Cost-Cutting Is Rampant in Fashion

When Gap (GPS) was forced to slash its 2011 profit forecast by 22 percent on May 19, Chief Executive Officer Glenn Murphy blamed soaring cotton and labor costs. Retailers from Target (TGT) to Family Dollar Stores (FDO) have cited similar margin-squeezing pressures. All of this came as a shock to apparel company executives, many of whom have experienced only stable or falling costs for the past 20 years.

Retailers realize that they don't have much pricing power with budget-conscious consumers these days. That's why apparel makers are turning to "deconstruction" experts like Peter Brown, who shows clients how to tear garments apart and put them back together with cheaper and fewer materials. Companies are loath to talk about their cost-cutting for fear of damaging relationships with consumers. "They're working through this minefield," says Brown, who is the vice-chairman of retail consulting firm Kurt Salmon and says he works with most of the big clothing makers and sellers.