Contract Embroidery Defined

Originally published in Stitches Magazine March/April 2009.  Written by Steven Freeman, reprinted with permission from Stitches Magazine

When the only product you sell is the stitches you sew, you had better sew them well!

Contract embroidery is a term often thrown around loosely in the world of commercial embroidery. But what does it mean, exactly? Jimmy Lamb, a 20+ year industry veteran defines it this way: “Contract embroidery means providing embroidery services only. Contractors do not normally sell garments, only stitching.” To be able to make money in this manner, Lamb says, most contract embroidery shops have a large number of heads so they can turn large orders quickly and efficiently.

The traditional contract embroidery company does not typically compete with embroidery companies who also sell products (apparel or hard goods) or other types of services like signage, silk screening or direct-to-garment printing. It’s a service provider who fills the needs of a customer who is without embroidery equipment and needs large numbers of products embellished. As in any business, there are hybrid shops that may dabble in other areas, but the main focus of contract embroidery is high-volume, low-margin work completed as quickly and efficiently as possible. These professionals can make (or lose) a great deal of money in short periods of time based primarily on the capacity of their equipment and how well they manage their shops.

The Successful Shop A contract embroidery business might look a little different than many other embroidery shops you walk in to. What might catch you by surprise is there probably won’t be a showroom with a display of products for sale. Rather, the whole front end might consist of nothing more than a few small offices and a main room with a big table and embroideries hung on all of the available wall space. Remember, the contract embroiderer is selling stitches and service only. The real “meat and potatoes” of the business is usually in back and accessible only by invitation. Some shops have fancier front ends than others, but they all serve the same purposes. It is a place for the owner or manager to meet with clients to discuss the needs and details for production orders.

The front room should have access to any databases which contain client order history. It is important to have this information handy at all times. When running a contract embroidery shop, the single most important commodity to manage is time. Effective systems that can reduce the amount of time needed to process a client’s order are what will separate successful contract embroidery companies from unsuccessful ones. By its very nature, contract embroidery is low-margin work. Because of this, it is critical for the business owner to manage the details of the business. According to Lamb, the contract embroidery professional must be able to provide “great quality, quick turnaround, and super-low pricing.” In order to do this, a professional must have superior systems in place.

Contract embroidery shops are built for speed. A quick look into the back room of a successful contract embroidery company will show a space carefully designed to allow the efficient movement of product through the work cycle. Wherever possible, wasted motion should be removed from the system. Machine operators should not be responsible for material handling any more than a shipping and receiving clerk should handle digitizing.

A wise embroidery shop owner will carefully analyze his work flow and set up his shop floor accordingly. It is impossible to configure a “one size fits all” shop floor for all embroidery operations because work profiles vary greatly. There are some excellent and affordable solutions, like Extend Simulation Software (www.extendsim.com), which allow you to model your production floor to exact scale and include all of the steps necessary to process orders. The simulation will then give you an animated “model” of your production flow. This user-friendly software will allow you to analyze where bottlenecks form and provide you the ability to make educated decisions about where to lay out your equipment and how to best distribute your personnel.

Contract embroidery shops require large amounts of equipment in order to process high volumes of orders. Lamb recommends at least 60 heads; there are shops that have hundreds of multi-head machines; some working as much as three shifts a day, seven days a week. What might surprise you, though, is that the principles in running a 60-head shop are not significantly different from a 600-head shop. The main difference is scale: a contract embroidery business is extremely scalable, headed by someone who is prepared to treat the company as a professional, light-industrial manufacturing operation.

Who Buys Embroidery? The million dollar question is: Where does all of the work come from to keep high numbers of multihead embroidery machines running? The million dollar answer is … from the hard work and marketing efforts of the business owner. Certainly there are high-visibility potential clients. Anyone who sells advertising specialty products needs a good embroidery professional to service his embellishment needs. But this is a competitive market. The successful contract embroidery professional needs to be creative about locating business in unusual places. For instance, walk in to any mattress store and examine the “throws” that are used to identify and sell mattress brands: most of them are embroidered with very high stitch count, high-dollar designs.

If you look closely, embroidery is all around you. You can find it in automobiles, airplanes, caskets and bedding. As a contract embroidery professional, you need to be able to break out of your comfort zone and be prepared to sell. Many people will tell you that much of this type of production has gone overseas. To some extent that is true, but there is still a significant amount of work domestically. The trouble is, unless you are very lucky, it will not walk in to your facility. You must be prepared to go out and find it. That means you must refine your sales and marketing skills.

Mistakes to Avoid Probably the biggest mistake you can avoid is getting into a price war with your competition. This is a battle you cannot win. It doesn’t matter who you are – the economies of high-volume contract embroidery are such that you will not be able to participate in a protracted price war. Simply put, the margins are just not there.

So what can you do to prevent this cycle? You need to define your operation and sell your business on quality, service and reliability. Lamb advises you to focus on quality. “There are so many companies focused on doing embroidery cheaply that they cut corners and end up with inferior product,” Lamb says. “These professionals get too wrapped up in price and end up selling at deep discounts. You need to focus on quality and turnaround, first, then worry about price.”

You should also consider offering value-added service – additional services where you can generate extra revenue. An obvious one is the individual folding and bagging of products, but there are hundreds of possibilities. Two popular options: offer your clients new corrugated boxes to replace the old beat-up boxes the products came in; sell private labels and offer the ability to remove generic tags and sew in the custom labels from your customers. These types of services can significantly pad your bottom line, and when handled properly, can be the “make or break” difference in a successful shop.

Contract embroidery can be a very challenging business. In some cities there are many shops – even hundreds – all competing for the same work. Anything you can do to differentiate your operation from the business down the block will give you a competitive advantage, and in the competitive world of contract embroidery, that’s really what it’s all about. It is your responsibility as the business owner to define your business.

I would love to hear from you with any questions or suggestions for blog content.  Please contact me at steve.freeman@qdigitizing.com

Steve Freeman
Managing Partner
Qdigitizing.com
877-733-4390