Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 2: Joe, we've been inadvertently doing a tariff series basically on
Speaker 2: what the trade restrictions mean for a bunch of different industries.
Speaker 3: So funny that I've read your mind. Yes, it's like
Speaker 3: we have to go down the list. There's actually it's impossible.
Speaker 3: You know, every industry is going to be affected by
Speaker 3: tariffs a different way, and there's this temptation like, Okay,
Speaker 3: let's just talk to someone from literally every single industry.
Speaker 4: Today.
Speaker 3: On May seventh, we released an episode talking about the
Speaker 3: video game industry. But yes, we could go down the
Speaker 3: line of every category within GDP and learn something.
Speaker 2: Video games, len tols, yes, the important stuff. No, So
Speaker 2: when we're talking about tariffs, I think one of the
Speaker 2: really big industries that is obviously going to get impacted
Speaker 2: has to be clothing and textiles. Right, So we know
Speaker 2: places like China, Vietnam, Sri Lanka, Bangladesh are huge textile exporters,
Speaker 2: and so we should talk about that and what it
Speaker 2: actually is like if you're running a clothing business in
Speaker 2: the US to source textiles from abroad.
Speaker 3: You know, it's funny. I was at some event for
Speaker 3: my school and I ran into a fellow dad, or
Speaker 3: for my kids school, and I ran into a fellow
Speaker 3: dad with a clothing company. Like the two days after
Speaker 3: the initial tariffs were revealed in early April, he was
Speaker 3: talking about he was going to add a button on
Speaker 3: his website and made some sort of athletic gear, talking
Speaker 3: about like this is the pre and post tariff prize.
Speaker 3: He was talking about how it might make sense in
Speaker 3: certain circumstances to move some of his manufacturing outside the US,
Speaker 3: especially what he sells to non US customers so much
Speaker 3: in textiles specifically. The other I think about textiles, of course,
Speaker 3: is when people think about the China shock. You know,
Speaker 3: that's one of the first categories that comes to mind,
Speaker 3: the fact that the US used to have a booming
Speaker 3: textile industry, particularly in the Southeast, as we know.
Speaker 2: Yeah, we visited the remnants of the American textile industry
Speaker 2: in North Carolina.
Speaker 3: So there's a lot there.
Speaker 2: Yeah, all right, Well, I am very pleased to say
Speaker 2: we do, in fact have the perfect guest. I have
Speaker 2: to do a disclaimer up top because this guest is
Speaker 2: a longtime friend of mine. We actually went to high
Speaker 2: school together in Tokyo, and she started her own clothing
Speaker 2: company and I was involved at the very beginning doing
Speaker 2: product testing and caveat. I have a lot of their clothes.
Speaker 2: I have dresses that are I think at this point
Speaker 2: are like ten years old, but they still look amazing.
Speaker 2: So I am a big fan of this company. That
Speaker 2: is my disclaimer.
Speaker 3: Tracy, did you ever do any modeling?
Speaker 2: Yes?
Speaker 3: I thought, did you ever do any modeling for this company?
Speaker 1: No?
Speaker 2: Okay, no, no, no, we can talk about that later.
Speaker 2: I did modeling when I was like seventeen in Tokyo,
Speaker 2: where the standards are arguably a lot lower. Anyway, I'm
Speaker 2: very pleased to say we're going to be speaking with
Speaker 2: Sarah Lafleur. She is the founder and CEO of M M.
Speaker 4: Lafleur. So, Sarah, thank you so much for coming on
Speaker 4: off us. Thank you for having me. It's a true honor, sir.
Speaker 3: What is your favorite Tracy memory? And did you know
Speaker 3: she would go to go was going to be a
Speaker 3: star podcaster?
Speaker 4: One day I thought she was going to be the
Speaker 4: US ambassador of the United nations.
Speaker 2: So yeah, I guess she.
Speaker 4: Was always a true intellectual, uh huh. And I would
Speaker 4: say precocious beyond her years.
Speaker 2: So this is yeah, that's probably fair. All right, Sarah,
Speaker 2: talk to us about the company. How would you describe
Speaker 2: Amma Lafleur and when did you get started?
Speaker 4: Sure? So I started the company in twenty thirteen with
Speaker 4: my two co founders. I myself do not come from
Speaker 4: the fashion world. I actually worked in management consulting and
Speaker 4: then in private equity, right, yes, I was at Bain,
Speaker 4: and you know, I always struggled to kind of find good,
Speaker 4: well made, appropriate but still very stylish, professional women's clothing.
Speaker 4: Like I just thought there was a real dearth in
Speaker 4: the market. And I was never I had never been
Speaker 4: in fashion. My mother actually worked in high and fashion
Speaker 4: and she would always bring home these like beautiful, you know,
Speaker 4: pieces of textiles and got these Chanel suits and I
Speaker 4: was like, gosh, that's so beautiful, and that's what I'm
Speaker 4: going to wear when I grow up and I'm a
Speaker 4: working woman, and lo and behold, I found out, you know,
Speaker 4: for my budget, I was not going to be wearing
Speaker 4: a Chanelle suit to work. But the idea stayed with
Speaker 4: me and basically when I was twenty seven, couldn't get
Speaker 4: into business school, didn't know what to do with my life.
Speaker 4: Private equity was not quite the right place for me.
Speaker 4: I was like, you know what, I've always I've always
Speaker 4: thought this was a good idea. Let me, let me
Speaker 4: go for it. So, yeah, it's been gosh, it's been
Speaker 4: almost twelve years. We launched in twenty thirteen. Were predominantly
Speaker 4: an e commerce company, but we also have eight stores
Speaker 4: across the country and we also sell through wholesale.
Speaker 3: So what do you we'll get into, you know, wanted
Speaker 3: to get into the nitty gritty of the business and
Speaker 3: the supply chain and so forth. But from a very
Speaker 3: big perspective, someone sees an ad for your clothes on Instagram.
Speaker 3: Maybe they see a shirt or a jacket or pants
Speaker 3: that they like. Where was it designed? Where did the
Speaker 3: materials come from, and how did it who put them together?
Speaker 3: And how do they get to the end?
Speaker 4: Shopper, Yeah, great question. So we are all designed in
Speaker 4: New York City. Our offices are, you know, in the
Speaker 4: Financial District actually, and it's my creative director who usually
Speaker 4: you start with fabric with collections. I think this is
Speaker 4: like a little known fact. People always think you sketch
Speaker 4: first and then you find the fabrics, right, But it's
Speaker 4: really so much of fashion is really led by the
Speaker 4: fabric and textile industry. So you you know, often you
Speaker 4: go to these fabric shows or these fabric mills come
Speaker 4: to you, you're inspired by different fabrications, and then you
Speaker 4: take that and you say, okay, what am I going
Speaker 4: to design into this. Maybe it's a jacket, maybe it's
Speaker 4: a shirt, what have you. And then from there the
Speaker 4: designer sketches and then the pattern maker, very important person
Speaker 4: I call you know, this person is like the architect
Speaker 4: of the clothing, will actually then say, okay, in order
Speaker 4: for this dress, let's say, to come to life, here's
Speaker 4: how the fabric needs to be laid out on a
Speaker 4: piece of you know, on a piece of fabric, and
Speaker 4: cut and then put together. Different companies do different things,
Speaker 4: but you know, if you are working with a fabric
Speaker 4: factory overseas, then oftentimes you will then send the pattern
Speaker 4: overseas to the factory. The factory will do the first
Speaker 4: what we call fit sample that gets sent back to
Speaker 4: New York. You fit it in New York, you know,
Speaker 4: with your fit model, and you know, depending on whether
Speaker 4: you're a brand that spends a lot of money on
Speaker 4: product development or not, you might do one too, even
Speaker 4: up to three fit samples before you ultimately go into
Speaker 4: production in the factory overseas.
Speaker 2: Wow. Okay, So, given the importance of the fabric in
Speaker 2: the design process, talk to us a little bit more
Speaker 2: about how you actually source that because the fabrics that
Speaker 2: you use are also a big differentiator for you. Right,
Speaker 2: you have very special fabrics and again I'm going to
Speaker 2: sound like I'm doing an ad for this company. We
Speaker 2: love that, but I mean they're great fabrics for work
Speaker 2: where they really are and they're sort of specially made
Speaker 2: is my understanding for exactly that scenario.
Speaker 4: Yeah, we really focus on machine washability and wrinkle resistance.
Speaker 4: So Japan is great with that. You know, it's not
Speaker 4: your mother's polyester. Synthetic fibers have really come a long way.
Speaker 4: So there are a lot of synthetic fibers that behave
Speaker 4: like silk or look like silk, but are still machine
Speaker 4: washable wrinkle resistant. But we also love natural fibers and
Speaker 4: natural fibers. You know, places that are good at that
Speaker 4: historically are when it comes to wool, Italy Germany. When
Speaker 4: it comes to silk, China, like, China is really one
Speaker 4: of the few countries now left in the world that
Speaker 4: still actually does silk. Same for wool in cashmere. You know,
Speaker 4: if you want to do alp haka, well I'll paka
Speaker 4: like you could still go to Peru. There are other places.
Speaker 4: But when it comes to most will most cashmeir, I
Speaker 4: would say it's China. You could go to Mongolia for Kashmir,
Speaker 4: but there aren't that many places across the world that
Speaker 4: that do these natural fibers.
Speaker 3: For the types of sort of high end stylish clothes
Speaker 3: that you sell. Where are the big manufacturing hubs right now,
Speaker 3: and where do you, like, you know, explain the link. Okay,
Speaker 3: there might be some you know, textile company that's really
Speaker 3: good at you know, advanced synthetics in Japan. I know
Speaker 3: that well because I buy all my clothes from Uniclo
Speaker 3: and they never wrinkle, which is really nice because I'm
Speaker 3: very lazy. But then talk to us about like, okay,
Speaker 3: how what is the process from like getting the textiles
Speaker 3: to wherever they're actually cut in a symbol?
Speaker 4: Yeah, great question. Some factories are vertically integrated, meaning they
Speaker 4: both make the fabrics or you know, they have a
Speaker 4: partner from whom they source the fabrics and then they
Speaker 4: produce the actual clothing at their factories. I would say generally,
Speaker 4: although not always, lower priced products are made this way.
Speaker 4: If you are for us, we like to nominate our fabrics.
Speaker 4: That's the word that's used in the industry, meaning we
Speaker 4: are specifying where the fabric should come from, what we
Speaker 4: want it to be, and which mill we want it
Speaker 4: to come from. And then the factory, which is often
Speaker 4: in a different country they usually are not in the
Speaker 4: same country, takes on that fabric from that mill and
Speaker 4: then cuts it and produces it. So often, though not always,
Speaker 4: the two things, the fabric mill and the factory are
Speaker 4: two different companies in two different countries.
Speaker 2: So how do you find factories and mills to work with?
Speaker 2: And I guess a questions as a startup founder, what
Speaker 2: was your first experience actually finding a factory slash mill?
Speaker 4: Actually? Like, well, I think I prefaced earlier that I
Speaker 4: never worked in fashion, and so literally I contacted the
Speaker 4: New York City I think, you know, I was an
Speaker 4: economic development corporation and for a lot of fashion designers
Speaker 4: right who are trying to get their foot in the
Speaker 4: door and start their own line. The garment district in
Speaker 4: New York City is amazing, and I would say, I
Speaker 4: mean when I got started a decade ago, he was
Speaker 4: it was I mean, yes, a declining industry, but definitely
Speaker 4: more bustling than it was now. And there was a
Speaker 4: directory of factories that you could contact. But I mean
Speaker 4: it was kind of laughable because a lot of these
Speaker 4: factories A don't use email. I think they may have
Speaker 4: a phone which they may pick up if it's a
Speaker 4: good day. Really, these factories, the way you get in
Speaker 4: the door is by knowing somebody who's worked with them,
Speaker 4: and even then they may not be willing to take
Speaker 4: you on. You know, it's a huge risk for them. A.
Speaker 4: Can this designer actually pay for whatever it is that
Speaker 4: I'm going to do? And B is this designer actually
Speaker 4: going to be around a year from now? Because you know,
Speaker 4: fashion people come and go so fast, and so unless
Speaker 4: it's through a connection or a referral or you're you know,
Speaker 4: somewhat established, it's really hard to get your foot on
Speaker 4: the door. I mean, I was begging people to take
Speaker 4: my orders when we first got started and we were
Speaker 4: doing manufacturing in the garment district.
Speaker 3: Oh, you're doing manufacturing in the garment district.
Speaker 4: This was this was a decade ago, but yeah, I
Speaker 4: got it today.
Speaker 3: If you want to go to a factory somewhere in
Speaker 3: Asia and you have the textiles, what are like some
Speaker 3: of the minimums you know, like what's a minimum run?
Speaker 3: Because I have to like, like you said, you know,
Speaker 3: they want to know that you're still going to be
Speaker 3: around from now. They have to allocate capacity. They presumably
Speaker 3: don't want to just allocate a little capacity and then
Speaker 3: have to change talk to us about like what you
Speaker 3: have to bring to the table from a volume standpoint,
Speaker 3: in terms of a reliability standpoint, in terms of a
Speaker 3: dollar standpoint, such that it's worth taking you in the door.
Speaker 4: There's huge variability in both factories within one country and
Speaker 4: then from country to country. Right, So I would say China,
Speaker 4: Once upon a time, probably the moq's limitedmnium order quantities
Speaker 4: were north of a thousand easily okay. But now as
Speaker 4: wages in China have gone up, a lot of factories
Speaker 4: that we work with are willing to do moqus as
Speaker 4: low as one hundred. There might be a sort charge
Speaker 4: for it.
Speaker 3: Wait, why is the lower volume? Why take lower volume
Speaker 3: as wages.
Speaker 4: Have gone up because brands have moved to other places
Speaker 4: like Bangladesh, places in Northern Africa. I mean it is.
Speaker 4: I don't want to say it's a race to the bottom,
Speaker 4: but it is in many ways. You know, as labor
Speaker 4: prices rise, brands are always saying like, Okay, well I
Speaker 4: gotta go cheaper, I gotta go cheaper. Oh interesting, So
Speaker 4: they you know, first went to Southeast Asia, they moved
Speaker 4: over to you know, South Asia, you know India. Bangladesh
Speaker 4: still does a lot of you know units where they
Speaker 4: need one thousand, two thousand, sometimes north of ten thousand units.
Speaker 4: And then also Northern Africa is now kind of considered
Speaker 4: the next frontier tracy. This is interesting.
Speaker 2: You know.
Speaker 3: One of the things I've seen a couple of people
Speaker 3: talk about is like China experiencing its own China shock
Speaker 3: because some of these low end textiles, those legacy operations
Speaker 3: are now competing with cheaper wage countries, the same way
Speaker 3: textile companies in the US for competing with other Asian countries.
Speaker 4: Yeah.
Speaker 2: Absolutely, Okay, So Sarah, we got to get to the
Speaker 2: meat of this discussion. I guess let's talk about the tariffs.
Speaker 2: So when I when I asked you about this issue,
Speaker 2: you said that teriffs were all you've been thinking about
Speaker 2: for basically the past month.
Speaker 4: Yes, and even that feels like an understatement. I think
Speaker 4: I dream about it. I mean, it is been so
Speaker 4: detrimental to the business. It's not like running a fashion
Speaker 4: business in twenty twenty five was a cakewalk. Right. It's
Speaker 4: already an incredibly competitive business with razor thin margins. We're
Speaker 4: dealing with pressures on the marketing side from you know,
Speaker 4: Meta and Google, right. I mean, we just went through
Speaker 4: the pandemic where I had to close all eleven of
Speaker 4: my stores and then gradually open them back up again
Speaker 4: to the point where now we have eight. I mean,
Speaker 4: it was it was devastating going through the pandemic, and
Speaker 4: we survived by the skin of our teeth. We've made
Speaker 4: it through the other end. We had just finished budgeting
Speaker 4: for twenty twenty five, and I think, you know, this
Speaker 4: will probably be not a total surprise that I'm a
Speaker 4: New Yorker. But you know, we were saying, okay, when
Speaker 4: when Kamala Harrison get elected, we were like, well, everyone
Speaker 4: says Trump's going to be good for business. We have
Speaker 4: a big business in Washington, d C. Change of administration
Speaker 4: is usually also good for our business. The first thing
Speaker 4: we came, you know, ran across was the Doge cuts.
Speaker 4: So our two DC stores are down about twenty to
Speaker 4: twenty five percent from l Y while all of our
Speaker 4: customers that come in are either have been laid off
Speaker 4: or are nervous that they are going to get laid off,
Speaker 4: or that they're going to have they're going to be
Speaker 4: some repercussions. So we were already feeling those effects going
Speaker 4: into March. I still remember the moment the U what
Speaker 4: was it, Liberation.
Speaker 2: Day, April second.
Speaker 4: Yeah, yes, I was sitting in my office. We were
Speaker 4: doing a meeting and my phone blew up. I'm on,
Speaker 4: you know, various text change with other fashion founders and CEOs,
Speaker 4: and they're saying, have you seen the numbers? And you know,
Speaker 4: I mean just that's all we could focus on.
Speaker 2: You are one of the people squinting at the billboards.
Speaker 4: Aha, ha, we were, And I was like, someone get
Speaker 4: a screenshot of this. Anyway, the numbers were kind of
Speaker 4: beyond I think what anyone of us expected, right, And
Speaker 4: I remember I was actually in China, Hong Kong, in
Speaker 4: Vietnam where a lot of our partners were or are
Speaker 4: in November, and you know, we were all talking about
Speaker 4: and like, how bad do you think it's going to be?
Speaker 4: And one of my partners was like, you know, I
Speaker 4: don't think it can be that bad because where else
Speaker 4: are you going to get your silk? I mean, where
Speaker 4: else are you gonna get your silk? So I predict
Speaker 4: ten percent. It can't be higher than ten percent. Yeah,
Speaker 4: And then when we saw the fifty four percent on
Speaker 4: top of the thirty percent we were already encountering, we
Speaker 4: were like, well, that's just insane. And then it just
Speaker 4: got worse and worse and worse. I mean, i'll tell
Speaker 4: you between Liberation Day April second, and then April eleventh,
Speaker 4: we were on calls with our factories like night and day.
Speaker 4: I don't think I don't think my factory partners slew
Speaker 4: for those seven days. You know, any hour of any
Speaker 4: day we could reach them, and we were just basically saying,
Speaker 4: get it on the boat, get it on the boat,
Speaker 4: except it was total chaos at the ports. So it's
Speaker 4: just like, you know, after forty eight seventy two hours,
Speaker 4: it was like we couldn't even secure a space on
Speaker 4: the boat and like the night before it's all about
Speaker 4: to go down, you know, I'm on a call with
Speaker 4: one of my partners in Hong Kong, and I'm like,
Speaker 4: did you get it on the boat? And he was
Speaker 4: like no, I couldn't get this on the boat. And
Speaker 4: then I was like, okay, then don't put it on
Speaker 4: the boat. And then you know, and then whenever I
Speaker 4: can't even remember the exact timeline now, but whenever, you know,
Speaker 4: we went into whenever it we went into it, like
Speaker 4: the ninety day grace period, I was like, get it
Speaker 4: on the boat, get it on the boat. I mean,
Speaker 4: it just felt like it just felt like I hate
Speaker 4: to use this metaphor, but like it's like the last
Speaker 4: ship or the last helicopter out of Saigon and everyone's
Speaker 4: just like trying to get their things on. Yeah.
Speaker 3: I mean, it's okay metaphor because one, you know, that's
Speaker 3: the helicopter, but it's still probably you know, still coming
Speaker 3: out of Vietnam. But actually, what is so right now
Speaker 3: we're recording this May seventh, I guess two questions is like,
Speaker 3: what is your like sort of geographical exposure because that's China,
Speaker 3: it's to only ten percent and and it may get
Speaker 3: I think you know a lot of people think that
Speaker 3: will get even if there's no deals, that that ten
Speaker 3: percent will get extended. What is your current geographical exposures?
Speaker 3: But to the ten percent and one hundred and fifty
Speaker 3: four percent.
Speaker 4: Well, I had to cancel fifty percent of my May collection. Wow,
Speaker 4: because they were all from China Okay. Many of the
Speaker 4: things were late because they were coming out of places
Speaker 4: like Vietnam, Okay, where it was initially hit with the
Speaker 4: fifty four percent and we were saying, oh, I'm sorry,
Speaker 4: it was forty seven percent. We said, don't don't chip it.
Speaker 3: Oh, so there were even though there was got plus
Speaker 3: even back to ten percent fairly quickly.
Speaker 4: It had to create a hiccup totally because it's like fashion.
Speaker 4: It's like it's all about your selling window, right, and
Speaker 4: you bring in your summer clothes and you want to
Speaker 4: sell through most of it within six weeks, and if
Speaker 4: you miss that selling window, well then we'll wait till
Speaker 4: next year. And so some of our products are going
Speaker 4: to be held for a whole year and they're going
Speaker 4: to wait for summer twenty twenty six to be released.
Speaker 4: I mean, this is just I'd chalk it up to
Speaker 4: bad luck. But we actually we have partners in Turkey,
Speaker 4: we have partners in Portugal, China and Vietnam, but by
Speaker 4: far we do most of our production in China. Got it?
Speaker 4: And why is that? It's because the quality is exceptional,
Speaker 4: the prices are not cheap. You know, I have customers
Speaker 4: who've because we've been really communicating transparently with our customers, saying,
Speaker 4: you know, here are the consequences that we're facing and
Speaker 4: our fact Our customers are you know, very sharp, intelligent women,
Speaker 4: and I've had many of them email me saying like,
Speaker 4: you know, I'm really sorry to hear all this. I'm
Speaker 4: going to support your business, but like why don't you
Speaker 4: move your production back to the US? Like why don't
Speaker 4: you move it back to the garment district? And I'm like,
Speaker 4: I don't even know how to explain, Like that's that
Speaker 4: industry is not only dying in many cases gone, it
Speaker 4: could never support the kind of quantity that we want
Speaker 4: to do. And by the way, we're not even that
Speaker 4: big a business, you know. And you know, they sometimes
Speaker 4: I get like I knew, I knew it was made
Speaker 4: in China because you know, the qualities was X y
Speaker 4: Z and I was like, you know, I was like,
Speaker 4: have you ever seen the inside of a factory in China?
Speaker 4: Because you know, the workers who work there, they get
Speaker 4: free lunch. They have a farm at the factory where
Speaker 4: they make fresh vegetables and their lunch is served using
Speaker 4: those fresh vegetables. And they have these beautiful, beautiful dormitories.
Speaker 4: Like there is a lot that these Chinese factories do
Speaker 4: right to treat their workers right. And meanwhile, the garment
Speaker 4: district factories, everyone brings their own toilet paper because if
Speaker 4: they put toilet paper in the toilets, they will get stolen. Right,
Speaker 4: Like everyone thinks like made in New York, beautiful, excellent quality,
Speaker 4: like great labor regulation. It is not the case. You know,
Speaker 4: if it happens, it's very few factories that are very
Speaker 4: selective and very very expensive. The truth is, the American
Speaker 4: consumer does not want to spend that much on clothing,
Speaker 4: as prices have gone up in every single other category.
Speaker 4: Clothing has remained relatively stable since the nineteen nineties. And
Speaker 4: so we can't have it both ways, you know, if
Speaker 4: you want to continue to buy clothing at the prices
Speaker 4: that we're used to, we have to have global trade.
Speaker 2: Yeah, So you mentioned transparency with customers. Talk to us
Speaker 2: about how you're handling the pricing side of things at
Speaker 2: the moment. Are you Are you going to put a
Speaker 2: little button that shows the pre tiff and post tariff
Speaker 2: price or something like that.
Speaker 4: I am so, I'm so tempted to, But you know
Speaker 4: what I worry about is that she's just not gonna
Speaker 4: buy it just transparently. We've already done a round of
Speaker 4: cost cutting, and from where I'm sitting, I see recession
Speaker 4: on the horizon. So I feel like when I see
Speaker 4: recession coming, I don't know if I can also increase
Speaker 4: prices and expect customers to just eat it and get
Speaker 4: on board with it. So you know, I'm getting my
Speaker 4: margins squeezed. We're looking at our August collection right now.
Speaker 4: My August collection, unfortunately, is one hundred percent made in China,
Speaker 4: and we are making very serious trade offs about what
Speaker 4: we're willing to pay a big, big tariffs on and
Speaker 4: bring in versus what we're willing to let go. And
Speaker 4: also my factory partners, like this clothing has already made,
Speaker 4: August has already been made, sown, it's in a box,
Speaker 4: ready to get on a boat, and they're desperate because
Speaker 4: they've already put in their investment, so they're also negotiating
Speaker 4: with us, saying, hey, if I were willing to reduce
Speaker 4: my prices by.
Speaker 3: Yeah, that's what I was wondering. How to what degree
Speaker 3: are those conversations happening about the factory site eating the
Speaker 3: costs or giving you reduction.
Speaker 4: It's happening, I would say, across the board, you know,
Speaker 4: we're or they're saying, like, my goal right now is
Speaker 4: just really to be able to cover my costs. And
Speaker 4: you know, I was like, well, you know, I've been
Speaker 4: hearing these things about like the Chinese government doesn't want
Speaker 4: any of these factories to fail, Like like are they
Speaker 4: what's gonna happen? Is there going to be a version
Speaker 4: of you know, Ppe, the Ppe loan in China? Like
Speaker 4: how how how are you guys going to survive? They're saying,
Speaker 4: I think they're going to pump more money into the banks,
Speaker 4: but none of this money is directly coming to the factories,
Speaker 4: Like they're fighting for their survival too.
Speaker 2: What are the other levers that the factories can pull
Speaker 2: to try to offset some of the impacts, so you know,
Speaker 2: maybe offer discounts to clients but is there anything else
Speaker 2: they can do to sort of deal with the situation.
Speaker 4: One of my factory partners actually wants to launch am
Speaker 4: Laflur in China. Oh. He was like, Hey, I'm gonna
Speaker 4: be stuck with all this inventory. What do you think
Speaker 4: about m M laflur for the Chinese market? And I
Speaker 4: was like, go for it, like I've always wanted to
Speaker 4: do it. It's not it's not as though, you know, so
Speaker 4: like I don't know from from great challenges could come opportunities,
Speaker 4: but it's a long shot, I mean. And so we're
Speaker 4: also looking at that as well. And he's saying, send
Speaker 4: me all the product that's going to be stuck in
Speaker 4: China and let's see if we can actually launch a
Speaker 4: memla Flur China. So it's not as though, you know,
Speaker 4: they're not you know, they're also thinking of every creative
Speaker 4: solution possible. We're firing on all cylinders. And then of course,
Speaker 4: like there's the country washing that's happening. I know, I
Speaker 4: know that we're very careful about it and trying to
Speaker 4: make sure it doesn't happen.
Speaker 2: But this is the idea of moving production elsewhere totally.
Speaker 4: And I should say like finished product elsewhere right now, this.
Speaker 3: Is right, So it's not the production, it's basically live.
Speaker 4: It's exactly it's the product is finished, send it to
Speaker 4: a third country, switch out the label, and ship it
Speaker 4: to the United States. I've got three kids, so I
Speaker 4: can't end up in prison. But I know for a
Speaker 4: fact that it happens, and it'll probably happen a lot,
Speaker 4: and gosh, I mean, I'm sure the government will make
Speaker 4: an example out of a few of them, but it's
Speaker 4: going to be impossible to trace all of them, so
Speaker 4: that that's going to be that's definitely going to happen
Speaker 4: across the board.
Speaker 2: Joe, there is an irony in the idea that like, okay,
Speaker 2: Chinese consumers could end up having more clothing choices in
Speaker 2: the form of an mm Lafleur store in Beijing or
Speaker 2: something like that, and meanwhile, you know, the clothing available
Speaker 2: to American consumers is potentially shrinking.
Speaker 3: Well it's you know, I was actually talking to someone
Speaker 3: this morning and they're like, yeah, inflationary in the US
Speaker 3: and disinflationary everywhere else in the world because of the
Speaker 3: sort of blood of good.
Speaker 2: Yeah, the US is the one exporting deflation.
Speaker 3: Now, Yeah, that's right. It's actually it's actually kind of strange.
Speaker 3: The factories that you work with in China, what have
Speaker 3: they done either in recent years or when they look
Speaker 3: to the future about bringing their know how in capacity
Speaker 3: to other Asian countries. So then it actually is manufactured
Speaker 3: in Vietnam and how much capacity work it's being done
Speaker 3: on those fronts.
Speaker 4: Yeah, I mean, I think even from the last Trump administration,
Speaker 4: a lot of Chinese factories kind of saw the writing
Speaker 4: on the wall and so they were diversifying their sources.
Speaker 4: And so I have some factory partners that have opened
Speaker 4: up factories in Vietnam in the Philippines, and I mean
Speaker 4: it's it's kind of fascinating because all the workers will
Speaker 4: be Vietnamese, but the you know, the kind of leaders
Speaker 4: in the factory are all from Hong Kong, and even
Speaker 4: that is tough. Like I think one thing that's like
Speaker 4: not understood about garment manufacturing is it's a real trade.
Speaker 4: And your best sewers are people who have been doing
Speaker 4: this for decades, you know, like you're you're a baby
Speaker 4: sewer if you've only been doing this for like five
Speaker 4: to ten years. The people who make your samples, you know,
Speaker 4: your best sewing you.
Speaker 3: And this is another reason why it's fantasy, the idea
Speaker 3: that this can all be done us, because.
Speaker 4: They're just do you even know how to use a
Speaker 4: sewing machine? I don't.
Speaker 2: I just bought a sewing machine. I'm going to use
Speaker 2: it for the first time tonight. I'm very excited and nervous.
Speaker 4: Great, there you go. Those are most Americans, you know,
Speaker 4: very intellectual. They might know how to code, but they couldn't.
Speaker 4: They don't know the first thing about how to use
Speaker 4: a sewing machine. And they're like, bring garment manufacturing back
Speaker 4: to America. And I was like, people don't know how
Speaker 4: to sew a button on they bring it to the
Speaker 4: dry cleaners, Like, in what world is garment manufacturing actually
Speaker 4: going to come back? So it's just it's it's kind
Speaker 4: of preposterous to imagine that that's a future.
Speaker 3: And therefore it's even slow. And this at the level
Speaker 3: of quality that you expect for your clothes. It's not
Speaker 3: trivial to transport have those skills and capacity emerge into
Speaker 3: Cambodia or Vietnam.
Speaker 4: Oh oh my gosh. Yes, okay, So like I'm let
Speaker 4: me go back to silk, right because silk is silk
Speaker 4: is a very hard material. First of all, you need
Speaker 4: to start with like the mulberry trees and the silkworms, right,
Speaker 4: And I mean creating silk is a very long supply
Speaker 4: chain and a very difficult supply chain. China is one
Speaker 4: of the few countries that actually do it. And then
Speaker 4: sewing silk. Silk is super slippery, right, Like that's kind
Speaker 4: of you. You can make sense of it, Like trying
Speaker 4: to sew silk in a sewing machine takes a really
Speaker 4: skilled hand. So you know, China is the only place
Speaker 4: where we do silk, and I we literally don't have
Speaker 4: another country to move silk to, Like we're saying like
Speaker 4: maybe the Philippine can take it if it's owned by
Speaker 4: a Chinese factory, Like we're desperately looking for a new
Speaker 4: silk factory. I mean this, I say to all all
Speaker 4: people who shop for Christmas in Hanukah, like, buy your
Speaker 4: silk now, because you're not going to see it for
Speaker 4: a while.
Speaker 2: You mentioned earlier that you see recession on the horizon.
Speaker 2: Talk to us about why you think that. And then
Speaker 2: also like how useful or how accurate has the clothing
Speaker 2: business been in predicting previous recessions. I know, well, you've
Speaker 2: only been in existence for ten years or so, twelve
Speaker 2: years maybe, so there aren't that many examples. But I imagine
Speaker 2: like at this point you have some experience. Well it feels.
Speaker 4: I was just at like a retail industry dinner and
Speaker 4: they were joking like every year is a new black
Speaker 4: Swan event, and I was like, yes, I do really
Speaker 4: feel that way. From the pandemic to you know, Silicon
Speaker 4: Valley Bank going under to actually one of our other
Speaker 4: lenders also went under. And now this.
Speaker 2: I think SVB was a lender for you.
Speaker 4: Yes, we banked with sphoeb It was yeah, you know,
Speaker 4: seventy two hours that I never hoped to experience again.
Speaker 4: But I think what this is. I consider myself an optimist, right, Like,
Speaker 4: why else would I be an entrepreneur, and you know,
Speaker 4: be foolish enough to think that we are the one
Speaker 4: percent that will somehow make it through. And yet all
Speaker 4: these experiences over the past five years, I mean they
Speaker 4: have hardened me. I've definitely become significantly more conservative in
Speaker 4: all of my predictions and forecasting. And basically, you know, yes,
Speaker 4: everyone's saying like, oh, don't worry, Tariff's gonna like come
Speaker 4: down again, like you know, Trump's not gonna actually do it,
Speaker 4: like they're gonna call his bluff. And I was like,
Speaker 4: it doesn't matter. The damage has been done, like I've
Speaker 4: already cut my costs, Like maybe maybe he'll undo it,
Speaker 4: but then who's to say he won't do it again.
Speaker 4: And so I've clamped down on every expenditure possible.
Speaker 2: So on this note, you said April second, you had
Speaker 2: just finished your business plan, Like how do you actually
Speaker 2: incorporate this type of uncertainty into planning and hard numbers?
Speaker 4: It's really hard. And by the way, because I still
Speaker 4: don't actually know how much inventory we're going to receipt
Speaker 4: for the rest of the year, right, I went as
Speaker 4: conservatively as I thought I could without breaking the business.
Speaker 4: And you know, when we're talking about cutting costs, like
Speaker 4: there's no you know, people use the expression like cut fat,
Speaker 4: like there's no fat left to cut, like I'm cutting
Speaker 4: into the muscle. But you know, survival is the name
Speaker 4: of the game, So that's what we're going through.
Speaker 3: This isn't specifically terrif related, but since you mentioned it
Speaker 3: in the earlier in the episode, I'm curious, what are
Speaker 3: you seeing on the digital channel side. You mentioned, you know,
Speaker 3: fighting frideballs or selling through meta and all these platforms.
Speaker 3: What's the what's happening there that you're seeing.
Speaker 4: Well, we got in really early into the Facebook game. Yeah,
Speaker 4: I guess this was like we started advertising in twenty thirteen,
Speaker 4: twenty fourteen, and like, gosh, those were the Hey days, right,
Speaker 4: and we could acquire customers for thirteen dollars, which just
Speaker 4: like for context, I think now it's about two hundred
Speaker 4: and fifty dollars. That's probably understating it. It is massively
Speaker 4: expensive and yet probably still the most effective, right, And
Speaker 4: I think the lack of competition there is a real problem.
Speaker 4: Like we've tried Reddit to mix success, We've tried TikTok
Speaker 4: to mix success.
Speaker 2: You know.
Speaker 3: Actually another quick question, this is something I've wondered about.
Speaker 3: I don't many of the clothes that I buy, Like
Speaker 3: it's because I won't buy through Instagram or even buy online.
Speaker 3: But I'll see something that gets flashed to me on
Speaker 3: Instagram and then I'm like, oh, that's a nice shirt
Speaker 3: or whatever. When Instagram launched it's inside shopping where you
Speaker 3: could launch a store in Instagram, I was like, oh,
Speaker 3: this is a great idea, just like price a button,
Speaker 3: use Apple Pay and then I'll get it. And my
Speaker 3: understanding is hasn't taken off, and that actually there is
Speaker 3: not a lot of in app shopping still in Instagram.
Speaker 3: Do you have any view insight into that.
Speaker 4: We have not had as much success with that, But
Speaker 4: our price points also higher, so I can't really you know,
Speaker 4: I think if you're like buying a nine dollars hairclip,
Speaker 4: I mean, guilty as charge, Like, I think there's more
Speaker 4: success there. I think for something that's sitting at our
Speaker 4: price point, it's still Yeah, I'm not going to see
Speaker 4: instant conversion. Yeah, but it's exactly what you said.
Speaker 2: Your clothing is not an impulse buy for sure. I
Speaker 2: have impulse spot off Instagram and ended up with some
Speaker 2: strange products.
Speaker 4: Gosh, and they need they keep on mounting. Yeah, yeah,
Speaker 4: I guess I will just say. I think, as you know,
Speaker 4: small business owners like we can do everything right, and
Speaker 4: I think a lot of us won't make it. That's
Speaker 4: the truth. A lot of us will be out of
Speaker 4: business within the next six to nine months, and I
Speaker 4: think the consumer doesn't really understand that. I think actually
Speaker 4: even people who are in retail, who are one layer removed.
Speaker 4: Don't understand that. I was chatting with an executive of
Speaker 4: a department store and he was like, well, actually, sales
Speaker 4: have been great because everyone's rushing to get stuff, and like,
Speaker 4: I'm sure people will work it out for the holidays.
Speaker 4: And I don't know if people really understand how dire
Speaker 4: it is, you know, And yes, okay, like Trump's talking
Speaker 4: about you're going to get two stuffed animals instead of
Speaker 4: nineteen stuffed animals. I'm like, you're getting zero. Yeah, so
Speaker 4: my kids have enough. I mean, I know, same thought here.
Speaker 4: But small businesses won't make it. The big businesses will
Speaker 4: be fine, like gosh, iPhones.
Speaker 3: No, it's actually like a really big mass clothing line
Speaker 3: that's not as sort of nice and high quality, like
Speaker 3: when you think about like a slightly cheaper, much larger
Speaker 3: competitive I don't know the names. Maybe the two of
Speaker 3: you can think of a better analog than not than
Speaker 3: J Crew, yeah or something like that, Like what do
Speaker 3: they you know, we just eat some of the costs
Speaker 3: and they have distribute makers that can they have enough
Speaker 3: scale that they can force their producers to eat costs
Speaker 3: and just sort of you know, charge along.
Speaker 4: You know, I think for those retailers that have enough
Speaker 4: cash on the balance sheet. Yeah, maybe it's a risk
Speaker 4: they're willing to take. I think the other thing that's
Speaker 4: not understood necessarily about the tariffs is that you pay
Speaker 4: tariffs to the government basically as soon as the goods
Speaker 4: hit the US territory.
Speaker 2: Right, So there's some sufficial comes and like looks at it.
Speaker 4: And says basically, here's your own voice, pay it up, right,
Speaker 4: and you don't get like your thirty day terms or
Speaker 4: your sixty day terms that your factories extend to you,
Speaker 4: because that's actually the selling window that you need to
Speaker 4: sell your products to your customers. So it's actually a
Speaker 4: huge cash flow problem as well. Yeah, and you're bringing
Speaker 4: in these goods in not knowing actually if your customer
Speaker 4: is willing to eat the price hike. So again it's
Speaker 4: a gamble. Big apparel companies with huge cash lots of
Speaker 4: cash on their bounce sheets.
Speaker 3: Yes, they If you're a seller, if you're a factory
Speaker 3: seller to a small entity in the US, you may
Speaker 3: be reluctant to just let it ship there because you
Speaker 3: actually don't know whether that customer is going to be
Speaker 3: able to take delivery and pay at the very end.
Speaker 4: Yeah, that's I think that's a real consequence. That's a
Speaker 4: real consequence. But I think they're fighting for their survival too.
Speaker 4: You know, they're going to take something rather than nothing.
Speaker 2: Yeah, all right, Sarah Lafleur. It was so good catching up.
Speaker 2: I wish it was under better circumstances, but I'm glad
Speaker 2: we finally did that.
Speaker 4: Thank you. This was this was a blast. Thank you guys,
Speaker 4: Thank you so much. That was fantastic, Joe.
Speaker 2: That was so fascinating, and I am really glad we
Speaker 2: finally had Sarah on. It is kind of the perfect
Speaker 2: moment to talk about the textile clothing business. I hadn't
Speaker 2: thought of the cash flow issue of actually paying the
Speaker 2: customs coming. I mean, obviously I knew that companies have
Speaker 2: to pay the tariffs as things actually come in at
Speaker 2: the ports, but the issue of like the discrepancy between
Speaker 2: your selling window and when you actually have to pay
Speaker 2: that extra tax. I hadn't thought of that.
Speaker 3: No, there's all sorts of I mean, there's all sorts
Speaker 3: of wrinkles. No pun intended that the tariffs are creating.
Speaker 3: I really liked that episode because, look, we could talk
Speaker 3: to economists all day long about shortages coming or higher prices.
Speaker 3: So it's helpful to hear from someone.
Speaker 2: In business actually dealing. Actually, yes, all.
Speaker 3: Those things that economists are talking about are very real.
Speaker 3: You know, so much in there that was interesting, you know,
Speaker 3: starting on that last point that you mentioned, you know, again,
Speaker 3: a big retailer, like a J crew, they're going to
Speaker 3: have an easier time sort of smoothing out their cash flows,
Speaker 3: taking a ri making a bet, ordering a line than
Speaker 3: a company that's just you know, quarter to quarter for
Speaker 3: its survival.
Speaker 2: This seems to be a recurring theme in a lot
Speaker 2: of these tariff episodes, right, so we heard it in
Speaker 2: the gaming industry episode. The smaller players seem like they're
Speaker 2: suffering or will suffer a lot more than the big guys.
Speaker 2: And then when we spoke to the Lentil King of Saskatchewan,
Speaker 2: he seemed, you know, he was kind of sanguine about
Speaker 2: the whole thing. I guess because he's the biggest Lentil
Speaker 2: player out there.
Speaker 3: Yes, And the fact that it sounds like for AG,
Speaker 3: the idea of like small AG has sort of been
Speaker 3: disappearing for a while. I mean, what do you say
Speaker 3: he's at a family farm at this point in Saskatchewan
Speaker 3: means having three hundred thousand acres, which you know is
Speaker 3: not my conception of a little family farm. But then also, obviously,
Speaker 3: I guess I was surprised a little bit that there
Speaker 3: isn't more capacity or market depth in some of these
Speaker 3: non China countries like a Vietnam, like a Philippines, like
Speaker 3: a Kim so forth for the types of sewing and
Speaker 3: cutting that's necessary at this level. And so even at
Speaker 3: this point for something like clothes, and granted Sarah makes
Speaker 3: nice high end clothes, that is sort of still China
Speaker 3: or nowhere.
Speaker 2: Yeah, And I guess this is the other theme that
Speaker 2: keeps coming through that it's just going to be very
Speaker 2: very hard, slash impossible to try to build up that
Speaker 2: capacity and expertise in the US. And there's there's no
Speaker 2: way anyone's going to open, like I don't know, start
Speaker 2: growing mulberry trees and farming silkworms in the next six
Speaker 2: months or something like that. So, yeah, buying your silk
Speaker 2: now for Christmas? Useful bit of advice, Yes, all right, Shall.
Speaker 3: We leave nobody say that there is not useful advice
Speaker 3: on outlock.
Speaker 2: That's right. Shall we leave it there?
Speaker 3: Let's leave it there.
Speaker 2: This has been another episode of the Odd Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at The Stalwart.
Speaker 3: Follow Sarah Lafleur, She's at sm Lafleur. Follow our producers
Speaker 3: Kerman Rodriguez at Carman armand dash Ol Bennett at Dashbot
Speaker 3: at Kilbrooks at Kilbrooks. For more odd Loots content, go
Speaker 3: to Bloomberg dot com slash odd Lots, where we have
Speaker 3: a daily newsletter and all of our episodes and you
Speaker 3: can You should check out our discord where people are
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Speaker 2: And if you enjoy odd Lots, if you like it
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