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Pendleton still manufactures fabric in the US - although some product lines are probably made in China these days. The fact is none of these companies have much

Pendleton still manufactures fabric in the US - although some product lines are probably made in China these days. The fact is none of these companies have much in the way of margins, if you want higher quality, you just have to spend more.

owenversteeg 5y ago
You’re correct that they don’t have high margins, but what you imply by it is wrong. People commonly confuse margin and markup. Markup is the difference between the cost of the goods and their sale price. (Net) margin is unrelated to the cost of goods and is simply the profit generated as a percentage of revenue. These businesses have extremely high markups because they spend lots of money on marketing or marketing-adjacent things, plain and simple. It’s typically quite easy to see - around the same time that they’ll shift from made in the USA with a lifetime warranty they’ll start paying “influencers”, hiring marketers, sending things to blogs, maintaining a beefed-up social media presence, increasing ad spend etc. They simultaneously cut material costs by outsourcing and raise marketing spend. Their profit margin may not even be changed - but with the higher growth rates that the marketing spend brings the business is more appealing. There’s no reason you can’t get quality goods at reasonable prices. LL Bean, although not cheap, was reasonably priced before they slashed quality a few years ago. Darn Tough is not cheap but the prices aren’t crazy and they’re made in the USA with a lifetime guarantee. American Apparel was 100% made in the USA until some years back and was solid quality. Los Angeles Apparel is 100% MiUSA and solid quality, prices are fairly reasonable. Clothing just doesn’t cost that much to make; MiUSA and good quality is possible, it just needs to make a comeback.
- tyrfing 5y ago
  I appreciate the discussion, but I don't really see the evidence in the numbers for these companies over the last decade or so, maybe it appears on a 20-30 year timeframe. Their gross margins and SG&A haven't changed significantly, although they have for others like Columbia Sportswear. American Apparel, just to pick out one of your examples, was bankrupted with MiUSA. I'm wondering about the impact of ecommerce now though, especially higher return rates.
  - owenversteeg 5y ago
    I'm not sure who you're finding data for, but most of these businesses are private and you have to look at other indicators. For LL Bean, for example, I was a loyal customer for years and paid close attention to their website, stores and social media. It was obvious when they dramatically cut the quality of their clothing and increased the gloss and marketing, to the point that an employee at a local store commented on it to me. You can't just cut quality and rest on your laurels, or the brand will slowly die (see American Apparel) - you have to cut quality and increase marketing spend, exploiting your former good name (see LL Bean - quality far down, but revenue way up.) I don't think that American Apparel was bankrupted by MiUSA - now that they've switched away from MiUSA they seem to be a shadow of their former self. In any case, from 1989 to 2014 was a solid run, and their 2014 demise was quickly followed by other MiUSA companies copying a similar model. I think MiUSA can work - Darn Tough, LA Apparel, New Balance, Allen Edmonds, etc. I think you may have a point with return rates - with lower markups you'd be more affected.

owenversteeg 5y ago

You’re correct that they don’t have high margins, but what you imply by it is wrong. People commonly confuse margin and markup. Markup is the difference between the cost of the goods and their sale price. (Net) margin is unrelated to the cost of goods and is simply the profit generated as a percentage of revenue. These businesses have extremely high markups because they spend lots of money on marketing or marketing-adjacent things, plain and simple. It’s typically quite easy to see - around the same time that they’ll shift from made in the USA with a lifetime warranty they’ll start paying “influencers”, hiring marketers, sending things to blogs, maintaining a beefed-up social media presence, increasing ad spend etc. They simultaneously cut material costs by outsourcing and raise marketing spend. Their profit margin may not even be changed - but with the higher growth rates that the marketing spend brings the business is more appealing. There’s no reason you can’t get quality goods at reasonable prices. LL Bean, although not cheap, was reasonably priced before they slashed quality a few years ago. Darn Tough is not cheap but the prices aren’t crazy and they’re made in the USA with a lifetime guarantee. American Apparel was 100% made in the USA until some years back and was solid quality. Los Angeles Apparel is 100% MiUSA and solid quality, prices are fairly reasonable. Clothing just doesn’t cost that much to make; MiUSA and good quality is possible, it just needs to make a comeback.

tyrfing 5y ago
I appreciate the discussion, but I don't really see the evidence in the numbers for these companies over the last decade or so, maybe it appears on a 20-30 year timeframe. Their gross margins and SG&A haven't changed significantly, although they have for others like Columbia Sportswear. American Apparel, just to pick out one of your examples, was bankrupted with MiUSA. I'm wondering about the impact of ecommerce now though, especially higher return rates.
- owenversteeg 5y ago
  I'm not sure who you're finding data for, but most of these businesses are private and you have to look at other indicators. For LL Bean, for example, I was a loyal customer for years and paid close attention to their website, stores and social media. It was obvious when they dramatically cut the quality of their clothing and increased the gloss and marketing, to the point that an employee at a local store commented on it to me. You can't just cut quality and rest on your laurels, or the brand will slowly die (see American Apparel) - you have to cut quality and increase marketing spend, exploiting your former good name (see LL Bean - quality far down, but revenue way up.) I don't think that American Apparel was bankrupted by MiUSA - now that they've switched away from MiUSA they seem to be a shadow of their former self. In any case, from 1989 to 2014 was a solid run, and their 2014 demise was quickly followed by other MiUSA companies copying a similar model. I think MiUSA can work - Darn Tough, LA Apparel, New Balance, Allen Edmonds, etc. I think you may have a point with return rates - with lower markups you'd be more affected.