Turkey is going through an exciting period at the moment. At a time of global economic recession, Turkey has been the fastest growing economy in Europe for two out of the last three years, and is even expected to post a respectable GDP growth rate of 4% for 2013. What impact has this economic prosperity had on your sector?
Normally the textile and garments industry has been the leading export industry over the past two to three decades. The textile and garments industry was the leader for around 10 years roughly, and as an impact of a powerful growing economy in recent years, we are number three in the exports ranking, after automotives, machines and chemicals. I can provide you with some reports on the composition of the Turkish export industry. There is quite a powerful exporters association in Turkey, where you can get a lot of reports and so on.
Over the past 10 years, Turkey has been losing power in terms of dealing with competition (because of high labour costs and valuable Turkish lira), and the garment industry in particular experienced many problems. We had an in-house strategic meeting in 2000, where we decided that we couldn’t grow with the business model we had at that time, which was producing for big brands like Tommy Hilfiger and Adidas. (They were giving us the styles and we were producing the collections for them. Although we had had a long-term planning advantage for the production, it was very a price-sensitive business, because customers could buy the same garment either within Turkey or from other countries around the world.)
We also saw that especially for the US, there was unfair competition for Turkey, which remains today. The US imports garments from more than 60 countries in the world, with no quotas or tax, whereas Turkey had to fight with quotas in the past and is still faced with import taxes. Because Turkey’s economy is growing, this means that labour is getting more expensive. If you are getting richer, this means that the labour will get more expensive. What we did, apart from the other manufacturers, was simple: instead of selling the production capacity, we decided to create a package of services, which cannot be compared with price-focused Far East competition. For example, if you offer a design service to your customers, then the first thing you have to sell is the design, and then the product is secondary. It is not the customer’s product anymore, so we have a better chance to discuss the price, terms etc.
If we had accepted the competition with the Far East just on the price basis, we would have no chance. It is very difficult for Turkey or for any other manufacturing country to compete with the Far East in a business where the main cost factor is labour. So we looked at what else we could do. We decided to ‘sell time’ which is very important for retailers.
We also have a retail company, so we know what they are looking for. Retailers are looking for flexibility in order quantities and very fast deliveries, because that gives them the advantage of reducing their inventories by having chance of very fast repeat orders and taking risks with fashion trials. If you have to give buying decisions three or four months ahead, and if you are limited to making only high order quantities (e.g. 50,000 pieces per style), it is inevitable having higher ratios of leftover garments at the end of the season and also it is very hard to make tests with more fashionable or novelty styles where you would need smaller test quantities.
Hence, we decided to change our organisation to be able to offer flexibility in terms of the minimum order quantities, and three-to-four week delivery times for big orders as well. We apologised to our old conventional customers one by one. It was not easy, but we could not do it without making this drastic change.
So we decided to invest in the design part of the business in particular. We worked on being faster and more flexible. It took us more than eight years to reach the level we did, and then the system worked successfully.
We are working with the retailers directly – this is the most important part. We do not have any wholesaler customers, and we do not work via agents. We work directly with the buyers, all of whom are vertical retail chains, like Zara, Top Shop, Marks & Spencer, and Next. These are our main customers. We are offering them (depending on the customer) a small collection of 20 to 40 pieces every month, and we are also developing collections together with them. We have a company in the UK and a company in Spain, which are design offices and they also work as sales offices. We are in Leicester in the UK and in Barcelona in Spain. We also have a design house in Istanbul and in Izmir within the main factory. We obtain feedback from our customers and respond to them very quickly. If a customer looks at a collection and asks if something can be done differently, they will see the change the day after. When you make an order, you will receive it in three weeks’ time. Everyone is in a rush, because we are selling time. That is very critical for our customers.
Was the change you made difficult for your clients or your company?
It was difficult for both. When you are doing business with the big corporations, it is not easy for them to change their way of working. Up until the global crisis in 2008, they were quite reluctant. But the crisis changed everything; they had to. Just remember we were all talking about the entire economy was collapsing – it was a scary situation and probably many retailers just waited to see and did not place huge orders. But then they saw that everything stayed put, and their perceptions changed. So they wanted to put something on the shelves, and they needed something quickly. We were there, ready for them. The crisis proved the concept.
We are selling up to 30-40% more expensive than the Far East, but when you take into the account all aspects of the business model we offer, it looks worthy. Because money-loosers for retailers include being unable to get any more of that good-selling product at the right time, or having a lot of garments in your stock when the season ended.
So it is fair to say that the crisis had a positive impact on your bottom line.
Of course. It was not easy for us to change the mentality in the factory and getting used to three-to-four weeks delivery after working many years with six-month delivery orders. But we were lucky in that sense, because after 2008, we grew threefold in just four years because of our business model. Today we are offering them a collection and an unbelievably fast production lead times and a lot of flexibility – giving them the chance to make orders for just 500 pieces or 100,000 pieces in the same factory and within the same setup. We are trying to create value for our customers. The buyers might not be sure about some styles to place the orders, so they ask for 500 pieces/style and we can fly it over to two test stores next week. Then they check the results for one week and then they may ask for bulk orders to be delivered in two or three weeks’ time.
This philosophy has been very successful. We also have a fabric factory which gives us the chance of managing the whole operation with a vertical integration, which supports this process a lot. When you control the fabric, this means you can be quicker.
The R&D side of the company is also giving us a lot of power by offering new innovations, novelties, together with the designs (not just in terms of styles, but also in methods) to our business partners.
Although a lot of Turkish manufacturers/garment exporters are not vertical, they are also able to offer fast deliveries. I really appreciate that Turkish businessmen are very quick and we are all quite experienced to fight with the fluctuating market conditions, starting with the quotas on 1980s. The industry is changing very rapidly according to the market conditions and new requirements. We do not give up; we fight for it. Other industries have the same characteristics. Ten years is a very short period of changing the country base. There was a huge transition, which depended on the speed of delivery.
Is your fabric and textiles part purely for vertical integration or do you also export or sell the textiles?
No it is not. Our fabric company (www.ekoten.com.tr) is selling around one-third of its capacity to our company, Sun Textile A.S., and the rest of the capacity is being exported to EU manufacturers and Turkish garment manufacturers/exporters.
Jimmy Key has been extremely successful since you launched it in 2007. Can you tell us a little about its genesis?
Jimmy Key was a good project. But we do not feel that we have been as successful as we would have wanted to be. There are two main reasons for this. The whole family (two brothers and wives, all engineers) was ingenious – we are all working in the same business with different responsibilities. We worked with a lot of global brands like Guess, Diesel, Tommy Hilfiger, etc. and unfortunately we underestimated the process and necessities of making a brand. It was my mistake mainly, as I was leading the whole group. We moved from a pure engineering aspect, which was completely wrong. The branding is different. It took us many years to understand it. We went through many crises over last 12 to 13 years, so we could not focus intensively on the Jimmy Key business. There could be a few hundred stores today, and it could be more valuable than the entire group. It is successful in terms of its results etc. but it is not as successful as we would have liked it to be.
We are proud of what we did, pioneering in the industry. We were always working in non-governmental organisations (NGOs) and sectorial associations. We were always very active in the NGOs and trying to explain our visions, experiments, tests and cases. I think we were also quite influential, because we always shared what we did. I am also very happy with what we did with the fabric factory, which today is in line with all ISO standards including ISO 50001. It is really an interesting factory.
On the other hand, Sun Textiles has a very interesting business model. I do not know if there is another company in Turkey that has almost €90 million of exporting capacity and exports more than a million pieces a month, and delivering it in three to four weeks. I am also proud of it. I wish I could say that Jimmy Key was as successful. It could have been much better. We are really focusing on that right now. We are not really intending on investing more on the industrial side, but we are more looking at our brands. There are novelties and a lot of innovations in our government-approved R&D centre, which made it possible to launch a lot of technical and smartwear garments under the Pure Nature brand (new generation thermal and cooling garments, microcapsule grafted shapewear, anti-cellulite tights, etc. at www.purenature.com.tr)
We do believe that the future of the company is keeping and improving our cooperation and collaboration with our customers, keep on offering them commercial collections and also trying to be innovative and supporting them with innovations, new fabrics, finishings, etc.
And it is obvious that this has been a winning strategy in the last 10 years where the labour costs have increased drastically, and the accumulated inflation rate over the past 10 years is around 140%. Every year we had 8 to 10% inflation, and labour costs increased by 10% each year. Energy prices increased by more than 300% over the past 10 years.
How have you stayed afloat? What a challenge.
Nice question. Also the Turkish Lira was not devalued, but revalued over this period. So imagine an exporter with such high inflation costs and decreasing income. Turkey did it. You would expect exporters to vanish, but Turkey increased the export volume in that period. We responded very quickly and changed very quickly. We understood the market and adapted ourselves to the market requirements. When you put this together with the figures I mentioned, the performance of the Turkey is really very impressive.
This is an indicator of the strength of your company. How is Turkey looking to the future?
I am trying to explain it in two different ways. I have always said to my European counterparts that I do not understand the European politicians. The politicians do not understand that Turkey has the potential to give a lot of power and energy to the EU. The EU as a whole has got problems with an old population, lack of entrepreneurship and new job creation, whereas Turkey has just the opposite. Half of our population is under 30 years of age and there are 16 million students in the country. 500,000 graduates come out of universities every year, and we have a very dynamic, young and risk-taking business environment. And as you already know we have the 16th biggest economy in the world and growing much faster than EU countries.
Those are good parameters for your company, as your business model is based on flexibility, cost effectiveness and good quality.
That is not just our business model – most of the industry is doing that. That is where the success is coming from. Otherwise, check the figures I told you about inflation, energy costs etc. It is nonsense. You could not make it with efficiency increases – it is not possible. We changed our business model and tried to understand what our customers need and are looking for. If you have a vision like ours, you will understand your customers and you will know how to respond to their needs. We did this as a country.
Ideally if we were to come back here and interview you in five years’ time, what achievements or accomplishments would you like to have?
[Progress] in all industries, instead of [Turkey] being just a basic goods manufacturing/exporting country; [accomplishments achieved] by developing our design skills, by investing and supporting in all R&D activities, which in turn result in the substantial increase of the added value of our export products and having a GDP per person of over $16,000.
What final message would you like to send to the readers about Sun Textiles or Turkey as a whole?
With regard to what recently happened in Turkey [in June’s anti-government protests], it showed to us and to the whole world that we have a very young generation, which believes in democracy and universal principals of human rights, and they want to defend this. This is very important for the future of my country and for the future of Europe. Thus, we can have the chance of being a Muslim democratic country in our region and give hope to the entire world that democracy and Islam can live and grow together. This has provided a lot of hope to us, as they are young, as they are our future.
I am absolutely sure that we are going to be a rich, big and powerful country, with the full aspects of universal principals of democracy as our great leader Ataturk said and targeted 80 years ago.