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How China partnership helps Indochino offer men’s custom suits faster

The series: We look at decision makers among Canada’s mid-sized companies who took successful action in a competitive global digital economy.

One of Drew Green’s first tasks as the chief executive officer of Indochino Inc., the Vancouver-based made-to-measure online men’s apparel retailer, was to sit down and map out the company’s five-year plan, with the ultimate goal of manufacturing one million suits a year.

He decided the company, which was founded in 2007, needed to take on partners to help accelerate growth, improve the product offerings to customers, and improve operating efficiencies.

The China partnership gives Indochino access to the latestmanufacturing technology, which cuts down the turnaround time on orders. Onepart of that technology is a high-speed laser cutter, which can cut a patternunique to the measurements of each customer with increased speed and consistency.(Photo courtesy of Indochino)

In what Mr. Green calls “the biggest decision I made in the last year and a half,” Indochino partnered with one of the world’s biggest suit manufacturers, China’s Dayang Group, this year. The deal, which realized up to $42-million for Indochino in exchange for 21 per cent of the company, gives it access to Dayang Group’s manufacturing facilities in Dalian, where it also manufactures garments for Banana Republic, Hugo Boss and other clothing companies.

In addition to increasing offerings for customers, such as tripling suit and shirt selection and quadrupling the suit personalization options, the partnership also gives Indochino access to the latest manufacturing technology, which cuts down the turnaround time on orders from over four weeks to under that benchmark.

“As part of our partnership they gave us a dedicated factory for our entire production line and in doing that and investing millions and millions of dollars in state-of-the-art equipment, that allows for the garments to be produced so quickly,” Mr. Green says.

One part of that technology is a high-speed laser cutter, which is not only able to cut a pattern unique to the measurements of each suit customer, but also to increase the speed of creating each suit and doing so much more consistently, giving a uniform fit in the process.

“The product has vastly improved, both from a quality standpoint as well as from a fit standpoint, which is the core essence of our business,” Mr. Green says.

Aside from cutting costs, Indochino stands to gain thefollowing from the partnership: speed, innovation and quality, according to RobinSahota, managing director of constultancy Accenture’s Canadian retail practice.(Photo courtesy of Indochino)

The results have been as good as Indochino could have hoped for, with Mr. Green projecting year-over-year profitability to have increased roughly 55 to 60 per cent, depending on how the last couple of weeks of the year go. Part of that is the lowered costs of production that the partnership brings.

“We secured a five-year alliance with them that will dramatically reduce our per-unit cost to produce the garment,” he says. “So for example, in Q3 [the third quarter] this year, we had a 500-basis-point improvement in our gross margin and that was directly related to that partnership.”

While cutting back on costs is one benefit of the partnership, there are a number of other advantages to be had. Robin Sahota, managing director of constultancy Accenture’s Canadian retail practice in Toronto, lists three other ways in which Indochino stands to gain from the partnership: speed, innovation and quality.

For Indochino, speed to market is key to its business. Trends move extremely fast in the fashion industry, and being able to keep up is vital. On top of that, given that customers are providing firm orders, fulfilling them in a timely fashion – in this case less than four weeks – is part of Indochino’s brand appeal.

“They advertise four weeks or less, so that becomes a brand promise and so speed of capability and speed of service … becomes a crucial part of the value proposition,” Mr. Sahota says.

Retailers typically look for innovation and manufacturing expertise when they embark on these sorts of partnerships, he adds, so Indochino will benefit from Dayang Group’s track record of innovation in production and design, and in cost-effectively producing products.

Indochino CEO Drew Green projects year-over-year profitability to have increased roughly 55 to 60 per cent, and part of that is the lowered costs of production that the partnership brings. “It’s a good time for companies to really rethink their business model and how to leverage technology to improve customization and individualization and to rethink their core [beliefs],” says Ning Su, associate professor at the Ivey Business School at the University of Western Ontario in London, Ont. (Photo courtesy of Indochino)

Quality is another benefit of this partnership. While Mr. Sahota says that producing out of a single factory can have its risks, there are many more positives to be had, particularly in the areas of quality control and producing consistent sizing, which helps avoid the expenses of returns.

“Returns are very costly to retailers and in Indochino’s case they’re very costly because these are customized products; you can’t sell them again, you’ve got to get it right,” he says.

While technology continues to redefine the fashion industry, from haute couture to the prât-à-porter, or ready-to-wear, garments, Indochino’s investment in this area should give it greater staying power in a competitive industry. And its decision is one that others might look to for their own inspiration.

“I think it’s a good time for companies to really rethink their business model and how to leverage technology to improve customization and individualization and to rethink their core [beliefs],” says Ning Su, associate professor and J.J. Wettlaufer faculty fellow at the Ivey Business School at the University of Western Ontario in London, Ont.

In the midst of the industry’s transformation, Dr. Su says it’s a good time for fashion companies to decide what they really want to be, whether it is fast fashion like H&M or Zara, or oriented toward customer service and customization.

And while Indochino may sell made-to-measure men’s apparel online and in stores, it has one key attribute.

“At the core of everything we do, we are a technology company,” he says. “We sell apparel. Our online business is extremely strong and our showrooms mimic that online experience through real life interactions with our customers.”

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