Lativ CEO Richard Chang:
'What Not to Do' Matters Most
Without relying on the China market, venture capital funds or preferential policies, Richard Chang is breaking the contract manufacturing mold, and building a colorful dream of taste and human spirit.
'What Not to Do' Matters MostBy Hsiao-Wen Wang
From CommonWealth Magazine (vol. 543 )
Asia's top discount fashion brand, Uniqlo, could never have anticipated that a young upstart originally hailing from Indonesia would work so exhaustively to pattern his business, based in the thoroughly unexceptional small Taoyuan town of Bade, on theirs.
Seven years ago, Richard Chang and his wife invested NT$10 million to set up Taiwan's first original brand apparel manufacturer merchandised exclusively on-line. Last year they achieved turnover of nearly NT$6 billion.
When it comes to pricing, the similarities with Uniqlo end, as Lativ's products go for half of what Uniqlo charges. And despite having just two percent of Uniqlo's sales volume, Lativ manages to squeeze out three percent higher net profits than the Asian retail giant.
"I spend NT$12 out of every 100 on operations and marketing, while Uniqlo spends 40 to 45," emphasizes Chang. Calculating everything precisely, he boasts, "If I just take my time to do things, I can make NT$600 million profit out of NT$6 billion in sales, and share NT$200 million with my 200 employees. Not bad, eh? And I'm in no hurry."
For Richard Chang, "small is beautiful" is his guiding aesthetic.
"Deciding what not to do is more important than deciding what to do," the 39 year-old Chang says with a chuckle.
Entering the Lativ office through heavy mahogany doors into a broad white space, Danish furniture designer Hans J. Wegner's famous lounge chair, described as "incomplete without someone sitting in it," stands alone. The spare, clean white of the office is reminiscent of a museum space.
Amazon – Great Minds Think Alike
In contrast to the previous generation of Taiwanese high tech entrepreneurs, Richard Chang's rise symbolizes the changeover from the old economy to the new. Riding the e-commerce wave without substantial capital or a gigantic manufacturing facility, he has been able to turn his self-funded enterprise into Taiwan's leading on-line apparel brand.
A graduate of Chien Hsin University of Science and Technology, and lacking the connections a famous school could offer, Chang followed his curiosity on the Internet to sniff out business opportunities. Once identified, he looked for suppliers and someone to model his business after, and he worked on honing his worldview.
"Only after stumbling upon a video on YouTube about Amazon.com's warehousing procedures did I discover how similar our method is to theirs." Chang was pleasantly surprised to find that his own humble approach was comparable to that of the Internet giant. He had even prepared the floor of his logistics center in practically the same way as Amazon – by polishing it and allowing hardening agents to penetrate its pores.
Unlike the new generation of Taiwanese Internet entrepreneurs, Chang is not jealous of how the expansive market helped nurture Alibaba or QQ, nor does he envy pioneers of Internet innovation like Amazon or eBay. Instead, he quietly used his sensitivity to colors and built up expertise in running websites to forge a path forward.
Even while the e-commerce market is blazing with growth, Chang has not gone public, has not set up operations in China, does not welcome venture capital funding, and only rarely grants media interviews.
"When you do these sorts of things you lose so many joys," he states, having clearly given the subject a lot of thought.
"I'm not looking for this company to infinitely expand turnover, but rather to think of ways to make things good for our 200 staff members, and to give our upstream plants a constant flow of orders," he states.
Chang's motivations are that simple, and that focused. Simplicity and focus breed strength.
Focus Yields Quality
In Lativ's logistics facility, 20-somethings jog around checking, sorting, and packing merchandise. Even during the relative slow season, they put a lot of energy into their work.
The shelves in the sorting area stretch out in a neat line. The aisle is broad and the baskets are ample enough to fit 40 orders at once. The sorters' line never changes, but merchandise on the shelves changes position, maximizing efficiency by minimizing workers' movements.
Teams of two work in the packaging area, where one scans the items and tosses them to the other, who places them in baskets according to category. Lativ sorts each item of clothing in an average of 1.4 seconds, three times faster than items are categorized and packed at books.com.tw. The worker efficiency (average daily sales volume per worker) at the Lativ logistics center is three times higher than the average for e-commerce businesses.
This exceptional efficiency comes from precise positioning.
From the company's inception, Richard Chang targeted the broad bottom of the pyramid as his customer base, establishing Lativ's simple, popular, discount positioning.
Prior to founding the company, Chang did some on-line searching to look into the financial reports of Hang Ten, Giordano, and Uniqlo, learning that Hang Ten can generate NT$4.5 billion per annum in Taiwan and that Giordano yields NT$3.5 billion. When he looked up the figures for Uniqlo, the proverbial light bulb went on in his mind.
"Uniqlo has already demonstrated that it can generate more than NT$200 billion in one year, so why should we go around copying some company like Zara that churns out more than 20,000 styles in a year, only making trouble for the whole operation? It just runs you into the ground," he observes.
Each summer Lativ introduces 1000 T-shirt designs. But in fact 500 of these are the same design with different licensed graphics on them, so strictly speaking, the actual number is 501. Compared to most "fast fashion" brands, which are known to bring out 5000 styles in one season, Lativ's inventory is far easier to manage.
Styles come and go rapidly, yet Richard Chang insists that basic models account for 80 percent of what Lativ produces.
In the past company staff have questioned Chang's approach, wondering if consumers might not have a change of heart and lose interest. Consumers shop around all the time, so why would they only buy their polo shirts at Lativ?
Statistics can tell a story, and the display panel in the sorting area showing Google Analytics indicates the number of visitors, country of origin of orders, proportion of repeat visitors, and which keywords were used to find the Lativ site, all on a second-by-second basis. At the time of CommonWealth Magazine's visit, 10 o'clock in the morning, which is not a peak time for on-line purchasing, the site had over 1400 active visitors, 76 percent of whom were repeat customers.
"People keep buying the same sort of things," Chang says with certitude.
And it is also Chang's focus that leads him to pursue quality and pay close attention to detail.
Chang watches over every aspect, from how the shirt fronts are unbuttoned to the smoothness of collar stitching and even the fonts used on the tags. "Lativ has very high standards of quality," deems Yang Shih-han, president of Pacific Feather. Although Pacific Feather also handles business from the likes of Nautica and Columbia, Lativ is more responsive to consumers' feedback, and is most particular about workmanship.
For instance, when consumers asked for better water resistance, Lativ turned around and demanded that Pacific Feather and the upstream material supplier look into reinforcing the material with Teflon in the final forming stage, then provide the material to Lativ for testing within three weeks.
"Every quarter they ask for better material, and every quarter I make alterations. If the collar is on the high side this quarter, the next quarter I lower it a bit. They even use two or three different people for fittings, not like most in the industry do by using one model," Yang reveals.
Seeing through the China Dream
Focused on operating with no retail spaces, Richard Chang aims to clear a net profit ratio of 10 percent, but he has seen through the "China dream."
As for the China market, which both captivates and terrifies Taiwanese, Chang flatly refuses the temptation.
Since independent capitalization and operation is impossible to achieve in China, he has not set up a website across the strait. However, as of June of last year, customers in China can place orders on the Lativ website, while paying for the handling and freight costs themselves. Even though this "long distance" operation is handled with not a penny spent on advertising, the site netted NT$10 million in sales from China in its first month.
"There is really no difference if I set up a point in Guangdong and courier to Shanghai from there or if I courier directly from Taiwan to Shanghai. And what is more, as a Taiwanese brand I get additional clout," Chang observes frankly.
To be precise, Lativ is actually Richard Chang's fourth business.
Each time an entrepreneurial journey takes him to a destination, he finds a new self, where personal betterment and growth await him.
Born in Singkawang, Indonesia, Chang came to Taiwan with his mother when she married a retired army sergeant major. His stepfather's strict discipline and unwillingness to spoil him helped shape his self-reliant personality. In fact, he began walking to and from school unaccompanied as a kindergartener.
During his junior year at vocational college, observing how the computer industry was taking shape, the gears in Chang's head turned quickly and he set up a workshop to build and repair computers for his fellow classmates.
Huang Chiung-wei, a lecturer in the Chien Hsin University of Science and Technology's Department of Electrical Engineering, was Richard Chang's graduation project advisor. He recalls that whilst Chang's grades were nothing special, he was industrious and very responsible. "He could always take charge, was a good learner, and had a gift for leading and organizing," Huang recalls. In fact, the teacher was so fond of him that he gave Chang a two-year gift subscription to CommonWealth Magazine as a graduation gift.
CommonWealth Magazine helped open the door to reading for Chang while he performed his obligatory national military service. He also encountered Japanese entrepreneur Kazuo Inamori's book A Passion for Success, which lit a fire in him to start his own business and ignited a passion to give his all that has burned brightly in his life ever since.
With the idea in his head of producing multimedia discs for senior classes about to graduate, he founded a business during his first year in the military. Notebook computer in hand, Chang went around sporting a military-style buzz cut giving presentations at schools to drum up business.
He later partnered with others to found MEGO Multimedia, helping customers set up business websites and guidance systems. He counted ASUS, Taipei 101 and Seiko as clients.
Succeed Early, Slip Up Early
"Back then all we had to do was go out, open up our notebook computer, make our pitch, and the case was ours. And we could name our price," he relates in a confident tone. Then, quieting down, he adds, "But then we were going right along and, suddenly we hit the year 2000 and it came to a halt. The bubble burst."
He has come to see those setbacks as really being blessings in disguise.
The customer appeal of the colors Lativ uses for its shirts can be attributed to those six years of experience working on projects, and the customer selectiveness that helped hone Richard Chang's keen sensitivity to color.
When Chang later read Jimmy Lai's autobiography, it hit him like a ton of bricks.
"I couldn't sleep. How come it took me so long to get it? He gets right to the point in the first chapter, stressing that you have to stay simple and focused. Then he says you have to offer products the public needs, not specialty items."
That was when he determined to use Uniqlo as his model, and to boldly go forward, give, and demand of others.
Knowing nothing about the garment industry, he took Uniqlo samples to manufacturers and asked them to accommodate his needs. Moreover, he gradually made inroads into Uniqlo's supply chain. The Lativ supply chain now overlaps with Uniqlo's by 90 percent, including such vendors as Shenzhou International and Toray of Japan. And Richard Chang has his sights set still higher.
In heat tech clothing, a bolt of Uniqlo cloth is 170 GSM (grams per square meter of material), whilst Lativ ups the ante to 210 GSM. For just NT$20 more in material cost, Lativ gives consumers a more assuringly warm thickness to accommodate Taiwan's cold, damp climate.
A war is won one battle at a time.
Across the industry it is often repeated that Lativ made its mark with a NT$168 polo shirt in 2009. Behind that story lies Richard Chang's willingness to boldly go forward, give, and demand of others.
"Mr. Chang, we don't have any orders for the next two months. Do you have anything to help us fill in the gap?" asked a finished apparel manufacturer's salesperson.
"Well, what can you make?" he replied.
"Polo shirts," was the response.
"OK, what kind of volume do you want?" he continued.
"Over two months we need 40,000 pieces to fill capacity."
As the salesman replied, Richard Chang was calculating. At that time, Lativ would have been overjoyed to sell 10,000 pieces a month.
"How about this? We'll buy from you at your lowest price. Sell to me at your cost, and we'll keep your mill busy," Chang proposed firmly, asking for polo shirts in 30 different colors.
The manufacturer charged NT$166 per piece, which Lativ sold for $168, selling out all 40,000 pieces within a month. Using pricing as a management strategy, Lativ burst onto the scene and established a name for itself.
Although seemingly fearless, Richard Chang strives for what Kazuo Inamori calls "a selfless approach to profit."
One-third of Profits to Employees
The average entry-level packer and sorter in Lativ's logistics center gets an annual bonus of from 8 to 16 months' salary, taking their average higher than NT$50,000. Supervisors and above end up making over NT$1 million.
In 2011 the entire Lativ crew of 60 employees went on a company holiday together to the Maldives, staying in the W Hotel and chartering five seaplanes.
"If I make six dollars in profits each year, then this is how I look at it: Two dollars goes to the employees, two dollars we set aside as retained earnings, and two dollars we invest in our future. We need to expand," Chang reveals.
In 2012, a media storm erupted when it was discovered that Lativ – which has long prided itself on its "Made in Taiwan" image – had actually moved some of its production overseas. In the wake of this controversy, the Taiwanese textiles industry has new expectations for Lativ.
"Don't overcompensate, and don't slash prices too far, so that all the upstream and downstream suppliers that grew with you can upgrade together," says Walter Huang, chairman of the Taiwan Garment Industry Association, expressing his hopes for Lativ to act as a beacon for Taiwan's 60-year-old textiles industry.
With his keen entrepreneur's instinct and the resilience to fall down and get back up again, Richard Chang navigates through the e-commerce jungle with a laser-like focus on a single website with one type of merchandise. Not relying on China, venture capital, or preferential policies, he has cut a swath for himself and his employees.
The wings of the Internet can lift you into a new realm to forge a new self.
Richard Chang's path has opened infinite possibilities for the new generation of entrepreneurs.
Translated from the Chinese by David Toman
Annual turnover: Nearly NT$6 billion
No. of employees: ~200