Emily Lane, Bret Schnitker
February 21, 2022
Emily Lane
Welcome to Clothing Coulture, a fashion industry podcast at the intersection of technology and innovation. I'm Emily lane.
Bret Schnitker
I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward
Emily Lane
and discuss solutions to real industry challenges.
Bret Schnitker
Clothing Coulture is brought to you by Stars Design Group, a global design and production house with more than 30 years of experience.
Emily Lane
Welcome to another episode of Clothing Coulture. Bret, it seems like we start off so many of our conversations with we live in an unprecedented time. And yet, here we are, once again, we are starting that way. Because today, you know, taking a look at things like rising tariffs, supply chain breakdown and increasing costs inflammatory pressure, which is really stressing this already complicated landscape, you know, looking at inflation and garment prices, we often talk about the fact that garments really have not risen in price alongside other products with your average rate of inflation.
Bret Schnitker
Yeah, certainly they've been transitory rises and falls, cotton went through the roof and 07-08 and apparel producers and brands and retailers alike went through a very challenging period, we're in a complex business, you know, it's not a small business worldwide, it's about 1.9 billion or trillion, my apologies. And the US is about 338 billion of that still one of the larger consumers, of course, the US being a consumer nation, as you mentioned, you know, we talked about the past episodes how this has been such a challenging space, because unlike other categories that over the years with our kind of typical two 3%, inflation kind of pops, all these other categories have kind of floated up a little bit on inflation. And, you know, the challenge in our industry is that people kind of have this kind of feeling that prices haven't really changed for quite some years,
Emily Lane
and consumers haven't really been prepared for
Bret Schnitker
Absolutely not. And, you know, so this year, you know, we started, we started, well, really last year, we started in October, November, a little conversation about, hey, we got some transitory inflation, it's going to look like 5% is an overall economy. Now, it's kind of moved to is it really transitory and five has kind of moved to 7% inflation overall, we're starting to see, you know, the challenges over all because of all sorts of reasons. And when you break all that down, like major industry components, what is the shocking number out of all those that you look through all the different industries and commodities that people purchase? Is that apparel, some estimates are that apparel is up 17%. So it's like, Hey, there's this massive catch up, you know, over the years. And I think that, you know, when you look at this astounding number that inflation represents about 7% and apparels. Up 17% is overall, you kind of look and think, why is that so uniquely higher than what's happening in inflation? And I think there's just a number of reasons for that, that you've mentioned a few.
Emily Lane
Okay, although I want to dive into that a little bit. Let's just maybe start with a simpler question, which is, you know, how can brands maybe proactively manage this inflation and still be profitable?
Bret Schnitker
Yeah, I think while there's a lot of headwinds, in terms of cost increases that are happening here. There's also some things that are happening from a consumer side that help Buffett maybe or or buoy, some of those pressures that are occurring with increased costs. You know, I think consumers are certainly with the advent of Amazon, you know, they're choosing convenience, in some cases, over just raw net cost, you know, it's easier to have things delivered. You know, when we look on Amazon, and you kind of compare prices, sometimes you'll be like, Wow, I'm actually paying more on Amazon that I would if I would walk into a local store, but you know, what it delivers to my door. And so therefore, okay, I'm paying a little bit of a surcharge. We certainly are seeing that in food during COVID. You know, we can go to our neighborhood restaurant and but we're going to have it delivered and we're paying surcharges. So there's these kind of things filtering in our system where for convenience sake, we are willing to pay a little bit more apparel follow suit, you know, apparel years ago, pre COVID, you know, was maybe in the low 20 percents in terms of online versus brick and mortar 2025. It's gonna be almost half, maybe 40% to half. And as you move online, there's costs that happen online. And we as consumers know, there's those costs and so you can use some of that to increase some of the retail prices to kind of move Some of the the inflationary issues that brands and retailers are experiencing there. And so you know, that's helpful. The other thing too is that I think it's a good catalyst where you know, this whole disposable clothing mentality that exists that has existed for years. It's moving us along the path where we think maybe more of clothing as an investment, so we can put more quality into clothing. It's not something that we buy today and throw away tomorrow. And therefore those conversations with brands, clients, or retailers, clients can be had about, hey, let's invest in things that we're not filling landfills with, we're not ruining our environment, and therefore, you know, stepping into more of a quality conversation, I think, on the overall surface level, those are some of the things that that brands can weigh in and start having conversations about that. That mean increase cost to consumers, but customer consumers are prepared to digest some of those Mm hmm. You
Emily Lane
know, one of the things we often talk about are focusing on those elevated basics and understanding that a consumers shifting their mindset and maybe investing or into something that they feel will be in their closet for a long time. Yeah, can justify a greater expense. Let's talk a little bit about, you know, we product assortment and those kinds of decisions that can go they can help prepare a brand or Yeah, I
Bret Schnitker
think, you know, when I first started by years and years ago, first thing that I was told, and I think we've talked about in other episodes, but you never buy the right amount. Buyers will either overbought or under buy. And so choosing which categories to overbuy in which categories to undermine the current environment, I think is a very important question or a dialogue, if you will, you know, if we're looking at basics and fashion basics, you know, those are things that you know, will repeatedly wear, you know, like, I have black T shirts all the time, everyone's seen those on previous podcasts used to be fashion. Now, it's probably a little bit of laziness, because I can throw on a t shirt, I think we all have certain staples in our wardrobe that are a lot like that. And so as brands focusing on their particular niche on basics, those are areas where it does make sense in today's environment over by a little bit because of our supply chain issues. You can't react as efficiently as you could pre all these issues. And so if you're going to want to be in business, if you're going to want to maximize the opportunities and minimize the risk. Increasing your buy in basics or fashion basics is a really good decision today. They're transeasonal. They're not kind of FAD related. So they're not in one day and not the next. And then making some intentional decisions about under buying slightly these fashion items on an individual style basis, maybe having a few more, but under buying the actual quantity creates one demand to it minimizes the inventory. That you know, if you have excess inventory, and anything that you're forced to mark down because of seasonality, or trend that in and out or whatever, you know that excess inventory drags down profitability. So if you're eliminating excess inventory that drags down profitability, you're then able to buoy some of the inflationary costs, because you're selling out of those items, you're creating this kind of demand in the marketplace, for a consumer of a particular brand to step in, there are a number of better brands that this is happening on a daily basis, our culture is sold out all the time, people are waiting in line to get particular items. That is heated up demand. So when something comes out new and some of these brands, people are on it, because they can't get it. And I think, you know, that helps a number of items. But it certainly helps in this current inflationary time
Emily Lane
you spoke of kind of under buying some of those fashion pieces, which makes a lot of sense, because from a consumer standpoint, again, you're creating a little bit of demand, you know, if a company is freeing up some of their dollars to buy smaller skews or less skews and less quantities in that and then they're selling those through, guess what? I've got fresh new product on a regular basis. Yeah. Which gives the consumer a reason to come back.
Bret Schnitker
It does. It really doesn't. It's funny because I think this whole intentionality between buying last quantity of items has happened as a result of this whole COVID thing. I think initially, companies panicked to begin with thinking demand would drop so they canceled or didn't buy the depth and volume and number of skews that they thought because they thought consumers would buy demand didn't end demand stayed so consumers are starting to be retrained today, and it was unintentional. It's just like stores are selling out all over we look and see stocked out shelves. So consumers are starting to be educated to the reality or the new reality. that if I don't buy the item now, I might not get it. And we're seeing that, in terms of the reduction of overall discounting that's occurring on a mass scale, you know, overall discounting, I think, you know, year over year, it's dropped, you know, up to 10%, where, you know, a certain percentage of the overall economy would discount product. And this year, it's way down, because demand is there, and inventories. Not that not in the sufficient quantity to manage demand. So that means that you can sell it at higher prices, you know, there's this whole thing that people don't kind of think about when it comes to our retail, our cost, if cost is up, you know, we look at the direct kind of result of the retail price that's out there. But people don't go further down the road on is, what percentage of my goods, am I not selling at retail, but I'm selling at a discounted price up to 50% off. For years, we train the customer, the retails the retail, maybe it's kind of an indicative of value. But if I wait a certain period of time, it's going to go 20% Off 40% or 50% off. And the actual selling price compared to the cost was where that margin indicator would occur for a brand or a retailer. Today, if less is being marked down, and more is being sold at that normal realized retail price, the retail price is more of an indicator of the actual price the consumer will pay. Therefore, as costs increase over here, if the retail is also staying up higher, you're preserving some of your margin and you can buffet some of that inflationary pressure.
Emily Lane
Yeah, you know, I definitely have seen that shift. It's been pretty common knowledge that some retailers, you know, basically plan for that discounted price. It's, it's almost like we've launched it's already on sale.
Bret Schnitker
Over the years, that's been a bother, certainly for us.
Emily Lane
But now with demand exceeds supply. Yeah, that does give us a chance to kind of
Bret Schnitker
we're retraining the consumer. So if we can continue along that education, and then further the conversation, and I look, we're not filling landfills, you know, we're investing in apparel as a longer term investment as opposed to this disposable thing. I think it's gonna help on a lot of fronts.
Emily Lane
I think that communication piece to the consumer is really important. You know, it's, you're right, it's training them, it's setting that expectation, it's helping them understand that, you know, the the dynamics of the industry. And I think there's some from a marketing standpoint, there's some real positive messages that can be shared with the consumer about this shift. You know, like you said, it's, we're hopefully reducing wastes, yeah. And, you know, being more intentional about the quality of products that we're creating and creating pieces that are going to become staples and stay in your closet a long time. So I think that there's ways to educate and include the consumer in what's happening and make it a positive part of the story.
Bret Schnitker
I agreed. And I think that, you know, having that conversation, diving into that whole kind of paradigm is a very healthy one, however, making sure that you have a very good planning and numbers department that is managing this new world of lead time and production because you still have revenues and margins you've got to deal with. So under buying wholesale doesn't make sense. You're just going to reduce your overall revenue. But making sure that the balance in your assignment plan is there, making sure that certain areas that you're managing those numbers effectively, and the assortment so that you're still meeting revenue goals, but you're not having this pressure to mark down are having major over buys,
Emily Lane
taking a look at that production side of it. Are there other decisions that can be made that can really help preserve some of the profitability?
Bret Schnitker
I would say, you know, again, there's all these factors, we're talking about the increase inflation and certainly some of that transitory you know, one of the transitory increases that are exacerbating our costs are, you know, we've talked about it at nauseum and the industry talks about it, but is the whole supply and logistics issues where freight is 10 times the cost that it used to be? I think in time that that's going to balance itself out, like most things, it's never going to become maybe what it used to be. But it's going to balance itself out and be more realistic. And I think that understanding, you know, where you're buying things from making some decisions to geographic that where you're buying things from can help you address filling in two different items where your freight times are a little bit closer in your factories might produce a little bit so you're looking at nearshoring that could be part of that thing that could help You know, reduce some of the inflationary pressure and also allow you to react a little bit to business. It's just kind of a, it's become such a complex puzzle today, you know, tariffs out of China. You know, again, I get on my soapbox a little bit. But if you ask any economist terrorists have never worked. They've always the American consumer has always shouldered the burden of tariffs, no foreign country pays for tariffs, that is increased tax on import. And certainly every brand or retailer, whatever pays that price to import that. And they pass that cost along to the consumer, that consumers bearing that.
Emily Lane
And that part of that 17% difference that you were talking about. He certainly is, especially
Bret Schnitker
because China's one of our largest trading partners, they have built their economy to supply the world. So if we're going to get into a conversation with a certain country, tariffs are probably not the answer, because the consumer pays for that. So there's a lot of pressure with the current midterm administration to reduce tariffs, dumped the politics find other ways to have constructive conversations, that the challenges we have China and dumped the tariffs because the consumers paying those. So I would say, hopefully, that's a transitory conversation, other countries are just not able to pick up the overall volume that China has built in their ability to provide our industry and others products for the world. So until we can do that, you know, I think tariffs are something that need to be addressed overall, especially in our industry,
Emily Lane
you know, looking at the rise in tariffs, logistics, and you know, kind of tagging back into the nearshoring conversation. You know, we get questions a lot about US manufacturing, what are your thoughts there
Bret Schnitker
on a pro, you're employing us people, perhaps you can turn quickly, you can buy smaller quantities, all of those things kind of help with selling what you have, and not over buying? You know, I think one of the challenges again, it's this whole supply and demand kind of thing. You know, America abdicated apparel, wholesale, you know, in a big scale. Many, many years ago, manufacturing, manufacturing, you know, apparel, manufacturing, my apologies. And so we have pockets of apparel, manufacturing, but those pockets are expensive. We haven't really today, in a large scale, employed a lot of technical support, robotics support, things to offset labor cost. So most of my conversations with people that are making goods in the US is, wow, I'm able to do small quantities, I'm able to react to demand. You know, it's made in the USA, that's wonderful. And then you have a conversation about profitability, and it's kind of crickets. It's expensive. I mean, baking in the US is expensive. So, but I believe that you know, all is not lost, we're gonna continue to see evolution in the manufacturing space with technology, that some of that onshoring, much like that's happened with automotives, etc, will occur in the apparel space. And certainly a lot of the stuff that's happening worldwide helps to catalyze some of that technology. I always say adversity breeds technology. So, you know, I think that will happen. I'm I'm not I don't think we're there yet.
Emily Lane
Are there any other thoughts that you have, that can help properly prepare some of these these leaders in the apparel industry for you know, compensating for that 17%, which is probably only going to continue to increase over the next couple of years? Kind of a thoughts and advice would you have?
Bret Schnitker
I think we've talked about most of those conversations through here. Again, there's all these different complexities that all industry levels, leaders or anyone, even startups, understanding which of those components create that inflationary challenge in our industry and understanding which ones are transitory and which ones are kind of permanent. You know, I think that we're seeing massive increases in cotton, cotton, it's doubled. In a year, cotton will go up and down based upon supply and demand, good harvest good crops. So that's generally a transitory kind of conversation, something that you might have to weather and make other decisions on different fibers. I think freight and logistics is a transitory issue. I don't think that labor cost is necessarily such a transitory issue. labor cost has been on the increase for much longer than we've had this kind of current issues, you know, with COVID and everything else in factory productivity while labor cost is on the increase the exacerbation to the labor cost exist, and that is transitory, meaning that COVID will hit a particular factory and 30% or 40% efficiency occurs in the factory or the factory shuts down. That's increasing, you know, the factory has a certain overhead if you're producing less number of days, the cost is going to go up, right. And so I think that component certainly is transitory so die giving in and really having a conversation about all these different things that are occurring tariffs, hopefully that's transitory, you know, understanding what and trading plans for what is our short term, medium term and long term goals in our particular brand? What's the customer need to know? So that we engage again, being in the consumer driven economy, people's ears bleed when we talk about but, you know, we really drive the point home that it is a change, it is a massive change. So consumers, they want to know, so communicating with consumers, addressing all these issues laying in plans that that help offset some of those challenges. And then looking at these medium and long term plans to evolve the organization, because luck. I mean, I've been in the industry a long time. And it's almost every so many years, I'm just like, holy smokes, you know, what could go next, you know, we're never bored in this industry. And I think, you know, the world always has these interesting, complicated challenges. And we've just been thrown another set of them, I think, you know, creating a plan to insulate yourself a little bit. You know, I would say that the companies with the biggest challenge are the heavy discounters because those heavy discounters their costs are up. And if you've educated your price to really inexpensive, there's only so many places you can go. And And finally, the net result is going to be a reduction in probability and quality. I mean, you know, many cases discount, you know, organizations don't set super high levels for quality, the customer is not one that wants the garment to last forever, or expects the garment to last forever. That's kind of pre it's kind of that value thing for a particular demographic. But that would be an area wouldn't want to be in today. That would be a very, very challenging organization. But I think there are a lot of ways that most companies can organize themselves for current conditions and for the future.
Emily Lane
It always comes down to numbers. I mean, we say all the time, have a plan, review. The numbers have realistic, you know, expectations on that and understand
Bret Schnitker
what's going on globally. I mean, really understand what's going on globally.
Emily Lane
Read the paper. Yeah. Look at industry resources.
Bret Schnitker
Do people read the paper anymore?
Emily Lane
And you know what, you can listen to the podcast. keeping tabs on these say,
Bret Schnitker
yeah, hopefully we can. It's a lot of complex landscape going on, right?
Emily Lane
Absolutely. I look forward to an upcoming episode when we can say we no longer live in a complicated landscape, everything's easy. Well, make sure to subscribe to stay apprised of when that episode drops
Bret Schnitker
as we all moved in the digital space.
Emily Lane
Thank you for joining us today.
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