Sarah LaFleur On the Existential Threat From the Tariffs

Summary

Podcast Summary: Odd Lots – "A US Clothing Brand On the Existential Threat From the Tariffs"

Introduction

In this episode of Bloomberg's Odd Lots podcast, hosts Joe Weisenthal and Tracy Alloway delve into the profound impacts of tariffs on the clothing and textile industry. Focusing on real-world experiences, they bring in Sarah LaFleur, founder and CEO of MM LaFleur, to discuss the existential threats tariffs pose to her business and the broader implications for small apparel companies.

---

1. Setting the Stage: Tariffs Across Industries

Tracy Alloway initiates the conversation by highlighting the inadvertent series they've been conducting on tariffs and their varied impacts across numerous sectors. She notes:

"Joe, we've been inadvertently doing a tariff series basically on what the trade restrictions mean for a bunch of different industries."
[01:31]

Joe Weisenthal echoes this sentiment, emphasizing the complexity and pervasive nature of tariffs:

"There's actually, it's impossible. You know, every industry is gonna be affected by tariffs a different way."
[01:39]

The hosts acknowledge the challenge of addressing the multifaceted effects of tariffs, pointing out that virtually every sector within GDP could reveal new insights under such trade restrictions.

---

2. Introducing MM LaFleur: Founder’s Background and Company Vision

Tracy Alloway introduces their guest, Sarah LaFleur, providing a personal connection and a brief overview of MM LaFleur:

"She started her own clothing company. And I was involved at the very beginning doing product testing and caveat... I have a lot of their clothes."
[03:25]

Laura recounts her transition from management consulting and private equity to founding MM LaFleur in 2013, driven by a gap in the market for high-quality, stylish professional women's clothing. She explains her inspiration:

"I always struggled to find good, well-made, appropriate, but still very stylish professional women's clothing... that's what I'm going to wear when I grow up and I'm a working woman."
[05:02]

Sarah emphasizes that MM LaFleur operates primarily as an e-commerce business, supplemented by eight physical stores and wholesale partnerships.

---

3. Unpacking the Supply Chain: From Design to Consumer

The discussion shifts to the intricate supply chain of MM LaFleur. Sarah outlines the design and manufacturing process:

"We are all designed in New York City... so much of fashion is really led by the fabric and textile industry."
[06:09]

She details how fabric selection inspires design, followed by sketching and pattern making. The garments are then manufactured overseas, predominantly in China, ensuring high quality and competitive pricing. Sarah explains:

"Different companies do different things, but if you are working with a fab factory overseas, then oftentimes you will send the pattern overseas to the factory."
[07:00]

Notably, MM LaFleur emphasizes sourcing both synthetic and natural fibers, valuing machine washability and wrinkle resistance, critical for workwear.

---

4. The Tariff Shock: Immediate Business Impacts

The core of the episode revolves around the sudden imposition of tariffs and their debilitating effects on MM LaFleur. Sarah recounts the critical day tariffs were announced:

"I was sitting in my office... the numbers were kind of beyond, I think, what any one of us expected."
[18:53]

The tariffs resulted in a staggering increase—54% on top of an initial 30%—forcing Sarah to take drastic measures:

"I had to cancel 50% of my May collection because they were all from China."
[21:33]

She describes the chaos at ports and the logistical nightmare of securing shipping amidst the sudden spike in tariffs, severely disrupting their supply chain and inventory management.

---

5. Navigating Manufacturing Challenges: The Impracticality of Moving Back

Tracy raises concerns about relocating manufacturing to the U.S., prompting Sarah to elaborate on the insurmountable challenges:

"The American consumer does not want to spend that much on clothing as prices have gone up in every single other category."
[24:40]

Sarah points out the lack of infrastructure and skilled labor in the U.S. garment industry, making it unfeasible to shift production domestically. She highlights:

"It's just kind of preposterous to imagine that that's a future."
[29:43]

The discussion underscores that maintaining production quality and meeting demand while relocating is beyond the current capabilities of MM LaFleur.

---

6. Pricing Strategies and Customer Transparency

Addressing pricing adjustments due to increased costs from tariffs, Sarah considers the delicate balance between transparency and maintaining customer trust:

"I'm getting my margins squeezed. We're looking at our August collection... making serious trade-offs."
[24:53]

She debates the potential of displaying pre- and post-tariff prices but fears it might deter customers during an impending recession.

---

7. Cash Flow and Financial Strain

The hosts explore the immediate financial burdens imposed by tariffs, particularly the requirement to pay fees upon goods entering U.S. territory, irrespective of sales timelines. Sarah elaborates on the cash flow issues:

"You're bringing in these goods in not knowing actually if your customer is willing to eat the price hike. So again, it's a gamble."
[39:46]

This unpredictability severely strains the company's finances, compelling them to adopt stringent cost-cutting measures to survive.

---

8. Digital Marketing Hurdles

Sarah discusses the escalating costs of digital advertising, especially on platforms like Facebook, and the limited effectiveness of newer channels like Instagram Shopping for their higher-priced items:

"We could acquire customers for $13... now it's about $250. That's probably understating it."
[36:17]

She notes the challenge of converting high-value prospective customers through impulse-driven platforms, which are more suited to lower-priced items.

---

9. Future Outlook: Recession Fears and Strategic Adjustments

Sarah expresses a grim outlook, citing recent economic upheavals and the need for conservative forecasting:

"I've become significantly more conservative in all of my predictions and forecasting."
[34:23]

She reveals ongoing efforts to cut costs amidst uncertainty, acknowledging that many small businesses might not survive the current economic climate exacerbated by tariffs.

---

10. Broader Implications: Small Businesses vs. Giants

The conversation highlights the disparity between small apparel brands like MM LaFleur and larger corporations. Sarah asserts:

"A lot of us won't make it. The big businesses will be fine."
[37:56]

She contrasts the resilience of large retailers who can absorb increased costs with the dire straits of small businesses that lack substantial financial buffers.

---

Conclusion: Reflecting on the Tariff Impact and Future Steps

Tracy Alloway and Joe Weisenthal reflect on the insights shared by Sarah, emphasizing the tangible challenges tariffs impose on businesses beyond theoretical economic models. They highlight the critical need for understanding the nuanced realities faced by entrepreneurs in the apparel industry.

Sarah offers a practical takeaway for consumers:

"Buy your silk now for Christmas because you're not gonna see it for a while."
[43:22]

This serves as both a caution and a call to action amidst the ongoing tariff-induced turmoil.

---

Notable Quotes with Timestamps

• Tracy Alloway: "Joe, we've been inadvertently doing a tariff series basically on what the trade restrictions mean for a bunch of different industries."
  [01:31]

• Joe Weisenthal: "There's actually, it's impossible. You know, every industry is gonna be affected by tariffs a different way."
  [01:39]

• Sarah LaFleur: "I always struggled to find good, well-made, appropriate, but still very stylish professional women's clothing... that's what I'm going to wear when I grow up and I'm a working woman."
  [05:02]

• Sarah LaFleur: "I had to cancel 50% of my May collection because they were all from China."
  [21:33]

• Sarah LaFleur: "It's just kind of preposterous to imagine that that's a future."
  [29:43]

• Sarah LaFleur: "A lot of us won't make it. The big businesses will be fine."
  [37:56]

---

Final Thoughts

This episode of Odd Lots offers a sobering glimpse into the operational and financial struggles faced by small clothing brands amidst rising tariffs. Through Sarah LaFleur's firsthand experiences, listeners gain a deeper understanding of the intricate balance between maintaining quality, managing costs, and sustaining a business in a volatile economic landscape. The discussion underscores the broader implications for small businesses navigating government-imposed trade barriers and highlights the resilience required to survive in such challenging times.

Transcript

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[Tracy Alloway]

Hello and welcome to another episode of the Odd Lots podcast. I'm Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal.

[Tracy Alloway]

Joe, we've been inadvertently doing a tariff series basically on what the trade restrictions mean for a bunch of different industries.

[Joe Weisenthal]

So funny. I read your mind. Yes, it's like we have to go down the list. There's actually, it's impossible. You know, every industry is gonna be affected by tariffs a different way. And there's this temptation like, okay, let's just talk to someone from literally every single industry. Today on May 7, we released an epis talking about the video game industry. But yes, we could go down the line of every category within GDP and learn something.

[Tracy Alloway]

Video games, lentils, yes. The important stuff, no. So when we're talking about tariffs, I think one of the really big industries that is obviously going to get impacted has to be clothing and textiles. Right? So we know places like China, Vietnam, Sri Lanka, Bangladesh are huge textile exporters. And so we should talk about that and what it actually is like if you're running a clothing business business in the US to source textiles from abroad.

[Joe Weisenthal]

You know it's funny, I was at, I was at some event for my school and I ran into a fellow dad or for my kids school and I ran into a fellow dad with a clothing company. Like the two days after the initial tariffs were revealed in early April, he was talking about he was going to add a button on his website and made some sort of athletic gear. Talking about like this is the pre and post tariff prize. He was talking about how it might make sense in certain circumstances to move some of his manufacturing outside the US Especially what he sells to non US Customers so much in textile specifically. The other thing about textiles, of course, is when people think about the China shock, you know, that's one of the first categories that comes to mind. The fact that the US Used to have a booming textile industry, particularly in the Southeast, as we know.

[Tracy Alloway]

Yeah. We visited the remnants of the American textile industry in North Carolina.

[Joe Weisenthal]

So there's a lot there.

[Tracy Alloway]

Yeah. All right. Well, I am very pleased to say we do in fact have the perfect guest. I have to do a disclaimer up top because this guest is a longtime friend of mine. We actually went to high school together in Tokyo and she started her own clothing company. And I was involved at the very beginning doing product testing and caveat. I have a lot of their clothes. I have dresses that are, I think at this point are like 10 years old, but they still look amazing. So I am a big fan of this company. That is my disclaimer.

[Joe Weisenthal]

Tracy, did you ever do any modeling? Yes, I thought you did you ever do any modeling for this company?

[Tracy Alloway]

No.

[Joe Weisenthal]

Okay.

[Tracy Alloway]

No, no, no. We can talk about that later. I did modeling when I was like 17 in Tokyo where the standards are arguably a lot lower. Anyway, I am very pleased to say we're going to be speaking with Sarah lafleur. She is the founder and CEO of MM lafleur. So Sarah, thank you so much for coming on odd lots.

[Hiscox Ad]

Thank you for having me. It's a true honor.

[Joe Weisenthal]

Sarah, what is your favorite Tracy memory? And did you know she would going to go was going to be a star podcaster one day?

[Hiscox Ad]

I thought she was going to be the U.S. ambassador to the United Nations.

[Tracy Alloway]

So yeah, I, I guess she was.

[Hiscox Ad]

Always a true intellectual. Uh huh. And I would say precocious beyond her years.

[Tracy Alloway]

So this is. Yeah, that's probably fair. All right, Sarah, talk to us about the company. How would you describe MM lafleur and when did you get started?

[Hiscox Ad]

Sure. I started the company in 2013 with my two co founders. I myself do not come from the fashion world. I actually worked in management consulting and then in private equity.

[Tracy Alloway]

You were at Bain, right?

[Hiscox Ad]

Yes, I was at Bain and you know, I always struggled to, to kind of find good, well made, appropriate, but still very stylish professional women's clothing. Like I just thought there was a real dearth in the market and I was Never, I had never been in fashion. My mother actually worked in high end fashion. She would always bring home these, like beautiful, you know, pieces of textiles and got these Chanel suits and I was like, gosh, that's so beautiful. And that's what I'm going to wear when I grow up and I'm a working woman. And lo and behold, I found out that, you know, for, for my budget, I was not going to be wearing a Chanel suit to work. But the idea stayed with me and basically when I was 27, couldn't get into business school, didn't know what to do with my life. Private equity was not quite the right place for me. I was like, you know what, I've always, I've always thought this was a good idea. Let me, let me go for it. So, yeah, it's been, gosh, it's been almost 12 years. We launched in 2013. We're predominantly an e commerce company, but we also have eight stores across the country and we also sell through wholesale.

[Joe Weisenthal]

So what do you, we'll get into, you know, wanted to get into the nitty gritty of the business and the supply chain and so forth, but from a very big perspective. Someone sees an ad for your clothes on Instagram, maybe they see a shirt or a jacket or pants that they like. Where was it designed? Where did the materials come from and how did it and who put them together and how do they get to the. The end shopper?

[Hiscox Ad]

Yeah, great question. So we are all designed in New York City. Our offices are, you know, in the financial district actually. And it's my creative director who usually you start with fabric, with collections. I think this is like a little known fact. People always think you sketch first and then you, you find the fabrics, right? But it's really, so much of fashion is really led by the fabric and textile industry. So you, you know, often you go to these fabric shows or these fabric mills come to you. You're inspired by different fabrications and then you take that and you say, okay, what am I going to design into this? Maybe it's a jacket, maybe it's a shirt, what have you. And then from there the designer sketches and then the pattern maker, very important person I call, you know, this person is like the architect of the clothing will actually then say, okay, order for this dress. Let's say to come to life. Here's how the fabric needs to be laid out on a piece of, you know, on a piece of fabric and cut and then put together. Different companies do different things, but you know, if you are working with a fab factory overseas, then oftentimes you will then send the pattern overseas to the factory. The factory will do the first, what we call fit sample that gets sent back to New York. You fit it in New York, you know, with your fit model. And, you know, depending on whether you're a brand that spends a lot of money on product development or not, you might do one, two, even up to three fit samples before you ultimately go into production in the factory overseas.

[Tracy Alloway]

Wow. Okay. So given the importance of the fabric in the design process, talk to us a little bit more about how you actually source that, because the fabrics that you use are also a big differentiator for you.

[Hiscox Ad]

Right.

[Tracy Alloway]

You have very special fabrics. And again, I'm going to sound like I'm doing an ad for this company.

[Hiscox Ad]

We love that.

[Tracy Alloway]

But. But I mean, they're great fabrics for workwear. They really are. And they're sort of specially made, is my understanding to. For exactly that scenario.

[Hiscox Ad]

Yeah, we really focus on machine washability and wrinkle resistance. So Japan is great with that. You know, it's not your mother's polyester. Synthetic fibers have really come a long way. So there are a lot of things, synthetic fibers that behave like silk or look like silk, but are still machine washable, wrinkle resistant. But we also love natural fibers. And natural fibers, you know, places that are good at that historically are when it comes to wool, Italy, Germany, when it comes to silk. China, like, China is really one of the few countries now left in the world that still actually does silk. Same for wool and cashmere. You know, if you, if you want to do alpaca, wool, alpaca, like, you could still go to Peru. There are other places. But when it comes to most wool, most cashmere, I would say it's China. You could go to Mongolia for cashmere, but there aren't that many places across the world that, that do these natural.

[Joe Weisenthal]

Fibers for the types of sort of high end, stylish clothes that you sell. Where are the big manufacturing hubs right now? And where do you like, you know, Explain the link. Okay. There might be some, you know, textile company that's really good at, you know, advanced synthetics in Japan. I know that well because I buy all my clothes from Uniqlo and they're, they never wrinkle, which is really nice because I'm very lazy. But then talk to us about like, okay, what is the process from, like getting the textiles to wherever they're actually cut and assembled?

[Hiscox Ad]

Yeah, great question. Some factories are vertically Integrated, meaning they both make the fabrics or, you know, they have a partner from whom they source the fabrics and then they produce the actual clothing at their factories. I would say generally, although not always lower priced products are made this way. If you are. If, for, for us, for. We like to nominate our fabrics. That's, that's the word that's used in the industry, meaning we are specifying where the fabric should come from, what we want it to be, and which mill we want it to come from. And then the factory, which is often in a different country, it's. They usually are not in the same country, takes on that fabric from that mill and then cut, cuts it and produces it. So often, though, not always the two things, the fabric mill and the factory, are two different companies in two different countries.

[Tracy Alloway]

So how do you find factories and mills to work with? And I guess a question as a startup founder, what was your first experience actually finding a factory mill? Actually, like.

[Hiscox Ad]

Well, I think I prefaced earlier that I never worked in fashion. And so literally I contacted the New York City, I think, you know, I would say Economic Development Corporation. And for a lot of fashion designers, right, who are trying to get their foot in the door and start their, their own line, the garment district in New York City is amazing. And I would say, I mean, when I got started a decade ago, he was, it was, I mean, yes, a declining industry, but definitely more bustling than it was now. And there was a directory of factories that you could contact. But I mean, it was kind of laughable because a lot of these factories, A, don't use email. I think they may have a phone, which they may pick up if it's a good day. Really, these factories, the way you get in the door is by knowing somebody who's worked with them. And even then they may not be willing to take you on. You know, it's a huge risk for them. A, can this designer actually pay for whatever it is that I'm going to do? And B, is this designer actually going to be around a year from now? Because, you know, fashion people come and go so fast. And so unless it's through a connection or a referral or you're, you know, somewhat established, it's really hard to get your foot in the door. I mean, I was begging people to take my orders when we first got started and we were doing manufacturing in the garment district.

[Joe Weisenthal]

Oh, you're doing manufacturing in the garment district.

[Hiscox Ad]

This was, this was a decade ago. But yes.

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[Joe Weisenthal]

If you want to go to a factory somewhere in Asia and you have the textiles or what are like some of the minimums, you know, like what's a minimum run? Because I have to like, like you said, you know, they want to know that you're still going to be around. For now, they have to allocate capacity. They presumably don't want to just allocate a little capacity and then have to change. Talk to us about like what you have to Bring to the table from a volume standpoint, in terms of a reliability standpoint, in terms of a dollar standpoint, such that it's worth taking you in the door.

[Hiscox Ad]

There's huge variability in both factories within one country and then from country to country. Right. So I would say China, once upon a time, probably the MOQs, the minimum order quantities were north of a thousand easily.

[Joe Weisenthal]

Okay.

[Hiscox Ad]

But now as wages in China have gone up, a lot of factories that we work with are willing to do MOQs as low as 100. There might be a surcharge for it.

[Joe Weisenthal]

Why is the lower volume. Why is it, why they take lower volume as wages have gone up?

[Hiscox Ad]

Because brands have moved to other places like Bangladesh, places in northern Africa. I mean, it is, I don't want to say it's a race to the bottom, but it is in many ways. You know, as labor prices rise, brands are always saying, like, okay, well, I got to go cheaper, I got to go cheaper.

[Joe Weisenthal]

Oh, interesting.

[Hiscox Ad]

So they, you know, first went to Southeast Asia, they moved over to, you know, south, as, you know, India, Bangladesh still does a lot of, you know, units where they need 1,000, 2,000, sometimes north of 10,000 units. And then also Northern Africa is now kind of considered the next frontier.

[Joe Weisenthal]

Tracy, this is interesting. You know, one of the things I've seen a couple of people talk about is like China experiencing its own China shock because some of these low end textiles, those legacy operations, are now competing with cheaper wage countries. The same way textile companies in the US for competing with other Asian countries.

[Tracy Alloway]

Yeah, absolutely. Okay, so, Sarah, we gotta get to the meat of this discussion, I guess. Let's talk about the tariffs. So when I asked you about this issue, you said that tariffs were all you've been thinking about for basically the past month.

[Hiscox Ad]

Yes. And even that feels like an understatement. I think I dream about it. I mean, it is been so detrimental to the business. It's not like running a fashion business in 2025 was a cakewalk. Right. It's already an incredibly competitive business with razor thin margins. We're dealing with pressures on the marketing side from, you know, Meta and Google. Oh, yeah, right. I mean, we just went through the pandemic where I had to close all 11 of my stores and then gradually open them back up again to the point where now we have eight. I mean, it was, it was devastating going through the pandemic and we survived by the skin of our teeth. We've made it through the other end. We had just finished budgeting for 2025. And I think, you know, this will probably be not a total surprise, being that I'm a New Yorker. But, you know, we were saying, okay, when. When Kamala Harris didn't get elected, we were like, well, everyone says Trump's gonna be good for business. We have a big Business in Washington, D.C. change of administration is usually also good for our business.

[Joe Weisenthal]

O. Yeah.

[Hiscox Ad]

The first thing we came, you know, ran across was the doge cuts. So our two DC stores are down about 20 to 25% from ly.

[Tracy Alloway]

Wow.

[Hiscox Ad]

All of our customers that come in are either have been laid off or are nervous that they are going to get laid off or that they're going to have. They're going to be some repercussions. So we were already feeling those effects going into March. I still remember the moment, the. What was it? Liberation Day, April 2nd.

[Tracy Alloway]

Yeah.

[Hiscox Ad]

Yes. I was sitting in my office, we were doing a meeting, and my phone blew up. I'm on, you know, various text chains with other fashion founders and CEOs, and they're saying, have you seen the numbers? And, you know, I mean, just. That's all we could focus on.

[Tracy Alloway]

You are one of the people squinting at the billboard.

[Hiscox Ad]

Ahah. We were. And I was like, someone get a screenshot of this. Anyway, the. The numbers were kind of beyond, I think, what anyone of us expected, Right. And I remember I was actually in China, Hong Kong, in Vietnam, where a lot of our partners were or are in November. And, you know, we were all talking about, like, how bad do you think it's going to be? And one of my partners was like, you know, I don't think it can be that bad, because where else are you going to get your silk? I mean, where else are you going to get your silk? So I predict 10%. It can't be higher than 10%.

[Joe Weisenthal]

Yeah.

[Hiscox Ad]

And then when we saw the 54% on top of the 30% we were already encountering, we were like, well, that's just insane. And then it just got worse and worse and worse. I mean, I'll tell you, between Liberation Day, April 2 and then April 11, we were on calls with our factories, like, night and day. I don't think. I don't think my factory partners slept for those seven days. You know, any hour of any day we could reach them. And we were just basically saying, get it on the boat, get it on the boat. Except it was total chaos at the ports. So it's just like, you know, after 48, 72 hours, it was like we couldn't even secure A space on the boat. Wow. And like the night before it's all about to go down, you know, I'm on a call with one of my partners in Hong Kong and I'm like, did you get it on the boat? And he was like, no, I couldn't get this on the boat. And then I was like, okay, then don't put it on the boat. And then, you know, and then whenever. I can't even remember the exact timeline now, but whenever, you know, we went into, whenever it, it, we went into the, like the 90 day grace period, I was like, get it on the boat. Get it on the boat. I mean, it just felt like, it just felt like. I hate, I hate to use this metaphor, but like, it's like the last ship or the last helicopter out of Saigon and everyone's just like trying to get their things on.

[Joe Weisenthal]

Yeah. I mean, it's, it's an okay metaphor because one, you know, that's the helicopter, but this is the ship. But it's still probably, you know, still coming out of Vietnam. But actually, what is. So right now we're recording this May 7th, I guess two questions is like, what is your sort of geographical exposure? Because X China, it's only 10% and it may get. I think a lot of people think that will get. Even if there's no deals that that 10% will get extended. What is your current geographical exposures to the 10% and 154%?

[Hiscox Ad]

Well, I had to cancel 50% of my May collection.

[Tracy Alloway]

Wow.

[Hiscox Ad]

Because they were all from China.

[Joe Weisenthal]

Okay.

[Hiscox Ad]

Many of the things were late because they were coming out of places like Vietnam.

[Joe Weisenthal]

Okay.

[Hiscox Ad]

Where it was initially hit with the 54%. And we were saying, oh, I'm sorry, it was 47%. We said, don't, don't ship it.

[Joe Weisenthal]

Oh. So there were. Even though those got pushed back, even though back to 10% fairly quickly, it had a. Created a hiccup.

[Hiscox Ad]

Totally. Because it's like fashion. It's like, it's all about your selling window. Right. And you bring in your summer clothes and you want to sell through most of it within six weeks. And if you miss that selling window, well, then we'll wait till next year. And so some of our products are going to be held for a whole year and they're going to wait for summer 2026 to be released. I mean, this is just. I chalk it up to bad luck. But we actually, we have partners in Turkey, we have partners in Portugal, China and Vietnam. But by far, we do most of our production in China got it. And why is that? It's because the quality is exceptional, the prices are not cheap. You know, I have customers who've, because we've been really communicating transparently with our customers saying, you know, here are the consequences that we're facing. And our fat, our customers are, you know, very sharp, intelligent women. And I've had many of them email me saying, like, you know, I'm really sorry to hear all this, I'm going to support your business. But like, why don't you move your production back to the, the U.S. like, why don't you move it back to the garment district? And I'm like, I don't even know how to explain. Like that's, that industry is not only dying, in many cases, gone. It could never support the kind of quantity that we want to do. And by the way, we're not even that big a business, you know, and, and you know, they, sometimes I get like, I, I, I, I knew, I knew it was made in China because, you know, the qualities was xyz. And I was like, you know, I was like, have you ever seen the inside of a factory in China? Because, you know, the, the workers who work there, they get free lunch. They have a farm at the factory where they make fresh vegetables and their lunch is served using those fresh vegetables. And they have these beautiful, beautiful dormitories. Like, there is a lot that these Chinese factories do, right? To treat their workers right. And meanwhile, the garment district factories, everyone brings their own toilet paper because if they put toilet paper in the toilets, they will get stolen. Right? Like, everyone thinks, like, made in New York, beautiful, excellent quality, like great labor regulation. It is not the case, you know, if it happens, it's very few factories that are very selective and very, very expensive. The truth is the American consumer does not want to spend that much on clothing as prices have gone up in every single other category. Clothing has remained relatively stable since the 1990s. And so we can't have it both ways. You know, if you want to continue to buy clothing at the prices that we're used to, we have to have global trade.

[Tracy Alloway]

Yeah. So you mentioned transparency with customers. Talk to us about how you're handling the pricing side of things at the moment. Are you, are you going to put a little button that shows the pre tariff and post tariff price or something like that?

[Hiscox Ad]

I am so, I'm so tempted to, but I, you know, what I worry about is that she's just not going to buy it just transparently. We've already done a round of cost Cutting. And from where I'm sitting, I see recession on the horizon. So I feel like when I see recession coming, I don't know if I can also increase prices and expect customers to just eat it and get on board with it. So, you know, I'm getting my margins squeezed. We're looking at our August collection right now. My August collection unfortunately is a hundred percent made in China. And we are making very serious trade offs about what we're willing to pay big, big tariffs on and bring in versus what we're willing to let go. And also my factory partner's like, this clothing has already made, August has already been made, sewn, it's in a box ready to get on a boat. And they're, they're desperate because they've already put in their investment. So they're also negotiating with us saying, hey, if I were willing to reduce my prices by.

[Joe Weisenthal]

Yeah, that's what I was wondering. How to what degree are those conversations happening about the factory side eating the costs or giving you reductions?

[Hiscox Ad]

It's happening, I would say, across the board. You know, we're, they're saying like, my goal right now is just really to be able to cover my costs. And you know, I was like, well, you know, I've been hearing these things about like, like the, the Chinese government doesn't want any of these factories to fail. Like, like, are they, what, what's going to happen? Is there going to be a version of, you know, ppe, the PPE loan in China? Like how, how, how are you guys going to survive? They're saying, I think they're going to pump more money into the banks, but none of this money is directly coming to the factories. Like they're fighting for their survival too.

[Tracy Alloway]

What are the other levers that the factories can pull to try to offset some of the impact? So, you know, maybe offer discounts to clients. But is there anything el sort of deal with this situation?

[Hiscox Ad]

One of my factory partners actually wants to launch MM Lefleur in China.

[Tracy Alloway]

Oh.

[Hiscox Ad]

He was like, hey, I'm going to be stuck with all this inventory. What do you think about M. M. LeFleur for the Chinese market? And I was like, go for it. Like, I've always wanted to do it. It's not, it's not as though, you know, so like, I don't know, from, from great challenges could come opportunities, but it's a long shot. I mean, and so we're also looking at that as well. And he's saying some send me all the product that's going to be Stuck in China. And let's see if we can actually launch MM lafleurchina. So it's not as though, you know, they're not, you know, they're also thinking of every creative solution possible. We're. We're firing on all cylinders. And then, of course, like, there's the country washing. That's happening. I know, I know that we're very careful about it and trying to make sure it doesn't happen, but.

[Tracy Alloway]

So this is the idea of moving production elsewhere, right?

[Hiscox Ad]

Totally. And I should say, like, finished product elsewhere. Right.

[Joe Weisenthal]

But this is. Right, so it's not the production. It's basically lying.

[Hiscox Ad]

It's exactly. The product is finished. Send it to a third country, switch out the label, and ship it to the United States. I've got three kids, so I can't end up in prison, but I know for a fact that it happens, and it'll probably happen a lot. And gosh, I mean, I'm sure the government will make an example out of a few of them, but it's gonna be impossible to trace all of them. So that. That's gonna be. That's definitely gonna happen across the board.

[Tracy Alloway]

Joe, there is an irony in the idea that, like, okay, Chinese consumers could end up having more clothing choices in the form of an MM LeFleur store in or something like that. And meanwhile, the clothing available to American consumers is potentially shrinking.

[Joe Weisenthal]

Well, I was actually talking to someone this morning, and they're like, yeah, inflationary in the US and disinflationary everywhere else in the world because of the sort of glut of goods.

[Tracy Alloway]

Yeah, the US Is the one exporting deflation now.

[Joe Weisenthal]

Yeah, that's right. It's actually kind of strange. The factories that you work with in China, what have they done either in recent years or when they look to the future about bringing their know how and capacity to other Asian countries so that it actually is manufactured in Vietnam and how much capacity and work it's being done on those fronts?

[Hiscox Ad]

Yeah, I mean, I think even from the last Trump administration, a lot of Chinese factories kind of saw the writing on the wall, and so they were diversifying their sources. And so I have some factory partners that have opened up factories in Vietnam, in the Philippines. And I mean, it's. It's kind of fascinating because all the workers will be Vietnamese, but the, you know, the kind of leaders in the factory are all from Hong Kong. And even that is tough. Like, I think one thing that's, like, not understood about garment manufacturing is it's a real trade and your best sewers are people who have been doing this for decades. You know, like, you're. You're a baby sewer if you've only been doing this for, like, five to ten years. The people who make your samples, you know, your best sewing you're getting.

[Joe Weisenthal]

And this is another reason why it's fantasy, the idea that this can all be done in the US because there just hasn't.

[Hiscox Ad]

Do you even know how to use a sewing machine?

[Joe Weisenthal]

I don't.

[Tracy Alloway]

I just bought a sewing machine. I'm gonna use it for the first time tonight. I'm very excited and nervous.

[Hiscox Ad]

Great. There you go. Those are most Americans, you know, very intellectual. They might know how to code, but they couldn't. They don't know the first thing about how to use a sewing machine. And they're like, bring garment manufacturing back to America. And I was like, people don't know how to sew a button on. They bring it to the dry cleaners. Like, in what world is garment manufacturing actually going to come back?

[Tracy Alloway]

So.

[Hiscox Ad]

So it's just. It's kind of preposterous to imagine that that's a future.

[Joe Weisenthal]

And therefore, it's even slow at the level of quality that you expect for your clothes. It's not trivial to transport. Have those skills and capacity emerge in a Cambodia or Vietnam.

[Hiscox Ad]

Oh, my gosh. Yes. Okay, so, like, let me go back to silk, right? Because silk is a very hard material. First of all, you need to start with the mulberry trees and the silkworms, right? And I mean, creating silk is a very long supply chain and a very difficult supply chain. China is one of the few countries that actually do it. And then sewing silk. Silk is super slippery, right? Like, that's kind of you. You can make sense of it. Like, trying to sew silk in a sewing machine takes a really skilled hand. So, you know, China's the only place where we do silk. And I, we. We literally don't have another country to move silk to. Like, we're saying, like, maybe the Philippines can take it if it's owned by a Chinese factory. Like, we're desperately looking for a. A new silk factory. I. I mean, this. I say to all. All people who shop for Christmas in Hanukkah, like, buy your silk now because you're not gonna see it for a while.

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[Tracy Alloway]

You mentioned earlier that you see recession on the horizon. Talk to us about why you think that. And then also like, how useful or how accurate has the clothing business been in predicting previous recessions? I know. Well, you've only been in existence for 10 years or so. 12 years maybe. So there aren't that many examples, but I imagine like at this point you have some experience.

[Hiscox Ad]

Well, it feels. I was just at like a retail industry dinner and they were saying they were joking. Like every year is a new black swan event. And I was like, yes, I do really feel that way. From the pandemic to Silicon Valley bank going under to actually one of our other lenders also went under and now this.

[Tracy Alloway]

I think SVB was a lender for you.

[Hiscox Ad]

Yes, we banked with SVB. It was, yeah, you know, 72 hours that I never hope to experience again. But I think what this is I consider myself an optimist. Right? Like why Else would I be an entrepreneur and, you know, be foolish enough to think that we are the 1% that will somehow make it through? And yet all of these experiences over the past five years, I mean, they have hardened me. I've definitely become significantly more conservative in all of my predictions and forecasting. And basically, yes, everyone's saying, like, oh, don't worry, tariff's gonna come down again. Trump's not gonna actually do it. They're gonna call his bluff. And I was like, it doesn't matter. The damage has been done. I've already cut my costs. Maybe he'll undo it, but then who's to say he won't do it again? And so I've clamped down on every expenditure possible.

[Tracy Alloway]

So on this Note, you said April 2nd, you, you had just finished your business plan. Like, how do you actually incorporate this type of uncertainty into planning and hard numbers?

[Hiscox Ad]

It's really hard. And by the way, because I still don't actually know how much inventory we're going to receipt for the rest of the year. Right. I went as conservatively as I thought I could without breaking the business. And, you know, when we're talking about cutting costs, like, there's no, you know, people use the expression like, cut fat, like, there's no fat left to cut. Like I'm cutting into the muscle. But, you know, survival's the name of the game. So that's what we're going through.

[Joe Weisenthal]

This isn't specifically tariff related, but since you mentioned it in the earlier in the episode, I'm curious, what are you seeing on the digital channel side? You mentioned, you know, fighting, fry balls or selling through Meta and all these platforms. What's happening there that you're seeing?

[Hiscox Ad]

Well, we got in really early into the Facebook game. Yeah. I guess this was like, we started advertising in 2013, 2014, and like, gosh, those were the, those were the heydays. Right. And we could acquire customers for $13, which just like, for context, I think now it's about $250. That's probably understating it. It is massively expensive and yet probably still the most effective. Right. And I think the lack of competition there is a real problem. Like, we, we've tried Reddit to mix to success, we've tried TikTok to mix success.

[Joe Weisenthal]

You know, actually another quick question. This is something I've wondered about. I don't many of the clothes that I buy, like, it's because I won't buy through Instagram or even by online, but I'll, like, see something that Gets flashed to me on Instagram and then I'll like, oh, that's a nice shirt, or whatever. When Instagram launched its inside shopping, where you could launch a store in Instagram, I was like, oh, this is a great idea. Just like press a button, use Apple Pay, and then I'll get it. And my understanding is it hasn't taken off and that actually there is not a lot of in app shopping still in Instagram. Do you have any insight into that?

[Hiscox Ad]

We have not had as much success with that, but our price point's also higher, so I can't really, you know, I think if you're like buying a $9 hair clip, I mean, guilty as charged. Like, I think there's more success there. I think for something that's sitting at our price point, it's still. Yeah, I'm not going to see instant conversion, but it's exactly what you said.

[Tracy Alloway]

Your clothing is not an impulse buy. For sure. I have impulse bought off Instagram and ended up with some strange products.

[Hiscox Ad]

I know. Gosh. And then they keep on mounting.

[Joe Weisenthal]

Yeah, yeah.

[Hiscox Ad]

I guess I will just say, I think, as you know, small business owners, like, we can do everything right. And I think a lot of us won't make it. Like, I. That's the truth. A lot of us will be out of business within the next six to nine months. And I think the consumer doesn't really understand that. I think actually even people who are in retail who are one layer removed don't understand that. I was chatting with an executive of a department store and he was like, well, actually, sales have been great because everyone's rushing to get stuff. And like, I'm sure people will work it out for the holidays. And I don't know if people really understand how dire it is, you know, and. And yes, okay. Like Trump's talking about, you're gonna get two stuffed animals instead of 19 stuffed animals. I'm like, you're getting zero.

[Joe Weisenthal]

Yeah. So my kids have enough.

[Hiscox Ad]

I mean, I know. Same thought here. But small businesses won't make it. The big businesses will be fine. Like, gosh, iPhones. No, terrible.

[Joe Weisenthal]

Actually, like a really big mass clothing line that's not as sort of nice and high quality. Like, when you. When you think about like a slightly cheaper, much larger competitor of yours. I don't know the names. Maybe the two of you can think of a better analog than Mott, than J.

[Hiscox Ad]

Crew, maybe.

[Joe Weisenthal]

Yeah, or something like that. Like, what do they, you know, they just eat some of the costs and they have distribute makers that can they have enough scale that they can force their producers to eat costs and just sort of of, you know, trudge along.

[Hiscox Ad]

You know, I think for, for those retailers that have enough cash on the balance sheet, yeah, maybe it's a, a risk they're willing to take. I think the other thing that's not understood necessarily about the tariffs is that you pay tariffs to the government basically as soon as the goods hit the, the US US Territory. Right. So. Right.

[Tracy Alloway]

There's no official comes and like looks.

[Hiscox Ad]

At it and, and says basically, here's your invoice, pay it up. Right. And, and you don't get like your 30 day terms or your 60 day terms that your factories extend to you because that's actually the selling window that you need to sell your products to your customers. So it's actually a huge cash flow problem as well. And you're bringing in these goods in not knowing actually if your customer is willing to eat the price hike. So again, it's a gamble. Big apparel companies with huge cash, lots of cash on their balance sheets. Yes, they will seller.

[Joe Weisenthal]

If you're a factory seller to a small entity in the US you may be reluctant to, to just let it ship there because you actually don't know whether that customer is going to be able to take delivery and pay at the very end.

[Hiscox Ad]

Yeah, that's, I think that's a real consequence. That's a real consequence. But I think they're fighting for their survival too. You know, they're going to take something rather than nothing.

[Tracy Alloway]

Yep.

[Hiscox Ad]

All right.

[Tracy Alloway]

Sarah LaFleur, it was so good catching up. I wish it was under better circumstances, but I'm glad we finally did it.

[Hiscox Ad]

Thank you. This was, this was a blast. Thank you guys.

[Joe Weisenthal]

Thank you so much. That was fantastic.

[Hiscox Ad]

Fantastic.

[Tracy Alloway]

Joe, that was so fascinating and I am really glad we finally had Sarah on. It is kind of the perfect moment to talk about the textile clothing business. I hadn't thought of the cash flow issue of actually paying the customs coming in. I mean, obviously I knew that companies have to pay the tariffs as things actually come in at the ports. But the issue of like the discrepancy between your selling window and when you actually have to pay that extra tax. Yeah, I hadn't thought of that.

[Joe Weisenthal]

No, there's all sorts of, I mean there's all sorts of wrinkles, no pun intended, that the tariffs are creating. I really like that episode because look, we could talk to economists all day long about shortages coming or higher prices. So it's helpful to hear from someone in business actually dealing with actually, yes. All those things that economists are talking about are very real. You know, so much in there that was interesting. You know, starting on that last point that you mentioned, you know, again, a big retailer like a J. Crew, they're, they're going to have an easier time sort of smoothing out their cash flows, taking a risk, making a bet, ordering a line than a company that's just, just quarter to quarter for its survival.

[Tracy Alloway]

This seems to be a recurring theme in a lot of these tariff episodes. Right. So we heard it in the gaming industry episode. The smaller players seem like they're suffering or will suffer a lot more than the big guys. And then when we spoke to the lentil king of Saskatchewan, he seemed, he was kind of sanguine about the whole thing, I guess. Cause he's the biggest lentil player out there.

[Joe Weisenthal]

Yes. And the fact that it sounds like for ag, the idea of like small ag has sort of been disappearing a while. I mean, what do you say? He said a family farm at this point in Saskatchewan means having 300,000 acres, which you know, is not my conception of little family farm. But then also obviously, I guess I was surprised a little bit that there isn't more capacity or market depth in some of these non China countries like a Vietnam, like a Philippines, like a Cambodia, so forth for the types of sewing and cutting that's necessary at this level. And so even at this point for something like clothes and granted Sarah makes nice high end clothes that is sort of still China or nowhere.

[Tracy Alloway]

Yeah. And I guess this is the other theme that keeps coming through that it's just going to be very, very hard, slash impossible to try to build up that capacity and expertise in the US and there's, there's no way anyone's going to open like, I don't know, start growing mulberry trees and farming silkworms in the next six months or something like that. So yeah, buying your silk now for Christmas. Useful bit of advice.

[Joe Weisenthal]

Yes.

[Hiscox Ad]

All right.

[Joe Weisenthal]

Shall we let nobody say that there is not useful advice on Odd Lot?

[Tracy Alloway]

That's right. Shall we leave it there?

[Joe Weisenthal]

Let's leave it there.

[Tracy Alloway]

This has been another episode of the Odd Lots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

[Joe Weisenthal]

And I'm Joe Weisenthal. You can follow me at thestalwerks. Follow Sarah LaFleur. She's Smlefleur. Follow our producers Carmen Rodriguez at carmenarmon. Dashiell Bennett at Dashbot and KalebrookSalebrooks. For more Odd Lots content, go to bloomberg.com oddlots where we have a daily newsletter and all of our episodes and you can you should check out our Discord where people are talking about these topics 24 7. That's discord ggodlots.

[Tracy Alloway]

And if you enjoy odd lots, if you like it when we talk to actual businesses that are dealing with the tariffs right now, then please please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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