Emily Lane, Bret Schnitker
October 24, 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 00:35
Welcome to this special episode of Clothing Coulture Podcast. Today, I'm at Stars Design Group joined by my co host, Bret Schnitker, CEO of Stars Design Group. Today, we wanted to address the rising concern that is developing over the implementation of the Uyghur Forced Labor Prevention Act. This is of course, causing all kinds of upheaval in our industry that's already seen so much transition over the last few years. And so we wanted to talk about how to minimize some of the risks, maybe some plans going forward and provide some additional context for this conversation. Bret, why don't you start by giving us a little background on this particular ban? And some of the viewpoints around it?
Bret Schnitker 01:21
Yeah, you know, like all things in our world, especially lately, it's a very complicated landscape. The Northwest region of Xinjiang houses, many ethnic minorities, among them have a large Uyghur population, their religion is Muslim based traditionally, they have pushed for being a separate nation to China for quite some time. And, and that particular region is very important to the Chinese in general, because, you know, the largest coal and natural gas reserves are in that region. It's kind of a gateway, you know, building on the old Silk Road to Europe, and, you know, near East and certainly, you know, that whole region. And so, you know, they're concerned about separatists activity, certainly when the world was inflamed by a very, very small percentage of the Muslim community being extremists, you know, they laid in and, and wanted to reduce extremism themselves. And, you know, the Chinese government to this date denies any and all those aspects. And there have been a number of countries that have come out having huge issues certainly with with what's going on. And there are a number of countries Pakistan, I think Saudi Arabia, among them have signed their own letter saying how China's human rights work has been positive. So there's, there's a lot of complexity to this issue. And the complexity is kind of built on all of these different elements that we're dealing with already tariffs out of China, labor shutdowns, due to COVID, massive increases in long delays and in production. So this is just another layer, that's it's impacting our industry, because also in that region, in addition to all these other things that we talked about coal and natural gas producing, it produces 87%, of China's cotton production and that's about 20% of the world's reserve. So this isn't, you know, we've had calls and questions about hey, I don't have anything being produced in the Uyghur region, am I okay, you know, my factories are certified Am I okay? And, and, you know, the challenge here is that its entire pipeline. So, if the, if the fiber is produced in the region, if it is spun and utilized elsewhere, in China or even in foreign areas, the US government will not allow that to come into the US if it can be tied back to forced Uyghur labor in the country, and then becomes the complication, because that proof and burden of proof lies on China to prove that it's not right. It doesn't lie on the burden of proof, the US has to prove that it is they have to prove that it's not.
Emily Lane 04:30
So pretty much you're presumed guilty until proven otherwise, on your goods coming in.
Bret Schnitker 04:36
In essence, the burden of proof is that you must prove it's not being produced in a forced labor area. And so, you know, that's the decision made as of June 21. And it has a lot of implications for our for our industry, certainly in general as it relates to primarily cotton production in the region.
Emily Lane 04:54
Does that kind of transparency exists for you? We're talking about you know, the fact that you 20% of the world's cotton actually comes from this region. And you that cotton can then go to other parts of the world to them become yarn and so forth. So, does that kind of transparency currently exist to be able to identify the actual foundation that fiber?
Bret Schnitker 05:19
Therein lies a lot of the complication to this ruling. One, do we have the teams necessary to police this action? On all fronts? What processes do we have in place? And do we have the amount of people to ensure that in a steady and meaningful way, we can separate the wheat from the chaff if you will, forced labor issues versus non forced labor issues, and, and those that are critical of the act itself, definitely not critical of if, if anywhere in the world there are human rights violations or forced labor conditions, I think everyone's on the same page that shouldn't exist, we live in a better world, but in terms of the defining ability to, to sort through all of these unique areas, if, as the US government has said, hey, if it's from the Uyghur region, you've got to prove beyond a reasonable doubt, you have to prove a certainty that it's not being done with forced labor, I think that's going to be a very difficult challenge. And what's going to occur is basically 2 million metric tons of cotton is going to be lying in China, people are looking already and that's hence we've got many, many calls of people looking to, you know, leave China, especially if they have cotton production, because they know the complications, they know the ramifications.
Emily Lane 06:42
By the way, no small task, you think about the fact that China currently manages about 80% of the world's garment production. Imagine now trying to transition 80% of that production into other parts of the world. This isn't a quick shift,
Bret Schnitker 06:58
no and, and also on the goods that are actually like in production and in transit coming to the US. There's this estimation that over 10 million shipments are going to have to be inspected, that's going to be problematic, it's we're already starting to see with certain customers, that shipments that are in route or preparing for shipment, they're already looking at massive delays, because again, we're already dealing with shortage of staff, with our normal clearances. Now there has to be some pretty detailed documentation there even talking about DNA certifications of cotton's etc. So I think I think we're dealing with a real, real difficult situation for our industry as it relates to cotton out of China.
Emily Lane 07:46
So we're seeing a rise in demand to move production to other parts of the world, we are seeing a reduction in raw materials that are going to be available. And potentially those who have had goods in process may never receive their goods.
Bret Schnitker 08:05
Yeah, people are saying what do I do? How do I you know, what's my next steps? And, you know, the most difficult comment of all of that today is that anything that's in work in production or in route, unless you have some astounding proof of evidence, the likelihood is that one is going to get caught up in this kind of funnel effect that there's going to be so many inspections that how are you going to sort through that, you know, and to are you going to be able to overcome the burden of proof, therefore, goods will be abandoned. Right. And then I think it reaches a little bit further. Vietnam as a as a country relies on China for the majority of its raw materials. It has some verticality, but it relies on that from materials. Bangladesh also relies on China for materials and other countries. There's many other countries that too, so that filter effect of apparel production, with raw materials coming from China, of cotton, chief value cotton, you know, content, it's going to be a pretty challenging situation globally.
Emily Lane 09:10
So what if, you know, you're one of those that have goods that are on the way you know, you've you've been six months down the road, and here they are, they're finally coming? You need to fill your inventory? Yeah. What are some suggestions?
Bret Schnitker 09:23
For that's a tough one, because we've had those calls. Reality is is that, you know, your first step is to is certainly to determine whether or not you're in that 13% of cotton that's not produced in the Uyghur region, or this ingen region that would be positive. And if you have certification that will withstand the scrutiny of the US government and Customs Border Patrol, then you've got a good chance that you're gonna get through, it's still going to have some delays because of the scrutiny if it says made in China and it's 100% cotton. You're gonna get caught up in this funnel effect. So you should plan plan for some delays, in addition to the delays that were already having the shipping and logistics challenges that we're already having, if you're at a point where you can pivot, you should, there is no in this particular situation, there's, there's, there's no easy answer for made in China 100% Cotton goods, and there's no positive outcome today. If you, if you choose to go down the path on, on having raw materials made in China with 100% Cotton, or actual products of 100%, cotton, it's going to be a very, very, very difficult period. So
Emily Lane 10:41
get your certifications in place, if you can, and you can't necessarily count on getting your goods. So maybe it's time to start looking at filling in that inventory and other ways. You know, seeking out production,
Bret Schnitker 10:57
once again, in our world, we're learning to pivot to different, you know, different areas based upon situations around the
Emily Lane 11:04
world. So part of those daily conversations we're having people are calling us with that, you know, I want to move production, I want to near shore, I want to flip the switch, I want to transition now. And of course, we all understand those challenges, as we talked about, you can't just, you know, shove 80% of the world's production into places that don't quite have that established infrastructure yet. Sure, you know, what are some maneuvers that people can make to help them, you know, carefully make some of those transitions.
Bret Schnitker 11:34
The difficult part about that also, for individuals that are kind of doing them that that themselves and don't already have an infrastructure for multi country production, because some have really focused and continue to have a lot of their production in China. If you don't have a diversified portfolio today, you need to. At Stars, we ensure that we've got diversified portfolios of countries of manufacture, to balance things like this in terms of production, and we've increased or decreased production in certain countries based upon all of these many, many things that are affecting the apparel industry today. But they're, you know, you've got due diligence, you know, a lot of people are going to are going to be forced to make decisions perhaps that they wouldn't normally make. But it's get an expert on board, review country infrastructure, understand the strengths and weaknesses of a country, make sure that you are actively involved in looking at the factories yourselves. If you don't have a good partner, that's got vetted factories and vetted production, make sure that they're certified look at, you know, the particular category of apparel that you're producing, make sure that it fits within the country that you're focusing on. And then be cognizant that as you mentioned before, this is a problem that when you've got a portion of all these goods that are in addition to people already exiting out of China, for other reasons, tariffs are looking to diversify their portfolio demand is already exceeding supply in many countries, and this is just going to further exacerbate that situation, right. So you gotta be prepared for delayed production, unless you've got resource and planning in place to reserve production lines and ensure that there's some consistency or existing relationships. And I think you you're going to look for, you're going to look for some learning curves, with new relationships, as everybody does, they don't, they don't always know your business, you haven't developed a relationship, they might have more solid relationships that people have already made that pivot. So there's, you gotta go down the path, you've got to make sure that you've got a portfolio but certainly
Emily Lane 13:48
is becoming more competitive out there, you know, with more people looking at these options, and you know, there are some, I can see some complications that would arise out of that, you know, if if all of these places are trying to go to these new factories, the new factories are going to make decisions of who they want to work with, based on quantities and complexity of garments. So it's going to shift what's readily available and the options that are out there,
Bret Schnitker 14:18
you gotta go in realistically, I think we've had a few calls of people saying, Look, I want to near shore and, you know, there's parts that you know, we're willing to pay a little bit more but we want to work with smaller quantities and more difficult to sew garments and we want a ton of flexibility and you know, when the world is in this situation, that thought process while it's healthy for your organization might not align completely with the factory thought process, especially when they can say I can choose less complicated goods that I have quicker production therefore making me more money. Yeah, larger production versus smaller and there's a lot of decisions
Emily Lane 14:55
funnel running through. So I want to circle back a second because You started talking about the kind of the process of vetting new countries vetting new factories. And you know, in that there's a lot, there's really a lot to look at either as, you know, looking at infrastructure with regards to even roads and ports, but also just verticality within the country.
Bret Schnitker 15:18
Sure. Everyone talks about vertical infrastructures, and they have in my business forever, you know, verticality is positive, non verticality is is more challenging. Reality is this, I don't know of another country that has as robust and diverse verticality as China. Like, you know, they, they've just commanded that over a number of years. And there are other countries that are working to get there in in particular categories, but not as broad based as China. So, you know, I think that that is one equation. However, you might have to abdicate verticality in favor of the ability to get production
Emily Lane 16:02
for sure. Yeah. So in recognizing that, I think looking at what's available within those countries, some countries have incentives to work domestically, things like CAFTA. And there are other treaties in place that really positively support a relationship, while others, there are challenges when it comes to importing goods, not only just the increased cost to import goods, to complete production, but there are also some financial implications that are tied to that. So really understanding that whole dynamic, so that, like you said, have realistic expectations when looking to make these transitions.
Emily Lane 16:02
And so many pieces of the equation, while there's all these positive that that our US government backed incentives, where you have these kind of Duty Free Zones, if you will, created through these different acts throughout the world, realize these duty free incentives are put in place to stimulate a business or an economy or a country, that kind of means it's not there yet, right? Fully foreign countries don't usually get all the benefits of of duty free, they're there. They're working to establish those industries and in countries and they're, they're using these as as props to do that, you know.
Bret Schnitker 16:44
So therein lies another challenge that I'm hearing, you know, this is a country that's not fully there yet, that says to me, there might be compromises in overall efficiency as well, which means higher costs.
Bret Schnitker 17:07
That's correct. I think that and it's not in every case, we've certainly got countries in Central America that have been doing production for a long time. And, and in a good focus, unique way, there's a lot of efficiency built into it. But there are neighboring countries that have more work to do, etc. And, you know, the go, or hope act out of Haiti or go out of, of Africa, they have a long way to go, right, they've come a long way, but they have a long way to go. And so understanding their limitations is really important.
Emily Lane 18:11
Are there some longer term, I'd say domino effects of what's happening right now that we should be thinking about,
Bret Schnitker 18:19
certainly, when you have a country like China that's producing basically 80% of our apparel, if you will, and there's a mass exodus of that with to other countries that may not have the infrastructure, understand that the country that you're leaving, production goes away factories, clothes, workers find other places to work, and, and today, China's focus is not on apparel, for sure, their focus is on, you know, technologies applied says that it provides a better a better living for their people. And it is a stage of industrialization that they're at. So as those factories close, the likelihood of them reopening is, is probably pretty gray and questionable. So you will, you will lose the infrastructure, you will lose the expertise, you'll lose the ability for production and manufacturing. So that certainly will have an impact on on the global production levels and costs and, and all of that because China has built itself to be such a unique production powerhouse,
Emily Lane 19:31
right. I also have to wonder, too, if we're going to see a shift in fabrication, you know, looking at cotton being a key resource that's affected by this. Are we going to see a greater shift to synthetics and then what is the impact the sustainability movement when making that kind of shift?
Bret Schnitker 19:52
Yeah, again, that gets into a lot of different paths of conversation. You know, we've talked about some of the challenges of sustainability. We all recognize that needs to happen. We all know that there's some some things that are that are happening along that path. But we're not there yet. But certainly this will affect the shift and balance of raw materials in our apparel world. You know, for the last few years, synthetics dominated our apparel, manufacturing 55 55%, or more of all textiles produced are synthetically driven today. So if you have cotton issues, and cotton has been really unstable in terms of pricing, we've seen pricing, you know, a year ago, little over a year ago, pricing was 58 cents a pound. Today, it's maybe hovering around $1, it was as high as $1.58 a pound. So rising costs already affected the cotton producing sectors, and then you throw in what's happening with the act today, you're going to put more pressure on that pipeline, because you've eliminated 20% of the global supply of cotton base, right. So cotton prices will rise, garment prices will rise. Therefore, I would suspect that it would be natural that our industry would shift more to synthetics, because they they can still utilize all the fantastic factories, fully certified production. What China has built is an infrastructure of verticality with performance fabrics, that won't be impacted due to this act. So I would assume that we're going to see a rise in synthetics and that certainly, today it's it won't be a rise in biodegradable, recycled synthetics necessarily, that still hovers around 13% in availability to the world's fiber supply. So we're going to see perhaps more synthetics on the market right overseeing before. So
Emily Lane 21:55
maybe a potential positive could be the, you know, we always talked about how adversity breeds innovation. And so you know, maybe with some of these raw materials disappearing are becoming less of an available resource. Maybe we'll have some interesting synthetics that are more, you know, recyclable or, you know, even there's all forms of raw materials that perhaps could could see some development and find its way into apparel, we just never know,
Bret Schnitker 22:25
we can certainly hope we're seeing on a daily basis, that technology improve. And there's a lot more conversation about that, and maybe with the catalyst and the stimulus of of rising synthetic that, that one of the giants will decide to make a statement and there is some technology out there that perhaps we could move to a biodegradable polyester that would that would benefit. So
Emily Lane 22:49
do you have any additional advice to share on kind of navigating this current moment? I know you talked about managing a portfolio. Do you have any any additional thoughts that could weave into this?
Bret Schnitker 23:04
Yeah, the difficulty that that I think at least the people that we're speaking to pretty consistently today is that, you know, typically when you see a storm coming, you prepare for a storm, you batten down the hatches, you close up all the windows, and you put things away, we're in this storm. It's happening today. And so, you know, you do different things being in the middle of a storm than you do in preparation for one that's coming. And I think that certainly the diversification of the portfolio makes sense. But we discussed during this talk that that takes time if you're going to do it and read it yourself. Yeah. I think that that to speed up decisions on diversification, finding any partners in the industry that have experience in other countries who have already diversified their portfolio that have assets that that you can utilize with respect to production, to help avoid missteps and learning curves that you have. That's the key. Yeah, if you're in the middle of a terrible situation, you call it experts to fix Yeah, and help you get through those those difficult situations. And I think that's where we're at today is that, you know, in addition to doing those first steps, realize that for the next 18 to 24 months production has to be planned, there has to be more intentionality between behind production, you know, reserving production lines having conversations about what the programs are going to look like, what the sizes are, what the highs and lows are going to be with your factory partners, because there are a lot of people are going to come knocking on doors of factories that aren't in China today. And are producing cotton and so getting yourself out getting well not only getting the cue but actually having some some really serious conversations with your with your partners, new or old about reserving production space and ensuring that you're committing to that. It's important because in addition to what's all of these things we're talking about, remember that manufacturers overseas were burned pretty mightily during COVID so I think we want to make sure that, you know, there's this sense of competence. There's an intentionality that we're ensuring that we've got, we've got a focus behind our efforts.
Emily Lane 25:27
One of the things that I always appreciated when you talked about starting Stars Design Group was by intent, being specialized in all categories of peril, but also being in multiple countries for manufacture. Currently 67 factories, 14 countries, not only has that served the company well from the ability to be nimble as global conditions shift. But as you always talk about not every country does everything well. Yeah, so really understanding the strengths and weaknesses of where you know, what you're, what you're looking at, will help you do some of that planning that you're talking about. You know, I definitely have great respect for the skill and talent that exists within China and their commitment to, to the verticality and infrastructure and quality that we've seen come out of that country. And I guess it's my hope that the entire country doesn't get villainized by, by this current conversation, that that's happening. Because we have seen some, you know, wonder we've had wonderful relationships in that country throughout the years. I know, you've been traveling to China for quite some time.
Bret Schnitker 26:47
Yeah, traveling around the world for many years, I realized that governments do what governments do. And even our government makes missteps. Every government will make missteps or, or have issues at one point or another. But we work with people on the ground, real people every day wanting to make a difference, you know, employing people trying to survive just like everyone else. And, and it's a different landscape for us. You know, we we, we believe that that good, ethical positive business can affect the lives of more people than politics has ever done. You know, politics, generally is kind of a broad brush, and they don't really go too deeply. And I believe that good ethical business, everywhere I've gone, has broken down barriers, has developed relationships has allowed, you know, multiple parties to benefit. And so, you know, I'm hopeful that we we understand we live in a very gray world, there's not black, there's not white, there's just these degrees of gray. And so working within those and evolving with the challenges that exist and providing opportunities for pivots when necessary, understanding new landscapes, having sincere relationships with partners around the world, those things are really important to us.
Emily Lane 28:04
Absolutely. Well, thank you so much for sharing your insight. There's so many takeaways from this conversation. It's, I think there's having realistic expectations about what's to come from a timing standpoint, from a pricing standpoint, really making sure to be thoughtful and intentional about broadening your portfolio building trust with vetted partners, making sure certifications are in place, getting a little bit maybe leaning in on some transparency on the supply chain will probably help with future import. There's a lot that's coming out of this conversation. So thank you so much for sharing that insight. If anyone out there has questions on how to navigate this complicated landscape is looking for options to broaden their portfolio to find trusted, ethical, vetted partners. We are certainly here to help feel free to reach out to Stars Design Group. Thank you for joining us today. And don't forget to subscribe to stay apprised of upcoming episodes of clothing culture
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