Bret Schnitker, Emily Lane
February 11, 2025
Bret Schnitker 00:00
To make sure that that your partner, whether it's an agent, or whether it's a trading company, or whether it's, you know, your own sourcing division, making sure that they're actively today, visiting factories and understanding you know where that factory is in terms of current and future production demand, that's important.
Emily Lane 00:44
Welcome to Clothing Coulture, a fashion industry podcast at the intersection of technology and innovation. I'm Emily Lane.
Bret Schnitker 00:51
And I'm Bret Schnitker. We speak with experts and disruptors who are moving the industry forward and discuss solutions to real industry challenges.
Emily Lane 00:59
Clothing Coulture is produced by Stars Design Group, a global design and production house with more than 30 years of experience.
Emily Lane 01:09
Welcome back to another episode of Clothing Coulture today. We're back at the bar because we've got hot topics to address, and we wanted to make sure and get this conversation out to you quickly. We are in a new era. We've been talking about this era on the horizon with concerns of tariffs being tossed around over the last several months. Now here we have some announcements in play.
Bret Schnitker 01:32
We do I havent heard?
Emily Lane 01:35
With the announcements of these tariffs, which still aren't quite settled as to what's happening, but we know things are happening. We see a looming trade war in our future, and there are a lot of people that questions about what's going to happen to my business, what's going to happen to my factory partners, what's going to happen to our supply chain in general. So we thought, let's take a let's take a seat at the bar and kind of talk through some of these, some of these questions.
Bret Schnitker 02:01
Yeah, certainly it's, it's an interesting time, especially for our industry. Our industry is pretty sensitive to these things, because, you know, in the US, there's not a very large factory base to support those, not a ton of alternatives. And our industry, in different sectors have relied really heavily on China. You know, to date, we've, we've seen, you know, a possible 25% tariff on Mexico and Canada, only to be repealed based upon some movement. You know, this is, you know, kind of The Art of the Deal politics as as Donald Trump, you know, has written in his books. He's, he's working to get some things accomplished for the United States. You throw something across the table, and there's ramifications if they don't come to the table and negotiate. So you know, you don't know what the long lasting implications are going to be short term. Certainly we're looking that China is still sticking at 10% tariffs in our industry. China is a very important manufacturing partner, especially in certain industry or
Emily Lane 03:08
categories,
Bret Schnitker 03:09
categories, yeah, of product and so, you know, these are certainly going to have an impact on manufacturing relationships, manufacturing partners. And I think people are concerned about what to do?
Emily Lane 03:20
Yeah, you know that some of the challenge we're seeing right now is that it's not a there's, it's, there's not a specific time in the future that this is going to happen. It's actually on the cusp of being implemented. So there's not a lot of time to to make plans. Yeah,
Bret Schnitker 03:38
traditionally, you would expect that an announcement would be made and a certain deadline in the future that tariff would go into place. So for people that have production in American companies for production, manufacturing that's either in process or on the water, in route, many times, anything that is left or en route is usually some in some ways protect kind of grandfathered in, yes, and we'll see. But for for people that have put things in, it gives kind of a clearing time for for production to move through, and then proper decision making in terms of future production can be made today. We don't know, you know, across, you know, the news channels, it's immediate from us, Customs and Border Protection. They're saying, Hey, we haven't got the official notification that that 10% is is permanent yet. So, yeah, it's, it's, it's an interesting landscape. So,
Emily Lane 04:35
so just to be clear, to that tariff that is on the the importer, so the company that is bringing those get in that's who's paying that tariff? Correct? Yeah.
Bret Schnitker 04:47
I mean, we've had these conversations before, duties and tariffs are taxation on importation. So that means that US companies that import in mass are paying. Paying these taxes to the US government. And duties have always been in place as taxation or protection of certain categories and protection of us categories that are being manufactured here. And then tariffs are typically duty is a tariff. But then there's these punitive tariffs that go on top of that, that are placed if, if, if the government believes that a certain country isn't playing nicely, right? And so, depending on the categories already, China has been slapped with tariffs from both previous administrations and in our particular area, in apparel, you know, those tariffs have been seven and a half percent to 25% depending on category. Now that 10% is now taking things to 17 and a half percent and 35% on top of existing duties, which range from as low as 3% to 32% so, you know, it can, it's, it's quite a heavy, heavy taxation on imports, regardless. Yeah,
Emily Lane 06:17
so you're, you're basically your companies are going to be losing profitability and not planned, right? So that is money coming in that goes to their bottom line that is now going out the door.
Bret Schnitker 06:29
Well, the hope is there is some there is some conversation going on to protect American companies that are importing goods in the short term, and give them some warning time, or some some time to rectify that, and we'll see it's it's really unclear.
Emily Lane 06:52
What do you anticipate this looking like for the supply chain in general? I mean, talking about a massive disruption?
Bret Schnitker 06:58
Yeah, I think specifically for China itself, we have to kind of look back to the history of Chinese manufacturing and apparel. And if you go back seven years, eight years, China really wanted to move away from manufacturing apparel. They wanted to manage textiles and all the trims and all of that. They could do that in mass and do that very effectively, but they really the intention was that the workforce was going to move into more value added products like technology and appliances and things like that this. And then, you know, there was some volatility in that sector, and that kept apparel production around a little bit longer. And that if as tariffs started increasing, and remember, this is a US thing right now, there are other countries that that have duties and tariffs in place, but this whole penalty, this whole kind of war in general, is a China, US conversation. China is still supplying other countries around the world that have larger populations. We just happen to be a very, very big consumer nation. So that is going to have an impact on China. It has had an impact on China. It's going to continue to have an impact on China. And as those tariffs continue to go up, you know, factories that have been around a long time, small and medium factories, even larger factories for CM, cut and make, right? You know that are actually assembling garments those there is going to be decisions that those factories are going to go away. And the Chinese, you know, they're not stupid. They're really good at understanding global economics and and manufacturing, and they've already aggressively put things in place for cm offshore. Cambodia is growing with Chinese investment. Vietnam has already been there. There's there's some challenges in Vietnam, because the Chinese and the Vietnamese don't super get along, right? But they're looking to other places, Bangladesh, Sri Lanka, you know, all this Southeast Asian kind of conversation, the Chinese are investing see them offshore so they can kind of enact what they had wanted to do maybe seven years ago, where manufacturing of fabric and trims and all that gets put into a container, shipped to a port, And then more affordable labor in some of these other countries will make it and then that coo will be outside of that whole tariff kind of conversation.
Emily Lane 09:29
Okay, so let's look at existing resources. You we, we've covered a lot of ground here already. You mentioned that you know, some of these partners you know, may have to close their doors at some point, because, you know, the people are looking elsewhere in the world, right? So what happens if you're reliant on a couple of these partners because this is their specialty, and you need that specialty for, you know, what you're developing or presenting? To your customers. What are some what are some signs that you know it is time to be looking elsewhere?
Bret Schnitker 10:09
Yeah I would tell you that there are certainly signs right now. You know, with it, with a potential trade war with China coming, you know that that's going to impact the costs within China. Therefore people are already finding alternative places to produce if they can, and that's going to impact overall production in China. Therefore there's already, if you're, you know, if you're looking at Chinese news, or you're looking at kind of reports on the ground, there's already a condensation of factories. There are factories that are closing, cm, factories that are closing, they can't keep things open. There's a lot of conversation for the average Chinese factory that's out there is, you know, what kind of an impact are they going to have? A majority of their business is European, 80% European, 20% us. They're they're protected. But you know, if they're doing a lot of business with the United States, Chinese factories are definitely going to decrease, and so you got to be very careful. One of the big things that sectors that are really impacted by that are startups or smaller companies that are reliant on small batch production, because you've got to have that close to the mill, you've got to have mill and trims, and then it moves directly. And so some of these offshore alternatives don't really work very effectively for those companies, and they're going to be really heavily affected. So the warning signs to get to are
Emily Lane 11:34
You just read my mind, warning signs.
Bret Schnitker 11:36
Warning signs are, if there's a political trade where you know that's going to impact on the country. We just said that two, if you're, you know, being present in those countries, or having a partner that's present in those countries, they can readily identify specific factories that might have been full in production. And as you go into those factories now, a lot of the lines are empty. They're not they're not running.
Emily Lane 12:02
Boy, that's a warning sign, right?
Bret Schnitker 12:04
It has always been a warning sign. One of the things that when I was years ago as a young buyer, there was a really great sourcing professional, and he said, You know, I can walk into a factory, and we've talked about this before, I think, but I can walk into a factory before I even see the factory, I can listen, yeah, and if you don't hear the constant whir of machines, sewing machines, this constant hum, and you hear this, chug, chug, chug, stop, chug, chug, chug, stop, that's a warning sign. Immediately, I don't even have to walk into a factory. I already know there's no efficiency. Lines aren't moving, and so certainly, whether it's hearing or seeing, if you see a factory partially or wholly empty, that's a huge warning sign. That's just kind of an obvious thing. Unfortunately, a lot of people aren't traveling to China today or traveling to some of these different countries. This kind of goes globally. These warning signs go globally. But make sure that that your partner, whether it's an agent, or whether it's a trading company, or whether it's, you know, your own sourcing division, making sure that they're actively today, visiting factories and understanding you know where that factory is in terms of current and future production, demand, that's important. And looking at that for sure, there are warning signs, lack of communication, delivery delays. If finances are tough, they can't afford to buy fabric and trim. So therefore, if they don't come in on time, if you've got you know your pulse on the on the factory production, and you're seeing delays of fabric coming in. It could be a warning sign. You know, in some countries like India today, larger mills are just fully booked, and they're backlogged because of people escaping China, the migration. And so it may not always be that the factory has placed things late, but that is something certainly cautious. Determine which, which is it sure you can ask for when invoices were open, by fact, by the factories. If you have communication upstream to Mills, you can have those conversations. If you have people on the ground, there's usually a pretty good network of people understanding the health and non health of particular manufacturing organizations. So, you know, it is being involved. It's being it's communicating with that factory partner consistently. You know, I think those things are really important.
Emily Lane 14:36
What should someone do if they've lost a key resource and that was unplanned. You know this their their partner shuttered their doors. Yeah,
Bret Schnitker 14:45
that can be a really expensive situation, because, you know, anyone that's been in production a long time knows shifting to a new resource, you've got your startup challenges. You've got relationships to build. Um. So the best way to avoid those situations is to be proactive at the beginning, making sure that you either have diverse you know, when you have a stock portfolio, you don't put all your money in one stock, because stocks go up and down. Same thing with manufacturing portfolios. Make sure that either you yourself have a good portfolio of manufacturers that if one becomes problematic, you can shift it to another in a particular category, or make sure that your partner in manufacturing, trading company, manufacturing, partner in the US, whatever, has a good portfolio of companies, factories, if they do have conversations with them about that volatility, and understand how many factories they have within their portfolio, how easily they can manage disruption in supply chain. How can they move from one factor to another? Diversification is really key. That's been something that for years, has been important in manufacturing. It's important to be a good partner and have a lot, have good amount of volume going through a factory, but there is always this kind of balancing act to make sure that you do have alternatives. If you don't, starting over can be problematic. You need to immediately align yourself with someone that understands the ground, the ground in a particular country, understands the manufacturing network, because they're going to help you avoid a lot of pain and shifting from one factory to another, having people that understand, you know, these factory networks, partnering with those individuals. It's really important, because you have to make a shift quickly. And today, one of the things that complicates the landscape too is that as people are migrating, let's say, out of China, because of the in the US, because of certain situations there, you know, this trade war or political kind of influence other countries and factors are filling up. And so there's less in the good factors. There's less of an opportunity to get into a line quickly, because they might be booked up for months. And so not only having relationships with partners that that that have these large relationships, but have a wide enough network so short term you can fit into a really good, medium or small factor that might have some some opportunity to help you out. The short term is good too.
Emily Lane 17:38
What is that balance between having a good, diverse portfolio and being almost overextended, you know, like having too many partners. What's, how do you how do you measure that the right way, make sure you've got a healthy balance and not
Bret Schnitker 17:56
Yeah, that's kind of a complicated question, and I think it depends on the size of the individual organization, right? You want to make sure, ideally, that you've got consistent today, it's kind of important to have consistent production going through. If you can a factory monthly, you're developing a good relationship with a factory. If you've got, you know, if a factory's capacity is 60,000 units a month, and you're throwing in 5, 10, 20,000 units a month. You're important to that factory. That factory is going to put you first. It's an important relationship. Most factories kind of have their own portfolio with clients, because the volatility goes the other way. If you remember COVID, a lot of factories got stuck with production. So a lot of factories kind of have a rule. They don't want one client bigger than 10% if they can, and that helps them avoid it. So understanding what factories monthly production cycles look like on an average, and then figuring out, oh, can I be 10% of that production? Then you kind of fit within that ideal matrix for a factory, and that will help you identify that situation. And if you've, let's say you've got 6000 units a month and a 60,000 units month factory, and you're 10% yet you have demand for 18,000 units a month. It might be a good idea to have a couple factories managing that 18,000 units a month, and that way you've got that diversification, right? You could do 6000 a month in three factories, if they're all independent styles. They all, you know, manufacture to the same level. Those are kind of important decisions to think through. But always have an alternative. Always have a backup to the principal factories that you have, because that volatility in 30 years of business that I've been through there, it happens. Yeah.
Emily Lane 19:52
So being proactive is key. Having a diverse portfolio is key. Having presence on the ground will help me. Sure,
Bret Schnitker 20:00
making sure your partner has presence on the ground where they're communicating with
Emily Lane 20:03
you, yeah, well, what do we do in this interim period where things are not exactly clear? What is happening? You know, if you're a company that brings goods in and has has locations in Europe, in Canada, in Mexico, and you're trying to figure out the best strategy, as you're you know, in the midst of bringing programs in, what kind of advice do you have for people?
Bret Schnitker 20:29
Well, it depends on what your supply chain looks like, in some cases, in the US, depending on their setup, they bring all the goods into the US, and then they distribute to all these other locations around the world, if they've got outlets in Europe or Canada or wherever else, our recommendation today is, is start to set up supply chains direct to those countries, right? So making sure that if, if, if you're a US based company that has consumers and stores or, you know, distribution the US and you have it in Canada, start looking to make sure that you've got a warehouse partner in Canada, that you can ship things directly to Canada, or you can ship things directly to Europe, that can help avoid some of the current instability that might be occurring as the US government today starts implementing, you know, some of these things, and we don't know, ultimately, you know, how far reaching that's going to be, but we certainly know it's going to be there. And I think making sure that you, you're, you're shipping direct to, you know, your outlets around the world are an important first step, for sure, keeping your as much as you can, making sure that you've got consultants that are dialoguing with you about what's happening on the ground, what the expectations are, you know, implications are coming up, and making sure that you're diversifying to countries that might be less volatile, and that's easier said than done, that certainly takes time, but there are countries of manufacture that are popping up and becoming a lot more important, as we're dealing with, you know, key trading partners in the past that are now becoming, you know, you know, targets, I guess, or right focuses of the US government's attention.
Emily Lane 22:27
Well, we'll make sure to update this, the document that we created a couple of seasons ago when we were talking about the strengths and weaknesses of various countries of manufacture, so that we can include some of these new areas of opportunity. And if you are interested in taking a deeper dive into that and looking at some recommendations of places to go, of course, Stars Design Group, we are here to help you navigate this very complicated landscape that is ever changing. I feel like we're always at the bar going, Oh, we're in a complicated world. New things are happening.
Bret Schnitker 23:00
We're never bored in this industry.
Emily Lane 23:03
So we are here any final thoughts to share on this topic?
Bret Schnitker 23:06
Yeah, I know it's I know it's an uneasy time, especially for our industry. There are a lot of organizations out there that are lobbying to protect the interests globally. We talked in previous episodes about de minimis and the disadvantages that you know China has bringing stuff in that are de minimis versus us importers, all of those situations are being discussed today. And you know all things, you know that in chaos, there's opportunity. You just need to really, really stay the course. Protect yourself, understand that in the short term, there might be some additional costs. Those costs will unfortunately be passed along to the US, customer, consumer and and prepare yourself and prepare your consumers for that dialog.
Emily Lane 24:00
Well, thank you so much for sharing these thoughts. No doubt we'll be back here at the bar to keep you apprised of changes in the situation, and don't forget to subscribe so that you can make sure to stay on top of all the news in our industry. Thank you for joining us.
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