes.
"For brands, the discount segment represents a huge revenue channel," says retail strategist Alison Jatlow Levy of consulting firm Kurt Salmon. "The challenge for brands is how to manage it without negatively impacting their image."
The source -- and quality -- of all this marked-down merchandise can be confusing to shoppers. Outlets, like off-price retailers, sell at least some products that were "never intended to ever touch the doors" of traditional retailers, says retail brand expert Ken Nisch.
"Consumers are taken by brand names and styles, and quality, I think, comes in second," says Lisa Lee Freeman, editor-in-chief of ShopSmart, a magazine published by Consumer Reports. "Gone are the days when people bought shoes and other clothing and hung onto them for years and years and repaired them to keep them in top shape."
How it works
Meyrowitz says TJX typically deals directly with brands -- not with liquidators.
But there is an interesting sort of denial associated with these brand/off-price relationships.
Coach spokeswoman Andrea Resnick referred to T.J. Maxx and Marshalls as the "disposition channel," and says the brand does not design or manufacture for it. She acknowledges that the company's licensees, which make products including shoes and wallets, sometimes sell to off-price stores but that it's only "excess discontinued inventory."
Others may prefer to fib.
"We're absolutely fine with every vendor saying they don't do business with us," Meyrowitz says. "It's a very important part of our relationship."
Spokespeople for Ralph Lauren, Michael Kors, Anne Klein, Jones of New York and Nanette Lepore -- all brands sold in T.J. Maxx and Marshalls -- did not respond to requests for comment on whether they sell to the stores.
Indeed, there's a fair amount of throat clearing in the world of discounted designer apparel.
Steven Davis, president of the designer flash sale site Rue La La, says he's "never known a brand to deny" doing business with the site. He says brands featured on Rue La La -- which include Kate Spade and Cullen -- think of it as just another boutique they do business with.
Meyrowitz, who never mentions any of the company's brands by name, says manufacturers like doing business with her company because "we're not fair-weather friends. When we buy it, we own it." TJX is there to help when stores buy too much and return unsold merchandise to manufacturers, but also when manufacturers and designers want to lower their per-item cost by making extra for the company's stores.
"There's a degree of wink, wink," says Nisch, chairman of the retail branding and design company JGA. "Manufacturers need off-price in order to survive, but they can make too much and destroy the value balance between supply and demand."
TJX has 700 buyers around the world that are part of what Meyrowitz calls a "supplying machine." The company works with different factories and agents and maintains offices in countries including Italy, India and China, she says. Buyers work with about 14,000 vendors in "a million different ways," says Meyrowitz, who calls it "opportunistic buying."
T.J. Maxx and Marshalls customers have an average household income of $40,000 a year, but some make "several million dollars a year," Meyrowitz says.
"There are very few retailers that get that breadth of shoppers," she says.
When it comes to shopping at her favorite stores, Shelly Levy, 48, says, "It doesn't matter to me that it's last year's or not.
"I don't think people that shop there all the time worry about what season or year it is, especially now when fashion is all over the place and the prices are so incredible" at T.J. Maxx, she says.
But it matters to Meyrowitz that shoppers realize less than 15(PERCENT) of the merchandise is last season. The company changed its marketing to emphasize details like this because it realized its old strategy was talking to existing customers, when it really wanted to attract new ones.
Price tags say "past season" if it is.
What TJX shoppers new and old share is enthusiasm for their deals.
Lynn Richardson of Windsor Mill, Md., says she recently got Coach boots at Marshalls for $125 that she says sold at Coach for about $250. She also bought Ralph Lauren jeans that were reduced from $99 to $29 and shops regularly for Polo Ralph Lauren shirts at the stores.
"Marshalls has more Polo than any other retail store," she says, in a comment that would surely make Ralph shudder.
The quality question
Even if brands matter most to many consumers, TJX knows quality counts. And the company is working hard to shake any lingering doubts about the stores being filled what used to be known as "seconds."
"It's all about the quality, and the quality vs. a department and a specialty store," Meyrowitz says. "It's the same, and I hope it's better."
Still, even some T.J. Maxx and Marshalls customers say they're starting to find as good, if not better, deals at department stores. Donna DeShields, 47, of Cary, N.C., says she finds something almost every time she goes to T.J. Maxx or Marshalls, but gets similar savings and finds a more reliable selection at department stores. A receipt from Macy's shows she recently spent $9 for $142 worth of merchandise after all the markdowns, discounts and a $25 loyalty coupon.
"With their ongoing sales -- there seems to be a sale of some sort every weekend -- and their customer-loyalty coupons, I can get really great bargains every time I am in the store," says DeShields, who says she has similar luck at the department store Belk.
Easier to shop?
Indeed, off-price stores can be a lot less appealing than department stores for some manufacturers and shoppers. Members of USA TODAY's shopper panel who count TJX's stores among their favorites say they go for the low prices, not the ambiance. But like any talk of irregular merchandise, suggestions that its stores are run down appear to be a sore spot for Meyrowitz.
The company is remodeling more than 350 stores a year and is on a "mission to make the in-store experience better and better," Meyrowitz says.
Retail stock analyst Howard Tubin, who follows the company, says TJX's store sales go up after they are remodeled, though he says the company won't say by how much. The company is well positioned to compete with all the other deal-filled stores and sites, he says, because it consistently gets name-brand merchandise that it sells for up to 60% off.
"It is one of the most consistent performers in retail and has a long track record of generating both sales and earnings growth in good times and bad," says Tubin of RBC Capital Markets.
Meyrowitz says the most important thing is shoppers largely approve of the way they do business.
"The majority of the customers who try us, whether recession or not a recession, do come back," says Meyrowitz. "It's almost the 'aha.' They think, 'Why would I buy at this price when I can buy at a lot less?'"