Sarah LaFleur On the Existential Threat From the Tariffs

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1:17Hello and welcome to another episode of the All Thoughts podcast. I'm Traci Alloway. And I'm Joe Weisenthal. Joe, we've been inadvertently doing a tariff series, basically on what the trade restrictions mean for a bunch of different industries. So funny. That's how I read your mind. Yes. It's like we have to go down the list. There's actually, it's impossible. Every industry 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.

1:51But yes, we could go down the line of every category within GDP and learn something. Video games, lentils, 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 textiles, right? 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 US 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.

2:32And I ran into a fellow dad with a clothing company like the 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. He 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, that's one of the first categories that comes to mind, the fact that the U.S.

3:07used 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. know. 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 their clothes. I have dresses that are I think at this point are like 10 years old, but they still look amazing.

3:45So I am 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 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 MM 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 be a star podcaster one day?

4:24I thought she was going to be the U.S. ambassador to the United Nations. So yeah, I guess. She was always a true intellectual. Oh dear. Uh-huh. And I would say precocious beyond her years. So this is, yeah, that's probably fair. All right, Sarah, talk to us about the company. How would you describe MM LeFleur 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.

5:10Like I just thought there was a real dearth in the market. And I was never I'd never been in fashion. My mother actually worked in high end 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 for my budget, I was not going to be wearing a Chanel suit to work. But 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.

5:41Private 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, we wanted 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.

6:16Where 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 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.

6:54You'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 this person is like the architect of the clothing, will actually then say, OK, 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 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.

7:36The factory will do the first what we call fit sample that gets sent back to New York. You fit it in New York, you know, 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.

8:10And again, And 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, 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.

8:55Same for wool and cashmere. If you want to do alpaca wool, alpaca, 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 cashmere. 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 Uniqlo and they never wrinkle, which is really nice because I'm very lazy.

9:40But then talk to us about like, OK, 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.

10:24And 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.

11:08And 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 ago, 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.

11:53And even then, they may not be willing to take you on. You know, 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 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.

12:26This was this was a decade ago. Got it.

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13:28In addition to all that variety, EasyCater also gives you full visibility of your organization's food spend with invoicing, centralized reporting, and seamless integration with expense management systems, all on one platform. EasyCater, your business tool for food. To learn more, visit easycater.com slash podcast. 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 They have to allocate capacity.

14:03They presumably don't want to just allocate a little capacity and then have to change. Talk to us about 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. 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.

14:50There might be a surcharge for it. Wait, why is the lower volume – 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. You know, as labor prices rise, brands are always saying like, OK, well, I got to go cheaper. I got to go cheaper. Oh, interesting. So they, you know, first went to Southeast Asia. They moved over to South Asia. You know, India, Bangladesh still does a lot of, you know, units where they need a thousand, two thousand, sometimes north of 10 ,000 units.

15:30And then also northern Africa is now kind of considered 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. were 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.

16:07Yes, and even that feels like an understatement. I think I dream about it. I mean, it has 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.

16:53We'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're saying, OK, when 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. The first thing we ran across was the doge cuts. So our two D.C. stores are down about 20 % to 25 % from L.Y. All of our customers that come in either have been laid off or are nervous that they are going to get laid off or that there are going to be some repercussions.

17:40So we were already feeling those effects going into March. And 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 are one of the people squinting at the billboard. Ha 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?

18:22And I remember I was actually in China, Hong Kong, in Vietnam, where a lot of our partners were or are in November. And, you know, 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%. 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.

19:02I don't think my factory partners slept for those seven days. 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, OK, 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 you know we went into uh whenever it is 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 it just felt like I hate I hate to use this metaphor but like it's like the last ship or the last helicopter out of Saigon and everyone's just like trying to get their things on yeah I mean it's it's an okay metaphor because one you No, that's the helicopter, but it's still coming out of Vietnam.

20:07But 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 ex-China, it's only 10%. And it may get – I think 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. 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%.

20:50We said, don't ship it. Oh, so even though those got put back to 10 % fairly quickly, it created a hiccup. 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, well 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.

21:29But 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 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?

22:00And I'm like, I don't even know how to explain. 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. You know, and, you know, sometimes I get like 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.

22:41and 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 as prices have gone up in every single other category.

23:23Clothing 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 tempted to. But 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.

24:05So 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 margins 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 trade-offs 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 partners, this clothing is already made. August has already been made, sewn. It's in a box ready to get on a boat. And they're desperate because they've already put in their investment.

24:50So they're also negotiating with us saying, hey, if I were willing to reduce my prices by us. 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. They're saying my goal right now is just really to be able to cover my costs. And I was like, well, I've been hearing these things about the Chinese government doesn't want any of these factories to fail. What's going to happen? Is there going to be a version of PPE, the PPE loan in China? How are you guys going to survive?

25:26They'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. Le Fleur in China. Oh, he was like, hey, I'm going to be stuck with all this inventory. What do you think about M.M. Le Fleur for the Chinese market?