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
And 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 back to another episode of Clothing Coulture. Today, this isn't just another episode of Clothing Coulture. This is in fact, our season wrap. Is that not the biggest surprise, but here we are at the end of season two. I am joined by CEO of Stars Design Group Bret Schnitker. And we are located at the home office. Welcome, Bret. I am. So today, you know, we have talked about many things that have impacted our industry throughout this season and the season before us. And you know, we're always looking forward to see what's next. This industry, it's a global business, as we have talked about and Stars Design Group, we're certainly a global company. So we're always taking a look at what's happening; events, world dynamics, all the things that can impact our future. And so today, that's exactly what we're going to do. We're going to take a look at what's happening in the world, and discuss about some of those future impacts. And then of course, lay some groundwork for what you can experience in season three. So Bret, one of the things that's a part of a daily conversation at Stars is COGS, inflation. What is happening in our world right now?
Bret Schnitker 01:56
Yeah, COGs really abbreviation for cost of goods. But you know, like every good end of season show, there should be a cliffhanger. And I would say the world is a giant cliffhanger today, there's so many things where everyone's like, what is going to happen next. And, and you know, as we take a break in between the two seasons, hopefully some of those things will get ironed out. When we're referencing cost of goods, certainly raw materials come up a lot. And we've, you know, in addition to all the other stressors that have been on our supply chain, raw materials have certainly been one of them, specifically, cotton has been a big one of note, you know, a comfortable range for cotton is in the 50 to 60 cents a pound range. And we've seen prices as high as $1.50 a pound almost three times that level. And for really no major apparent reason. Usually we can tie those heavy surges to crop failures, droughts, things like that. And, you know, I would say in general, I'm sure that there's, there's ways to justify those price increases, but it's certainly it's more complex than than I've ever seen. Today, we're trading closer to $1 per pound, you know, as we record this episode, so it seems like it's stabilizing somewhat. But you know, when you combine all of that, all of the other rising costs, that are impacting our cost of goods, or, you know, the profitability tables for organizations around the world, you know, the end result really is inflation that we're seeing in our industry, overall, inflationary challenges. And, you know, I think we're hovering around 8% As a nation, but certainly, I think our industry specifically, is seeing higher inflationary rates than that, some people are saying it's up to 14%. Whether that all gets passed along to the consumer is, is questionable. There's, you know, there's been a number of polls on that, you know, where they think certain things will hit. But that certainly is a big challenge and something that we'll weigh into, you know, as we start to see more layers of that onion unpeel in the next season, Right, definitely something for companies to be considering with regards to budgets and understanding that, you know, that those inflationary costs hit on a lot of levels. You know, it's not just your customer materials, but of course, in every aspect of doing business. Yeah, they certainly do, but I think one of the things that's been benefiting the industry in general is that demand again, exceeds supply, people are struggling with getting supply and within that, the heavily discounting is going away. Some of our customers are talking about 70%, 80%, regular price that the days of rapid discounting to 50% off for kind of things that the past, so that's a benefit. Because with that rising cost, if you're not, if you're not building your cost, knowing you're going to discount heavily, all of a sudden, you've got some a little bit of buffer there to maintain profitability.
Emily Lane 05:06
You're making an excellent transition there, because I did want to make sure that we talked about inventory and how that currently has been disrupted, of course, with some of the conversations we've had regarding supply chain delays, and logistics, all of those things that we all know about, because we've definitely had a regular conversation around these topics. But how people are responding to the inventory flow is, if people are making individual decisions, as you mentioned, you know, some are, not doing the deep discounts anymore. Some are holding their inventory, because it's come in maybe too late to be appropriate for the season, or they're behind the season. So they're holding on to it for the next time it's season relevant, some are doing deep discounts. What are what are other actions that you're seeing? Right?
Bret Schnitker 06:09
Well, certainly, you know, in a better business and a smaller, better business. It allows them to be more nimble, absorb airfreight cost if necessary to get around those things. And that, I think, that from an inventory perspective, they can stay more on time in that in that regard, I think the people that are experiencing really large challenges are the ones that are buying very, very deep, very, very large, because places in the world to produce those large quantities, again, everyone's scrambling for the same resource. So if you've got yourself a giant manufacturing organization, I would say that they're heavily challenged for supply chain. So I would say some of their answers are, is that they they consistently are dealing with late deliveries, you know, you get in the middle of a cycle, you're booking at a certain time, supply chain demand exceeds supply, or they're shutdowns, like what occurred in China this year, again, in Shanghai and other provinces for a week or two weeks, you know, in some places, maybe longer those things, you know, break that cycle of production, therefore, goods are coming in late and, and so decisions are being made, if it's a seasonal product to hold it or are deeply discounted, and just kind of move through it and deal with the pain. But with rising costs, that's a pretty painful decision to make.
Emily Lane 07:34
It's a long time to hold inventory, a lot of time to take up space in a warehouse.
Bret Schnitker 07:38
Absolutely. So some people are actually migrating to season less or less seasonal items, you know, more basics, because if things fall in a little bit later, they can still get them on the floor. And, you know, the big, you know, I don't know if it's a secret. But, you know, the big, untold thing to the masses in our industry, is even though we talk a lot about fashion and fad and trend and the latest, greatest item, if you look at our industry as a whole 40 to 60% are really basics. And so doing nice basics, managing through those, that inventory helps the customer buffer from late deliveries and you know, it certainly doesn't help out of stock on the floor. You know, if you have nothing to sell, or you have too little to sell or sizes are broken, you're going to start dealing with some revenue and profitability challenges. But there are ways to make sure that when inventory does come in, that you're not, you're not forced to liquidate as much now that certainly with every portfolio of product, you've still got our fashion items. Usually they should, especially nowadays, they should be bought a little bit tighter. So you're really planning a sell out. Price points could be a little bit higher if the style is particularly hot, in terms of the trend. And that might help you, you know, make decisions on airfreight. It is a unique landscape and inventory management is super critical. I would say that more than ever, planning is important, understanding that, and understanding that reacting to business is always an important function, but timing more than ever before, for that reaction is a component that you've got to place into it. And people are, we talked about in previous episodes, people are scrambling to look south to look for nearshoring opportunities thinking that they can react better. That's certainly possible in in some categories. But it's not possible when you swing the pendulum across all categories.
Emily Lane 07:58
Even that to make that transition, to the south, requires planning.
Bret Schnitker 09:42
Certainly, and that's not something supply exceeds demand and the south slows down and even though you got shorter lead times production lead times go out and you know, it's just we're in a very complicated landscape with that respect,
Emily Lane 09:58
Planning, planning, planning. and I do love that point right, back to basics. You know, it's a conversation we have all the time with because I always wear a t shirt all the time. Um, you know, something that we are
Bret Schnitker 10:15
this is black to basics.
Emily Lane 10:19
Yeah, I'm supporting your black to basics today too, so, you know something else that we're seeing a massive shift towards performance brands we're seeing a rise in performance brands and performance clothing. And I think this is supported by several different aspects, you know, more people have returned to the outdoors. And so a need for clothing to support the actions be it, you know, mountain climbing or biking or whatever, whatever sport they're getting into.
Bret Schnitker 10:51
I think even couch surfing people want performance, but they don't want to iron it. So I think it's more about
Emily Lane 10:59
Yeah, so you know, which is leading to new desires in fabrications, that that can support whatever that action is from sofa to surf. And then, of course, there's the other layer of the conversation, which is making it even more complicated the circularity aspect of sustainability. And so far, there's a lot happening in this performance space. That's true. And you know, it's it is also complicated, because just because you are able to check one box in the sustainability portfolio, it can mean that you're compromising another box. And so navigating that, and really picking the areas that you feel you can adopt, and that you particularly are passionate about and having a plan around that, I believe is an important place to start.
Bret Schnitker 11:23
Yeah, I agree. And I think, you know, again, previous episodes, one of the main things that I'm hopeful for, for the future, is that we have more and more getting involved in, you know, bio friendly performance fibers and materials, eco friendly, biodegradability you kno. There's a lot of really exciting conversation happening, the biggest challenges is we have yet to see a single product like that become mass scale and affordable. And so, you know, that's an ongoing conversation. I'm really hopeful that, you know, some of the 10 largest poly companies will embrace an article and drive that home. The world certainly needs it, the environment needs it 65% of our business in apparel is done in synthetics today, so it's the number one focus that we have, and there's a lot of exciting things that are going on that are addressing, you know, the larger conversation about eco friendly. Sustainability is certainly one deal, the circularity but eco friendly, you know, carbon, you know, purity of air, our landfills are getting filled, and things aren't breaking down, so, I think, you know, the larger conversation, we have a lot of work to do in that area. And hopefully next season, we'll dive into some new technologies and then in time, we'll see some some mass adoption. Yeah, depending on where you're positioning your brand, I think people are more receptive or less receptive to those decisions today.
Emily Lane 13:28
One of the key issues that a lot of our retail friends have expressed in this last year is, of course, the dynamic shifts in e-comm. You know, customer acquisition, the cost of customer acquisition is way up due to some of the iOS updates. It's getting more and more difficult for people to reach the right audience and show the right product to the right a right audience. And so there's some really great technologies that have hit the market recently to address some of that I think there's probably some wonderful evolutions that are our good friends at X-Gen will be developing as well to continue to improve the user experience. But let's talk about that a little bit.
Bret Schnitker 14:13
Yeah, I think, you know, we are seeing ecommerce and its challenges even firsthand working with clients we're seeing, I don't think they're prepared for the cost of customer acquisition today. It is a monumental cost. And people think, Oh, I'm gonna open an online brand and go for it. And that's just, there's a lot of noise online and a lot of people competing for that space. And with all the changes you've mentioned, you know, there are certainly technologies that we have worked with that I think are efficient based upon input financially, up front, to help brands grow in that space, but really understanding how expensive those are, what kind of investments in those spaces are necessary
Emily Lane 15:04
What kind of volume, you'd really need to be going through to be able to afford to implement it, and it makes sense.
Bret Schnitker 15:10
Because those numbers are sometimes shocking. And they're really hard and they can't be turned on and turned off. It's a, it's like, you're, you're in the machine. So you're going to have to invest for a while. And so there's certainly technologies, much like you've mentioned with X Gen, that are incorporating machine learning and AI and some customization. And that's exciting. You know, I think, and that's a cookieless environment. So it's not...
Emily Lane 15:10
It was fun learning about that in our conversation earlier this season.
Bret Schnitker 15:31
I mean, those are exciting. And I think every day different companies pop up to address the need as, as you know, requirements and situations change. New ones come up. So I look forward to learning about even more companies next, next season.
Emily Lane 15:56
Yeah, you know, one of the one of the things I'm, you know, we're hearing it's, there was this big rise to go to e-commerce. And now it's almost like, oh, well, now we're, let's go back to brick and mortar, you know, people wouldn't touch things, you know, they're in their homes and trapped up for so long, they want to touch and feel things. And so now there's almost this, like return to getting hands on product again, so it's an interesting cycle of things that's happening. One of the other trends that we're seeing with regards to kind of that retail experiences, you know, people are wanting to chase demand a little bit more, they're wanting to go smaller on their units, they're wanting to respond to how their consumers are reacting to product, that creates some unique challenges, especially when it comes to manufacturing.
Bret Schnitker 16:45
Most certainly, I mean, most manufacturing overseas is built on longer production runs being more efficient, shorter ones being less efficient. And so there's ways to address those in terms of, in some ways, with line setup. But I think it's also kind of a mindset shift with factories too, as if we can embrace going better, if you will, as an industry, you know, if we can, you know, do better and go better than I think that factories will be more open to running smaller quantities addressing demand and the size. In these bite sized chunks, you know, it, it's not going to be every customer, but we we've seen a huge rise in, in in these kind of boutique brands, if you will. And we've seen a large adoption rate from customer level there. They're addressing niches that need to happen and, you know, I think our industry goes through those cycles where, you know, they've kind of had enough of the Golliath's and they want to have uniqueness and some authenticity and that some of these smaller brands bring. It's not the big ones or, you know, bad they're they developed a wonderful business, they're actually really business savvy. But you know, much like the beer business has gone through, it was the Goliath for a while and then you add artistsan beer and the Goliath's are now recognized. I've got to go buy these artisan beer brands, because all the you know, so many beer drinkers are looking for the artisan brews today. I think we're going through a little of that in our industry, too. So it's, I don't know, it's, I think it's exciting. We're seeing good new ideas coming.
Emily Lane 18:26
That's true. And, you know, we love it innovation here. So, um, and then, you know, something else that we're, really starting to get on our horizon that I know we want to be addressing in season three. There's a lot of talks around legislation coming to, you know, get behind supply chain vulnerability, supply chain transparency, foster more sustainability, support some of the social human rights concerns, and there's a lot of varying opinions about this legislation. There's, you know, is there a need for it? Is it the right people that are actually creating these rules? Do they really understand the full dynamics? What's that actually going to do to the overall industry? So there's a lot of challenging questions in this space.
Bret Schnitker 19:17
Yeah, there's a lot of professionals in our industry. And I'm I'm hopeful that that our government will employ those professionals, because it's a complicated landscape. I think policymaking from a government level in business can be challenging. Certainly, we're already battling against so many things going on in our industry, that I think sometimes legislation can be just make it all the more difficult. But there are some cases where I think we're not going to fix our supply chain issues without government intervention. Probably governments internationally, and the intervention and maybe some policy shifts, you know, people can rewear their same black T shirt over and over again. And I'm, I love our industry, but supply chain issues affect needed goods into the US, life saving goods, you know, critical goods. And so I know that there's some executive orders and some things taking place in that respect, but it's just the symptom of a much bigger issue. And we're part of that issue. And I think legislation or government intervention can help in that situation. Because it, there's not a lot of good business fundamentals to fix the issue that we have, where containers are in the wrong place. You know, there's not a bunch of trucking lines,. they don't want to go get them, bring them back. Who's paying for that? And so I think there's just a lot of things that we have to fix in that respect. And so we'll see if some policy some good policymaking or government support can can help us get through some of these things.
Emily Lane 21:14
Well, I look forward to taking a deeper dive into that into all of those areas. And among you know, among our conversations have continued to look at technologies that are on the horizon we're going to continue looking at our options with nearshoring. And of course, continue to learn more about what's happening in the area of sustainability in season three, it has been really fun sharing with everybody our perspective on these global dynamics and how it's shaping trends in the apparel and fashion industry to date, and we definitely look forward to exploring more future conversations in season three. There's more to come so make sure to subscribe to stay apprised of the next season of Clothing Coulture. Thank you for joining Bret. Thank you
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