Episode 2: Tiny Satin Ribbon Bows, or Somehow We Talked About Walmart Twice

Amanda

Okay, so now we’ve talked about why all the costs are the ingredients in your garment. But now we’re going to talk about the math that forces us to make decisions, and this is a Janine specialty, so she’s going to talk about every buyer’s least favorite word, margin.

Janine

Okay, so what is margin? So there’s two different kinds of margin that any retailer is talking about. And I just want to make a distinction between those two. So the first one we’re going to talk about is product margin or gross margin, I’m going to call it gross margin from now on. And this is basically the difference between how much you sell something for and then how much it costs to make. So in simplest terms, this is how much profit you’re making on the individual garden. So for example, if it costs me $5, to produce this t shirt, which we gave you all the reasons and all the things that can add into that cost, and then I sell it for $15. My gross margin is $10. A lot of people that don’t work in retail, think that that means that the business made 10.

Amanda

Oh, no, definitely not.

Janine

And it’s, it’s not, because there’s so many other things to pay for us. So like, if we just had the t shirt to pay for like, excellent, like, business would be great, right? But that $10 also has to cover all the other costs that are associated with running a business, right? The salaries of all the people that work there from headquarters to store associates, the rent on the HQ, buildings, any retail spaces, marketing, marketing is huge, huge cost, like everything that like you’re trying to do on social media, and you know, in the internet, and everywhere else to sell your product at all cost money, your website, all these things. And so I think it’s just important to clarify that that gross margin is what we call a top line margin, which means like, that’s just how much money you made off of selling the thing has nothing to do. Well, it has something to do. But the bottom line, what you actually how much money you actually make from this business factors and all these other costs. And so just because you made money, say that same T shirt I bought, it cost me $5 To make I sell it for $6. Just because I sold it for $1 more than it cost me to make it doesn’t necessarily mean that I’m going to make money because I have to cover all these other costs. And so when we think about bottom line margin, or profit margin, this is actually how much money you’re making, after all of those other costs. So after I pay everyone, after I pay the rent and the utilities, after I pay some goofy influencer to slang my thing on Instagram, then all that stuff. That’s my true, that’s my true pop profit. And that’s my true bottom line. So gross margin, and then this like end profit margin, those are the things that are really like driving is your business making money or not. So just looking at gross margin, which is the thing that buyers and planners and whatever, that’s the metric that we focus on, there’s really two key metrics that drive that margin. It’s the cost of producing the item that we’ve been talking about. And then also the price of the item sells for. And the price of the item sells for is not necessarily the ticket price, or the retail price.

So I may retail that T shirt at $19.50. Full and well knowing that I’m going to put a 25% off sale on it. And so it’s going to sell at $15. And so that’s that’s Old Navy, that’s Macy’s, that’s that’s Gap, actually Banana Republic, all the Gap brands, you know, that’s a lot of retailers. Their business is driven by discount and promotion, but also even any bougie online retailer, you typically get that sign up for our email list and get 10% off, right? Yeah, all of those coupons, you’re listening to a podcast, you know, put in, you know, podcast 12 code and you know, get you know, $5 off your first order, all of that is eroding that ticket price, and eroding that margin. So what’s important to remember is the margin is the final price, or like what the customer actually pays. So we have to consider all these other discounts that erode the ticket price. So thinking about this, if you were a business and you wanted to increase your margin, would you try to increase the selling price to customers? Or would you try to save money on the cost of products to produce your items? So I think it’s kind of I mean, not everybody’s going to have the same answer to that question. But I, but retailers generally try to drive those production costs down, rather than increasing the price to the customer. Because it’s an easy way to increase profit without asking customers to pay more. And there’s an ever increasing sensitivity to price, it seems, especially with the advent of the hellhole of Amazon and stuff like that, that like people are just trying to get something for the cheapest price possible. They’re cross shopping on all this. So there’s an ever increasing effort on the retailer standpoint, to not increase price. And if anything to compete on price, and drive that price, the ticket price down, as well as drive that cost down.

Janine

And so this is all to kind of say that you can see where the margin component here becomes ever more important and really kind of like the key metric in terms of the overall overall profitability, and then inevitably success of any business. What’s crazy, though, this is another thing I feel like nobody knows. So whenever you hear, I feel like non retail people speak about the markup markup is another way of talking about the margin. Its markup is talking about the ratio of the retail price versus the versus the cost of a good, you hear people say, oh my god, they sell it for five times what they paid for it, or it says, you know, 90% markup or all of this, that may be true. But when you look at the bottom line, the profit margin is, I mean, Amanda’s got some numbers quoted here, on a fast fashion side at 16%. On a specialty store like ModCloth, or Urban or something like that, it’s more like 7%. So surely, you may have this high markup and this high margin on the product side. But that doesn’t necessarily mean that your profit is going to be there. And then also, just just to mention, like for funsies, if we’re talking about more facts, there is a difference. From a fast fashion versus like a specialty retailer, the gross margin. So this is the ratio of the cost to the retail price. For specialty for my experience is somewhere between 50 to 75%. on the high side, maybe you might get a knit t shirt or something that you could sell that had an 80% markup or something like that, or sorry, 80% margin in fast fashion, that’s like 75% to 90% or more. So really, when you’re buying fast fashion, you’re getting these like really, really low cost things that like God even knows how they made it so cheap. And then with a super high markup. And it’s just, that’s the way that the reason those businesses exist is because those, those margins are there, and they can drive a profitable business because they pay so very little for the cost of those goods.

Amanda

Yeah, that’s kind of scary to think about someone making a 90% margin off of something that costs $20. Actually, while you were talking about the statistics, I was like, “Oh, that Job was fast fashion.” Like, it was like thinking they’re all like, different margin targets over the years. And that’s, that’s really scary to think about buying something that, you know, only 10% of what you’re paying for is the actual cost of making it I mean, that is like, terrifying to think about, especially when we’re talking about things that are like 20 $30 $10 In my experience, accessories are even higher margin. So like a pair of jewelry, sunglasses, hair barrettes these things are money in the bank. And they’re really important for retailers to sell, because they help cover those costs that we were talking about that aren’t part of the product like marketing and rent and, you know, store staff, etc.

And I will say, when when you’re armed with this knowledge to take a step back and think about the retailers that you see out there with the most advertising with the most marketing presence, the ads that follow you around the internet, the commercials on television, the billboards, the influencers in huge parties, and on and on and on. Those people are taking a massive markup to cover that stuff. So I’m not going to name brands that I’m thinking of but like if you yourself take a moment then yeah, that’d be a good one. Or you know, okay to be honest, I was just thinking Nike, like, oh, yeah, they I mean, they have a huge campus if people all over the world. They have crazy elaborate sports contracts and expensive commercials with Weiden Kennedy and they are just spending that money. So it makes you wonder what percentage of the shoes like? What’s the markup on a pair of sneakers, I don’t want to think about it. So just something to be mindful of. I think it is interesting when we’re talking about things that are intrinsically not that expensive. And like, for example, sneakers are not that expensive in the grand scheme of things. Yeah, thinking about them having a high enough margin to cover all those marketing expenses means that they have a really low cost. And they will tell you, for example, sneakers have a very high duty because of the rubber soles. So that means the cost of making them when you take out that duty, and everything else is so small, that you have to ask yourself what’s going on on the other side of it.

Janine

I will also fun fact, this is something I learned only a few years ago, I did not know. Ross, TJ Maxx, all of those off price places. You’re like, oh, cool, like, I can get a pair of Nikes here for $39.99. Like, these are just the same as all the other Nikes. They’re just cheaper. No, those are specially manufactured for those off price. My gosh. Did you know?

Amanda

Yeah, I guess I did. But I didn’t. You know what I mean?

Janine

But yeah, I mean, I used to work with a girl who I forget, I forget if she worked at TJ Maxx or Ross I forget which one it was, but she was like, oh, yeah, like we just have them make us. shitty Nikes. So all the things that we were talking about, like the make of the product. So like, the quality of the shoe laces? Like, are there grommets on like the lace? I don’t know what you call those, like the lace holes. You know, the quality of the rubber? Like, what is the insole? Like? Is it leather? Is it pu or fake leather, like all of those things like all of the bells and whistles, they’re like, Yeah, we just have them make us like shooting Nikes that like just don’t have all that same quality in them. And so then they can retail them for 3999. And Nike doesn’t care because really no one that’s like trying to buy $120 pair of sneakers, is shopping at Ross for it. And so it doesn’t cut into their business, it’s just purely a different customer and they just sell to that it’s a whole different channel for them. This is also, I I think most people know this now, but maybe they don’t. Most outlets like banana republic factory got factory that is all 1,000,000% just produced for the factory store. That is not a product that was taken like in what people think of as an outlet and in traditional sense, taken from the full price store and then sold off at the discount store. Not at all. I mean, I’m sure there’s still some true outlets, but any of these like outlet chains that you see in like Gap, Gap Outlet and Banana Republic factory are the two ones that like really come to mind for me, obviously, because I used to work there. But those are just cheaper, cheaper versions, J Crew factory is the same cheaper versions of the full price item, or it’s also the it’s like they actually market to an entirely different customer. The customer that they they tailor their product for is a different type of customer, different type of family. Fascinating, but it’s also it’s just a lower cost, a lower cost and a lower price option. It’s not the same thing at all. I’m sure yeah, there are certainly still traditional outlets that are out there that sell discount merchandise that didn’t sell in the stores anymore. But for the most part, most of those, at least on the fashion side, I think probably there’s some furniture ones that probably sell like the leftover furniture and stuff. But um, all of the like most of those. Most of those like outlets are all just purely like lower quality, lower cost product that’s just purely manufactured for the outlet, right?

Amanda

And don’t get tricked…stay away from outlet malls!

There’s nothing good going on there. And I will say like, from the buying end, I often find myself in a position where I really want to buy something, but I can’t make the cost and the margin workout. So then it’s time to start making changes to the product to hit those numbers. So let’s use a less expensive fabric. Let’s take some volume out of the skirt. Let’s lose the pockets. Let’s make it a little bit shorter. Let’s shift from numeric sizing to alpha. I mean, I could go on and on the things that we do to hit these costs. And so the product can change quite a bit. At the end, product sometimes is almost unrecognizable. And imagine a situation in which you are buying for a Gap Outlet. And you want to make product that feels like it’s the gap, but is half the price, still have the same margin targets, what kind of changes you’re going to make to get there, I mean, once again, don’t get tricked by the outlet, but know that these kinds of decisions are being made constantly, because retailers have such a fear of raising the cost to the customer. And so instead, the decision is made that would be better to just sell you less for your money, but not make you pay more money. I don’t know. It’s, it’s hard, right?

Janine

And I will say, to some extent, it’s not the retailer’s fault, it’s really our fault. It’s the customers fault. Absolutely. Because the customer doesn’t know can’t tell the difference in quality. Like, mean to the trained eye, like, as I was saying, like twisted seams or like shitty zipper, or like these other things like, to the trained eye, you can tell but to the average person, they really can’t tell. And that’s what that’s what the retailer is baking on is that they can pull a fast one on you and put in these lower lower quality options and still charge you the same price for it and that you’re not going to notice. And there’s also things like, I mean, with the washings, and other things like that, that you can’t possibly know how it’s being done. And so all of it to say like that is like just like, if you can become more informed as a consumer, and also understand the difference between some of these things. So you understand, Okay, why does this shirt cost $19? Why does this shirt cost $58? A shirt, a cotton tank top, which I will say it was a nice looking cotton tank top was advertised to me on Instagram yesterday. I swiped it was $50.

But I’m also unemployed right now. So just like the idea of spending $58 on a tank top is comical to say the least. But I especially in anticipation of this podcast, I was like I understand I can dig in and understand why they’re charging $58 For this like it probably this probably does cost them $58. I can buy a tank top for target for $9 or probably less to be honest, yeah, sad. And I understand why it costs $9. And so then, as a consumer, I can make an educated decision for myself if do I buy the $9? tank top? Or do I buy the $58? tank top? But either way I understand the consequence of of my action. And I think that’s what Amanda and I are trying to do with this is to help you understand why do things cost more? And what are the trade offs? And why would you? Why would you choose to do one versus the other? And then you can just make a good decision for yourself?

Amanda

Totally. And also, it’s about the use, you’re going to get out of it. If you really need that cotton tank top, how many do you need? And how often are you going to wear it and I would just really budget it that way. The reality is if you’re just buying a tank top on a whim, you probably don’t need either. But if it’s something that you need, you’re like, hey, I get sweaty, I like to wear this tank top drive a bike to work, I’m going to need one for every day of the week, I’m going to ride my bike to work 300 days this year, then I would say buy a couple of $58 one and wash them out in your sink versus buying, you know, 20 of the $19 one, but I mean, there, there are plenty more ways to slice and dice this. So we’re going to talk about now, the question that I hear so often. And we’re kind of touching on right now is why is and this is all in quotes, because you know, I have a lot of skepticism about these words. Why is ethical sustainable, slow fashion clothing more expensive? And what’s complicated? I don’t know if you’re picking up on it. Yep. This shit is. So when Janine and I were working on this, we’re like, Okay, why should it be a more expensive? Like, let’s start there?

So let’s start with those reasons. And these are the reasons why you should spend more money but spoiler alert, I’m gonna give you some other reasons that mean you shouldn’t spend more money. So it’s complicated, as we’ve said. So one is paying the fair wages and benefits to the sewers and the finishers. The people who weave the fabric who pack the shipments of the factory and so on, basically anyone who ever touched that garment with being paid fairly, are they being offered benefits And that touches on safe and healthy factories now as Janine said, sometimes a lot, not even sometimes a lot of many of retailers don’t even know Really 100% What’s going on in their factories. You want to make sure that these factories are obeying fire codes, that they’re clean, that they have functioning heating and air conditioning. I I don’t Janine, did you ever work out of the office? For Modcloth in downtown LA?

Janine

Oh, of course.

Amanda

Okay. So, oh, yeah. From the windows, I want to say, sit in the bathroom. I can’t remember. They’re in one of the conference rooms or something like Chanterelle or something. You could look out across the street and there was a building across the street where there would be women’s sewing clothes all day. Yeah, you’re talking about no air conditioning, the windows open windows open. Yeah. And I mean, we’re talking like, literally a sweatshop. I mean, you don’t want to buy clothes that were sewn by women who are almost throwing up from being hot, you know? And that’s it. That’s an America that’s in America, right goes back to the idea of Made in America kind of meaning shit. I’m gonna show you these factories are not overcrowded. As Janine touched on earlier, the Bangladesh factory collapse, there are way too many people in that factory. And they only have one exit. So just, I mean, how can that exist in this century? If you want to do it, right? You’re gonna have to build your own building. Like, it’s gonna be really hard to take an existing factory and make it up to code. I mean, you see people trying to renovate houses, and you hit a wall where you’re like, I can only put in so many bathrooms, you know, this is like a similar situation. And at the very least, you’re gonna have to pay an engineer to analyze the building and determine it any modifications to make it safe. But just going back to this, most brands don’t own their factory. So they’re definitely not going out there. And renovating factories?

Janine

No one is doing this.

Amanda

No one is doing that.

Janine

I mean, no one’s doing this.

Amanda

Do you think that a lot of these retailers are just raking in the dough, and everyone at the top is like swimming in a sea of money like Scrooge McDuck? It’s so not true. If I mean, if you haven’t seen the number of bankruptcies and for all these retailers and brands, just in the past couple months, you know, now that retailers are swimming so close to the abyss at all times. So they’re definitely going to start renovating something they don’t own. I mean, honestly, I have a neighbor, my next door neighbor rents just as we do, and she paid someone to come and rip the tree out of the backyard. And it drives me up the wall, not just because our shade is gone. But I’m like, Why did you spend your own money on this? Like, oh, my gosh, I’m so cheap, guys. I’m very cheap. Anyway, so factories we like we’re saying, if, if a company is super, completely vertical, meaning they own their factory, and it’s a good factory, I’m down to pay double for something for sure. To ensure that no people are suffering to get me this tank top right. Next are the fabrics. I feel like we’ve beaten this horse to death. But you want fabrics and trims, they’re going to stand the test of time. I have been doing a lot of reading. The average American doesn’t even wear most of their clothes eight times in total. Wow. I know. So this goes back to like, buying less, buying things you love and wearing them all the time. But when you do that, you need to buy things that are going to stand the test of time. So I’m going to cost more money. But if you’re buying less clothes, and they cost more money than when you’re buying a lot of clothes, they’re cheap. It’s a breakeven point, right? I don’t know. It’s creative accounting, but it makes sense to me. And then being environmentally responsible is really, really expensive. And I was telling Jeanine before we started recording or just doing some little like warm up chitchat about how I’m been working on an episode about denim, it like made me cry multiple times, because the process of making jeans is so bad for the environment. So get ready for that exciting episode, coming in a few weeks.

Janine

And it’s also especially with the dyes and washing and all that stuff, like the way that we’ve been producing clothes has been done the same way for a long time. And so there’s also just and we also do it in these developing countries and stuff like that, where there isn’t a lot of technology and infrastructure and into change the way that things are being done. And so in order to change a process, it’s incredibly expensive to build a new one. I don’t even know what you would call it like Plumbing and stuff like that to clean this clean the water or reuse the water however it’s done. I mean, a lot of a lot of these dyes that like washing dyes and stuff are just put into rivers, which is crazy, but like, that’s really cheap to do because you just dump But out the back, right, in order to do it more ecologically responsible, you would have to create a whole new system. So it’s not even just like, there’s a different way to do it, it’s creating a whole new system.

Amanda

And when you don’t own the factory, you’re like renovating something you don’t own once again, you’re having the tree cut down in the backyard of the house, you don’t, don’t like the tree. But I will tell you that for all of us, doom and gloom are throwing at you, and it will be reality if there is technology out there to make all these processes more sustainable, and better, and better for everyone involved. But they’re expensive. You it is much like Janine was saying you have to redo the plumbing, if you will. And that is a lot of capital that factory owners don’t have. Sexy, not sexy. And the the other thing is that if we could get all this, this is pie in the sky idealism, if we could get all the retailers in the world, or at least the ones they’re going to survive COVID to agree that this is the new way we make jeans, or this is how we make T shirts. Now we only grow cotton without pesticides, etc, etc. We could get everyone on board, it would become less expensive. But 100%. Right, once again, knowing that these brands don’t own their factories, think about it’s not very compelling for the brand to come to the factory and say like, Listen, I’m gonna need you to put in about $100,000 in renovations, so that the stress can be sustainable. Like, it’s just not gonna, it’s just not going to happen. People are going to be like, No, yeah, there’ll be no, but if if I can say this, if like, Zara came to the table and was like, listen, assholes, we’re going to start doing this 100% Right. People would listen, and things would happen. And yes, our costs as the customers might go up a little bit, but it wouldn’t be like 100 times what it is right now or even 10 times. It’s always a numbers game.

Janine

I’m going to say something that’s probably slightly contentious. And you can say that I’ve been brainwashed. But um, so if anybody knows well, ModCloth, the company used to work for, were bought by Walmart at one time, which was a whole thing.

They’re actually now not owned by Walmart anymore. Walmart sold them. I don’t know, sometime last year, whatever. Part of the reason why I have no sort of, I was like, Who is it? Okay that I talk about all this stuff that went down at ModCloth. And I’m like, they don’t even they were owned by Walmart. And then they’re owned by another person now like, nobody knows who I am. Yeah, pretty much. Nobody that matters, cares. Nobody cares. Like no one. No one knows who I am, nobody that works. And now that leadership knows who I am now. But anyway. So when it was owned by Walmart, I had an interesting experience being exposed to a lot of the Walmart people, I guess. And one of the things that was interesting, because one of the projects I worked on towards the end of my time there was social impact. And adjacent to that was sustainability. Walmart has, as you can imagine, is maybe I think they’re the biggest employer in the world, and probably one of the largest producers in the world. And so if they have a few different sustainability initiatives, which I know some people are like, no, of course they don’t, they’re not sustainable, but they are part of their social impact. And you can take this for what it’s worth, because maybe it is lip service, or greenwashing or whatever. But part of their social impact that they pursue is sustainability, knowing that if they choose to make a change in the industry or demand something that any, any vendor, any factory will do it for them, because of their buying power. And because the risk of losing a relationship with Walmart, because you’re not able to meet their demands, potentially could put you out of business. All of these vendors and factories are willing to meet their demands. And so, of course, they use that in an abusive way. But they also are doing some cool stuff in terms of I think they started producing or starting making, I don’t even know if it was all of their clothing or what but a I think it was a compostable polybag

But the bag that you know, you’re like that you’re the bag that anything you buy online comes in that like really thin plastic bag. They started researching how to make a compostable one of those For like, I don’t know, three cents or something like that, right so that it was cost effective, but also was a sustainable way of doing it. They also have like a crazy thing about reducing the amount of carbon emissions not only in their trucks, but also their factories, all this like, sorry, not factories, warehouses and stuff like that. But to your point. If if somebody that does have power, chooses to make these changes, and if consumers start asking for these changes, and pressing for these changes, it will take time, but change will happen. The problem, as I was sort of mentioning before, is that customers are just blissfully aware, unaware of all of this stuff. And so there isn’t a lot of pressure being put on, on retailers. And therefore, they’re just continuing to operate in business as business as usual. But we, I am optimistic. I mean, if Walmart is doing stuff like that, I mean, that’s crazy. If Walmart is having a little bit of a soul, and is trying to operate more economically, they also, I don’t know the full story on this, but they produced a $5 or organic cotton t shirt.

Amanda

Wow, that’s so gratifying.

Janine

Not crazy, right?

Amanda

There’s hope. Everything is a numbers game. And when we start to talk about why often the stuff is more expensive, not why should we? It’s yeah, it’s all about the numbers. So well, let’s shift into that. So why are these things actually more expensive, and it starts off, as I just mentioned, with the quantities. Basically, long story short, the less units you make, the higher the cost per unit, and therefore probably, the higher the retail price, right? But it’s like this chicken egg scenario where then it’s more expensive, and less people want to buy it. So then you buy less units. So it’s still more expensive, less people want to buy it and just keeps going that way.

Janine

And I also think, as you kind of mentioned, like, I just also feel like people, there isn’t a strong demand yet, because there isn’t the awareness from the customer perspective yet. And so there’s not as many people demanding this stuff, because they don’t really know what goes behind closed on what goes on behind closed doors.

Amanda

Exactly. That’s why we’re here like, Don’t you already feel so much smarter that you know what’s going on, you know, now you got to go out and put that into us. So, so yeah. And also, I mean, we’ve touched on, making your own product is quite a financial burden for smaller companies, you often pay a deposit, you have to buy a certain number of units, you pay up charges, because you don’t have the buying power. And so it’s really hard for a small brand to take this on. I mean, imagine doing this as a small brand, that needs investors, investors come to the table, and they want to hear about sell intense units, acquiring lots of new customers and really making that profit. And you’re like, well, actually, we’ll make some profit a couple years down the road, but it really is contingent on the whole world getting behind sustainable fashion. And then it’s gonna be great. Till then we’re like gonna bleed money every year. Well, who’s gonna invest in that? I mean, that’s, that’s a whole other big question in itself, right? Like, how do we change the way and the culture in which small businesses are invested into and allowed to grow? Right? It can’t always be about driving exponential growth and exponential profit. Sometimes it’s about the long game. And also what’s right, ethically, and I can tell you, I’ve been in a lot of investment pitch meetings for some of the startups I’ve worked for. And no one cares about that. They are like, Okay, can you redo this plan if you open 100 stores next year, and then also raise the profit margin about 200 basis points, and just tell me what that looks like. And if you try to do anything good with the world for the world, with the products you’re making, you can’t deliver both right now. I do as Janine does feel really optimistic, that can change but it comes from us, the consumers, and not the people making the product. You know, they need us to sign up for it. Another thing we touched on is like branding and marketing expenses are really, really high. I actually, when I was making this list, I was thinking of Reformation. And how I’m gonna be really honest, the quality of the product is not there and never has been so much, sir. It’s so much probably how much is so much polyester. terrible fit, bad sewing yet really, really high price point like the divide between what the product actually is. And what you actually get is pretty exponential. Like, it’s really frustrating. And then I think like, oh ref is a brand that is like all over and has a kazillion influencers and has like stores and billboards. And you know, it’s, I mean, they’re spending so much money on this like brand image, they probably have annoying hang tags with special safety. You know, and so they’re spending a lot of money on stuff that grows their brand, but doesn’t make their product more ethical or higher quality or longer lasting. So you’re they’re also giving tons of swag to, influencers and celebrities. Um, my guess is that, I mean, you can tell me what you think here, Janine, but I would suspect they have poor cash flow and inventory management on the part of the brain. I don’t know, I’m speculating. But oftentimes, you know, brands will go out place these big bets because, you know, they, they have to, in order to make their products in the first place. And then it’s a flop and they’re stuck with it, the best thing they can do actually is mark it down right away and try to get rid of it, like no matter what the price is, but a lot of retailers are afraid to do that scary to see that margin bleed.

Janine

It can erode the integrity of the brand. If people start to learn that, you know, they do a ton of markdowns and stuff like that, then they just wait for the markdowns and don’t buy it full price. I actually if I had to guess what Reformation’s biggest problem is? I don’t I feel like they have a lot of small problems. I guess I’ve just, I’ve been to their physical stores, which is a terrible experience, to be honest,

Amanda

Agreed. I felt terrible. Their store experience is really bad.

Janine

And the good news is they don’t carry inventory in the store. So that doesn’t cost them that much money by not having it but I just remember thinking this, the build out itself was quite expensive. They had this weird thing where you like this whole weird dressing room experience where there’s a closet, and then they put things in the closet when you have the closet doors closed, and then you open them up? And they’re I don’t know, it’s weird. And like, I think they have some of those, like fancy mirrors, like those smart mirrors and stuff like that, which is also weird. I mean, I just think of like an overbuilt thing. And I still can’t actually buy clothes in the store. So I don’t know, stores are incredibly expensive. So I have to imagine their stores are bleeding money. And then I haven’t shopped them in a while though, so I can’t comment on what I think their inventory position is. But they’re selling in Nordstrom now. Which means nobody makes any money. No brand, like that that’s selling at Nordstrom is making any money. So that is probably that’s not I don’t know. I don’t know.

Amanda

That’s an important thing too hot here. So Ref is a brand that primarily sells directly to consumer via their website in their store. But they also wholesale to Nordstrom and a lot of the like ethical, sustainable, slow fashion brands that are out there will sell to boutiques and other retailers as a wholesale as a wholesaler, right? But so there are expenses associated with that as well. Because most of the time, doing your own sales is really, really hard. It’s expensive. It’s just it takes a team to make it happen. And so often these brands will work with a showroom and the showroom, hires a bunch of salespeople, the salespeople take a commission, the showroom takes a commission, but they are on the other hand out there doing the legwork and pushing for orders and following up with retailers and helping to smooth the process between po placement and product receipt. But that’s a lot of money. And let’s just say you are you’re like, I don’t want to give away about free money. I’m a DIY kind of gal. Then you’re also going to be like going to trade shows which are really expensive like to have a booth at MAGIC, which is in arguably the largest trade show in North America for fashion. It’s about 10 to $20,000 to have a booth there for just a few days. You’re gonna have to bring a team out to work.

Janine

That’s not even doing doing up your booth.

Amanda

Exactly. I mean, you see some stuff there. I didn’t have you ever gone to MAGIC. Okay, um, you see some really elaborate stuff there and some of the booths will have like an espresso bar or a special bartender there and, you know, like elaborate build outs with like experiential elements in the hopes that maybe their buyers gonna post it on Instagram. I’m not really sure. I mean, like, there’s nothing sexy about being a trade show. So I really try to avoid broadcasting it. I mean, you know, and then there’s like books that they’re handing out and photoshoots. And look, and just it’s Oh, and models and model. Yeah, that’s true. They’ll often have models they’re trying on the clothes for you. It’s, it’s a lot, you got to get the samples made. I mean, it’s really, really expensive. And you might leave that show having sold nothing, right? I mean, it’s, it’s just really hard to be a small brand, for sure. And then the other thing that comes along with being a smaller brand, who’s trying to get in the game, and, you know, do the right thing is that there are a lot of inefficient logistics like warehouse management, and transportation. And I mean, just like in like managing your inventory, we had some crazy stuff happen when we were at ModCloth. ModCloth is obviously a huge retailer. But do you remember which one Were you there when we moved to the warehouse management system? From Excel? Yeah. And that was an expensive technological built out. But then the integration was such a nightmare that we didn’t receive product for more than a month, he was just sitting at the warehouse. I mean, it was his bad.

Janine

Let’s not even talk about the speaking of like, transitions, the from the native platform to the Salesforce platform. I would I mean, I don’t know, argue that we maybe never recovered from in terms of the the productivity of the site, but things things were lost, things are gained. But that was also just like, that was a travesty in terms of yeah, inefficiency, lost sales, everything else.

Amanda

And this happens a lot. It’s not just your ModCloth you know, like this is technology is a motherfucker. And it’s really expensive. It’s like, so expensive to do these build out to integrations, and the budget is crazy. And then you’re like, yes, but this is it, this is gonna change everything, it’s going to be this new era of our business. Customers are gonna be so much happier, we’re going to know our inventory better. And then it happens. And it everything goes up in flames. I mean, the, the situation at ModCloth was pretty epic. But I have experienced this at other jobs as well. It’s not unusual.

Janine

I was actually talking to a girlfriend of mine, who’s worked for five plus different fashion brands over the years. And she was explaining to someone who was like, ah, like, I don’t know how all this stuff works. Like I need you to teach me like all this. And it was just like, she’s like, everything is like you just have to figure it out. She’s like, every company I’ve ever been at is a disaster. That’s just like any, it’s just you, you think Oh, because like, this is ModCloth or whatever, like, oh, things don’t work. Like oh, we don’t have the resources or whatever. When I was at Banana Republic. First of all, this is like still one of my like, favorite, favorite slash least favorite, but like also favorite memories. When I first started working there. I was gonna say I was like 10 years old. No, I was probably like 20 I was probably like 24, basically 25. And basically, um, I go through like my little training they had. They actually do have a really good training program program. There. They go through my training program. They sent me loose and they’re like, Okay, take markdowns. And that we had this markdown software tool that gave recommendations for markdown pricing based on when the computer like you would like input a date that you want it to be sold out of the product. And so based on how much was left and what it did determine the elasticity of demand or whatever to be it would recommend you a markdown price and I had never used it before. So I just assumed that the recommendations were good so I just like took all these markdowns. And I marked I mean and I marked down things. You can take things from full price to markdown price but what I was supposed to be doing was just taking things from a markdown price to a further like a deeper discount, which is a relatively low risk like job and I took I think I took all of the recommended markdowns which including things from full price to markdown price, which in a retail store is a really big deal especially when you have people that go round and like sticker mark.

Amanda

Exactly.

Janine

I just executed these markdowns that I took things like to a deal deal deal deal deal. Probably because I didn’t know that you needed to sort of adjust the recommendations. So I just took all the recommendations and just processed all these markdowns. And to be fair, my boss didn’t review it. And she probably should have. And I just took a bunch of shit to mark down that just like, just like went crazy, but I didn’t know it. So I just did it, you know, it is what it is.

Amanda

So at my first buying job, I didn’t do this, but another assistant buyer on the team accidentally took the entire class to job out–so to 10 cents–and didn’t know it. So at that point, like the, I’m sure this has changed since then. But the assistant buyers would enter the SKUs and the new markdown price, it was pretty manual, into the system, and then it would push through overnight. So in the morning, the stores could come in and they can they could download like a manifest. But the markdowns were already in the system. So even if you didn’t mark the tag, obviously someone could bring it up front and it would scan at 10 cents. And we came in to just one because zillion emails from all kinds of store staff like ah, everything’s chopped out. And it was a pretty large class. I’m trying to remember but I think it was like handbags. It was like every bag was jobbed it.. Which is this true, like what’s going on? It was reversed. We could fix it. But it took like a full 24 hours to like, process it because it was so many skews that it was just like a big, big project. Yeah, these things happen all the time. Yeah, these things happen. And, and when you’re a smaller brand, it’s just there’s so much more at stake. You know, because you’re barely hanging on. I mean, as I said earlier at these larger retailers it turns out, barely hanging on. But I have worked for small enough brands to know that every cent we spent counted, like down to the cent, you know, when I was working on my travel budget, and things like that. So it’s tough, right? It’s tough to have a small brand, it’s even tougher to have a small brand to do it right. And so now we’re talking about how all these things are expensive, right? Well, you can’t, as a brand, go to market and say, Yeah, our stuff can be more expensive. Because our factory we’re using better factories, because you’re not. And you definitely, you definitely can’t go to market and say, to be honest, our stuff is expensive, because we have a huge marketing budget, and our warehouse is is a third party and they charge us a ton of money. So I mean, I personally would love that if a brand posted like hey, FYI, the reason this dress is $400 is because our marketing budget is like 75% of our operating costs. I’d be like, Ah, thank you very refreshing. I’m not saying I’m gonna buy it, but maybe I would I would respect that brand more. But instead, what we get is greenwashing. And so we start to hear these terms like sustainable, ethical thrown around, and they don’t pair it transparent. There’s nothing more infuriating than the word transparent being used un-transparently. I guess that would make it “opaquely” but, I mean, that’s what we see. And this, this doesn’t just happen in apparel. I mean, I can go to Target at any given moment and have a field day in the shampoo section. Oh, yeah. brands that are like owned by Procter and Gamble, who are like, good for the environment, and, you know, less wasteful, and I’m like, it’s a plastic bottle. And like that was watered and yeah, I mean, it’s just, it’s just absurd, right? So we know that this is all over the market. And there’s just so little clarity around it, which is why we’re talking about it right now. And also why we’re gonna be talking about it like endlessly is like, what’s really going on there? What can we affect and how can we as customers spending money the right way and make it happen?

Janine

And I guess I also just want to say I am shamelessly wearing a sweatshirt right now that I bought from Brandy Melville I actually I actually did cut it off. So when you’re saying like the raw edge, I was like, I’m wearing a raw edge, but I made this raw edge myself..

But I was telling Amanda I have jeans from Asos that I also shamelessly own I think I don’t, I don’t, I’m not here to be judgmental for how, how or why or where anyone purchases their clothing. My goal is to help people to understand why things cost, the way they cost and what is sort of going on behind the production of your clothing so that you can understand. You can make it so you can make an informed decision about why you’re and know when you’re purchasing something you can know what’s behind how that product was produced and what’s behind it. And then you can just make that decision yourself. I mean, similarly, starting last year, I was making a huge effort to be mostly vegetarian. And then quarantine hit and all I wanted to do was eat burgers, and I’ve been eating burgers, I think you can, there’s a way to eat meat more sustainably less sustainably. And I think the same thing is true in fashion. No one is expecting that you’re only going to buy organic ethically produced, blah, blah, blah, the $58 tank top, every tank top is a $58, tank top, whatever it is. I don’t think that’s reasonable to expect that that’s how people are going to behave. But I do think it is reasonable to expect to know a little bit more about how your clothing is produced, and why something might cost vastly more are cost vastly less, and the trade offs you’re making when you make those decisions, right. And so, yeah, I think just my I would be I would love if people came away from this knowing that polyester is plastic that that you know, some a handful of things that go into the cost of producing a product product that are more than what you might think they are. And when they when you look at something from H&M that’s made of viscose. What, what that what that means. And then if you if you’re looking at a $15, tank, top viscose tank top from H&M versus a $45, organic cotton tank top from some niche Instagram brand, you can understand why, why there’s the those two things vary in price so much and think about, well, do I really need this? Do I really want this or to be honest, you’re unemployed like me, you’re making the $15 you’re gonna buy the $15 tank top because that’s what you can afford. But you understand why the other thing costs more, and you made your decision anyways, right? Because that was the right decision for you.

So I don’t my goal is not to shame anyone because I mean, let’s be clear, I’m sure I have at least something in my closet from Forever 21 right now. I mean, me too. Yeah. And so like, whatever, you know, like it is what it is. But at least I know when I make those decisions, and I make those purchases, what is happening behind the scenes. And then I would also just give a gentle, friendly, optimistic, loving hug, to Poshmark. And to any resellers. Because, really, you can find almost anything that you want used. You can buy things that are great quality, in great shape, that are used in Poshmark. And other places like this Depop and whatever, are making it super easy now to buy things that are used. And so especially when I want to buy something that I feel either shitty about buying because of the way it’s produced, or it’s expensive, because it was produced, well, go buy that shit secondhand. solve your own problem, solve it solve everybody’s problem, you don’t add to the consumption. And you can get it for cheaper.

Amanda

Absolutely. Absolutely. And I think you know Janina, sir. Right. We are not here to judge. No, we all do things we regret all the time. Right. And I don’t even think what you buy should be regretful.

Janine

I don’t regret this sweatshirt.

Amanda

Right? Exactly, exactly. I also, I also think that like, the whole, like sustainable fashion movement can really be kind of classist at its core. I don’t even know I’m saying kind of it 100% is and actually before we started recording, I read an article about the clean food movement, same fucking thing. It’s expensive right now, in 2020 to do the right thing, and oftentimes you can’t afford to, but if you do have a kind of clothing budget, where you have $200 to spend on jeans this month, buy one really awesome sustainably made pair instead of buying 20 $10 pairs, you know, like, like, there, there are ways that you can make changes that don’t cost a lot of money. I think, you know, resale and vintage are really where it’s at thrifting etc. I’ve spent most of my life not having any money. So I’m really good at gaming the system and I want to assure all of you. I have an absurd amount of clothing. Like I I am I am that person. I mean, some of the clothes I’ve had since college, I definitely collect them from all over the place. If I fall in love with something at forever 21 No one’s talking me out of it. And I definitely have very fond memories of around 2008…my friend Rachel and I, every Tuesday, I would go to the mall to cheer ourselves up. And we would spend like 50 bucks Forever 21 and have like a whole bag of stuff, and feel like we had a whole new lease on life. So like, I get it. I just want us all to stop and take a breath and maybe make slightly better decisions. But I feel optimistic that we can when we know what’s happening behind the scenes.

Janine

Totally 100% Being informed as the first part

Amanda

it is it is and you know what I would say the same, like the way I look at shopping, whether it’s for food or clothes, or I mean, like if I’m going to buy like an electronic device, forget it. There’s like six months of research and reading. But I have found even when we’re talking about like, going to vote, the reality is you want to be an informed voter and not just go in there and pick it random. Because the name looks cute, right? Shopping is the same way. Because as I’m going to say constantly, the way you spend your money is a vote for something totally is and it’s a vote against something else. So we may not agree, I’m not talking about you and me journey because I feel like based on your Instagram content, we have the same exact political talking, I’m talking about a larger we that I don’t follow on Instagram and don’t know what’s going on that we may not have the same beliefs politically. But when we go to cast our vote in November, we are coming from a place of information and knowledge. And that’s what I would like us to all do when we’re shopping as well.

Okay, so we have one more thing we’re gonna talk about just really lightly, and this is ripped from the headlines. It’s something that a lot of people have asked me about on the social medias, which is the #payup controversy. If you’re not in the weeds of fashion right now, and you may not know about this, but basically, in the era of COVID, retailers are freaking the fuck out which they should be. And so they are canceling orders like it’s going out of style. I can confirm that from all of my friends who work in all ends of fashion, whether they’re a buyer, or they own a brand, or they work in production, that this has been every single retailer out there. They’re canceling orders. And some of this product has already been produced. Because remember, as we talked about earlier, some of this product is only being made a month before it arrives in stores. So stuff that was going to launch on a brand’s website in April was already on its way in March when COVID began to blow up here in the United States. And so the controversy is this. When brands cancel in factories and don’t pay them, their workers don’t get paid. Did you know that 80% of garment employees in the world are women. And most of them are I mean, they’re poor. You know? So if these women can’t get paid, what happens to their families? What happens to them? Where do they live? What do they eat? So that’s the controversy right now. And I thought we could just talk a little bit very briefly about cancellations and our experience with them.

Janine

Yeah, so I’ve had a couple. Well, I’d actually say my experience is relatively similar from ModCloth versus Banana, which is that we never cancelled. I mean, rarely, well, at Banana we really never cancelled, because those were all things that actually were produced for us. So like, produce proprietary goods that like we, we designed and produced ourselves. Whereas at ModCloth, especially when I was working in non apparel, a lot of our all of the non apparel was bought from just other vendors and retailers that so it wasn’t produced, they would produce their goods and then sell it to us. But they would sell it to other people too. And so we would sometimes we would cancel that stuff, sometimes, but still, somewhat rarely in the reason. So there’s two different reasons why we didn’t cancel. So Banana, we didn’t cancel because those things were specially produced for us. And they were exclusive to us that that vendor couldn’t sell them to somebody else. Nor would we want them to sell it to somebody else because it has our label in it and everything. So those were goods that we truly owned, were truly ours. We would take and we would know I mean, we also to some extent ethically knew, even if there wasn’t a contract that were totally screwing this factory over if we don’t take the goods because we were like the big guy and they were the little guy it was like no we take the goods It’s like, it’s our stuff, we own it, like, we’re do the right thing here. And then for ModCloth, it was sort of the same but different, even for these smaller, the smaller vendors that we worked with, if it wasn’t our own goods that we produced, and we would cancel, and we’d be like, Okay, well, they can, now they can sell it to somebody else, or whatever, you’re still screwing that person over. Like, just at the end of the day, if you’re canceling on somebody, you’re just screwing them over. It’s just like, it’s a, it’s a dick move, like you place this order. And now you’re not going to take it like, it’s just like, it’s, you’re screwing them over. And so ModCloth, we were ordering such small quantities, that even when we were producing, so either we’re ordering from vendors that produce their own stuff, or we were having stuff specially made up for us that was our own designs. Either way, we had a really hard time finding vendors that would work with us, because we would have such small quantities. And so we weren’t in a position really where we could, if we screwed them over and didn’t take the goods, they probably never work with us ever again. And there’s but there’s always this ebb and flow of like, well, how much can I screw them over? Before, before I get myself into hot water, or before they won’t work with me anymore, or stuff like that. I mean, I won’t even get into payment terms and how late we would pay on stuff and whatever. There was a whole situation with a bridal vendor one time that we almost I feel like put her out of business. And so it’s truly an ethical question, because you really are just screwing these people over. And of course, it might have some ramifications to your own business, in terms of the continued relationship with factories are with vendors. But at the end of the day, is to Amanda’s point, like they’ve already bought the materials. They’ve already produced it, they’ve already sewn it, they’ve likely already packed it into boxes, like more or less with your name on it. What are they supposed to do with it? And like these people don’t? These are factories, they don’t really sell, especially if it’s your own goods that what Who are they going to sell? There’s no one they can even sell it to, you know, we can’t

Amanda

I mean, they can’t, they can’t like that’s part of the agreement. And I think it’s important to remember, now that you and I have blown the top off of fashion industry’s biggest secret, which is that they don’t own their own factories. Yeah, these factories are small businesses. They’re often family run, they’re very entangled in the economy of a town they’re in. They’re just so important, they sustain so many livelihoods. And so to cancel on them, it’s just a cascade of problems. I mean, it’s, it’s the ultimate dick move. And also in that case, you’re probably not reimbursing them for the fabrics and trims and, you know, polybags, they bought and everything else.

Janine

And even if you did, you’ve now only compensated them for their goods, but you are for the goods you had or like for the cost of that they put into it, but not for their time. And also, it’s like the opportunity cost if they hadn’t even done that for you. They could have been producing something for somebody else. But you took their capacity and you took their time. And you didn’t pay them. It’s just so it’s so sleazy.

Amanda

Absolutely. This is the thing about cancellations: every retailer has language worked into their purchase orders. And there are routing guides that say basically, we can cancel anytime we want. That’s that you’ll get over it. But you rarely actually use that because as we said, it’s a real quick move. And if you’re a smaller fish in the pond, you’re never going to get that factory to work with you again, right. On the other hand, sometimes you have to cancel just because the quality is so out of control. I remember we got a sample for a velvet cape at Nasty Gal.

Janine

So necessary.

Amanda

It was it was it was good. It was good. In fact, Champagne Taste was the name of the style. Anyway, it was glued together. When we got that the sample, the final production samplethat we would pass to photo, we realized it was sticking to my assistant’s shirt when she tried it on and we realized too because all the seams were glued together. And that situation that was so egregious of course we’re gonna cancel. It was it was ugly, it was an ugly thing. The vendor was really mad but ultimately, you know, they basically took all the Capes back to China and unglued them and sewed them back together. Oh my god and then we reinstated the order but that’s that’s like a it’s a rarity that something’s that egregious at that point. Yeah. But I will say specifically at Nasty Gal and to lesser extent other places I’ve worked. We canceled really hard to manage our receipts really because our business was in such was just in such turmoil. You know We were bleeding money. We’re never meeting sales plan, the strategy from above changed. So often there’ll be like, we’re only buying expensive stuff. Okay, nevermind not really buying cheap stuff. Oh, but before the cheap stuff even hits the dock, let’s go back to expensive stuff. And so we were constantly canceling, we were losing vendors right and left. I mean, it was, it was a very bad and while I wouldn’t say that’s one of the top five reasons nasty I went under, I do think it hurt them a lot towards the end when a lot of goodwill would have helped them get some inventory. And it just it couldn’t.

Janine

I mean, I think it’s also worth mentioning at ModCloth. For our internal production that we did, we probably worked with like 10, to 15 factories to produce all of the stuff that we all the stuff that we sold. So hundreds and hundreds and styles 1000s and 1000s of units. But we’re really made with I think we have about 12 factories. And so if you think about it, that’s not very many to our previous point of like you have a knit factory, you have a you know, a sweater factory, you have a woven factor, you have a denim factory, with all these things, it really wasn’t for to do all these sort of different items, having 12 factories really wasn’t that much. If we had lost our relationship with any of those factories, we would have been totally Sol, and would have had, as we mentioned, going back out to find a new factory is no small task. And you’re also going to is going to develop a bad reputation. And so I’m surprised I mean, I’m surprised that they were able to do that for so long. I mean in similarly like the, I don’t know what you want to call it, but the the other like kind of like middleman vendor market in LA, which is where a lot of these offices and stuff are, that is also a small community. So I’m actually surprised that they were able to dig people around as much as they were for that long, because I just would have assumed that people just stopped working with them, like a lot, like a lot sooner, and I guess it’s just a testament to the business. And maybe they were a small customer. So they’re like, uh, like, whatever, like, we’ll just you’ll see if it goes through or, or whatever compared to, you know, their, their whole book of business or whatever. But I also I’m, that the idea of it just makes me so uncomfortable. Because it is so unethical. And so I mean, it’s like all these, all these relationships are built on trust, and you talk to these people on the phone, and you have relationships with them, and, you know, you know, their kids names and stuff like that, to think that you would do that to somebody is so it just like it makes me sick, you know, and it’s so fashion is already, as we said, can be a dirty business for a variety of reasons that you would add that as a layer on top. Two businesses already hard is already just shifty and shady and difficult. These things Yeah, like, what do you have with people, if you don’t have a relationship and you don’t have trust and you don’t have like integrity? I’m so glad I didn’t have to do that.,

Amanda

Yeah, it’s, it’s so uncomfortable, terrible. I definitely remember that as a time when I was drinking a lot at work. And so do my other friends from that time. And it was, it’s really hard because you as the buyer have those personal relationships and like you were saying, you know, the names of the kids, you know, who’s going to college, you know, what their grades were like, and who went to prom and like, you know, where the family lives and like what’s going on with their grandparents and it’s just it, it’s almost always a family business. And so it just feels shitty. When you’re a buyer, you’re like, Hey, I gotta get paid. The way I would have to look at it to survive any given days that every cancellation meant maybe I was going to get paid for another week or two because our jobs were so tenuous at the time, but it’s it’s bad, it’s bad. I don’t have any answers here for listeners about like, what I think’s gonna happen going forward. We’re doing our next episodey[ with someone who’s an expert on production and we’re going to talk a lot more about the flow of money from the retailer to the factory and all the other people in between and around that and I think that will make it a lot clearer why this is so bad.

Janine

Yeah. Anything else?

Amanda

Nope, that’s all we’ve got. But I do want to say thank you so much Janine! You’ve been incredible. I hope we are going to do some more episodes together because we have a few really good ideas including one that I’m excited about about excess inventory, excess inventory, my favorite topic. It is and like I have been doing a ton of reading this week and just really going down the rabbit hole of excess inventory. So I’m hoping that Janine and I can record that soon and you can learn about that, too. That sounds good. Do you have any final thoughts?

Janine

No, I mean, not not besides what I already said. I’m just I think this is super fun. I love talking about fashion. I don’t presently work in fashion right now. I may be working in fashion again, we’ll see. But I love a love talking shop who doesn’t love to talk shop. It’s so fun. It’s true. And I hope people learn something.

Amanda

I have so to end. Well, thank you so much.

Janine

Yeah, thank you this was great!

Have you ever watched Jerry Springer when it was in its heyday? And if you did, if you didn’t, don’t worry, if you missed much, but if you did, then you might remember how at the end of every episode, he would have a few moments of reflection. I don’t know what he called it. But in my mind, it’s always been Jerry’s corner. Anyway, when I was outlining how our episodes would sort of look, I kept reading my notes…Jerry’s corner at the end, where I would summarize whatever we talked about that day. So welcome to Jerry’s corner, I guess in this case, Amanda’s corner. So remember, like 20 or 30 minutes ago when I was talking about Nike, I mean, maybe it was longer than that. This is a long episode, I apologize. Well, I just wanted to dig into that a little bit more. So as I mentioned earlier, Nike spends a lot of money on things that have nothing to do with the actual physical product they sell. They have a huge and fancy campus outside Portland, Oregon. They have stores, they sponsor events and sports teams. They employ expensive white collar workers all over the world. And they pay enormous amounts of money and endorsements to professional athletes. They make expensive commercials, like, for example, the Black Lives Matter ad that they released in the wake of the murder of George Floyd. And yeah, I believe that there are plenty of well intentioned employees at Nike who really believe that Black Lives Matter. And they wanted to show their support for the movement. Like, I love that. But it was still an advertisement. And when you really think about it, it was an incredible piece of marketing. Okay, so Nikes, spending a lot of money to maintain and market their brand image. Got it? I mean, like, there’s nothing new there. We see it all the time. And we have discussed already how some brands are actually running themselves out of business by spending more money on marketing than they are making a profit margin. So bleeding money, right. But let me tell you this, in 2019, so last year, back when life was normal, Nikki’s global net income amounted to about $4 billion. In fact, it was a little bit more than that. But it was pretty close to 4 billion, right. So to spend all that money and still make more than $4 billion in profit. Well, that must mean that they’re making a high margin on the things they sell. And you know, what margin is you’re an expert now after she explained it to you, right? So, when we’re talking about sneakers, I know Nike sells a lot of other stuff. But let’s just do this exercise with sneakers, right? That’s like, got to be the biggest part of their business. They could be anything from the $40 version sold at Ross, the Jeanine mentioned earlier, or an average like I don’t know, $120 pair that I’ve seen on the Nike website. So let’s kind of trace how that cost breaks down in a really basic way. And the most basic version of how shoes move through the retail system from the wholesale brand Nikes. The wholesaler, in this case, to a retail store. Let’s pretend we’re buying these at Nordstrom, and then you know, on to you so retailers don’t make a high margin from brands like Nike. In fact, they, on average, make about a 50% markup. I mean, it’s not that great. They might make a little bit more because they’ve negotiated a discount, but let’s let’s just pretend otherwise. So Nordstrom is paying $60 For shoes that they are selling to you for $120. Okay, got it. Got it. Okay, so, in the worst case scenario for Nike, they are taking a 50% markup on the product they sell to Nordstrom for $60. So we’re gonna say that it costs Nike $30 To make the shoe that they sold to Nordstrom for $60 that Nordstrom sold to you for $120 Got it. Okay, so $30 Sounds like a lot, right. Okay, this seems reasonable, but this has to include everything we talked about in the last episode. So the leather to make the shoe the sole, the insole, you know, the soft stuff inside shoe laces, can’t sell it without those stitching, labels, the box. And we can’t forget shipping it to the US. And actually shoes are one of the most expensive apparel slash accessory items to ship because of their size and weight, especially when the shoes are in the box. We know Nike shoes come in a box. Maybe they shipped to the US not in a box, and then are placed in the box here in the US. But then okay, well, we’re also going to pay someone here in the US to put stuff in a box. I just had the word box an awful lot.

Amanda

Anyway, we cover all those costs, there isn’t much left to pay the workers remember we only have $30 to work with. And we had to pay for all those materials and shipping and duty and how much does that really leave us to pay the workers for the work that they’re doing to manufacture that shoe. But remember, this was the $120 pair of shoes that left us with $30 to cover the cost of the actual product. But what about those $40 sneakers from Ross? If we assume that Ross paid $20 for them receiving a 50% markup just like Nordstrom, then that means in the worst case scenario, it costs Nike $10 To make them. And when I say worst case scenario, I mean the worst case scenario for Nike, which is that they didn’t make a very good markup on them. Remember, they have a ton of overhead expenses to pay that have nothing to do with the actual product. So we’re just going to pretend they made $10 off of it, but they may have made more and so the cost of the shoe may have been even less. So think about that after the cost of materials and shipping. What was left to pay the workers who actually did the work. And that’s where one of my biggest beefs with Nike, and tons of other brands really lives. And to be clear, I’m not singling out Nike, as the source of all the world’s problems, but we talked about them earlier. It’s been on my mind. I’ve seen some other stuff on the internet this week that got me even more riled up. So we’re using Nike as our example here.

So here’s some not so fun facts about Nike supply chains over the years. In 1991, American labor activist Jeffrey Bollinger published a report on Nikes factory practices in Indonesia and they were bad. below minimum wages, child labour and just appalling conditions like we are talking sweatshop here. Few years later, in 1996 48 hours investigated conditions at Nike factories in Vietnam, finding instances of corporal punishment of female workers, which means hitting spanking. And they also interviewed laborers who earned $40 per month for sick these days, you haven’t had a chance to do that math, that’s about 20 cents per hour. That same year still 1996 eight year olds were found making Nike soccer balls in Pakistan. It didn’t stop there. According to a subsequent report by a researcher with the trans national resource and Action Center, the average wage of nightshift workers at a factory Nike was using in Vietnam was closer to 15 cents per hour, with workers performing 10 and a half hours a day, six days a week, a total of 252 hours per month with a monthly salary of $40. So 15 cents an hour in 2003. So now it’s still 17 years ago, but we’re getting closer to now times right. The World Bank reported that Nike violated Vietnam’s environmental and labor laws by exposing 10,000 workers at the same factory. The one I just talked about where people were making 15 cents an hour. These 10,000 workers were exposed to toxic solvents and routinely forced to work above the legally mandated overtime limit. So this is bad, bad. And sort of like a little side story here. In 2000, an American grad student named Jim Chitti, was fired from his job as assistant soccer coach at St. John’s University for refusing to wear and use the equipment donated by Nike. He had researched Nikes labor practices for paper for his MA in theology, and what he learned his second term, hence refusing to wear the product. So, you know, the university had worked out this deal with Nike. And so they were like, either wear the stuff and stop complaining about it or quit and so he was out of a job. This kind of fueled his career as an activist and I love when I read stories like this. After being fired, he actually asked Nike if he can work in one of their factories so he could either dispel or prove the myth or not myth that these factory jobs were great. They declined his offer. Probably surprised to hear that. So instead, he undertook a different experiment. He and a friend spent one month in Jakarta living off the wages of worker in Nicki’s factory. And he’s journaled all of this out, I will share a link to his journal and more information about him because he has a much larger trajectory. I’ll share all of this in our episode notes. But I do have to read you this quote. How do the workers survive putting in seven to 15 hour days of manual labor and having this little to eat? How can they keep a shard of their dignity? How can they or any human being be expected to feel human when each day is an exercise in justice and humility? I almost passed out from hunger today. I live on a Nike sweatshop wage, there is nothing else to write.

I mean, just think about that. There’s a lot more detail in his journals, I implore you to read them really talks about how he was spending the money, what things cost, there was a one point where he’s fantasizing about being able to afford orange juice. I mean, it’s really, really grim. So, okay, Nikes, not stupid. They did not like this bad press. They were forced to make some changes. So they created a code of conduct for factories that laid out the minimum standards for safety and pay for all Nike manufacturing partners. And they built a team to monitor these factories to the best of their ability. I mean, we’ve talked already that the transparency is a little complicated or lacking. You pick your favorite adjective. So it would seem like everything’s fine, right? Like we’ve fixed it. Everybody’s getting paid, everyone’s safe.

Well, the Clean Clothes Campaign is an alliance, which advocates on behalf of global workers in the garment industry. And Snopes reached out to them a couple years ago. They told Snopes that wages for Vietnamese Nike workers had increased somewhat in the past 20 years. And they provided figures for 2016. They said, depending on where the factory is, workers would receive between 118 US dollars, and 171 US dollars a month for a normal working week. However, this is important. It’s not uncommon for the employers to withhold some money, aka wage theft, and to force overtime, which decreases the wage per hour which workers would effectively take home. So this means that Nike workers in Vietnam earned between 61 cents and 89 cents per hour in 2016, based on a working week, 48 hours, which is the standard. However, the effects of inflation and increased cost of living in Vietnam since the 1990s means that well, like yes, technically, there was an increase in hourly wages, they still aren’t making a livable wage, because the cost of living has increased more than their wages have increased. And of course, then there’s also the forced overtime, we don’t even know to what extent that’s going on and the wage theft. And I mean, there’s so many other things to unpack there that’s really challenging to see. And furthermore, there are other reports of anti labor actions in factories in Indonesia, and even worse wages, adhesion factories, and honestly, I could go on all day with this.

The last straw for me this week was reading that some factories in China are employing Uyghur Muslims, which if you haven’t heard about this in the news, I urge you to get out the Google right now and check it out. The weekers are a group that has been rounded up by the Chinese and placed in essentially concentration camps. These individuals are being used as unpaid labor. So also known as slaves in 2020. So this doesn’t mean that Nike wants to use slave labor. They actually have one of the most robust inspection processes for factories, but there’s still a lack of transparency in the supply chain. They can’t be everywhere, every time. And remember, China, the country is enslaving the weavers and forcing them to work. Nike may not know that there’s that’s who those workers are that are being supplied to their factory. So honestly, it’s on us to push Nike to push themselves for more transparency. Like if we ask enough, then they will have to ask their suppliers more about what’s going on. But honestly, it’s an even bigger issue than that. We have to push our government to publicly condemn the use of slave labor and abuse of Uyghur Muslims in China. If you’ve read anything recently, we’re definitely not doing that. But Nike is such a big player in the US that they have the weight to push for that. They know enough senators and Congress people and possibly even people in the White House. They know enough of these people to throw their weight around and have some conversations. But they aren’t going to do that if we the consumers don’t push them to make a move. Is it time for a good old fashioned letter writing campaign? I mean, I have some stamps are you guys in? Should we make a synchronized attempt to buy Are there social media platforms? I mean, let me hear your ideas about this. Also semi related if you have a favorite ethical brand for shoes, please drop me a line. Okay, that’s the end of Jerry slash Amanda’s corner. Thank you so much for listening to episode two of clotheshorse. I know it’s a long one. And thank you so, so, so much to Janine for being an amazing guest to get the ball rolling. If you’re already feeling some separation anxiety, like, Oh my God, when am I ever going to hear Janine again, don’t fret. She’ll be back in a few weeks to discuss the very hot topic of excess inventory.

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