Two questions

Yet again I have rather useless questions and wondering if, after the idea having struck me as many times in the past several weeks, whether I should post them. Answer them if you will.

  1. A series of questions really, about the economy. Do you think we’re headed for recession? If so, do you think it will affect you? If so, how? Will your strategy, planning or line development change? If so, how?
  2. How -or has- has the weakening US dollar affected you? Between sourcing and selling abroad, has this been a net positive or negative to your bottom line? If you’re not feeling the effects now, do you expect this will change later? If so, have you given any thoughts to how you’ll manage these changes?

I have two general ideas with regard to the first question. I’ve always thought that one of the facets of an enduring product line is one that would be generally impervious to the pressures of an economic downturn. If anything, one would benefit from recession through increased access to labor. That sounds predatory; what I mean to say is that in a downturn, the talent that left the industry for other jobs, might be more likely to return provided the conditions existed for them to do so. Call it restored opportunities.

With regard to item two, I’m not feeling any changes yet, negative or positive but since I feed from you, I expect that will change depending on the affects of the economy on you. I’ve had my eye on diversifying but must admit I will be unlikely to implement anything until unequivocal truths confront me. I suspect I’m not alone in hoping new political leadership will restore consumer confidence.

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  1. Cerebella says:

    I have a feeling that the looming recession will not affect the luxury sector substantially. My products sell at high-end boutiques. I don’t expect to see much of an effect.

    Regarding the falling dollar: so far it seems to have helped. I had a trunk show last weekend. For the first time I saw many Canadian customers. Also I have received more line-sheet requests from europe and Japan recently (also one from Mexico).


  2. Mike C says:

    I imagine a recession is coming, but I couldn’t say whether it is one quarter, one year, or even one decade away. I gave up trying to predict the economy years ago and have focused on building a company that is strong enough to survive the ups and downs of the business cycle.

    Time will tell whether we’ve succeeded. Until data suggests otherwise, we’ll continue our strategy of making great products that people find value in while keeping our costs as low as possible. We’ll continue to invest internally as sales growth warrants. If sales slow, we’ll slow our internal investments – whether the root cause is the economy or something we’ve done wrong.

    As far as currency goes, we’ve not seen any negative effects yet. Some of our vendors have used it as an excuse to raise prices – but not enough to make any noticeable difference yet.

    I wouldn’t be surprised if some of our international vendors started making noise about price increases due to currency fluctuations next year though. If they do, we’ll take another look at supply chain diversification and whether US based mills are more interested in doing business again. I suspect that if materials costs from international suppliers increase, domestic suppliers will use that as an excuse to raise their own prices, rather than use it as an opportunity to increase market share.

    Anecdotally, we’re seeing more pull internationally than we have in the past. Sales to Canada are perking up and we’re doing good business in Singapore and South Korea. Whether that’s because of currency issues or not is impossible to say at this point.

  3. Vesta says:

    I haven’t really thought about a recession, specifically. But if there is one, I can imagine that our sales would tighten up a bit. We’re focusing on moving our production from push to more pull. We’ll continue on that path, regardless,which will insulate us from digging any big inventory holes.

    As for the dollar, we’ve been affected a lot by that. We’re signing up more international reseller accounts each month, than domestic. And our international accounts are buying more. However, our costs are also up by $1 apiece (we buy package). We’re absorbing it for now. Might have to increase some of our prices mid-2008. So it’s a mixed bag for us.

    Overall, I’d say not to be alarmed over either situation. And cross your fingers (and VOTE) for change in Washington.

  4. J C Sprowls says:

    It’s so difficult to speculate. I am inclined to agree with Cerebella that the luxury market will likely not slow down, or, if it does, by an amount so small it will be difficult to measure.

    I do not consider it prudent for existing businesses to enter the luxury market if Recession is imminent – though. I’m sure the majority will try, throwing good money after bad. During uncertain times, it is prudent to stay the course instead of chasing rainbows. Sometimes it’s a necessary evil to endure.

    Is the US, generally, heading toward a recession? Again, this is very difficult to speculate. I am eager for a change in Administration. But, I am not convinced new policies will come in time to alter the course of the Country.

    I do recommend that each Manufacturer reserve heavily by building it right into the cost model. I do not believe in suffering life at the mercy of idiots. Whether the Country faces a downturn is beyond my scope and authority as an Employer. But, running a prudent Operation is. It’s a matter of choosing battles I know I can win.

    RE: the falling dollar. This is best left to those who are producing and selling. The responses I see here don’t surprise me. I would anticipate sales to increase from Foreign Buyers, and I also expect Suppliers to increase or surcharge (at least the currency conversion rate) US Buyers. This does temporarily inflate the prices of US-made products.

    The irony is more Products are being sold in the countries who overcharged for inputs to begin with. [Pardon me while I giggle…]

    I don’t know that your prediction of workers returning to the trade will come to pass to any significant degree. One can hope, though. I suspect human nature will tend to remain still when turmoil is evident.

    In the end of all this “chicken little” bedlam the media speculators enjoy inflicting upon us, I’m reminded of a simple proverb: “Bend like reed. Flow like water.”

  5. Kathleen says:

    Gee JC, what’s with the capitalization all of your Nouns? You’ve been doing this too long if you’re starting to write like an old Garmento… :)

  6. J C Sprowls says:

    Sorry… I was in the middle of writing a technical document when I decided to take an F-I break. The standard when naming broad classes of general objects it to capitalize the noun or noun phrase.

    Oddly, it is reminiscent of German grammar conventions. Hmmm… Garmento = German = Yiddish.

    Telling :-)

  7. Rocio says:

    I can only assume that if we are heading for a recession it will only be beneficial to us…
    Based on what happend in the early 90’s and after 9/11 I can only speculate that job losses will hit the creative end of the business first, while technical oursourcing will also increase to compensate for a cut back on permanent employees…

    When it comes to the weakness of the dollar, it’s been great for us as orders from European accounts have increased steadily!

    I’m not one to ponder over the “what if’s”, but having maintained job stability through 2 recessions has thaught me to always prepare for the worst case scenario.

  8. Julie K says:

    I live in Canada, and I know I’m a lot more interested in buying things with US$ prices online with the dollar at or close to par. I would still have to pay import duties and Canadian taxes (6% federal, not sure if provincial taxes have to be paid or not, if so, that’s another 7%) but at least there isn’t the exchange rate issue – it makes things a lot cheaper on this end.

  9. /anne... says:

    Conversely, my $ (Australian) has been going up :-). Which has it’s own challenges … I had a look at a few large US clothing websites, considering buying something recently, since the prices aren’t as scary now. Forget it – they don’t want my dollar, they won’t ship overseas. Why have a web site if you’re not planning on increasing your market to include the world?

    What a waste. I bought some fabric instead (most US sewing and knitting web sites have been selling to the world for years).

  10. dosfashionistas says:

    I do not think we are headed for a recession this year or next. Those in power in the government will do anything rather than risk a recession in an election year, so there will be all kinds of finagling to avoid it. Now the year after, who knows.

    If it does come, it will probably benefit my business in the short run, since my customers are largely bargain hunters anyway. Less money, more bargain hunters. Not that I want to see a downturn, mind you. More bargain hunters are good only if they have enough money to spend to get the bargains.

    Re Question 2, as an online retailer, I have definitely seen more international sales this year. I ship something to Canada or the UK (or Europe or Australia weekly, sometimes more than one.

    Thanks for the questions.

  11. Babette says:

    Like Anne, here in Australia we’ve got a strong dollar and an embarrassingly robust economy. If the US hits recession though, we will certainly slow too.

    Something that has like effect here and in the US is the current inflationary pressure in China. I’ve noted in recent weeks that inflation in China has now exceeded 8%pa and in the case of food, vegetable prices are up 18% and meat prices 42% on this time last year. That’s going to bring about wage pressure and all those cheap imported goods will go up in price. If this co incides with the slowing of the US economy this will help your domestic manufacturers in the tough time.

  12. Eric H says:

    One of the best places to find out about macroeconomic stuff (like whether or not we are headed into a recession) is James Hamilton’s and Menzie Chin’s Econbrowser blog.

    One of Hamilton’s research areas is in econometrics and forecasting recessions. He keeps a score that he calls the Recession Probability Index, which is currently running at 26.2%. He also started noting the current direction with a smiley face, which he recently changed from a frown to a neutral. Look for it in the sidebar.

  13. av says:

    I disagree on the luxury goods statements above. I worked in a different industry when the dot com boomed then crashed. During the boom, people were throwing money at goods with no thought. There were a higher percentage of people thinking they were luxury buyers because their stock portfolios were super fat. Out came the credit cards and purchases. Then the crash. Suddenly everyone’s portfolio completely hit rock bottom and the people buying on credit were suddenly in a huge amount of debt. Tons of people getting laid off from high end jobs. Then stick 911 on top of all this.

    I would estimate in my geographical area that 80% of the children’s clothing stores closed. The one’s that survived were the stores carrying the big name brands. The surviving stores were suddenly bombarded with vendors trying to get in the door. Competition for the remaining stores was fierce and tough. If you did not have the right mix of look, price and some kind of customer base/recognition, you were out. (side note: I see high end children clothing as a luxury item. When the ecomony turns, that is the first area to get hit hard.)

    Then the short term economy’s saving grace was low interest rates. Soooo many people I know bought and sold houses every two years to increase their equity. Soooo many people I know were and still are buying luxury goods floating the purchases on their property equity. Then there were the low interest credit cards. All this is gone and property values have taken a huge hit in California. The recent news said that 1 out of 2 house sold in Sacramento area this summer was through bankruptcy. We had to move a few years ago and paid somewhat high for our house. I know if we had to sell today, it would be slightly less than what we paid for it.

    I think within the next 6 months were are going to see some kind of down turn. And the cycle will start over again. Stores that are barely making it will close and the stores that have been there forever with have plenty of vendors to pick from.

    One thing I hope will keep the recession fallout from being big is that the dot com / computer / electronic companies are starting to make a comeback. I believe the iPhone is going to have a huge impact on our economy. There is a huge potential for improvement on how info is delivered to individuals. I read everyday about computer/ electronic companies pouring money into r&d again. Everyone is trying to play catch up with Apple or come up with a service people can use on their iphone.

    Sorry if this is rambled writing….

  14. Kathleen says:

    I don’t know how to define “luxury goods”. I agree that high end kids clothes are a “luxury” but does that mean they’re “luxury goods”? I think they’re more of a frivolity, buy it if you can and if you need it. I think of luxury goods as high end hand bags by major intl designers. And this just doesn’t apply to kid’s clothes of course, I think we’d have to thrown in any number of niche high end apparel or products by producers w/o intl brand recognition. Maybe these are opportunistic luxury purchases, temporal, spend it if you have it when it strikes your fancy. I do agree that these types of lines will scramble more in a shakeout. Stores won’t want to risk on anything less than a sure thing. Retail is so dicey.

    Speaking of, the recent edition of Apparel News says the most recent show (Majors Mkt) in LA, OCT 8-10, was down appreciably and consumer spending this holiday is expected to be conservative. More here. (free, scroll down for both articles)

  15. J C Sprowls says:

    The definition I intended for “luxury goods” is directly related to the market they’re sold in. The luxury class buyer looks for scarcity, high-calibre inputs and high-calibre craftsmanship above all else. This buyer spends most of their time in custom tailor shops and then buy their commodities (i.e. undergarments, cotton trousers, etc.) in establishments where cocktails, personal shopping, cigars and models are the norm.

    A Canali suit, for example, isn’t a “luxury” class garment, per se, until you put it into a luxury class storefront. Andrisen-Morten’s private label, on the other hand, is; and, it’s sold right along side the Canali. In other words, the couture and bespoke grade garments – and their top tier manufactured lines – are likely to not be affected by ebbs and flows of the socio-economic situation of the masses.

    Production facilities whose market *is* mainstream will find that commodities will be their mainstay when the ebb/flow is severe. Simply put, mainstream buyers tighten belts and economize by avoiding non-pertinent purchases. Niche manufacturers who invest too heavily in the mainstream market segment could be hit hard if their product offering isn’t sufficiently diverse (i.e. a favorable mix of commodity and conceptual products).

    But, the great news is that it costs significantly less to ideate a sketch and obtain market feedback than it does to develop a product that won’t be made. This is a luxury the Niche manufacturer holds over the Big Box mfg. In some ways, Niche manufacturers can adopt processes that emulate Luxury/Artisinal makers and be successful.

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