[Courtesy of Hansae Co.]

Hansae Co, a South Korean apparel original equipment manufacturer (OEM), is going all-out to improve its earnings despite the sluggish industry environment, by shifting to smart factories and expanding investments in Central America.

According to industry sources on Thursday, Hansae received the 2024 Supplier of the Year award from Gap in May for the first time.

Hansae has worked with Gap since 1991, producing apparel for brands such as Old Navy and Banana Republic.

It has become Gap‘s largest supplier, with 87 Korean and 160 expatriate employees dedicated to Gap’s business at global production facilities in Vietnam and Guatemala.

Hansae also partners with global brands such as Zara and Ralph Lauren, and received the Outstanding Partner Award from Target Corp. in 2022 and consecutively from 2007 to 2011.

Gap‘s high rating of Hansae as a top partner stems from its recent investments in factory automation and sustainability efforts.

Gap acknowledged Hansae’s smart factory system and various environmental, social and governance (ESG) activities.

“Hansae has achieved the highest gold rating on our supplier performance scale,” said Gap CEO Richard Dickson, noting Hansae‘s commitment to phase out coal use by 2025.

Hansae’s main factory has already phased out coal and is encouraging its suppliers to follow suit. The implementation of a real-time production monitoring system has significantly improved production efficiency.

Hansae is also increasing its investments in Central America.

The region‘s proximity to the U.S. makes it easier to meet delivery deadlines. Hansae plans to build a fabric complex in Central America, from dyeing and processing to fabric brokerage and garment manufacturing, to complement its Vietnamese facilities.

The company aims to increase its Central American production from 20 percent to 25 percent next year and to 30 percent by 2026.

Hansae is actively involved in developing new products for its customers. Through its New York design office, it provides services such as collection development, planning and trend presentations for Gap.

“This award is a significant milestone that recognizes Hansae as Gap’s number one strategic partner,” said Hansae Vice Chairman Kim Ik-whan.

Last year, Hansae saw a 22.5 percent on-year decline in consolidated sales to 1.71 trillion won ($1.24 billion) as a result of increased inventories due to weakened U.S. consumer sentiment.

However, with recovery in U.S. demand and Gap‘s strong first-quarter results, Hansae is beginning to see recovery.

In the first quarter of this year, sales rose slightly to 411.8 billion won and operating profit rose 6 percent to 38.1 billion won.

Hansae attributes its recovery to an increased share of high-margin woven and activewear apparel and improved production efficiency through smart factories.

The company expects further performance improvements as the fashion industry’s peak season begins in the third quarter and global consumer sentiment recovers.