Apparel demand now shifts in days while supply chains move in months, and that widening gap has cost the industry measurable cash profit even as gross margin percentages hold flat, La Naia Group founder Maithili Shenoy told attendees at the Sourcing Journal Fall Summit in New York this week.

Shenoy used a worked example to make the point. A $100 specialty garment sourced with short lead times nets $90 after a $10 markdown and produces $45 in gross profit at a 50% gross margin rate — unit cost $45. Move production farther away to cut unit cost to $40, lengthen the lead time and force a $20 markdown: net sales drop to $80, gross margin rate still hits 50%, but real cash per garment falls to $40. "An 11 percent drop in real cash earned," Shenoy said.

Why the structural gap exists

The split did not happen by accident. In the 1990s, Shenoy said, lead times ran 45 to 60 days and demand followed set seasons anchored by traditional media. The end of the Multi-Fiber Arrangement and broader trade liberalisation sent brands chasing lower Free on Board (FOB) costs — first out of China, then into Vietnam and Bangladesh, and now increasingly into parts of Africa. "Unit costs went down," Shenoy said, "but each move lengthened the chain, deepened inventory and pushed discounts higher."

The result is a planning system wired for a factory calendar that no longer fits the consumer one. "We've actually wired our calendars right now for the longest lead time because it's easier for teams," Shenoy said, "but the world has changed around us."

Margins by percentage hide margins by dollars

Finance teams still grade sourcing on initial markup, landed margin and gross margin percentage targets. Shenoy, who is co-writing a white paper with Nicole DeHoratius of Columbia Business School, called that metric the industry's original sin. "Percentages do not pay the bill, dollars do," she told the audience. "Yet, our financial planning processes are just wired on percentages."

When dollar margin falls, brands reach for promotions. Shenoy said that reflex trains customers to wait: "What you've really done now is you have actually trained your consumers to wait for that sale."

Two US apparel groups have shown an exit path, Shenoy said:

• Ralph Lauren (2015–2024): Cut promotion depth, reduced department-store exposure and focused on core product. The brand reached a 68.6% gross margin rate in 2024 and lifted total gross profit 11% from 2015 despite a lower revenue base.
• Abercrombie & Fitch (2022 onwards): Hit a record-low 2.5% operating margin, refocused on adult customers, closed stores, cleared aged inventory and rebuilt planning. The chain returned to double-digit growth without leaning on permanent discounts.

What does a four-pillar fix look like?

Shenoy laid out four operational pillars for converting inventory to cash without subsidising price.

1. Set strategy before buying speed. Faster lead times cost more per unit; brands must offset that by lifting full-price sell-through, setting channel-specific rules and pruning SKUs.
2. Segment the supply chain by demand pattern. Basics and high-volume basics can use long, cheap offshore cycles; trend-led or seasonal lines need nearshore or flexible suppliers.
3. Reorganise teams around total cost. Merchant, sourcing and logistics incentives should track net profit, not isolated KPIs.
4. Run integrated business planning on real-time demand signals. Planning, sourcing, finance, marketing and digital analytics must share calendars fed by social and search data.

How do near-shore capacity and freight risks get resolved?

Shenoy dismissed three objections brands raise when told to shorten chains.

• Unit-cost objection: Higher per-unit costs at near-shore mills are offset by fewer markdowns, lower carrying cost and fewer lost sales. "Markdowns and lost sales are two sides of the same coin," she said.
• Capacity objection: Offshore clusters took decades to build on buyer commitment; near-shore suppliers will scale the same way once they receive volume guarantees.
• Logistics objection: Routing modes must follow product need — air or expedited ocean for trend lines, ocean for basics — rather than reflex-default schedule buffers.

Digital 3D prototyping, deferred raw-material commitments, flexible capacity booking and AI planning platforms now make segmented calendars operationally possible, Shenoy argued. The residual constraint, in her framing, is organisational habit. "Speed, without a strategy, is just expensive chaos," she said.

The sourcing decision the keynote forces: apparel brands that continue to score sourcing on landed-cost percentage rather than full-price sell-through and gross profit dollars will keep trading margin rate for cash, regardless of tariff regime. The ones that segment the chain, retune incentives and tie planning calendars to live demand signals are the ones positioned to convert inventory to cash at Ralph Lauren's 68.6% rate rather than an Abercrombie-style 2.5% operating margin trough.