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Could Chinese Laundry Be Leaving China? The Company’s COO Says Yes

As consumers head into the holidays with the cold wind of a potential recession blowing at their backs, many brands stand to wonder whether they’ll turn a profit during what is traditionally their most dependable selling season.

These insecurities have been exacerbated by a tiresome trade war, which, for some, has wreaked havoc upon supply chains. Even for heritage brands that have weathered storms before, the confluence of an economic downturn, strained relations with China, and shifting consumer attitudes has created a newfound sense of urgency.

For American footwear label Chinese Laundry, the status quo simply won’t suffice. According to the company’s chief operating officer, Stewart Goldman, even 38-year-old household-name brands must evolve—or risk losing ground with consumers.

The industry’s bright new incoming class of digitally native startups presents a challenge to established brands, Goldman said.

“Currently, the marketplace is shifting so heavily to e-commerce and direct-to-consumer,” he explained, adding that the explosive popularity of online shopping has led retailers—and the brands that they carry—to completely revamp the way they do business.

In today’s changing retail landscape, stores are buying less inventory, all while attempting to satiate their shoppers’ limitless appetite for selection. “Real estate is expensive, and you can only hold so many pieces in a brick-and-mortar store,” Goldman said. That puts the onus on brands to play an integral role in fulfillment.

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“We have many retailers that will say to us, ‘Hey, you’re servicing our 62 stores, and we’d like you to drop ship to our consumers, too,’” he said. Chinese Laundry will pack and ship the orders—even using the store’s custom trimmings and boxes. To the recipient, it appears the order has come from the retailer’s own warehouse, when really, the brand has been responsible for getting the shoes into their waiting hands.

“We have these scenarios across the board with a lot of the major players that we work with. That, plus our own e-commerce, probably represents a third to 40 percent of the business,” he said. “It expands retailers’ footprint and their ability to sell product.”

It also ensures consumers have access to the products they want, whenever they want them. Today’s shoppers expect unlimited access to styles and sizes, whether or not inventory is available in store. Being able to ship product quickly offers the next best thing to instant gratification—a necessary consolation if a style isn’t available to take home.

The expectation of expediency and ease also pertains to brand discovery, Goldman said.

The upcoming class of consumers expects to be met where they spend most of their time, and that’s on their phones. Gen Z is a “mobile first” demographic, said Goldman, and digital marketing has been a go-to for the label when it comes to reaching a consumer base he characterized as “unpredictable.” Their attention span for new brands and products is much shorter than the generations that preceded them, he said.

Though the platform is heavily saturated with competitors, Instagram has become a key tool for Chinese Laundry in exposing shoppers to new styles. The tap-to-shop option has been a sales driver for the company, though he believes many are also being driven to their local department stores to try on in person. Footwear is a product that people like to see, touch and try on, he said, and stores provide the optimal venue for showrooming and styling.

Even as Chinese Laundry is making strides in courting a new and increasingly important generational cohort, Goldman shares many anxieties with fellow brand executives about the state of the industry as a whole.

Most pressing are concerns about manufacturing operations, which have long taken place in China. In the wake of long and frustrating trade negotiations, the company is working to diversify its sourcing away from the country and open up new avenues for production.

Chinese Laundry has made large advance buys for its Spring 2020 season, Goldman said, adding, “We have goods coming in that aren’t impacted, but that only lasts so long.” Now, the company is looking to countries like India, Brazil, Spain and Mexico with an eye toward their future potential. It’s beginning to divert small portions of sourcing to some of these areas, which aren’t affected by tariff strain.

When asked what percentage of operations remain in China, Goldman said the number is in the low-90s, percentage wise. That’s between 4 percent and 6 percent less than last year.

While Chinese sourcing still reigns supreme for the company, Goldman said he’d be bullish about moving operations out of the region—perhaps entirely, and for good. “That’s if it becomes a full-blown, extended scenario,” he said.

“It’s not sustainable to have tariffs that are 25-40 percent. The customer’s not going to pay it,” he explained. “Other countries are stepping up and saying, ‘Hey, we want this business, and we’ll match the pricing.’”

With its massive production runs and multiple brand lines, an established label like Chinese Laundry could represent an incredibly attractive prospect for manufacturers that can demonstrate quality and capacity, and the company will have its pick of suitors as it moves through its long-term strategy of diversifying sourcing.

Chinese Laundry made its name on its trend-forward, contemporary styles in leathers and synthetics. While China and Vietnam have largely cornered the market for athletic and athleisure styles, there are manifold options for fashion brands looking for skilled artisans in other markets.

“Certain countries are known for certain footwear, so that gives you a head start in some categories,” Goldman said. “China has been the industry leader, and has the infrastructure, the components and everything necessary. But a lot of countries are moving very quickly to get up to speed, and many have been doing it already—just on a smaller scale.”

The trade war has forced brands to completely reimagine their supply chains, Goldman said—and that can be a challenge when a company has been operating in a consistent fashion since the 1970s.

“We’re testing out other countries and working on airing in smaller quantities, but really what it comes down to is that your customer has an expectation of paying a certain amount,” Goldman explained. “They’ve got to get a product that they feel is a good value, where the quality is right and the price is what they expect it to be,” he added, assuring that the brand will not raise prices for consumers, and will instead attempt to spread out the damage throughout the supply chain.

Goldman believes the only way for Chinese manufacturing to keep American business in the long-term is for the country to continue to manipulate its currency, and for its factories to operate on shorter margins. Still, the adjustments may not be enough, as brands are starting to grow tired of the dramatic trade saga that has dominated board room discussions for months.

“This has brought to everyone’s attention that you can’t just rely on one country, because anything can change,” he said. “People like myself and this company, as well as other companies, are going to look for other avenues to do business. It’s just the natural progression,” he added.