Emily Lane, Bret Schnitker
March 2, 2023
Emily Lane 00:04
What are some things that brands companies can do to protect their profitability?
Bret Schnitker 00:11
Planning, good planning, understanding, you know, what your what your plans are for the year? Are they realistic? Do you have enough inventory to fulfill those plans? What is that mix of that assortment? How do we adjust for that? How do we communicate and also diversify your client base?
Emily Lane 00:31
Welcome to Clothing Coulture, a fashion industry podcast at the intersection of technology and innovation. I'm Emily Lane.
Bret Schnitker 00:39
I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward and discuss solutions to real industry challenges.
Emily Lane 00:48
Clothing Coulture is produced by Stars Design Group, a global design and production house with more than 30 years of experience.
Emily Lane 00:57
Welcome back to another episode of Clothing Coulture. Today we have another exciting conversation. Inflation. I know we had a conversation about this.
Bret Schnitker 01:06
It's that exciting?
Emily Lane 01:08
Well, it's definitely one that people are talking about it is. We had a conversation about inflation about a year ago. And it just seems that it it continues to be on the rise. So we thought let's let's talk about it in today's within today's parameters, Feds raised raised interest to stem inflation. And there are increasing concerns of a recession despite economic indicators. But what is really going on?
Bret Schnitker 01:39
Boy, I don't know if anyone really knows what's, you know, last we spoke, I think inflation in that podcast, we were somewhere hovering around six and a half percent. It spiked to 9%. In June, Feds started making some moves, it's gone back down to about six 6% or so. You know, they talked about disinflation, there's these poll talks about is there a recession? You know, there is definitely some indications of GDP slowdown, but consumer spending is up 1.8%. If you adjust for some inflation's it's a little over 1%. And that's the biggest increase in a couple years, really, since March 2021. There's probably some reasons for that, you know, there was a there's it shows that wages are up almost 1% of the big impact is that also Social Security, you know, those that received Social Security, they had a cost of living raise of over 8.7%. So there's probably some some stimulation in purchasing that's affecting that in general. You know, I would say that the continued rate hikes are to try to get inflation, disinflation get inflation under control. And there are still some talking recession. But boy, with all the charts and all the numbers out there, it's hard to tell, I think that, you know, we're in this strange period of trying to reduce inflation, not fall into recession. Key leading indicators, I don't think are really clear today. So it's a very interesting time, not that the last few years haven't been interesting, either. We're in a, we're in a period of time that, that, that for business owners, especially apparel, people that are importing globally, there's just a lot going on, there's a lot going on in our country.
Emily Lane 03:31
You know, we've seen fear really strike when things are confusing, or people are uncertain about the future. Certainly, when we went through COVID, we saw mass cancel cancellations across our industry. And of course, the impact of that is something that we will continue to feel in this industry for years to come. What are some things proactively that people can do rather than the overreact to some of these recession concerns?
Bret Schnitker 04:03
Yeah, well, obviously stay abreast of market conditions and what's happening in general, we're still seeing a large demand despite these conversations about recession. So it probably doesn't make a whole lot of sense to, you know, cut inventories in a big way. You know, we're seeing that. Today, inventory levels are relatively high. And I think that's because retailers wanted to get out in front of, you know, seasonal issues that they've had in the past because freight has been long delayed. port has had heavy delays. And while that's starting to return to normal, we're starting to see somewhat of a recovery and in freight lead times and ports are clearing things a little bit better and costs are down on freight. You know, we're seeing other ramifications where they're putting so much into warehouses already. We haven't built one warehouse is in a really long time to the level. So we're seeing some increase in warehouse costs and a reduction in square footage availability. So that's going to impact a little bit in terms of an inflationary cost. You know, we are, the reality is we're probably paying more for goods than we've ever paid before. Even though freights down, Labor's up, raw materials are up, you know, transportation domestically is still relatively high. So you know, as someone that that manages this business, one of the some of the good indicators are one of the some of the good things that you want to look at is, if you've established a really good core business, it makes sense to say, look, how do I manage that core business and make sure I'm always in inventory on those, if there is a recession, it just means you have more of a weeks of supply, that you're not having heavy markdowns, you're not having the seasonality concerns where you've got to liquidate merchandise. And for a lot of retailers, those core basics represent 40% to 60% of your overall sales anyway,
Emily Lane 06:08
Right, even those businesses that are in a that are known as a high fashion business we've seen still lean in on those core basics.
Bret Schnitker 06:17
Yeah, absolutely. So and then the other thing too, is flow, those core basics, create a pipeline where, you know, you're bringing them in, you're estimating, you're staying abreast of the market, you're staying abreast of lead times and that you've got this consistent flow of product coming in, and that allow you to react to, you know, downturns in the market, if you've got things in the pipeline, you've got peace goods, you could always stop production to a certain point. And you're, you know, you can slow that down accordingly. That's one really good example for sure.
Emily Lane 06:48
I would think that investing in quality would also be a value during this time, you know, people are being more thoughtful about what they're going to spend their money on knowing that they're going to have a product that is, is is made made better, more luxurious fabrics, that gives them a reason to invest it, I would think that that could could be a good decision.
Bret Schnitker 07:11
It could be not everyone's investing in quality across the board. We know these massive, we still have these big companies that are really shipping a lot large volumes of disposable clothing, which doesn't help our environment at all. And certainly that nod to quality I think, I think Americans are taking a harder look at this whole disposable clothing world and and how much is ending up in landfills. And certainly, if things slow down, investing in better quality things that are more timeless make good sense. And that makes good sense. Investing that and putting that into your inventory.
Emily Lane 07:48
So Bret, you've mentioned warehousing, we've talked a little bit about logistics, we know that logistics freight warehouses have all been really challenged over the last several years. Is there anything else we should be aware of?
Bret Schnitker 08:00
Well, I would say in addition to this whole issue that we talked about, with warehouses getting fuller and warehouse rates going up, I think we've we've seen, like 11% year over year, increases in warehouse rates. And that's just again, this supply and demand cycle, you know, when we try to solve some of the issues that are occurring in other parts of our supply chain, other parts can be affected and warehouses certainly are that case. What's interesting is that because a lot of warehouses are full, there is some conversation out there, the people are keeping the containers and keeping and storing things in containers because there's no warehouse space, that certainly could trickle have a trickle effect based upon container needs. Going back and shipping over the port. And we talked a little bit about those in previous years. If you have containers in the wrong place, or containers not being replenished, and we're not making a ton of new containers, then container costs itself could go up. And again, you've got this whole issue with slowdowns and freight. I don't I don't think we've seen the last of all issues with with freight, worldwide.
Emily Lane 09:15
Maintaining profitability, you know, if we've got increased in shipping rates and fulfillment and just overall cost of goods, what are some things that brands companies can do to protect their profitability?
Bret Schnitker 09:31
Planning, good planning, understanding, you know, what your what your plans are for the year? Are they realistic? Do you have enough inventory to fulfill those plans? What is that mix of that assortment? How do we adjust for that? How do we communicate and also diversify your client base? I think, you know, in a in a potential world of recession, it would. It would perhaps indicate that current customers demand with current customers could reduce. If you're out there actively in a growth mode, bringing on new customers, diversifying your customer portfolio, the growth of new customer acquisitions and new customer business could help offset the reductions that you have with existing customers.
Emily Lane 10:20
I would think too, if you are in a growth mode that can present a challenge and a company that might need to bring on larger teams to support the demands of that growth. So what would you recommend for a company in that position?
Bret Schnitker 10:34
Yeah, it's not something I recommend, it's something that we're seeing a wholesale move to. People are outsourcing in a big way. Instead of adding personnel and overhead that are fixed costs internally, they're utilizing smart outsourcing, making sure that they're utilizing experts in different areas, they can bring them on, it allows that ebb and flow of business, you can utilize them or you know, or not, during certain periods as need. And I think, I think we're gonna we're not we haven't seen the end or reduction of outsourcing, I think it's actually going in the opposite direction.
Emily Lane 11:13
We have some previous episodes that really helped provide some advice on how to vet out the right teams to bring in to support your needs in this area. So we'll make sure to include in show notes, reference to those episodes, if that can be of help. Brett, that is all great information. It's a lot to keep track of. Do you have any final thoughts?
Bret Schnitker 11:37
I would say that as long as I've been in the business, there's always something. So you know, as much as, as perhaps people that haven't been in the business for quite some time, are a little bit nervous. This industry finds a way all industries sort of find a way there's an ebb and a flow. We continue to get through those. We're always going to have challenges, embrace, challenge, embrace change. There's always solutions, create a community that can help you work through those issues. And together we survive, right?
Emily Lane 12:16
Don't panic, I think is kind of a key takeaway here, right?
Bret Schnitker 12:20
Emily Lane 12:21
Don't panic. And of course, don't forget to subscribe to stay apprised of upcoming episodes of Clothing Coulture.
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