Money Talk

This blog post was originally published on January 1st, 2017. I am republishing it now–as is–because much of it is still applicable, and I think it's a valuable resource. Some of my opinions have changed and become more nuanced since I wrote this, but the spirit here is still very much true to me. Rather than attempting to re-write or edit, I'm simply sharing it without changes, lest perfect become the enemy of good.

I’m here on New Year’s Day with something kind of random to talk about. It’s actually more than one thing, it’s a kind of hodge-podge of things that have been swirling and banging around in my head for a while. I want to talk about pricing, consumption, our business, what it means to be a consumer and a producer of things, and lots of stuff in between.

It may not have been noticeable, but I’ve been a little distant for the past few months. I’m typically a pretty open person and love to share everything we’re doing with our customers - what I’m working on, what I’m struggling with, what big exciting things are on the way. This year has been full of new-ness, though, and navigating the end of 2016’s landscape has been tougher for me. When we entered 2016, Elizabeth Suzann was a team of ten. We were fresh occupants of our 10,000 square foot building. 2015 was a banner year of growth, and we were exhausted from it but exhilarated. As we close out this year we are a team of 19, quickly outgrowing our current space, and running a business that’s twice the size of the year before.

The growth has been incredible, and I am damn proud of how we’ve handled it. Our business is entirely self-funded, I am the sole owner of the company, and we have steered this ship on our own from day one. That does not mean that the growth has been easy. We have a bigger staff that has bigger requirements - what was once a tight-knit family now has sophisticated HR needs. We’ve navigated some major challenges with our infrastructure (hello, giant new roof and air-conditioning system), we’ve recovered from some major production issues (remember when all of Signature had an 8-10 week lead time?), we’ve dealt with a crushing supplier issue that I haven’t had the heart to address yet, and we’ve developed an internal leadership and management structure from scratch for a team that never needed one before.

Figuring out how to speak openly and honestly to both our growing team and our growing audience has been a struggle for me. I pride myself on my boldness to say what I feel and willingness to act on what I believe, and that’s been a big part of what has made Elizabeth Suzann successful. Education and crystal clear information is so, so important for consumers, and I truly believe that a world without good information-sharing habits is dangerous. And I know that there is quite a bit of information you would all benefit from having, information that I desperately want to share with you. But some topics have felt too big to broach. I have too many thoughts, and not enough energy to figure out where to start. The number of listening ears and watching eyes has grown, and every word has to be more considered. Every post seems to possess more weight and more risk. I’ve dreamt about using the blog on the site as an outlet for easy and stream-of-consciousness connection with you all, but the fact that every decision I make is now evaluated by many thousands has resulted in paralysis.

Something I’ve been itching to write about, but haven’t been able to find a way to jump in, is pricing. Our pricing. Other companies' pricing. The pricing of the garment industry as a whole. Transparency in pricing. The relationship between pricing and consumption. Our business in particular, and how revenue works in a model like ours. What it means to make the choice to produce things and sell them in today’s world.

As I reflect on the past year and look towards the coming one, I’ve decided that I’m ready to start jumping into big topics with abandon (well, not complete abandon, but a bit more abandon). I want to talk about the above, and I want to talk about a myriad of other things that have felt too amorphous, complicated, or risky to get into. I want to start 2017 by challenging the way customers think about their relationships with the businesses they buy from, and I want to challenge myself to share information, ideas, and thoughts freely and with complete openness. Let’s do this.

I’m starting with money-talk.

Price drops, fast-fashion, and changes in consumption and perception

I suppose where I’d like to begin is with an evaluation of how things have changed pretty rapidly in the clothing world. Prices have dropped drastically in the past twenty years. Up until the 90s it was common to spend $100 on a pair of jeans at the mall, $75-$90 on a thick sweater from Gap, or $200-$300 on a pair of high-quality dress slacks or a cashmere turtleneck at a department store. These are prices from big brands that were, even then, producing en masse with questionable ethics at what were considered low to moderate prices. Still, those were items consumers would typically wear for a year or more, adding a few new pieces to their wardrobes seasonally.

As companies like Zara, H&M, and Forever 21 entered the market in a big way, those moderate, but relatively accepted, prices plummeted. The scales tipped around the early 2000s, as the consumer mindset shifted from one that was proud of a high price tag on clothing - viewing it as a sort of status symbol - to one that was proud of getting a deal. Prominent names started wearing mass-produced, “affordable” clothing (Michelle Obama appearing in Zara and J. Crew), and in April of 2000 the New York Times declared it was “chic to pay less.”

As you all no doubt know, current prices at fast fashion giants are dizzyingly low - I took the first picture in this post at the mall last month advertising $10 dresses and tops. As the big players push prices lower and lower on their own products, other mass-market brands and department stores have dropped prices in an effort to keep up. You can now go into Gap, J.Crew, or Macy’s and find prices not far off from H&M and Forever 21. Some high-end designer brands that aren’t appealing to the mass-market have chosen to keep prices high, and there are a few outliers, but the overwhelming majority of major apparel brands have been dropping prices while the rest of our consumer goods like electronics, beauty products, and food have been steadily increasing in price each year. Looking at the change in price of consumer goods below (data from the Bureau of Economic Analysis, via NY Times), apparel pricing has been seriously depressed.

This has drastically changed the way we think about clothing as a society, and not just for those who grew up with fast fashion. The past fifteen years seems to have affected older demographics just as significantly as those that don’t know anything other than a world with $10 jeans. We have all been conditioned to believe that, regardless of inflation and regardless of price increases in other areas, clothing is getting cheaper. What’s more, the total amount of money we spend on clothing as a percentage of personal spending continues to drop, and the perceived value of clothing as an investment - both financially and emotionally - is on the decline.

This has created the perfect environment for the pervasive view of clothing as disposable, the phenomenon of leaving the mall with thirty pieces of clothing for less than the cost of a nice dinner out, and the flooding of Goodwills with discarded textiles after little to no use (or worse, after one use and now falling apart). Ever seen the SNL skit satirizing Joseph A. Banks, joking that you’re better off using their suits to clean up messes instead of paper towels, or watched any haul videos on youtube? Clothing prices have reached levels of absurdity (this is completely ignoring why such a shift has happened, i.e. the ever-increasing pace of runway fashion and continuously changing trends that fuel the machine - that’s a topic for another day).

Alas, we all know how clothing has gotten cheaper. Or, at least, I hope you do. If you haven’t watched True Cost yet, it’s free to stream on Netflix.

It’s pretty simple:

• Cheap fabrics produced in mills with dangerous conditions.
• The use of harmful, toxic synthetics.
• The mishandling of chemical waste and utter disregard for regulations.
• The rampant exploitation of labor and weak auditing systems in garment factories - both overseas and domestic.
• Unspeakable working conditions, unlivable wages, child labor, health hazards, and a general disregard for human life.

That is how $10 jeans and $1.90 camisoles exist. Nobody invented a magical, cheaper way to make clothing, and fabric didn’t drop in price. We just started exploiting developing countries and caring less about the damage we did along the way. Fast-fashion prices don’t reflect anything real, any actual costs of producing goods in a way most of us would deem acceptable. These prices are the result of squeezing every last drop of blood from the stone.

Now, you probably already know all of this. That’s likely why you’re here - because you don’t want to participate in that, you want to be a better consumer. The reality of fast-fashion has been written about at length. I apologize if this was redundant. But I think it’s relevant to the conversation about pricing for new brands, particularly pricing for products like ours. It’s relevant because the baseline has been falsified. We have all existed in a world where clothing is steadily decreasing in both real and perceived value, apparel prices have been dropping while other prices are rising, and it’s impossible to approach a new paradigm without that world affecting the starting line. When we see a pair of $240 pants, we aren’t comparing them to the $100 pants from the early 90s, we are comparing them to the $10 pants of 2016.

We obviously know better than to compare such radical apples and oranges, and we’ll accept that the $240 pants are made with better fabrics, in better conditions, etc, etc. But still, my point is that even though we know there is a gap to bridge (and why), it’s a ridiculously large gap because of the unrealistic price depression of the apparel market. The baseline has been falsified. The gap we should be bridging is between the just as unethically produced, just as  imported, just as low quality $100 pants of 1990 and the $240 pants of a company like ours today. Now that we’ve established that we’re likely starting from a flawed view of “normal,” we can proceed to the nitty gritty discussion of our pricing.

The big factors involved in pricing - cost & profit

The price of any product is determined primarily by its cost to produce and its gross profit margin. The cost to produce something is simply comprised of raw materials and labor. Despite the fact that all clothing is made with fabric and sewn by people, costs and prices can vary in the extreme. This leads to me to the specific discussion of our pricing. This is such a scary topic to write about - money, price, cost, and profit are sensitive subjects with a high likelihood of being misconstrued. But it’s a conversation that’s becoming more and more prevalent in our industry, and I think ultimately the information is valuable to consumers.

Cost

I believe it’s largely understood why our prices are (in general, certainly not always) higher than what you find at the mall, but just in case it’s not, there are a few major factors:

• MATERIAL QUALITY
• We don’t use any synthetic fabrics, which are man-made and cheaper than natural fibers.
• We use the best quality natural fibers we can find, and good fabric like pure linen and heavy cotton canvas costs more than cheaply produced fabrics like viscose, rayon, and polyester.
• CONSTRUCTION QUALITY
• We use the best construction techniques we can in our garments. Those techniques take more time and material, and therefore increase costs.
• This means french seaming our silk items instead of serging; topstitching high-stress seams; and pre-washing our materials so they don’t shrink when you get them (our silk shrinks 15% in length, which equates to 15% higher material costs on our end than if we stuck a dry-clean only tag on those pieces).
• CONSTRUCTION CONDITIONS
• This is the big one. All of our garments are designed, cut, sewn, washed, packed, and shipped from the same building in Nashville, TN. Our entire company is here, in this one building.
• The way we produce clothing - and the conditions and compensation for our manufacturing staff - is very different from traditional garment manufacturing. Our production jobs start at the same pay grade as every other entry position in the company, and that entry wage is well above the minimum wage and well above the national average.
• The building is heated and air conditioned, and professionally cleaned twice a week to keep fiber particles under control. It is full of natural light and plants. We have a kitchen full of drinks and snacks for staff, we take yoga breaks and play four square, and project movies onto the warehouse walls when days get long. Lot’s of companies have this atmosphere in their headquarters or creative offices, we have it from top to bottom.
• We don’t sew garments in assembly-line fashion, we instead use a lean, full-garment construction method. That means each seamstress sews a garment from start-to-finish. Despite it requiring more time, this improves craftsmanship, ensures everybody is learning and perfecting new skills, and is most importantly a more rewarding and fulfilling way to work.
• We have built in time for everybody - production staff, office staff, support staff, and media staff alike - to discuss their successes and challenges, push for growth, and develop as individuals and a team.
• The difference between this method of making clothing and the way traditional garment factories make clothing - both overseas and domestic - is vast, and it comes with a cost.

Those are the major factors that contribute to the cost of producing our garments. Now let’s look at how that cost breaks down in practice. We can take one of our most popular garments, the Artist Smock in silk crepe, as an example.

• MATERIAL COST
• We use a custom, 23mm weight silk crepe de chine (for reference, that’s almost twice the weight of silk you'll find at Everlane or in nice department stores).
• The Artist smock takes 1.7 yards of unwashed fabric to produce, and our silk crepe de chine costs us $18/per yard. We’re at $30.60 in fabric cost.
• About two pennies in thread cost, 16 cents for the woven tag at the neck, 42 cents for the cotton care tag, and 54 cents for the letterpress hang tag.
• So all in, material-wise, we’re at $31.74.
• LABOR COST
• Labor cost starts with cutting. It’s about half an hour to spread the fabric, cut the garment, and bundle it with all tags and necessary trim. With an estimated pay of $16.50 an hour (an average of our entry wage and the wage of team members that have been been with us for a while), that’s $8.25 in cutting costs. (For reference, the minimum wage in Tennessee is $7.25/hr, and the average national wage for experienced garment manufacturing workers is $11.09/hr.)
• Then the garment moves into construction. It takes a seasoned sewer approximately 35 minutes to complete an Artist Smock. That’s another $9.90 in sewing costs.
• Now the smock gets washed and dried, pressed, trimmed, tagged, packed, and labeled - about another 10 minutes. That’s an additional $2.74 in labor, so we’re at a total labor cost of $20.89.

• PRICING AND MARGIN
• That brings our total direct cost to produce an Artist Smock to $52.63.
• Now we need to account for wastage during the production process of both labor (nobody works for 8 hours and doesn't get up to pee, grab a snack, or check their phone) and materials (our pattern pieces have curved and angled edges, and the cutting of each garment results in some amount of excess). With our wastage estimate, our cost is approximately $63.16.
• With a retail price of $185, that leaves us with a gross profit margin of 66% on this product.

Profit

Now that we’ve covered the actual cost of producing one of our garments, let’s talk about the second element of pricing - the gross profit margin in relation to the raw cost. A gross margin of 66% may sound astronomically high, scarily low, or normal. It all depends on what you’re familiar with, and what type of business is being funded by that margin. I want to quickly point out that some of businesses operate on a slim gross profit margin, and others choose to operate with a very high margin, and many end up somewhere in between. Consumer products like pencils or napkins can have very low gross profit margins of around 8-10%, but they’re selling such a high volume of product that the business can still be sustained. Others do the exact opposite (most designer goods). For example, take almost every silk blouse you find at Nordstrom, The Row, or Eileen Fisher even (all brands I love), and compare the prices to our Artist Smock. They’re likely using thinner, cheaper silk and overseas labor, but the retail price is double or triple (to be fair, many of these brands wholesale, which adds another layer of cost to the equation). Regardless, we can pretty safely deduce that a $1,695 silk tunic from Chloe is being sold with a much higher gross profit margin than our Artist Smock when the two products are of essentially equivalent material value.

I am passing zero judgement on whether a higher or lower profit margin is good or bad. There are countless factors at play, and businesses can choose how they want to price their goods based on their own prerogative, and can choose to share that information with their customers or not. I simply want to establish the spectrum on which our profit margin lives.

We know that the gross profit margin on our Artist Smock is 66%. Let’s look at all of our revenue as a whole from 2016 to see where that part of the retail price goes. The chart below illustrates all of our expenses - both the direct costs to produce our products (manufacturing labor and materials) and the remaining (often overlooked) costs of running a business.

Our expenses break down as follows:

• Wages for both manufacturing staff and other staff members not directly involved in the making of our products (design - that’s me!, office/admin, media/marketing, fulfillment, customer support)
• Materials that we use to create our products
• Overhead like the rent and utilities for the building we occupy
• Shipping expenses like postage fees and packaging supplies
• Software, website and development fees
• Office supplies like pens, paper, and ink, hangers, light bulbs, scissors
• Equipment like sewing machines, cutting tools, computers, and printers
• Taxes and fees
• Investments in our team like providing food, drinks and team-building activities
• Marketing costs like product photoshoots, model fees, photographer fees, agency fees, printed materials, and travel costs
• Renovations and repairs like sewing machine repairs, our new roof, air-conditioning, and electrical rewiring of the warehouse

As you can see, there's a lot more at play here than just materials and labor. After all of our expenses, we’ve got a slice of net profit leftover that’s equivalent to around 10% of all our revenue, or $18.50 from the $185 Artist Smock. *For anyone paying close attention, you may notice that the green profit sliver is actually smaller than 10% and really more like 4%. That’s because this chart represents actual cash that was spent - some of which is considered profit due to the way net profit is calculated (for example, fabric we’ve purchased but haven’t sold yet in the form of garments). That’s another reason a healthy net is necessary - there will be a myriad of expenses that are still considered “profit,” and you need enough money in the bank to cover them.

That 10% is considered the income of the business and is what we can reinvest and tackle new, exciting projects with. There isn’t a typical net profit margin for all businesses - it can range from 1% or 2% to 30% or higher. For a business of our size, maintaining a net margin of 10-12% allows us to safely cover our overhead, manage our cash flow, and modestly reinvest in our future.

The future is the exciting stuff! Right now, we’re focusing on things like offering healthcare and other benefits to our staff, increasing wages, and investing in R&D so we can make even better products. We are also planning and dreaming big about the next three years: I have a vision of a self-sustaining headquarters where all production staff have windows to the outdoors and direct natural light, our machines run off of solar power, we feed employees with organic produce grown on-site, and we support healthy family growth by offering on-site daycare for our staff. That’s the dream.

What if the price for good quality, ethically produced clothing is simply too high or unattainable?

I think the prices we charge for our products are more than fair. However, even if that’s 100% true, reasonable, and accepted, it doesn’t change the sheer fact that our prices (and the prices for many well-made, ethically manufactured products) are not affordable for everyone. It may not matter how fair it is if it’s simply out of budget. I think to that end I’d want to address three things:

• No product or brand is perfect for everyone. There will likely be good, valuable, and meaningful things in every individual’s life that they’d like to contribute to, participate in, or own - but simply can’t. I would love to be able to drive an electric car and reduce my carbon footprint, but I cannot afford one. I absolutely understand the uneasiness around the concept that not everyone can afford to shop according to their values, but I’m not sure there’s a realistic way around that truth. I think the best thing we can do here is encourage and support other methods of making an impact in the clothing industry that cost less - like wearing clothing for as long as possible, shopping second-hand, learning to mend and repair what we already own, and passing things on to others when we’re finished with them.
• Making products like ours affordable to everyone would change their very nature, and they’d no longer be products like ours. Charging less for our clothing would mean lower quality, synthetic materials, paying our production staff less, or running our business differently.
• I think (perhaps controversially so) that shopping from ethical, high-quality brands actually is affordable for most with nothing more than a mindset-shift. If we take the simple concept of cost-per-wear into consideration, a $10 H&M tank that loses a strap after three wears is, at best, a $3.33/wear investment. My Clyde Pants (I have the first sample pair I ever made in late 2014) have been worn a minimum of 100 times over the past two years. With a retail price of $245, they’re currently at $2.45/wear, and have at least two more years left in them. There will obviously be outliers here - I’m sure many of us have an old mall-store standby that’s held up to the test of time. Unfortunately, that’s the exception, not the rule. We also haven’t considered aesthetic durability. Trend-driven, fast-fashion products have a built-in expiration date that’s got nothing at all to do with quality, and if you feel the pressure to replace that $10 tank with a new one three months in, there’s no chance of getting a good per-wear value out of that item. Aside from considering cost-per-wear, it may require a shift in perspective on how often clothing is purchased, how much clothing is needed to constitute a successful wardrobe, and how much of your discretionary budget should go towards clothing as a whole. I genuinely believe that for the typical consumer, making the transition to shopping ethically would cost no more than shopping as usual. It simply means buying better things and buying less of them.

All of that said, accessibility is still a topic that I’m very concerned with. We are a brand that shamelessly promotes diversity, community, and inclusivity. Of course I want customers from various walks of life to be able to participate in what we’re doing. I just don’t have all the answers yet. Designing products specifically with accessibility in mind (pieces with minimal construction costs, less expensive but still durable fabrics) is a challenge that I’m open to and considering. We’re also working on a way to implement a second-hand program and loyalty-credit system. Making sample sales available online would be another way to increase access without compromising our beliefs. While we don’t have the silver bullet quite yet, we are working on it, and we would love to have our community be part of the conversation.

We’ve covered pricing, costs, profits and affordability - but why?

I am so glad that I’ve been able to share this information and get into some big topics here. I’ve struggled with how to share details about our pricing and I’ve been genuinely itching to talk more about our business model and how it works with you all for a while. We have been focused on connection, openness, and information-sharing from the beginning, and this feels like a natural extension of that ethos. But still, I can’t help but wonder why pricing in particular has felt like such a hot topic in the clothing world lately. There has been very quiet transition from customers evaluating prices based on what they are willing to pay for an item considering its expected value in their life to customers evaluating prices based on what the item cost to produce. It also seems that this shift has been pretty limited to the clothing and accessories industries.

For example, when my husband and I go out for a nice anniversary dinner, we decide where to go based on how much we’d like to spend on the evening. A celebration of a major event, the memories of a night together - that has a numerical value we decide on. We make a reservation at a mid-level restaurant, expecting the bill to reflect what we’ve decided was worth spending on the night. When the check appears, we don’t try to extrapolate the cost-per-pound of the meat or the amount of time the chef spent cooking the asparagus, and that’s certainly not how we evaluate the success or worth of the meal.

Regarding why this shift has happened in the clothing arena specifically, I can only speculate. And speculate I shall! It’s probably a convergence of factors, one being the already discussed decline in consumer spending on clothing as a whole. The less we’re willing to spend in a given area, the more discerning we’re likely to be regarding each purchase. I also think the access to information through the internet is at play - we have limitless data at our fingertips and we’re able to price-shop instantaneously. Lastly, I think the makers-movement we’ve seen develop over the past several years has contributed to our desire to know more about costs and pricing. When almost everybody on Instagram is making a product or selling a service, more of us are involved first-hand in evaluating costs and setting prices. As an entrepreneurial generation, I think we have a different, insider-like perspective when shopping.

I obviously think pricing and costs are important (I’ve clearly had several pages worth of thoughts about them building up), but I can’t help but wonder if we’re focusing on the right thing. After all, price is just one part of the puzzle when evaluating a product's worth - and it doesn’t necessarily equate to anything good or bad. The only ethical dilemma pricing transparency actually addresses is the one of price-gouging. You are able to determine if the company you are buying from is royally ripping you off. But simply knowing the price paid for labor and materials doesn’t necessarily mean that good or ethical labor and materials are being used. It feels a little like a red herring, meant to detract from the more important part of the conversation: the part about the actual material being used, and the actual labor conditions the item is being produced under. In our dinner-out scenario, my husband and I were probably much more concerned with where the meat came from or if the veggies were organic than if the pricing model of the meal was delineated. I don’t want it to seem at all as if I have a problem with transparency in our industry - I think any time a business shares information, it’s probably a good thing. I’m just concerned that as consumers, our preoccupation with price transparency in particular may be misguided.

The concern with an item's price tag, and how it specifically relates to the cost of producing that thing, seems to indicate a lack of self-evaluation and choice. Really, when we’re choosing to buy something, what should matter is how much value it will have in our lives and how much we're willing and able to spend. The cost to make it - or how good of a deal it was given that cost - is pretty irrelevant in practice. You won’t get any more enjoyment out of it, and simply knowing the cost won’t make it last any longer or serve you any better. What’s more, I posit that our preoccupation with cost and price in the clothing world will certainly not help us out of the fast-fashion hole we’re in - the hole that exists because we focus so hard on getting more for less.

Ultimately, I suppose I believe our consumption habits would be healthier (and we'd be happier) if we shopped based on filling needs in our life with intentional goods designed to serve those needs. Those needs may be philosophical, ethical, practical, physical, emotional, and financial. But they are certainly not strictly financial, and we should evaluate the products that fill those needs on far more than their cost to create and the resultant price tag. All of this is being said in full recognition that the ability to choose how and what we consume is a privilege not all are afforded. I am humbly arguing that, inasmuch as we are able, we should consume wisely, intentionally, and with an estimation of value that is informed by more than cost.

Consumption as a means for change

Again, I am so glad I’ve been able to share this information with you, and I’m glad we’ve gotten facts about our own pricing out there. Hopefully this information has been somewhat interesting and useful to you. Now that we’ve gotten the conversation started, I want to continue to challenge the relationship businesses have with consumers. I think we can build a relationship based on trust and rooted in shared beliefs, one that’s deepened with real actions - not just shows of transparency. I recognize that consumers need facts and information to judge a company’s behavior, and I want to continue to provide that openly and freely. But I also want to encourage customers to find brands that believe what you believe, brands that you trust will act as you’d hope they’d act - regardless of whether those actions will be public or not.

After all - you are the heroes here. You and you alone will build our future by supporting what you believe in. No business acts unilaterally, no cause moves forward of its own accord. The machine is powered by those who buy into it. We can tell you how our machine works, but it’s your choice to put gas in the tank. If you are able to trust that the people you give your money to will make the right decisions and do the right thing, and you are allowed (and able) to challenge them when you think their intentions are misguided, we’ll all be better off. It is my hope that we’ve already built that trust with many of you, and that we can continue building it for years to come. We plan to build it not only with openness and information, but with our actions and our choices - both those that are seen and those that are not.