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Warren Buffett's Chinese Suit Maker Just Bought Its Way Into American Closets

When a wholesale suit supplier buys into a hip menswear brand, what does it mean for the apparel industry?

Warren Buffett claims to get all his suits made in China. Not by a custom tailor in Hong Kong; he prefers to have the stitching done by the Dayang Group, a menswear empire with about 5,000 workers.

Now the Chinese apparel giant has taken a $30 million stake in Indochino, a Vancouver-based startup selling made-to-measure menswear, mostly through its website, with measuring done by customers. A free measuring tape is part of the deal. 

The cash will help the nine-year-old company expand its product line and its retail footprint. Like Bonobos, Warby Parker, and other direct-to-consumer darlings, Indochino has slowly shifted from a Web-only operation to a showroom format. It has seven shops in North America and plans to open an additional 10 by the end of the year. By 2020, Indochino hopes to have 150 shops around the world. 

For Dayang, the deal is a way to grab a larger swath of the North American market. Its Chinese factories already churn out clothes for Ralph Lauren, J. Crew, and Banana Republic—and the company happens to know a guy in Nebraska. In a 2009 video marking Dayang's 30th year in business, Warren Buffett revealed that he's a devoted customer. "I threw away the rest of my suits," the famously thrifty investor said in the video. Buffett also had four Berkshire Hathaway investors fitted for Dayang suits, including Bill Gates.

The 85-year-old Buffett is certainly no Nick Wooster or Lapo Elkann, but he knows a thing or two about value investing, which is the entire game in buying a suit. Before any smart guy clicks "buy," he tries try to maximize the spread between quality and cost.

Indochino says its supply chain lets it offer more fashion-forward clothes because it can make a profit on smaller batches.
Indochino says its supply chain lets it offer more fashion-forward clothes because it can make a profit on smaller batches.
Source: Indochino

Buffett's endorsement no doubt emboldened Dayang. Its investment is a weird and interesting little deal in itself, but it could prove prophetic for the overall apparel industry because it represents yet another link cut out of the supply chain. Startups such as Indochino built their businesses on the promise of taking out the middleman and giving the customer value. Why would you pay the markup at a big-brand storefront when you can go straight to the supplier? That's the pitch. 

"We don't have to make 1,000 of something in order to make money on it—we can do three," Indochino cofounder Kyle Vucko told me last year.

The list of companies that started marketing this kind of math in recent years is long. On the menswear side alone, there's Bonobos, J. Hilburn, Trumaker, and such shoe-mongers as Jack Erwin and Paul Evans. They are all excellent at branding, style, and customer service, and generally these companies are sourcing their products from factories all over the world.

As brick-and-mortar brands such as J. Crew have struggled, these startups appeared to have found a savvy solution. But there's one more middleman that can be cut out: themselves.

Dayang, known for outfitting Chinese officials, already has designs on the U.S. market. Last summer, it leased its first U.S. showroom, a 4,000 square-foot chunk of Midtown Manhattan on the same block as Brooks Brothers' flagship store. Dayang and Indochino aren't saying what stake in the business the $30 million will buy. Should it represent a majority or anything close to one, the arrangement would be simple enough: Indochino would become the de facto retail brand of Dayang, a neat little package of marketing, design, and customer-service that slips on as easily as a natty, China-made sports coat. Direct-to-consumer commerce is about to become much more direct.

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