Odd Lots - Sarah LaFleur On the Existential Threat From the Tariffs

Episode Date: May 9, 2025

America's textile industry has famously declined over the years, with a bunch of production moving to lower-cost places like China, Vietnam, and Bangladesh. Now, with the Trump administration imposing heavy tariffs on exports from these countries, the US clothing industry is facing another big shock. In this episode we speak with Sarah LaFleur, founder and CEO of M.M.LaFleur, which makes high-quality work clothing for women (Tracy is a big fan). She walks us through what the past month has actually been like for a smaller clothing business trying to understand and deal with the tariffs. We talk about the conversations she's been having with mills and factories in China, how the tariffs are already impacting future seasons of clothing, the scramble to secure space on ships before the tariffs hit, and how businesses actually pay the new taxes.Read more: A New ‘China Shock’ Is Destroying Jobs Around the WorldOne Ship, $417 Million in New Tariffs: The Cost of Trump’s Trade WarOnly Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox — now delivered every weekday — plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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And I'm Joe Wisenthal. Joe, we've been inadvertently doing a tariff series, basically on what the trade restrictions mean for a bunch of different industries. 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, is going to 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 7th, we released an episode talking about the video game industry. But yes, we could go down the line of every category within GDP and learn something. 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 textile. 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 in the U.S. to source textiles from abroad. You know, it's funny. I was at some event for my school. And I ran into a fellow dad, or for my kid's school, and I ran into a fellow dad with a clothing company. Like 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 U.S., especially what he sells to non-U.S. 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 U.S. used to have a booming textile industry. particularly in the southeast, as we know. Yeah, we visited the remnants of the American textile industry in North Carolina. So there's a lot there. 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 friends. their clothes. I have dresses that are, I think at this point, are like 10 years old, but they still

look amazing. So I'm a big fan of this company. That is my disclaimer. Wait, Tracy, did you ever do any modeling? Yes. I thought you, did you ever do any modeling for this company? No. Okay. No, no, no. We can talk about that later. I did modeling when I was like 17 and 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 M.M. Lafleur. So Sarah, thank you so much for coming on all thoughts. Thank you for having me. It's a true honor. Sarah, what is your favorite Tracy memory? And did you know she was going to go, was going to be a star podcaster one day? I thought she was going to be the U.S.

Ambassador of the United Nations. So yeah, I guess. She was always a true intellectual. Oh, dear. Uh-huh. And I would say precocious. beyond her ears. So this is, yeah, that's probably fair. All right. Sarah, talk to us about the company. How would you describe a Memlo Flore and when did you get started? Sure. So 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. You were at Bain, right? Yes, I was at Bain. And, you know, I always struggled 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 in 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, you know, for my budget, I was not going to be wearing a Chanel suit to work. But the idea stayed with me. And, and, and, and, you know, 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 thought this was a good idea. 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. So what do you, we'll get into, you know, want 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 who put them together and how do they get to the end shopper?

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 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, in 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 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 with your fit model. And 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. 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, right? You have very special fabrics. And again, I'm going to sound like I'm doing an ad for this company. We love that. But I mean, they're great fabrics for workwear. They really are. And they're sort of specially made is my understanding for exactly that scenario. Yeah, we really focus on machine washability and wrinkle resistance. So Japan is great with that. It's not your mother's polyester. Synthetic fibers have really come a long way.

So there are a lot of synthetic fibers that behave like silk or look like silk but are still machine washable and 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 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 Kashmir. But there aren't that many places across the world that do these natural 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 Uniclo 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?

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, for us, we like to nominate our fabrics. 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, they usually are not in the same country, takes on that fabric from that mill and then 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. 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 slash mill actually? like? 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 was an economic development corporation. And for a lot of fashion designers, right, who are trying to get their foot in the door and start their own line, the garment district in New York City is amazing. And I would say, I mean, when I got started a decade to go. 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, 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 on 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.

Oh, you're doing manufacturing in the garment district? This was a decade ago, but yes. Got it. You can get the news whenever you want it with Bloomberg News Now. I'm Amy Morris. And I'm Karen Moscow here to tell you about our new on-demand news report, delivered right to your podcast feed. Bloomberg News Now is a short five-minute audio report on the day's top stories.

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the world. Listen to the latest from Bloomberg News Now on Apple, Spotify, or anywhere you listen. Today, if you want to go to a factory somewhere in Asia and you have the textiles, what are like some of the minimums? You know, like what's a minimum run? Because I have to, like you said, you know, they want to know that you're still going to be around from 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? 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. Okay. 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. Wait, why is the lower volume, why is it, why are they willing to take lower volume as wages have gone up? 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.

As labor prices rise, brands are always saying like, okay, well, I got to go cheaper. I got to go cheaper. Oh, interesting. So they first went to Southeast Asia. They moved over to, you know, South Asia, 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 consider the next frontier. 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 U.S. for competing with other Asian countries. Yeah, absolutely. Okay, so, Sarah, we got to 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. 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 Kamala Harris didn't get elected, we were like, well, everyone says Trump's going to be good for business.

We have a big business in Washington, D.C., change of administration is usually also good for our business. Oh, yeah. The first thing we came, you know, ran across was the Doge cuts. So our two D.C. stores are down about 20 to 25 percent from L.Y. Wow. 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 of the, what was it, Liberation Day. April 2nd, yeah. 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. You were one of the people squinting at the billboard. Ah, ha, ha, ha. And I was like, someone, get a screenshot of this. Anyway, 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 I, I think, 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%. Yeah.

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 2nd and then April 11th, We were on calls with our factories like night and day. 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. 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 we went into, whenever it, we went into 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 to use this metaphor, but like it's like the last ship or the last helicopter out of Saigon. Everyone's just like trying to get their things on. Yeah, I mean, it's an okay metaphor because one, you know, that's the helicopter, but it's a 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 like sort of geographical exposure? Because X China, it's only 10%.

And it may get, I think, you know, 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%? Well, I had to cancel 50% of my May collection because they were all from China. Okay. Many of the things were late because they were coming out of places like Vietnam. Okay. Where it was initially hit with the 54% and we were saying, oh, I'm sorry, it was 47%. We said, don't ship it.

Oh, so even though they've got put back to 10%. percent fairly quickly it had it created a hiccuh. 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, we'll 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 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 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 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. And, you know, sometimes I get like, I knew. I knew it was made in China because, you know, the qualities was X, Y, Z. And I was like, you know, I was like, have you ever seen the inside of a factory in China?

Because, you know, 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. 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. 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 going to put a little button that shows the pre-tariff and post- tariff price or something like that? 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 margin squeezed.

We're looking at our August collection right now. My August collection, unfortunately, is 100% made in China. And we are making very serious tradeoffs 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 is like, this clothing is already made. August has already been made. So it's in a box ready to get on a boat. And 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.

Yeah, that's what I was wondering. To what degree are those conversations happening about the factory site eating the costs or giving you reductions? It's happening, I would say, across the board. You know, 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 the Chinese government doesn't want any of these factories to fail. Like, are they, what's going to happen? Is there going to be a version of, you know, PPE, the PPE loan in China? Like, 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. 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 else they can do to sort of deal with this situation? One of my factory partners actually wants to launch M.M. Lafleur in China. Oh. 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 as though, you know, so like, I don't know, 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, send me all the product that's going to be stuck in China. And let's see if we can actually launch M.M. Lafleur, China. So it's not as though, you know, they're not, you know, they're also thinking of every creative solution possible. 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. So this is the idea of moving production elsewhere. Totally. And I should say, like, finished product elsewhere, right? But this is right. So it's not the production. It's basically lying.

It's exactly. The product is finished. Send it to a third country. Switch out the label and 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 going to be impossible to trace all of them. So that's going to be, that's definitely going to happen across the board. 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-Laflo store in Beijing. or something like that. And meanwhile, you know, the clothing available to American consumers is potentially shrinking. Well, it's, you know, I was actually talking to someone this morning and they're like, yeah, inflationary in the U.S. and disinflationary everywhere else in the world because of the sort of blood of goods. Yeah, the U.S. is the one exporting deflation now. Yeah, that's right. It's actually, 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? 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 kind of fascinating because all the workers will be Vietnamese, but the, you know, the kind of leaders in the factories. 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 a baby sower if you've only been doing this for like five to ten years. The people who make your samples, you know, your best sewing. And this is another reason why it's fantasy, the idea that this can all be done to US because there just has a bit. Yeah. Do you even know how to use a sewing machine? I don't. I just bought a sewing machine.

I'm going to use it for the first time tonight. I'm very excited and nervous. Great. There you go. Those are most Americans, you know, very intellectual. They might know how to code, but 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? So it's just, it's kind of preposterous to imagine that that's a future. But, 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 into Cambodia or Vietnam. Oh, my gosh. Yes. Okay. So, like, let me go back to silk, right? Because silk is, silk is a very hard material. First of all, you need to start with like 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 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 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 mean, I say to all people who shop for Christmas and Hanukkah. Like, buy your silk now because you're not going to see it for a while. I'm Francine Lacqua, an award-winning journalist. And I've got a new podcast, leaders with Francine Lacqua from Bloomberg podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been

curious who are these people as leaders. I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacroix wherever you get your podcasts. 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. Well, it feels I was just at like a retail industry dinner and 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, you know, Silicon Valley Bank going under to actually one of our other lenders also went under and now this. I think. Oh, SVB was a lender for you? Yes. We banked with SVB. It was, yeah, you know, 70. two 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 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, you know, yes, everyone's saying like, oh, don't worry, tariff's going to like come down again. Like, you know, Trump's not going to actually do it. Like, they're going to call his bluff. And I was like, it doesn't matter. The damage has been done. Like, I've already cut my costs. Like, 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. So on this note, you said April 2nd, you had just finished your business plan. Like how do you actually incorporate this type of uncertainty into planning and hard numbers?

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 is the name. of the game. So that's what we're going through. 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 bribeballs or selling through meta and all these platforms. What's the, what's happening there that you're seeing? 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. Wow. Wow. 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've tried Reddit to mix to success. We've tried TikTok. to make success. 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 buy 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, it's inside shopping where you could launch a store in Instagram.

I was like, oh, this is a great idea. I 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? 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 charge, 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. Yeah. It's exactly what you said. Your clothing is not an impulse buy for sure. I have impulse

spot off Instagram and ended up with some strange products. I know. Gosh, and they need to keep on mounting. Yeah, yeah. 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 yes, okay, like Trump's talking about you're going to get two stuffed animals instead of 19 stuffed animals. I'm like, you're getting zero. Yeah. So. My kids have enough. I mean, I know. Same thought here. But Small businesses won't make it. The big businesses will be fine. Like, gosh, iPhones, no tariff rate. What about actually like a really big mass clothing line that's not as sort of nice and high quality? Like, 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 my than. Jay crew maybe. Yeah, or something like that. Like, what do they, you know, they just eat some of the costs and they have. have distributors that can, they have enough scale that they can force their producers to eat costs and just sort of, you know, trudge along. You know, I think for for those retailers that have enough cash on the balance sheet, maybe it's 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 U.S. territory, right? Right. A customs official comes and like looks at it. And says basically, here's your invoice. Pay it up, right? 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 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, lots of cash on their balance sheets. Yes. They will probably stomach it. If you're a seller, if you're a factory seller, to a small entity in the U.S.

You may be reluctant 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. Yeah, I think that's a real consequence. That's a real consequence, but I think they're fighting for their survival too. They're going to take something rather than nothing.

Yeah. All right, Sarah Lafleur, it was so good catching up. I wish it was under better circumstances, but I'm glad we finally did it. Thank you. This was a blast. Thank you guys. Thank you so much.

That was fantastic. 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. I hadn't thought of that.

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 can talk to economists all day long about shortages coming or higher prices. So it's helpful to hear from someone in business. 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 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, you know, quarter to quarter for its survival. 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, you know, he was kind of sanguine about the whole thing, I guess, because he's the biggest lentil player out there. Yes. And the fact that it sounds like for ag, the idea of like small ag has sort of been disappearing for a while. I mean, what do you say? He's at a family farm at this point in Saskatchewan means having 300,000 acres, which, you know, is not my conception of a 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. 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 U.S. And 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. Yes. All right. Let nobody say that there is not useful advice on odd lot. That's right. Shall we leave it there? Let's leave it there. This has been another episode of the Oddlots podcast.

I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe Wisenthal. You can follow me at the stalwart. Follow Sarah Lefleur. She's at SM Lefleur. Follow our producers, Carmen Rodriguez, at Carmen Armand, Dashel Bennett at Dashbot at Kail Brooks at Kail Brooks. For more Oddlots content, go to Bloomberg.com slash oddlots, where you have a daily newsletter and all of our episodes. And you should check out our Discord where people are talking about these topics 247. That's Discord.g.g. slash odd lots. And if you enjoy odd lots, if you like it when we talk to actual businesses that are

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