Most of London's retailers and their suppliers just want to forget this Christmas past. In its huge Baker Street headquarters, even Marks and Spencer, a pillar of the retail sector, has seen the first fall in its interim profits for 11 years. But, a stone's throw from the M and S bastion, one corner of Britain's hard-pressed textile sector has been emanating a little more seasonal cheer of late than others.
Claremont Garments, which supplies some 4% of M and S's overall clothes range - worth £2.5 billion - seems to be beating the recession hands down. From its strategically positioned London office (five minutes' walk from M and S) to its factories in the North East and Scotland, the message is simple: make full use of technology to keep costs to a minimum and margins high.
In the run-up to the festive season, as poor demand forced manufacturers into cutbacks and closures, no one has escaped unscathed. But Claremont Garments, a medium-sized manufacturer of ladieswear and childrenswear, is one of a handful of M and S's 200-odd clothing suppliers to have achieved operating margins comfortably ahead of rivals - historically over 15%.
Like its exclusive customer, Claremont announced a fall in first-half pre-tax profits in October, down 9% to £2.83 million. But where other northern clothing manufacturers are struggling to achieve margins at all, analysts expect Claremont to maintain its margins for the full year in the low-teens. That's good news for a newcomer to the stock exchange (Claremont was de-merged from brand retailer Alexon last summer).
Leading the Claremont march is 45-year-old chairman and chief executive Peter Wiegand. A bear of a man, who fills the door-frame of his modest office in London's Baker Street, Wiegand knows only too well how the M and S management mind works. Before joining as commercial director in 1977, he was an M and S merchandise manager in ladieswear. Claremont's exclusive dependence on M and S means that nuturing the relationship occupies a major part of Wiegand's time - hence his base, with the sales and design teams, in a small, unpretentious building just yards down the road from the M and S headquarters.
Claremont's relatively comfortable state is no accident. It is the result of a long-term programme of investment in manufacturing efficiency through new technology, coupled with a constant preoccupation with reducing costs. For a company of its size (market capitalisation some £50 million), £17 million-worth of capital projects over the past nine years is a striking total. In an industry slow to introduce automation, Claremont has consciously led the way.
Founded in 1967 as Charnos Garments, the company was an offshoot of a Derbyshire group, supplying knitwear and hosiery to M and S, owned by the Nosquith family. The new business was set up to supply dresses from a single factory in the new town of Peterlee. By the late 1970s, the range had grown to include other light sewing - blouses, skirts and the like. It was then a fairly average M and S supplier. But the company observed a change in M and S's attitude to its suppliers: those that found favour were the ones prepared to invest in their factories, machinery and also the product. Claremont was at a crossroads.
Wiegand outlines the choice the company faced: "We said to ourselves, either we remain a run-of-the-mill M and S supplier or we push the business and invest in productivity and efficiency, design and fabric development." Claremont decided to take the plunge. At the same time the family wanted out of the offshoot so in 1982, it was acquired by fellow M and S supplier Steinberg, now known as Alexon, on the understanding that Wiegand and joint MD Lawrence Snyder would run the M and S contract manufacturing side of the business, leaving the retail side to the Steinberg team. In the process, the top Claremont managers acquired stakes in the enlarged group. Wiegand and Claremont colleagues Snyder and Eddie Tarr led Steinberg's expansion on both fronts from the mid-1980s. They broadened the manufacturing base in 1987, buying the Glasgow-based D and H Cohen, an M and S supplier of childrenswear and men's trousers for some 40 years, and the retail side the next year when the Eastrex and Dash retail brands came in with the acquisition of Ellis and Goldstein.
The latter acquisition brought Alexon into conflict with M and S. Alexon worked hard to build up the Dash brand but in the process created tension in the contract manufacturing relationship. Dash was a lower ticket, higher volume business than Alexon itself and its biggest competitor was M and S. By the end of the 1980s, Claremont was taking Dash-derivative products into M and S. Clearly, something had to give. Says Wiegand, "We envisaged that what was a small problem at the end of 1990 would become a major one in the longer term." It ended with the amicable de-merger of Claremont under Wiegand while Snyder stayed on to run Alexon. The move left both parts free to pursue their own growth plans. Claremont emerged as a public company with a strong balance sheet which augurs well for acquisitions in the next 18 months.
Wiegand is quick to point out that the split did not come about at M and S's instigation, but admits that considerable care was taken to keep M and S up on the progress of discussions. Amid the gloom and doom in high street retailing, such close involvement with a single customer might seem precarious. But Marks and Spencer is a unique phenomenon. Says Wiegand, "It is such a dominant force in clothing retailing in this country that to be solely supplying M and S is an upside rather than a downside." Claremont has looked at supplying other retailers but the amount of business they would give a new supplier is small. In hard times especially, M and S is a better bet.
Claremont has nevertheless been at pains to spread the inherent risk by broadening its range. The business began with dresses, but since then blouses, jackets, coats, skirts and trousers, plus childrenswear in Scotland have been added. David McGarvey, managing director of Claremont's operating subsidiary and a plc director, explains: "The buyers in different departments are like different customers. If we've got the spread, we can balance capacity to where the opportunities are greatest."
A 40-year-old Lancashire lad, McGarvey has spent his working life in the clothing industry and joined Charnos Garments as production manager in 1972. He points to another compelling advantage in supplying the retail giant: "The relationship with M and S and the volumes that come with it have allowed us to invest in manufacturing. Without that volume at the heart of the business, it wouldn't have been possible."
Claremont's investment in new technology has been no piecemeal process. It began with a long hard look at its operations in the period from 1980 to 1986. Says McGarvey, "We went through every aspect of manufacturing, from raw materials to distribution. The aim was to get new technology in as early as possible. Few in the industry have integrated as we have. But we've only been able to do it because we had the management team. Anybody can instal new technology but not everybody can manage it."
It's a point borne out at the Glasgow plant, where the investment programme is behind the five North East factories, the principal focus of operations. Since Glasgow was acquired in 1987 as part of the Cohen purchase, numbers employed have fallen from 1,350 to 800 but problems getting the right management have meant that margins (just 3% at acquisition) are still lagging behind. Wiegand is confident that they will respond further once additional investment of £2-3 million is completed by 1995.
McGarvey criticises the clothing industry in general for its short-term approach. "We have tried to keep a longer term view. Our payback criteria demand that at worst the item concerned can be seen to be paid back within a two-year time frame. The capital expenditure programme is driven by cost considerations: we are always looking for new angles and ways of containing or reducing unit costs year on year. We must always be confident that what we are spending money on is contributing to profitability."
Tom Simms, engineering and development director, proudly shows off one new acquisition: a computer-based system which identifies where fabric faults lie in relation to the pattern layout (also computer-controlled and aiming to achieve close on 90% fabric utilisation). The equipment should bring considerable benefits for the fabric bill and final quality.
At the design concept stage of the process, another new computer is thrilling its users in the London design office. Of the CAD system, Wiegand says, "It will revolutionise the production of samples." The machine allows the design team to create a concept garment on screen rather than through a series of sample garments. Combined with a state-of-the-art printer, which prints on fabric as well as paper, designers can produce an actual fabric design ready for make up. The aim is to persuade M and S to buy from such samples, rather than wait the several weeks it takes to get the fabric made by the manufacturer. It's an impressive advance, and one that would have advantages in terms of cost as well as overall response time.
There are always new projects under consideration. Engineering director Simms singles out the application of interlining (the stiffening used on collars, cuffs, etc) as a process just waiting for automation. Currently, that area stands out as a labour-intensive island in the central spreading and cutting plant at Peterlee, Co Durham, which also houses head office.
Flexibility of manufacturing is key to Claremont's philosophy. In the North East, where the bulk of the investment has been applied, it makes little difference if the three stitching factories are producing blouses, dresses, trousers or skirts. "We didn't want any one factory doing only one product. We have total flexibility to switch the emphasis of production to where the opportunity is greatest - something which the average clothing manufacturer could not do," says McGarvey. The exceptions are the West Auckland plant which specialises in tailoring, and the finishing plant, in Peterlee, which presses, bags and warehouses all Co Durham output.
Hand in hand with flexibility goes the ability to provide a fast response to the customer's requirements. With this in mind, Claremont switched from the progressive bundle system under which each pattern piece goes through the system in a bundle, only to be made into whole garments at the end of the process, to the unit production system where each garment goes through as one unit on an automatic overhead handling system. This has combined with other changes to cut work in progress dramatically in the North East (though Scotland, again, does not bear comparison). Says McGarvey, "It took a week's worth of WIP out of the pipeline. We're now at 7-8 days to convert raw materials into bagged stock. There's no quicker throughput in the industry. The industry lead-time before 1980 was between six and eight weeks."
With M and S planning to increase deliveries to stores to twice a week and Far East imports eating away at the market, Claremont will play its trump card, response time, with increasing frequency. M and S is shy of committing itself to too much product without some sales indication. "We need sufficient resources to convert early season sales performance into sales later in the season." Even so McGarvey stresses, "We're not just in it for the thrill of the sale. Our objective is to produce volume merchandise profitably. Margins are the driving force."
Organic growth is a perennial goal but growth will also come from acquisition. Wiegand expects some private M and S suppliers and possibly one or two small public companies less quick on their feet than Claremont, to become available. "In product terms, the aim is to consolidate what we've got," he says. "Further out, we would like to increase our offerings to M and S in terms of the spread of merchandise. But we'll stick with clothing, probably CMT (cut, make and trim), as at present."
Though Claremont has expressed interest in life outside M and S - manufacturing corporate clothing, for example, is a growing area which would not conflict with the M and S contract (Claremont produced the grey and white uniforms worn by M and S staff across the country), Marks and Spencer will remain the brightest light in Claremont's firmament for the foreseeable future.