Maximizing Margins and Apparel Expectations


Emily Lane, Bret Schnitker


March 8, 2022


Emily Lane 00:09 

Welcome to Clothing Coulture, a fashion industry podcast at the intersection of technology and innovation. I'm Emily lane. 

Bret Schnitker 00:17 

I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward 

Emily Lane 00:21 

and discuss solutions to real industry challenges. 

Bret Schnitker 00:24 

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 00:34 

Welcome back to another episode of Clothing Coulture. Today, we're going to be talking about managing margins and product expectations in garments. In this landscape that's ever changing, we are finding that people are having to wear more hats than ever, and, you know, learning new parts of the trade. One of those areas that we see that greatly impacted are those who are in charge of procuring those programs, buyers, buyers have a really tall task at hand, because not only are they responsible for making sure that they're preserving the bottom line, which is cost, they're also having to make sure that they're taking care of the brand. Alongside of that. That means managing customer expectations and experience and all of those things, which can be really hard when you're really focused on just that bottom number. So today, we're going to be really talking about making sure that you know how to ask those right questions to make sure that you are getting the result that you're looking for in the process of going through the development of a program, there are some kind of common mistakes that can be made during this process. So we're going to kind of take a look at those and explore ways to make sure that in the end, you're getting that five star rating that you're looking for from your customer. Are you ready for this conversation? Bret? Ready? Well, let's just kind of start at the beginning of the process, the development of a program or a garment, what are some opportunities that can be embraced to make sure that in the end they are getting really the product that they want? 

Bret Schnitker 02:09 

Yeah, I think you've mentioned in in the opening about, you know, this kind of changing marketplace for buyers today. And I think that one of the things that we're seeing is that buyers that might be very capable in one category have been shifted to another there's not a big education system to support, you know, the technical, the very technical aspects of a garment that really exist. And so understanding that there are so many ways to change a garment, from a fiber from a dye stuff from a type of stitching or knitting, you know, all these various components of garment, the result and cost can vary widely. And so, you know, we're looking at a garment efficiently, by, in our opinion, reverse engineering, a garment sitting down and saying, Look, I know what I need to pay, let's have a dialogue about who my customer is in this space, what their expectation of value and quality looks like. And let's and again, there's no secrets and margins. You know, in our industry, there's pretty set margins, generally. And so looking at cost component first reverses what's been occurring in our industry for a long time. You know, when I was a buyer years ago, you know, my division would look at me and say, you know, Hey, bring everyone in a room and let's have up, you know, let's negotiate the cheapest price possible, because there was at that time, this expectation that the cheapest cost kind of wins. That's a pretty loaded thing, because comes with compromises. Yeah, you know, all factories are then geared up for what can I take out of a garment to hit a cost, especially if the programs are large, like in our case, you know, they wanted to fill their production line. So some manufacturers overseas, this is an industry that exists in their country, they have a lot of support functions, to understand all these technical aspects of how to change minute details that can affect quality, but will certainly affect cost to hit a price point. So I like the fact that we kind of reverse that, that we sit down with our clients and we dialogue about look, where do you need to be costed to maximize your margin. And then let's talk about all the things we can put into the garment to to achieve both this kind of cost margin objective, but also provide the satisfaction from a customer level. 

Emily Lane 04:39 

Yeah, I always like your analogy of you don't hire an architect to build your home without having a conversation first about price. 

Bret Schnitker 04:46 

Yes, certainly architect and builder, you don't just sit there and say, Hey, go build a home. I'm not going to tell you if I want pine or mahogany. And a lot of that analysis in our industry is that, you know, we have had these experiences where you know you've got this fresh buyer and he think he or she thinks this fabric is comparable to this fabric. And indeed, the qualities are dramatically different from a cost level. But from an appearance standpoint, you know, much like I do the analysis in a house, you know, pine floors are going to be dramatically different than mahogany floors, they're both wood, but they're dramatically different result. And I think, you know, having this open, digestible conversation with your manufacturing partner and saying, Tell me the differences in quality. On the surface, these two fabrics look similar to me, and tell me what the end result is. And then you can further have this distillation about what that impact is on your customer for that fabric choice. 

Emily Lane 05:43 

Yeah, that makes sense. You know, obviously, I can see, you know, starting at that foundation of transparency and price, but then there's all these other factors, you know, making this fabric selection versus another, is this going to pill? or shrink? Or, you know, is this is this going to cause a return down the road, because we all know that if something falls apart or shrinks, or you know, again, it's it to your, your thought of customer satisfaction being very, very key, we want to make sure that we're minimizing returns, because that in the end really affects bottom line? 

Bret Schnitker 06:18 

Yes, especially lately, I can tell you, I've been in the industry a long time. Lately, I'm seeing a lot of these things happening where buyers are pressured to control costs and costs today, I'm curious whether inflation is really transitory, and in our, in our current economy, you know, inflation is running about 7%. But garments are up 17%, you know, garments have been insulated, somehow, for years about this inflationary deal. And I think buyers today are really grappling with these challenges about oh my god, I am waking up and every single component of the garment has become more expensive. 

Emily Lane 06:57 

So we've talked cost, we've talked, you know, kind of looking into fabrications, are there any other things that they should be on this development phase, really looking at to make sure that they're getting the result that they want? 

Bret Schnitker 07:09 

Well, you know, again, there's shortcuts from a factory standpoint to to minimize cost. And so, you know, we talk about fabric qualities, there's also sewing thread qualities, there's dyeing qualities, you can shift, you know, a dye stuff from that's going to have a result, that's going to be longer lasting, and less lasting. And that can impact cost. One of the things too, that we're finding is specs, overall specifications of a garment and sewing allowances. So, you know, looking at a various spec, you know, we've got different people that have come in, and they really haven't gone through the heavy lifting, or don't have the skill set to look at specification, and understand that a smaller spec, something, a garment that's smaller versus a garment, it's bigger, has less or more consumption of fabric, if the fabric cost x, and you're actually utilizing less fabric, the overall garment cost is less. And certain tolerances can impact that. So a factory will lean all the way to a negative tolerance, because everything has to have a tolerance to spec fabrics are organic. And if they lead to a lesser tolerance, and they, they manufacture everything a little bit smaller, you can actually incrementally eke out, you know, lesser cost to the fabrics. So understanding those components and saying, Look, my customer, you know, I've got a specific spec in mind, we've got a dialogue, that customer using technology to establish a spec, and then dialogue about which tolerances can have these kind of negative or positive movements, right are some should maybe only have a positive, like, my circumference on a chest, I don't have a negative but I only have positive, it can be a little bigger, but I don't want a little bit smaller, you know, really thinking through those various steps and dialoguing with a good manufacturing partner can really help solidify, you know, these these components of cost. 

Emily Lane 09:14 

It's interesting when you're talking about fabric consumption, you know, I as a consumer, you know, look at the rack in the garment cost the same whether it's an extra small or an extra large. Yeah, but looking at the fact that the reality is one of those costs less than the other. Yeah. So does that often impact the quantities per size that buyers will lean in on? 

Bret Schnitker 09:35 

That's a great question. I think today we've got more analytics than ever to determine in a more mature business, what the typical buying size habits are for a particular brand, you know, each one kind of comes with a certain demographics. And over time, technology can provide and, you know, certain technologies certainly been out for some time for, for retail organizations to understand that, you know, 

30% of your businesses is in larges and 20% are mediums. And, and really understanding and keeping abreast to where those sizes kind of follow a typical manufacturing organization dialoguing with them about where those are that really keys in and zeroes in on specifically what the average consumption of a production run will be. If you don't provide that to a manufacturer, they're going to err on the high side, they're going to say, well, my typical US production instead of 30%, in large, let's say, for a particular organization, they might say, hey, the US industry, for a large, I'm just using numbers is 38%. So I'm going to provide a buffer for me for more consumption. Because if they haven't provided me the quantity by size, I'm going to vary on a higher side, therefore, your margins can be impacted with less transparency in terms of your buying of the entire program, because you're right, technically, an extra extra small or an extra small, is going to be required less consumption from the fabric point of view, therefore, the fabric components going to be less expensive than a three extra large on the other side. But how that relationship by size occurs, company by company, is something that a good buyer will sit down and dialogue about, because then there's this comfort zone that both the manufacturer and the buyer are on the same page about the average consumption of a program. 

Emily Lane 11:39 

You've always talked about, you know, making sure that you are aware of your analytics, aware of your numbers, and they play such a key role in, in making decisions 

Bret Schnitker 11:49 

And having an ongoing conversation. I mean, I think, I think we're finding that, you know, there's this whole conversation about transparency of supply chain, and some people just look at it from a surface level, like, I want to know that this factory is good on social compliance, and, you know, they're good to their people and, you know, locations, etc. But transparency of supply chain goes a lot further today, I think, a transparent conversation between the buyer and a manufacturer really going further than just the surface levels of, of, hey, what's my fabric price per yard, and hey, yours is more expensive than that one. You know, it only tells such as minor part of the story. And we find that some buyers jump to conclusions very rapidly looking only at one very small component of manufacturing, like, let's say a fabric cost that might be out without really having more of a bigger conversation, because the result is how do I get this particular cost on a garment? Where do I manufacture it? What type of fabric do I do? There's so many aspects to the final garment cost that really, really spending time to develop the net. You know, cost, the true cost is important. 

Emily Lane 12:59 

So what are some of those other components you're talking about? Obviously, fabric, we've talked about that? 

Bret Schnitker 13:04 

Yeah, fabric consumption, quality of dyeing, certainly quality of sewing thread, the type of stitch that you're doing in a sewing thread, some stitches go much faster than others. 

Emily Lane 13:15 

Does that mean they don't last as long? 

Bret Schnitker 13:17 

I think it depends, I think when you look at a particular client demographic, there might be a more active client versus the less active client. And therefore, a type of stitch or a type or quality of sewing thread might be different between customers. So that therein lies this conversation, an active customer, we want a poly core thread or a texturized kind of thread, something that's more durable. And we might do, you know, six over four flatlock stitch to seam things close, that's certainly more expensive than a basic safety stitch at you know, 10 to 12 stitches per inch or whatever. And so, you know, again, each one of these components add cost, and understanding the relationship between each one of these components and the end customer is important. You know, finishes for handfeel or, you know, authenticity or fun looks or whatever. You know, there are a wide variety of finishes and fabrications. You know, in performance. We talk a lot about wicking, you know, this moisture transport system make people feel comfortable. What what we're finding is that many buyers don't look and don't dialogue about how long is this wicking going to last? I mean, we know internally, that there's this kind I always say vermouth on a martini wicking, you know, a couple washes and it's gone all the way to permanent wicking components that are part of the nature of the yarn that continue to work. And so what's the requirement of that, each each of those have cost components within that country of manufacture. We've talked about in a previous episode about efficiency of manufacturing, all those things lay in the costing, and so when you When you have this style, I got like, I kind of need this cost. How do we build all those components to do it? Duties and tariffs have impact on that freight today? Oh my god, you know, more than ever, you know, freight has been a outrageous component of cost. You know, freight is now 10 times more expensive pre-COVID. 

Emily Lane 15:20 

Well, I think that this deserves a conversation for sure. Because you know, a lot of buyers are placing programs that are they're gonna land in their warehouse, six months, a year later. Yeah. And look at what's happened just in the last year with logistics timeline. So really understanding the timeline for delivery, making sure to plan for that. But let's talk a little bit about some of the decisions that can be made even just on the logistics and delivery side of things. Because that can certainly affect cost. And I'm talking beyond ship or air, you know, let's look at DDP versus FOB. Can you first of all, for those of us who are maybe newer to the industry, break down the difference between DDP and FOB. And then let's talk about some of that impact of one decision versus the other. 

Bret Schnitker 16:07 

Yeah, definition of FOB is free on board point. It's the point at which the manufacturer turns the ownership over to the buyer of a particular program. And those FOB points can be various places in the world. It's a Incoterm that says, Look, this is where we're doing it most. We're releasing the goods, you're on them, and you're paying us 

Emily Lane 16:28 

And you then you're taking care of getting it wherever it needs to go. 

Bret Schnitker 16:31 

Yeah, depending on where you negotiate your FOB point, most of FOB points are this foreign country of manufacture, it could be at factory, it could be a port, one of the big suggestions that I would have is that if you're buying FOB, negotiate FOB at ports of departure, some people don't really go into that detail. And so a factory will quote FOB factory. And then you've got to figure out the trucking logistics to get it from the factory to the port and then from the port to your warehouse through customs. So FOB negotiation is a really important thing for sure. DDP is delivery duty paid, and so that's another Incoterm. What that indicates is that the cost of this particular garment or program includes the cost of the garment and all its components, the cost of all the transportation, the cost of all duties, all port costs, all inland if you're doing DDP, warehouse, like your customer, your warehouse particular you can do DDP port, if you have a really good domestic trucking that you think you're affordable on, then you can pick up trucking from a port, but the manufacturer must get it all cleared and done. And so, you know, the safest method today, if you're a buyer that wants to ensure accurate margin, is that you negotiate effectively with a manufacturer and say, Look, I want DDP warehouse, because it really says, Hey, that manufacturer has to cover all the costs. And once it gets to your warehouse, then and only then the title transfers to the buyer. You've managed all those details. And all those cost components are then loaded into that. And I think, you know, especially where freight rates have fluctuated wildly today, people that have negotiated effectively on a DDP warehouse cost have fared far better than those who have estimated a freight cost at FOB and woke up one day to realize that these costs are dramatically different. 

Emily Lane 18:40 

Right, Yeah! You got to make sure that also when you're looking at bids that you're comparing the apples to apples, right? Is this an DDP? Or an FOB quote? And am I looking at it the same way because boy that can really make a difference. 

Bret Schnitker 18:53 

And for us, that's an interesting tightrope conversation, because skill sets in our industry today vary wildly. You know, our business, the apparel industry, Americans abdicated that, as we talked about another episodes years ago, so there's not a huge education system to understand. There are all these different components. And I can tell you almost on a daily basis, we'll encounter a buyer conversation, that they'll ask us for a DDP price as I would think today would be a very effective conversation. And they will think we're expensive, perhaps, you know, many times we hit, we hit it out of the park, but there will, there are always times that there's a negotiation. And they'll sit down and say, Well, that sounds expensive compared to manufacturer B. And then they'll say, Well, we'll kind of have a dialogue and well, what's manufacturer B doing because we think it's really an affordable price. Based upon our experience. I like oh, manufacturer B's giving me an FOB and I've loaded in what I consider like Oh, well that's interesting. How about we give you an FOB price, and they're like, how are you cheaper on FOB than manufacturer B yet your DDP is more expensive? Well, you're not calculating all of these true costs that exist, you know, even when I was in retail, I would find buyers that would, you know, intentionally or unintentionally improve margin conversation with upper management by estimating a freight cost that might be inordinately low. And ultimately, transportation department would pay that bill. And that margin would change after the fact, the reality is in every organization, you can't bury a cost, you can certainly hide it in a different department, but the corporation will pay it, right. So really looking at each component of cost for really what it is today, not what you think it is, understanding what it really is. And then calculating those costs. everyone's on the same playing field. FOB to DDP is an important consideration. 

Emily Lane 20:56 

We've talked a lot about the points that affect price, are there any thoughts that you have that you want to share with regards to preserving quality? 

Bret Schnitker 21:06 

I think, again, this conversation about transparency of dialogue is really important, because quality to me, in our industry, at least, is is more subjective than objective. Because we have such a variety of demographics by company in our industry, you know, you've got discounters, you got moderate level business, and you've got upper end and you've got haute couture, you know, each one of those consumers have different expectations about quality, you know, you've got high end performance companies, sure, if you're out climbing a mountain, you better have certain good quality in terms of, you know, being able to withstand the elements. So there's such this diverse thought about quality. So first of all, understanding, you know, what the quality level expectation is, what that customer's quality level 

Emily Lane 21:58 

What the experience is going to be for your customer in that garment 

Bret Schnitker 22:01 

Starting there, and then allowing a good manufacturing partner to sit down and dialogue about a variety of fabrics, and why one quality is particularly different or better than another, and then distilling together, whether the end customer is going to find that particular quality or value in a decision on a fabric is really a much healthier way to go about this conversation today than kind of looking at fabrics and not asking those questions. 

Emily Lane 22:33 

I like that idea of really getting into the mindset of the consumer. 

Bret Schnitker 22:36 

Yeah. And then level setting that through all your categories, 

Emily Lane 22:40 

Makes a lot of sense. Do you have any other final thoughts for this conversation today? 

Bret Schnitker 22:45 

Yeah, I think we're in a very complex landscape. You know, every component of our business is on the rise, labor cost is up. Raw materials cost is up. Turnaround time, I mean, logistics costs, we are in a in a very challenging time that we have not seen before. And so, you know, looking at this new paradigm, looking at this way to dialogue, about expectations, understanding what a consumer is looking for, and partnering with experts in the field, I think is really important today. 

Emily Lane 23:22 

You know, you we've talked a lot about transparency from client to provider, but I also think a part of this is transparency to the consumer to helping to set expectations that on, you know, price might be going up, you know, it is things of that nature, you're bringing your consumer along for the ride, helping them understand the challenges and the dynamics that we're in will also help set that expectation. 

Bret Schnitker 23:47 

I think consumers are more intelligent than ever, I think that they want to be more involved than ever. And so there's a lot of these dialogues that are bubbling to the surface that never did before, you know, how are the workers being treated? How are we using sustainable materials? Are we you know, using dye stuffs that don't create rashes. There's just a lot of conversations that are happening today with consumers that never happened before. And so I agree, I think sitting down and saying, Hey, look, this is what we're doing. And this is what we're providing, and why is this fabric better? I think these are all value added things that are occurring. 

Emily Lane 24:21 

You often say we live in a consumer driven economy. Yeah. So that this this really is an extension of that conversation. Absolutely. Bringing them along for the ride. Yeah, so Well, thank you for sharing all of those thoughts today. Make sure to subscribe to stay apprised of upcoming episodes of Clothing Coulture. Thank you for joining us today. Thank you 

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Maximizing Margins and Apparel Expectations