Despite a big presence in global fashion, Luen Thai Holdings is a name few shopaholics frequenting America’s malls would recognize. That doesn’t surprise Rick Helfenbein, U.S. president of the Hong Kong-based company. No Luen Thai outlets can be found in any mall and it doesn’t have its own fashion label. But for more than 20 years, the US$830 million (in annual revenue) listed company has been manufacturing clothes for big fashion brand names like Banana Republic, Esprit, Ann Taylor and Adidas.
Luen Thai’s journey to malls not just in America but around the world has mirrored that of the entire textile industry since the 1980s — from small, locally focused origins to being part of a US$1.7 trillion global business, whose fast-moving supply chains stretch across borders. In a keynote address at the recent 15th annual Wharton Asia Business Conference in Philadelphia titled, “Defining Asia in Transition,” Helfenbein explored the major milestones of that journey, which has propelled Asia — and most notably China — into a leading role in fashion supply chains. From Luen Thai’s vantage point, it has meant mastering more and more parts of the supply chain and moving far beyond its original offerings as a manufacturing outsourcer to often surprising new opportunities.
As Helfenbein recounted, it’s also been quite a journey for an industry veteran like him. Back in 1970, Helfenbein was finishing his undergraduate degree in computer science and was looking at his career options, including an offer — as he joked — from the U.S. government, “which was interested in me going overseas to fight a war I didn’t want to fight.” Then he received a late-night call from an executive at an apparel manufacturer in Asia, inviting him to an interview at its U.S. offices. Helfenbein agreed to go but because he wasn’t interested in the job, he eschewed the traditional wardrobe worn to interviews in the early 1970s — a dark suit, white shirt and red tie. In a pair of bell-bottoms and a t-shirt, he waited in the company’s reception area with two other candidates, both formally dressed. Each went in for their interviews and emerged quickly. Then it was Helfenbein’s turn. “I walked into the room, and [the executive] jumped up from his desk … pointed to me and said, ‘I want you.’ I said, ‘You want me?’ And he said, ‘Yes. You’re fashion!’”
Not expecting to stay at Luen for long as he has, Helfenbein conceded that he has never warmed to fashion per se. But the business of fashion fascinates him, particularly being part of the sector’s seismic changes over the years — as he pointed out at the conference, Philadelphia started the 20th century as the world capital of apparel manufacturing, with 100,000 people working in the industry. “I bet you can’t find one today,” he said.
Vast transformations in cost, transportation, technology and politics propelled the sector from hubs like Philadelphia to the American South, and then further and further away. “What I’m talking about is change,” Helfenbein stated. “If you could have seen it coming like we saw it coming, and gotten the wind behind your sails, you could do something big.”
By the mid-1980s, global textile trade had emerged, with factories in new, far-flung markets producing goods on behalf of established U.S. fashion labels. “All of a sudden, you could source outside the United States — so the sourcing part became one business and the other part of the business became the branding,” said Helfenbein. “A lot of people didn’t see this coming. We did.”
It also signaled the birth of an important part of retailing as we know it today — the idea that a company’s brand name doesn’t connote the goods produced by its own factories. More often than not, fashion houses are now outsourcing their manufacturing to another company’s factory, which designs, sews and delivers apparel to retailers on its behalf.
End to End
In response, Luen Thai has introduced what it calls a “design to store” (D2S) business model. The model has enabled the company to become — in Helfenbein’s words — a “full-service supply chain partner.” Using its base in China to keep a lid on costs, it now handles customers’ back-office work, from sourcing and inventory management to logistics for a brand’s stores, while sharpening its creative and technological skills. “We changed our model to be multi-product, multi-country, multi-service and multi-supply chain,” Helfenbein said.
The process involved opening Luen Thai’s own manufacturing “municipality” in 2007. Called Supply Chain City, the “megafactory” in Dongguan, Guangdong province, now has a population of 7,000, with dormitories, a movie theater, gym and showrooms for visiting clients. “A buyer, a marketer, a brander from the U.S. can go to Supply Chain City and never have to leave the complex,” Helfenbein explained. “They can make their samples, they can buy their fabrics, they can do everything they want under one roof.”
Helfenbein also highlighted a relatively new strategy at Luen to develop lean supply chains similar to those found at auto manufacturers. The catchword is lean: lean engineering, lean enterprise and lean supply chain. “You create more value with less work,” he explained. “You have to focus on what you need to have versus what’s nice to have.”
In the meantime, Helfenbein said the company has focused on changing its geographic revenue mix in order to not be overly dependent on one market. There once was a time when the U.S. accounted for 85% of sales. Today, as Europe and Japan have surged ahead, the U.S. share is around 50%.
Such geographic dispersion, however, doesn’t mean Luen Thai has forgotten its roots. According to Helfenbein, the Chinese market — and its population of 1.3 billion people — is as important as ever, for a good reason: “It’s pretty simple math,” he noted. “Look at the number of people engaged in agriculture. In the United States, only 4% of our population is engaged in agriculture. In China, 60% is.” Just as in the U.S., as more Chinese leave the countryside — and their livelihoods in agriculture — behind, “you will be able to do things like create demand for products and services,” he explained.
From Fashion to Fish
Luen Thai has been diversifying product lines too. Notably, real estate is a relatively recent addition to Luen Thai’s portfolio. Amid fast-rising real estate prices in China, it decided to “re-purpose” land that it had bought to build factories. “Now we’re building homes,” he said, showing photos of its Lux River project, an American-style subdivision in Qingyuan due to be completed this year. A nearby outlet center and an online shopping mall are due to follow soon. “We’re selling all these brands anyway, and [the clients owning those brands] trust us,” Helfenbein said.
Then there’s tuna. Luen Thai now has 200 large fishing vessels catching sushi-grade fish in the South Pacific, accounting for 15% and 20% of the Japanese and American markets, respectively. Having caught the fish, though, the firm needed a way to ship them. “We were putting the fish in the belly of Continental Airlines,” he said. But as yields rose, there wasn’t always room on the planes, which is bad news for such a perishable product. So the firm now owns three Boeing 727s to transport the goods, while also hiring itself out as to postal services since after 9/11, packages could no longer go as cargo on commercial passenger flights. “If you ever get a letter that smells like fish, now you’ll understand why,” Helfenbein joked.
All told, he said, there’s an important lesson in the story of how an apparel firm became a sushi titan. “The wind, as I was saying, shifted,” he said. “We were fortunate enough or smart enough to shift with it.” But the story doesn’t end there. “We see private label as just our core market,” he explained. “The idea to convert factory land that we weren’t using to real estate was made simply on value. Now, we see real estate and outlet centers as maybe the way to go. We’re open to new ideas. As we’re growing the business, the ideas are growing with us.”