Richard Tobin is the VP Marketing and Sales for the Mexican company Kaltex. Continuing the series of talks with senior denim professionals from around the world, Sandeep Agarwal took a Mexican perspective talking to him.
Sandeep
Hi Richard. How do you see the Mexican Textile Industry getting affected by the current situation?
Richard
Hi Sandeep. I think we all have to take a moment and look at our supply chains and how we do things and really come to a fundamentally understanding that it has to change. It’s a model that’s been in place for eons essentially and, I mean to conceive, to create, to produce, to put in the warehouse ,to hopefully sell. Its a model that’s broke and it was predicated on long supply chains that are difficult to manage and very hard to have real and substantial risk mitigation relative to the length and speculative nature of it. We need to compress the supply chain, we need to move to demand-based production that is more amenable to the realities of what’s being demanded, so it’s going to take technology.
Sandeep
So how do you define Demand-Based Production and how is this going to affect us in the current context?
Richard
In the current context, it’s going to be a struggle only because you have to have a position of all your input variables prior to production and you’ve got to have a projections based on what you think your consumption or demand is going to be and I think clearly at this moment that’s the most difficult thing to do. I think there are three steps to this situation we’re in and the process will go through so I would call it a triage (a three-phase process) which is
-First, a kind of crisis management, what are we doing the here and now to best maintain the semblance of a stable business.
-Then a transitional period where you have time to reflect and have more concrete thoughts and initiatives to make actionable for going forward and -Then in a transformative period where who , what and where on the other side of this will certainly not be what we were. So I think those are basically the three phases . But clearly I think at Kaltex we’ve gone through the crisis stage and are a bit more beginning to be in a transitional perspective in terms of our thoughts and focus.
Sandeep
How does it affect the entire cycle of fashion in terms of denim fashion? From the time you start your product development and you present to customers and orders are placed and the goods are shaped. How the entire cycle will be changed?
Richard
Yes, It will be changed. We have to address that and again it’s gonna have to come through technology, I think in the near term having a shorter supply chain , a nearshoring platform where you can respond quicker. If you are narrow and deep on the substrate per se, it’s the most logical way to proceed in terms of speeding up the cycle and delivering smaller capsule in season collections relative to driving the trends that are currently in demand, not ones that we’re projecting a year out because that’s just not really in tune with how the millenials behave . So I think that’s most easiest and obvious position to address to mitigate the long supply chains we consistently have become dependent on.
Sandeep
So actually we are looking at some kind of fast fashion, there are so many negatives about fast fashion but when we are talking about cycles especially when we are talking about shorter cycles that means more fast fashion.
Richard
Not really, I think fast fashion if you look at where they’re sourcing from it’s more predicated . I mean it’s absolutely predicated on speed . I’m not saying that it isn’t but it’s really more predicated on price and it’s really more a disposable apparel item and I think this is what we need to get away from and I think that value is going to be front and center. I think that price is important but it can’t be the driver or the drumbeat , that we march to consistently . We’ve got to come up with other ways to address what I believe will be a decrease of conspicuous consumption and a more benevolent behavior towards how we manage our resources. So if you nearshore and you have a quality item and you can turn it into a proper value proposition. Then real and substantive change can be accomplished.
Sandeep
So nearshoring is definitely going to be speeded up as an option for the US market.
Richard
Yes, I mean Mexico has a long history with America, it’s the third-largest trading partner with the US . It has a daily value of exchange relative to 1.25 billion dollars daily. The apparel and textile sector which is included in the GDP of the industrial sector which is 32 percent overall but the apparel textile portion of that is roughly 5 percent and Mexico’s the number one exporter to the US from Latin America. It’s the 15th largest economy based on GDP in the world and it’s the number one source for men’s five-pocket jeans in the US. So clearly, there is a means to an end here and I think that regional relevance in regards to Mexico would play an important role in the future.
Sandeep
How do you see the behavior of the buyers, big retailers where the cancellations whatever happened in Mexico probably there is not so much that whatever have happened in other countries.
Richard
We’ve had some adjustments not necessarily to the magnitude of the size that other sourcing regions globally have so in that regards . We , at Kaltex ,not only got very lucky but we also were able to become essential suppliers, in essential businesses and we are enjoying, robust activity for PPE gown both finished and fabrics supply as well as masks. Because we are the largest vertically integrated entity in the hemisphere and easily one of the top ten on overall volume if you consider all of our SBU’s. It’s really allowed us to participate and support the demand for these products.
Sandeep
So you are already supplying PPE gowns and other materials to the Mexican government.
Richard
We’re actually, considering that 80% of exports from Mexico go to the US . It’s really mainly back to the US . I’m not really involved in the national market per se but do know they do have activity there.We’re not fully staffed and are following CDC guidelines in terms of fewer people within the building, thermal imaging and screening and washing hands and wearing masks and such so we’re taking those precautions because our employees are a vital part of our operation. We’ve got to take care of them and so in that regard we’ve been very fortunate with no outbreak of C19 in our operational facilities.
Sandeep
So are you using this experience of producing all this Health Products PPE equipment to develop your denim also to a certain extent to be able to make it a part of the protection apparel ?
Richard
Yes, Sandeep. I believe there is really a potential and has a pathway for indigo based products. I don’t think it’s as big but certainly, with ozone, the finishing of some of the lighter weights could be used and just as a protective barrier not necessarily a functionality. Although I’m sure these are topical – there’s certainly a technology that we’re looking into that’s an embedded technology that we’re trialing and we’re very excited about and should be commercialized shortly .
Sandeep
What are the changes you see in denim as a product in the coming times?
Richard
I think that at this moment we should look back to relatable and existing technologies. Technologies that are available and really provide a good opportunity to use these technologies to move forward and are either finalized first and second step type technologies that don’t close the loop and others that have radical potential to change how we perceive the manufacturing of denim currently and there’s two, of particular interest to me. One is an entity in England that was written about and I believe it was January called Worn Again it’s essentially a technology that’s being scaled up in the lab now to try and help the separation of commingled fibres mainly cotton and polyester and which combination thereof, is about 80% of all clothing so we can really develop that technology and adopt it in a commercial way . Where we (Kaltex) have our ECHO By Kaltex concept of post-industrial waste recovery and we’ve put in a Capsule Collection into that composition, but if we had that technology and it was readily available on an industrial scale, we could then really complete the circle into the vast collection, at the point of purchase with brands and that would close that loop . Another technology I really like is Natural Core and this is a yarn based technology that allows for the ring dye color but done in the garment-dyeing process and so here you have the ability to stay neutral until you actually have a demand and order and so off this technology you can fracture into mass customization and truly on-demand . So I think technologies of this nature that are disruptive and allow you to redefine yourself or things that we really need to look at and I think they are quicker paths to circularity in solving some of the environmental issues as well, as opposed to artificial intelligence or virtual reality which would take billions of dollars of investment to have the machinery and the ability to really reconstitute and compress the current supply chain that we were in but those are two technologies that I like in particular and find interesting.
Sandeep
They’re very interesting and do you also see that as you talked about nearshoring but you also see that certain markets like US and Europe, they may want to have semi-finished goods coming to their countries and the finishing is done in their countries so that they can finish on demand.
Richard
Yes, bring in low value and then print and or laser them to really enhance the value . I think there’s some validity in that. It just becomes making a safe bet relative to what you think the future is going to be and again I think with the digital age and where we find ourselves, it’s a near term solution but long term I think there’s just better technology and opportunity, we really need to open our minds to it and probably realize we have a blank page that we can now create whichever we want and or see it’s not necessarily what we had thought it to be, so I think that’s the real possibility for sure.
Sandeep
Coming to retailers and buyers, they are in a big shock, how will they be coming out of the shock and kind of settling down in some way and looking at the future and trying to work out the ways and starting the supply chain in some small way.
Richard
I think that the three phases are the three T’s that I explained before – triage transaction and transformative are probably what everybody’s going through and I think that the brands, in particular, have some really big issues to tackle . I mean mainly they’ve got a season in the store that’s not going to be seen and maybe not to be be utilized in the near term but certainly it will have to be repurposed and repackaged for a later date but then there’s the season that’s on order or some of it in some cases is on the water and the big question mark is once we have a soft opening of the economy what will demand look like and I don’t think anybody has the ability to predict that . I think for sure there will be an initial spike just for feel-good purchases but I think people are more concerned with shelter food and sustaining their families. So I think that’s a really a tough question for sure I know . Mckinsey has reported and they cited that 38% of the retailers globally were not earning the cost of capital prior to this so that numbers got to be 70- 80 percent now so there are some really towering challenges. But I also think that human nature is at its best , when you’re pushed into a corner you either rise to the challenge or not . So it’s almost a Darwinian cleansing that’s been forced upon us and what it looks like when we walk out the door again I don’t know . I’ve read in recent weeks that certain people have stepped up and have honored the integrity of their words to certain degrees . So I mean that’s encouraging and we have to see what these economies that are reopening ahead of us what happens there because it’s kind of a blueprint relative to what we might see several weeks later -but it’s the challenge of a lifetime and a career for many of us.
Sandeep
You’ll be opening in small ways so probably we will have more ideas from there you mean coming to three weeks, you’ll have an idea how things are going.
Richard
Yes for sure and our network is global so unfortunately, I think what we’re doing here is the modus operandi for some time for sure I look forward to seeing everybody again hopefully in the near future but for now I think that video conferencing is a reality and we need to find a way to work with it and use it to our advantage.
Sandeep
In terms of consumer behavior, are you seeing any changes? Do you see any particular big changes in their behavior in the near future?
Richard
Yes, I think that at least I can speak from the US perspective . A lot of our growth was driven on the expansion of square footage and new store openings, so from that perspective this was a really people orientated crowded market space so to speak . And I think that will for sure further switch focus online and it will grow and I think the number of stores or outlets that are required to service the business will find its natural level and we certainly don’t need the extensive number of stores that we once had but how many I don’t know, but for sure or whatever brick and mortar becomes it better be an experiential destination where there’s a lot of interactivity with the customer base but also it needs to be socially designed to keep spacing in mind until we have a vaccine and an answer to this.
Sandeep
Coming to Mexico again, what do you see in the next year for the future for Mexico especially for the textile industry and denim industry?
Richard
I think it’s going be challenging, I think if your singular in what you produce and you’re primarily in denim only, that’s going to be tough because I think that the broader general market will hit a crater and then build back up off of that, but until we hit that crater and really understand what our bottom is, it’s going to be hard to figure out where to cast your eyes relative to what returns . So I think anybody that’s diversified in the textile segment has an opportunity to redefine themselves and as I mentioned our participation in PPE and masks before . It was a market that was an ancillary market in our Piece Dye business unit, but it wasn’t our driver per se and today it’s our driver, so it’s made us sit up and take notice of maybe opportunities that were around us that we had not looked at traditionally . So I think you need to be diversified just like a customer base you never want to let one client own the majority of your capacity and it’s better to have a diversified stream . At Kaltex , we have that ability that we go from home to denim , we go from spinning to weaving to dying to finished garments. So really we have the capability to offer where do you like to play, how would you like to play and, so on and so forth so I think that that versatility that option is a massive advantage.
Sandeep
The home textile segment seems to be kind of booming because people are spending more time at home, do you think so?
Richard
Ironically it’s a bright spot but I think people are home I can tell you, we’ve painted a room . I’ve ripped up my patio . I’m getting around to a lot of things , a list that has been denied attention for a while but yes I think it’s not only doing, but it is allowing you to feel some control over your environment which I think we’re all experiencing a lack thereof in a broader sense .So I think people are focused on it and it allows them to escape this unfortunate situation and yes it has seen an uptick.
Sandeep
So probably denim might try to get into home textile segment in some way .
Richard
Absolutely, exploring other concepts we have here Kaltex, like Ozone finishing. I think that finishing, in particular, could be interesting for different segments and spaces, on top of the bed for sure would be one because of the crocking issue that it takes up and how clean the denim is, how pure the shade is . It does a nice job – I would agree I think that’s probably something that could be adventurous.
Sandeep
Any of the interesting products you are working on technologies specifically anything related to denim?
Richard
I wish I could mention the name. It’s just we’re in late stages of trial development of something that will be marketed broadly in many different segments . It’s an embedded technology – it has inherent functionality and we’re really excited about. What I would say is follow us on Newsroom by Kaltex on Instagram and look for the updates because it should be coming shortly but it will have relative traction for the moment, we are in.
Sandeep
What positives do you see from the situation?
Richard
I think that after every rain shower the Sun will show and today the Sun will set but it will surely rise tomorrow and that this pause is one that we usually don’t ever have an opportunity for . So it’s really a chance of a lifetime to sit with yourself – to ask yourself who and what you are and what your intentionality will be and once you reassess and take that long look again if we’re in the corner. I think it’s human nature to come out fighting and I think this is a fight – so I choose to stand and fight and I believe that there’s a brighter future ahead. I believe this is a great opportunity for starting new brands and breathing life into older brands and certainly opportunity for younger workers to step up and take leadership roles .And maintain an open mind and continue to evolve ourselves and learn . I would say that innovation and technology will lead the way as it has in other business sectors and I think for the context you got to be accountable and we want our legacy to be one of benevolence . Also , I think that the things that we’ve (Kaltex) done thus far, the things that the KALACH family have invested in speak to this and I’m looking forward to each and every day. I think I’m working harder now than when I was actually going to the office and it’s been an interesting experience. But I’m jazzed I’m going be positive, I’m going come out on top.
Sandeep
That’s a very positive statement and I think many of these people have been saying that they have been saying that we have been busier than before, which is a good statement. People are adjusting to the new reality, to the new normal and they are coming out as fighters as you are doing.
Richard
Oh it looks, maybe it’s because I am a Jersey guy – it’s just my nature but we always had a saying in the locker room in high school when I played lacrosse. “That cream always rises to the top “so it’s time to get churning and it’s time to get that cream to rise and everybody can be the part of it so I’m positive.
Sandeep
So anything else you would like to say to the friends who are here to the denim community ?
Richard
I miss all of you and I can’t wait to see you and I can’t wait to actually be able to actually shake somebody’s hand again.
Sandeep
Thank you for your inputs and I think everybody enjoyed it a lot so wish you all the best and take care and bye.
Richard:
Thank you, Sandeep
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