Rick Helfenbein (RTS #35)

Guest: Rick Helfenbein
Topics: Fashion industry, consulting

Transcript:

Chris Ressa 0:02
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Today I’m joined by Rick health and bine. Rick is a Forbes contributor. He was formerly the president of the US operation of blue and Thai, a Hong Kong based apparel manufacturer. He was the president and chairman of the American apparel and footwear Association. Today he is a retail and fashion consultant to many companies. I’m excited for him to be on the show. Welcome,

Rick Helfenbein 1:28
Chris. Thanks for having me. And I’m very impressed with the introduction.

Ressa 1:33
Well, Rick, why don’t you tell the audience a little bit more about who you are and what you’re doing today?

Helfenbein 1:40
Yeah, sure, I’m happy to do that I, I’ve been in the industry, my entire career, I was president of several branded companies and manufacturing companies. And then I spent 16 years as private label manufacturer, with a company based in Hong Kong. When we when I started with him, we were $300 million. When I left, that five years ago, we were 1.3 billion. So that’s the industry grow a bit. And you know, over the course of time, I had a lot of interactions with Washington. So I joined a group down there called the American apparel and footwear Association. And the Peter Principle must have been in play because I showed up at every meeting, they kept promoting me eventually I became chairman of the board. And that was a big honor. And I was really happy except the president quit. And then the board kind of expressed an interest that maybe I’d like to run it. So I actually moved from the New York area down to Washington, DC. And I was pretty much there for the entire Trump administration, which I would tell your viewers was very interesting as it related to trade. And I got saved from the inside. I was in the White House. I was up on the hill. I was everywhere and playing experience. So there you go.

Ressa 3:05
Very, very interesting. Not a lot of people get that perspective as it relates to retail. So we can dive into more of that later. What were some of the brands that you ran before Luhan tie,

Helfenbein 3:16
probably the best? Well, there were two that are well known. One was a company, a wonderful company based in Cleveland, Ohio, called campus winter in sportswear where I’ve lived for many, many years. And the best reason we launched was brand called with T gra and I was one of the people that named the brand, you can tell because I put the accent on the E and Latina in the wrong direction. So I did that. And I also ran, I was president of cost childrenswear, Vice President of menswear. So I had a pretty, pretty good glimpse into how to deal on all levels of retail was very interesting.

Ressa 4:06
Really cool. We’ll dive more into fashion in a moment. But first, I want the audience to get to know you a little bit. So I’ve got three questions for you. Are you ready, Rick?

Helfenbein 4:15
Are you ready?

Ressa 4:17
All right. Question one. What is one thing most people agree with, but you do that

Helfenbein 4:24
thing that people would like to say is, you know, why do we input so much? Why isn’t everything made in USA, and I’ve been a big proponent of making USA. But to be honest, in the fashion world, it represents only 3% of the entire industry. So people think for it, they think I’m against it. And in fact I am for it and we’ve been trying to build it, but it is extremely difficult for people to understand how apparel is made. It’s very new labor intensive. And when you paying people $15 an hour, it’s very hard to compete in

Ressa 5:05
industry. Interesting.

I didn’t realize that was only 3% of apparel is made in the United States. That is quite an interesting stat.

Helfenbein 5:15
And it’s growing. It’s it’s, it was lower.

Ressa 5:18
Wow. Well, that’s good that it’s growing, but surprising. Okay. Question two, what is one skill you don’t possess, but wish you did?

Helfenbein 5:27
Oh god, I do a lot of public speaking. So that’s a win. But I’d love to sing. And I cannot sing. And I got the first flew to that in the sixth grade when I tried to have a course. And it was the end of the day and the teacher started crying. I don’t sing, but I do talk.

Ressa 5:46
Terrific. Okay. Last question. When is the last time you tried something for the first time?

Helfenbein 5:53
Actually, yesterday, my wife and I live in Manhattan. And in the middle of the day, we decided to go for lunch, on the other side of Manhattan live on the east side. So we went over the West Side and had lunch. So something I hadn’t done before, though it was interesting was actually fun.

Ressa 6:12
Big City, people don’t realize how big the city is sometimes. All right, right. So appreciate you taking the time, as we call it, clear the air. Let’s start talking to some fashion, though. So at a high level, up in the clouds. Can you describe the fashion industry to us today?

Helfenbein 6:30
She fashion industry has many components to it. Funny, in the old days, when I started in business, factories were in mostly in the south United States. And in order to sell their product, they would brand themselves. So you had a lot of brands that actually came out of the south, then later on, developed into marketing companies. An excellent company like Ralph Lauren, is a brand that became a marketing company in the beginning, they actually manufactured very closely with some of the people down south. And then eventually they realized they would promote themselves that a brand as a brand and carefully managed the production. And they do they’re really involved with the production of Ralph Lauren product, globally, but they don’t manufacture it. So you have brands that people think are manufacturers and the world divided into two segments, the branded segment and the private label manufacturing segment. So you have a lot of companies out there that all they do is make for big name brands. And all the big name brands do is market the product under tight manufacturing supervision. But you know, you can name a lot of companies like like Uniqlo, or they re enter their manufacturer, they’re actually a retailer that manufactures. Then you have department stores that went into the private label business, so they have their own labels we manufacture exclusively for them. And some are very good at that. Usually they make more money under their own brands. And they try to keep that a swipe, and somewhere between 17 and 20% of the store. Wow,

Ressa 8:32
a lot there. So let’s unpack that. I think it was incredible insights. So let’s go to the first piece, when you mentioned the difference between these branded companies versus the manufacturers like Ralph Lauren, first piece, I think you articulated it well, and I’m gonna repeat it. Ralph Lauren, you characterize as more of a marketing branding company, because they are not actually manufacturing their

Helfenbein 9:00
goods. Correct? That is correct. Do they

Ressa 9:04
design them?

Helfenbein 9:06
Absolutely. And not only do they design them, but Ralph is involved in everything, to this day, is involved in everything, actually a number of years ago, when I worked with them more closely. They would have line reviews. And somebody would follow Ralph with a sticker. And little stickers said our L likes. So Ralph would go around the room and you know, touch something and go I like it. They put a sticker on it. That meant further development. That was great. Except sometimes Ralph would get a phone call and he’d be on the phone and he’d be feeling things and they were sticker everything around him while I was on the phone. We had a wild goose chases, but you know that’s a company that is top down from design. And then when they the manufacturing side, they are extremely involved. Now they’re not running the factory. But they’re there. They’re in it. And they know the product that’s coming out of it, I give them very high marks.

Ressa 10:12
Got it. So they are marketing the product. They’re a brand that’s world renowned. And they’re designing it. They outsource the manufacturing with heavy supervision. So that’s one segment of fashion today. Another segment that you talked about was this private label segment. Right now I’ve seen Target has a ton of private label brands that they’ve turned into billion dollar brands. It’s quite impressive. And in that scenario, can you walk us through how the private label part of the fashion industry works?

Helfenbein 10:48
Yeah, it’s kind of simple. It essentially cuts out the middleman. When, what I mean by saying that is if you’re a brand, you have a whole team, you design product to market, and then you sell it to retail. Ralph Lauren, as the example sells to retailers or sells to their own stores. When a department store does private label, there’s no brand, it’s an in house brand. So that whole entire level is eliminated. So they meet the by their product, because there’s risk involved in buying your own product, you can’t return it, you own it. But you have trendline. So you sort of know what direction you’re going and you know how much to buy. And the reason that the grants went into that it, they make more money doing that, by cutting out that random middleman going direct to the factory, it’s not profitable. And the end of the day retailing is you know, it’s fun, it’s exciting, this fashion, this that was about making money. And that’s why they do it. They supplement what they buy from brands by doing it themselves.

Ressa 12:03
You know, what’s interesting, private label, this has been around for a long time, the private label industry feels so much like the direct to consumer industry. Because at the end of the day, you have this retail operation that has their own product line that no one else can sell, or other people can sell. If they decide to sell it to other people, then it wouldn’t be their own private label anymore. But they go to the they design it they go to the manufacturer, they produce it and sell it out of their stores, which is essentially, what many of the direct to consumer brands do. They create their own product, they typically outsource it, the manufacturing, and they sell it through their own retail channels or their own websites, no different than target does with their private label brands. So direct to consumer is a fun new buzzword. But it feels so much like the private label brand business. What do you think of that? Well, two

Helfenbein 12:57
aspects to that, first of all, direct to consumer is becoming a big part of everybody’s business. You see that like brands like Nike that have their own website that they’re selling directly to the consumer and their own source and their own stores. And they’ve cut out a lot of the smaller stores and help launch the Nike brand to begin with. But there’s, you know, for every good news, because that’s, again, a way of making more money more margin. Somebody always finds a flaw or a hole or a loophole. And there was an article just recently in Bloomberg. There’s a company out of China and called xi n, which is the fastest downloaded app in the United States. Some people call it shine with a CI and the S H E I am and they’re selling to teenagers, direct from China, and they’re shipping direct from China writes to the consumer, and it’s exploding. And it’s good news, bad news. And I’ll tell you, one of the flies in the ointment. There’s something in America called de minimis de minimis means in government terms, you can bring in $800 per person, per day, every day of the week. It was probably you know, when you say that you think of you know, old people getting off cruise ships with Rolexes you know, stuffed in their suitcases $800 per person per day. Well, truth be told, you can ship direct from China and buy us now with the same $800 per person per day and avoid paying duty on it and avoid without paying the Trump tariffs on it. And something like T shirt, for example, company like she and has a 24 bad a 24% price advantage, shipping into the United States direct. So I think I think people are suddenly waking up to the fact that, you know, a system that was set up to accommodate Americans is challenging the retail system, and the tariff systems we have here at home. Wow.

Ressa 15:33
That is fascinating. I’ve never looked at it like that a wealth of information there. Let’s take a step back. Is there a difference? I think it’s important for the consumer or the listeners out there. Before we move on to that fascinating topic, is there a difference in your opinion in direct to consumer and private label business? Well,

Helfenbein 15:53
in the private label business, your your upfront designing your purchasing, you’re putting in store out to the consumer, the direct to consumer, you can test it first, if it doesn’t go you stop making it, you go on to something else, you much more flexibility in terms of inventory control. So how you handle private label is different than how you handle direct to consumer. So when you’re dealing direct to consumer, you know exactly what’s going on, you don’t have to throw it out on the shelves and hope someone comes along and buys it, you can put it out, you can pull it back. Different.

Ressa 16:34
And why can’t private label do that.

Helfenbein 16:38
They don’t have the flexibility, because you’re buying it upfront in hopes of selling it versus testing it. You know, when you deal with retail, everybody knows the sowing season isn’t very long, particularly like in the spring season starts in March and it ends July 4. So you know, by the time you test something, you can fill it in. Zara has done a pretty good job of, you know, putting stuff out and then filling it in. But in general, most retailers can’t chase it. Particularly now, as you know, any retailer who’s in his 40s knows is a myriad of shipping problems. It’s extremely difficult to get product in this store. So when you’re dealing, again, direct to consumer and you can set up closer to the manufacturing source, you have a lot more flexibility, different worlds. Got it. Okay. Now, let’s

Ressa 17:41
go to the next piece that you talked about, which is this whole tariff thing, and was something put in place long ago for Americans to not put taxes or duty on goods and now direct to consumer or foreign direct to consumer company is taking advantage of that which is putting stress on other retailers and fashion brands.

Helfenbein 18:07
Absolutely. You know, the the the tariff system was set up. Actually around the time of the Great Depression, the 1930s was something called the Smoot Hawley tariffs, and they were set up to protect American industry, and particularly in imperiled those tariffs, duck, they are still with us today. And we still pay them today, but the market has adjusted to them so you don’t feel it. So when President Trump decided to punish China and head tariffs on top of the tariffs, the industry went literally nuts. Because paying a tariff on a tariff was just not something we felt the consumer will take lightly. So we fought it tooth and nail we’ve lost but maybe someday they’ll go away because they are ancillary to the core. That you are correct, Chris, that you know, we have a new new breach of the firewall so to speak, we have people shipping from Canada and people shipping from Mexico and people shipping from China direct to the consumer and avoiding tariffs and avoiding a lot of the shipping problems. Kind of interesting. Yeah,

Ressa 19:31
it is very interesting. How could what most people consider traditional either direct to consumer traditional third party retailers, or direct to consumer brands like like Nike is trying to be where Yeti is trying to be. How can they compete with this new distribution channel of products from overseas?

Helfenbein 19:59
It’s hard it, honestly, it’s hard to compete. It hasn’t become so huge that, you know, it’s putting a major dent in the market yet. But it is a loophole that people are starting to take notice of and, you know, companies will fight this and the government will probably get involved in some way, shape or form. Because you know, things like this aren’t fair, we’re struggling enough to get back to work, and get things up and running that, you know, we don’t need unfair competition right now, even though it is legal is still not fair. So, you know, powers greater than me will help sort that out over time. Got it?

Ressa 20:45
Is there anything outside of legislation like could brands start to do something similar to Shin

Helfenbein 20:54
actually, some are doing things like she and to what extent it’s hard to say at this point. But you’ve got additional problems that have entered into this night I mentioned to you earlier, and we were talking about, you know, maybe it was, say, 3%. However, you have to look at the backside of that, what’s where’s the 97% that I didn’t talk about coming from and catch this, you’ll like these numbers, or you won’t like these numbers, people, you know, down in China lately. However, in the fashion world, 37% of everything comes from China. I shouldn’t say everything, apparel, it’s even higher. Let’s just talk about apparel, 37% of apparel comes from China, and 14% comes from Vietnam. That means 53% of everything you see in the stores is coming from two countries, you want to add in Bangladesh, Cambodia, Indonesia, and India, you’ve got more than 70% of everything that’s coming into the United States is coming from those countries. And then when you look at China, with a 37% market share, which by the way, is down from 39%. And that’s after everybody’s been saying you know, all these things about China. There’s other issues happening at the border. Now, there’s legislation pending in Congress, both from the house and from the Senate, against the area of China called shinjang, where they worry about forced labor and they worry about the cotton coming into the country and US Customs has been issuing what are called WR O’s withholding release orders against product coming into the country. So you’re bringing goods in, they can be stopped at the border. And then when the government comes through and passes their shinjang, West labor rackets if it gets passed, it’s going to create further problems at the border. So the fishing industry is trying to figure out where do we go? Where do we put our goods? And how do we avoid, you know, all these problems? The tainting of potential for slavery, alleged for slavery, because we don’t know for sure we just wonder out loud. So there’s a lot of things going on in the industry right now that are of concern and has to do to a large degree about how heavily the United States relies on China as a resource.

Ressa 23:50
truly fascinating, a lot that I’ve learned from this. So thank you. I want to move though, from these challenges, which clearly there are to the opportunities for the fashion industry. And let’s talk about some of the positive that’s happening and where we think the opportunities lie.

Helfenbein 24:10
Well, here’s the good news, you know, with every degree of concern is good news. And obviously, the good news is people have been home. They’ve been living in sweat clothes, and now they’re going back to the office, which means they aren’t going to buy clothes. And National Retail Federation is predicting a banner year up, up sales will be there. So everybody’s pretty excited, you know, conditioned on the fact we can get the goods through the ports and you know survival the increases in prices that are heading our way but no matter how you slice it, boy, barring another lock down retail is going to be really really good for or at least the next year and a half. There’s desire to buy product. Of course, I will temper that with there are also concerns. You know, with all this inflation talk when prices get too high sales tend to drop down a little bit. Because I was gonna go in and buy three T shirts, but the price went up. So now I’m only gonna walk out to, and that’s the type of thing happened.

Ressa 25:26
Yeah, there are things that retailers can do to fight inflation they can do bundling their strength relation. And there’s other methods that retailers can do to fight inflation. I would say the reality is, though, price of apparel has been under pressure for so long. And there has been a significant amount of markdowns in the industry in order to move product. And this might be the opportunity, I always say scarcity creates margin for retailers to get some margin back. And I think that would be good for retailers. Even if they pushed less out the door, they might be able to create more margin, which I think would be extremely helpful to the retailers who have had this race to the bottom.

Helfenbein 26:15
Yeah, Chris, you were absolutely 100% Correct. The opportunity to raise prices is when the chance to increase margin is a win. So if you sell less product in higher prices, you’re prone to do better. One of the concerns, though, of late matter of fact of last week, was the number of quits, can you it s and the retail industry suddenly skyrocket, and new people are leaving, which means retailers will be paying more for their labor. So as the cost of labor goes up, along with the cost of the squeezes back on. And you know, that’s one of the things that everybody who analyzes and looks at it starts to worry about,

Ressa 27:03
yeah, I’m concerned, I’m hearing everything about the employment, I do think that retailers will hire innovators will figure out the employment. And overall, the opportunity to not have to mark down goods is something that’s long overdue. And I think that will be good for

Helfenbein 27:24
retailers. I agree. I absolutely agree. And moral of the story is, I am cautiously optimistic. I would like to agree with NRF and be 100%. Optimistic and bullish. I believe we’re going to sell more products, I believe in the near term, we’re going to be just fine. But I do have my concerns. And a you know, it’s just reality, Chris, you go out and you talk to people and everybody’s struggling to get labor to get people to work in the stores. And you know, like the one of the things they love to blame as the extra $300 in unemployment benefits and young people who might be working in retail or say, you know, getting unemployment, I get to such a benefit, I’ll just take the summer off. And when it runs out in September, I’ll come back and go to work. And you know, we’re hearing a lot of that doesn’t mean it’s true, but we are hearing it. But one thing is true. It’s hard to get employees. And if you can’t get employees who can’t run your store, if you can’t run your store, you can’t do business or you can’t service your customers like you would want to. So these are all things that will settle down in your time. But write down time you should

Ressa 28:39
read well, this has been truly an amazing conversation. I really appreciate it. And I’ve learned a lot I know the listeners have as well. And I’m excited to hear this. I want to take us to the last part of the show. We call it retail wisdom. I’ve got three questions for you. Are you ready, Rick? I’m ready. All right. Question one. What is the last thing over $20 You bought in the store?

Helfenbein 29:02
Here’s shorts at TJ Maxx. They have the best shoe it’s the best price you can go along.

Ressa 29:10
I’m a big fan. They’re a large 10 minute DLC and I’m a big fan. Okay, question two. This is a fun one. I’m really interested on your answer given your experience in the industry. What extinct retailer Do you wish would come back from the dead?

Helfenbein 29:26
My favorite retailer was dead and it’s hefted now it’s coming back to life which is century 21. My favorite store in the world to shop at because you could just go and get lost and you’d walk out with a deal when they announced they were closing I was devastated. I’m thinking what am I going to do with my shopping life? And you know then I heard they’re coming back would be the same will it be different? I do know it’s going to be international besides being national. But you know, loved It’s store and I do hope the comeback store.

Ressa 30:03
Okay, last question, Rick, if you and I were shopping at Target, and I lost you, what aisle? Would I find you in?

Helfenbein 30:10
No way? That’s a great question because I look at target as need need or want store. If I need something, I will go to Target. And I go for something very specific. So I’m not usually wandering in Target, I walk in, I get what I want. And I leave now I’ve been in the sportswear business for years. So I always walk by men’s and kids very just see what’s going around and what the prices are. But, you know, again, people shop because they want something or they need something. What I wouldn’t find you. I’m, like I said, I’m specifically motivated when I go there. I’m going there to get something. So depends what it was that I needed when I left home.

Ressa 31:05
Okay, Rick, this was incredible. Thank you so much for the time. And let’s stay connected. We can chat I can give you some insights on what’s going on in the real estate side of retail and we can share notes. Great, Chris. Thank you.

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