Supplier CEO Chat with CJ Schmidt (Hit), Dan Pantano (alphabroder), and Neil Ringle (PCNA)

Welcome to Skucast, the podcast for entrepreneurs in the promotional products industry. Skucast shines a light on our industry's best work, features maverick personalities, and discusses what's really involved in running a modern promotional products business. Skucast is the official podcast of Common Skew.

This year, a renewed focus on operations, sourcing, and technology has emerged for suppliers. At Skew Camp in Austin, Texas, we held an interview on stage with three of the industry's largest supplier leaders, including Neil Ringel, CEO at PCNA, Dan Pantano, president and CEO at Alpha Broader Prime, and CJ Schmidt, President and CEO at Hit Promotional Products. We discussed sustainability, the impact of digital transformation on distributor growth, robotics, and the sourcing challenges related to China. Hi friends, I'm Bobby LeHew, Chief Content Officer at CommonSkew. Today we bring you that interview from Skew Camp as well as audience questions. And just a heads up, this supplier CEO panel is one of the most popular sessions at any of our events. And if you enjoy macro perspectives like this on trends and industry outlook, you might want to join us for SKUCON in Las Vegas on January 14th, as we'll be bringing yet another dynamic, high-impact conversation to the stage with SanMar President and CEO Jeremy Lott and Gemline's Chairman and CEO Jonathan Isaacson. Join us as we celebrate our 10th SKUCON gathering along with a few hundred of your closest promo friends.. It's the perfect place to kick off an inspirational year with your team, and we're almost sold out. So go grab those tickets today at skewcon.com. Today's episode is brought to you by CommonSkew, the work from anywhere platform that powers your connected workflow, enabling you to process more orders, dramatically grow your sales. To learn more, visit commonskew.com. And now here's our interview hosted by CommonSkew's CEO, Catherine Graham. Interviewing Neil Ringel, Dan Pantano, and CJ Schmidt.

We're going to talk about sustainability. That has been obviously a very hot topic over the past couple of years, and there are some significant investments and very interesting things that this gang has been doing at their organizations. So CJ, starting with you, You're making big strides kind of in the overall sustainability area. What do you consider the single most important advancement that you are uniquely proud of for your organization this year?

This one's very easy. We, we do pretty well in ceramic mug category, and typically we would just dump the broken ceramic mugs, and ceramics get broken pretty easily in our world. Now we have a recycling program that goes into some sort of sidewalk or asphalt or whatnot. That was a tremendous amount of credit for us on our ESG score and savings overall and just kind of made our company a little bit better.

Neal, one of the things that you've spoken about was that, you know, EcoESG is impacting every area of your organization and it's now the core of what you do. Can you elaborate on how this focus has or is fundamentally changing PCNA?

Achievement of Ecovada Silver this year was a big, big one for us. Filing our sustainability report, getting FSC certified in pretty much all of our plants, switching to recycled packaging, moving to digital production to save ink. It's in every decision we make because it's becoming the number one question we're getting asked from distributors is, what are you doing? So the answer is trying to do a lot.

What are each of you finding kind of are the areas that the most progressive distributors are pushing you?

On, well, I mean, documentation, right? It's one thing we used to just be able to have a conversation, and it used to just be centered around products we're selling that are sustainable. But now it's having documentation of what you're actually doing internally within your four walls to reduce your carbon footprint, reduce waste, water consumption, energy consumption. And I think that's, that's being pushed from our customers to us, right? You think about the large corporate 5,000 companies out there. They want to know who they're doing business with and what we stand for and what we're doing as a supplier. So we're being kind of forced to measure it and report out on that, on our results to those measurements.

Yeah, I think it's traceability. I mean, for you and for us with apparel, it's Bluesign, you know, going all the way back to the source of where's the cotton come from. And how's it being processed to really ethical sourcing right back to the beginning of the supply chain, not just factory we're buying it from. So it's that visibility.

Absolutely. I think something that gets missed for the distributors in the room, it's not— we always think of this as just the product itself. It's not the product, it's the process. Yeah. And a lot of stuff that we've— the three of us and many others have done happened in the factory. We've made changes for probably 10 years now that have led up to where we are today, so it's, it's been an ongoing process. The microscope's on us right now, and it's the buzzword of the year, but it has a lot to do with the things we've done over countless years and improved our factory relations. LED lighting, breaking down corrugate into little cubes and whatnot, so It's been an ongoing process, but keep that in mind and ask those questions too when you're filling out your RFPs and answering questions to your end-user customers.

So none of these initiatives are free. How do you guys make decisions in terms of ROI and trade-offs when you're thinking about sustainability initiatives, either at the product or the process level?

We, we don't have a ESG manager, but we have a director of sustainability. So that's another hire that we wouldn't have had before. The products— now we're back into products— are more expensive accordingly. It'll start to even itself out once the raw materials become available and that sustainable material, but it's just an added cost of doing business, and we're prepared for that.

Yeah, we're— I mean, we're willing— we've made investments. I'm thinking more internally within our four walls of what we're doing using technology, using digital technology to do it. We've got new automation we talked about last year here that's more, way more energy efficient, our lighting. So things that we probably wouldn't have invested in a few years ago that cost money, I think in the long run it's going to save us money. In the short term, you know, prices for a lot of that technology is pretty high still. It hasn't started to come down, but I think over time that'll become a more reasonable investment.

I don't necessarily think— I agree with these guys, but I don't necessarily think it's big company small company, big supplier, small supplier thing, I think you can do good and do well at the same time. I think you have to make investments that are prudent, and they may cost you a little more. But in the long run, if it's valued by your customers and their end customers, then it was a valuable investment to make. And if not, you're still doing something good for the environment. You're doing something good for your employees. I think you can do good and well at the same time. Small suppliers can make those same choices.

But given, given the additional overhead around documentation, or whether it's, you know, B Corp status, EcoVadis, like all of those things that are labor-intensive and costly, do you think it will be harder for smaller suppliers to keep up in that context?

Well, I would just say the best thing to do to start out, which we did only in the last year, was measurement, right? So we weren't measuring before. So once you put the right measurements in place, the right metrics, you set goals you can move at the pace that you're comfortable moving at. And as long as you're marching forward and making improvement and making progress, maybe it takes you 1, 2, or 3 years to get somewhere where it takes somebody else 12 months. You're moving forward. And I think a lot of— from what we hear from our customers and their end clients, if you have a plan that you're measuring to and you're moving the ball forward, I think that's, you know, that gets you going in the right direction. And then I think things become more efficient and more, more cost effective as things scale, you know, throughout the, the industry and other industries. Because it's just— I still think we're in a lot of ways at the very early stages of this, and a lot of the cost and things that you have to invest in will come down.

I would say for the smaller groups out here, and we're lucky enough to go to a lot of these panels and meet some really bright people, about 7 or 8 years ago we got to attend, uh, it was called the Leadership Development Group And Joanne Lance, who runs Geiger, gave us the idea to do the carbon offset with UPS or FedEx. That's a really easy win for those in the room that don't want to spend all the money, but you want to do the right thing. That's a real easy one. And then just kind of start building off of that.

As the economic kind of challenges that everyone has experienced this year, and you're seeing kind of greater pressures on budgets and prices? And do you feel that the impact of what we saw, you know, during COVID of a greater appreciation for kind of higher price point items, is that shifting with the economic pressures this year?

No, I don't think, at least that's not my observation. Maybe these guys have a different one, but no, I think there's economic pressure. I think we're all feeling it. I think to deny that would be to to be a little disingenuous. But we haven't seen a trade-down in price. We may have seen less orders from certain industries and then brands, but we haven't seen a trade-off against lower quality.

Totally agree with that. I mean, maybe the order sizes aren't maybe quite what they were, but people want an experience, right? They want a product that means something to them. Brands have that kind of cachet. And so we haven't seen that slow down.

If you asked me 5 years ago if we would be carrying brands, I would say you're nuts. And we're starting to get more and more impactful in that regard. And that's a big ask of the end buyer. So yeah, I think absolutely it's an important thing. And younger generation, they identify with brands more so than ever.

As we look at over the next 2 to 3 years, where do you guys see the most important investments in sustainability kind of coming from? What are you not doing today that you're going to be doing 2 to 3 years from now, you're starting to make investments in.

We're just trying to track where the actual raw material is coming from and try to not just greenwash and do it the right way. A lot of the ways we process orders overseas and still the next— we'll be talking about China here soon, but most of the stuff still comes from China and we buy through traders or agents or things of that nature. There's a lot of levels and it's really hard to detect exactly what a product is really made of and whatnot. So just heavy investments in those type of tests and just making sure we're trying to do the right thing.

Yeah, I continued on the product side, as CJ said, but I think for us, our biggest investments are always going to be around technology, both digital technology and automation technology. And the automation definitely has a big impact. On your output and your efficiency. So, you know, we're going to continue to make investments down that road.

Hard to add to that.

I agree. Well, that's a good segue into technology. So along with sustainability, digital transformation is obviously a huge— well, near and dear to our heart here, but it's significantly shaping the industry. Neil, you said that everything should go back to our customers in terms of saving time and energy. Specifically, you said you wanted to focus on giving customers time back. How do you see your current tech investments making your customers more successful in the immediate future?

It's a great question. What I mean, what I mean by when I say that is your time is valuable. Our job is to help you expedite something that ends up beautiful in your customers' hands as fast as possible. That's what we all share. The process from getting from what you want to getting it done often very cumbersome, and technology can fix quite a bit of that. So I'm going to give you two examples. One, we put on our website just a month or two ago an art validator. Art is the biggest single problem we have. We go back and forth all the time, 5 times, to make sure we get good art to make a pretty product for you when it's over. We put, for every product we have, Drag and drop your art, tell us what the decorating method is, tell us how many colors, tell us you want to engrave, tell us you want it embossed, and we'll tell you if the art you submitted will work. And the idea of doing that is so you don't have to worry about the back and forth because you're under a time crunch. So we're giving you the ability to know that what you're sending us is going to work tomorrow. That's an example of using technology to solve a problem. We're going to introduce in a couple of weeks, and we did it in Europe already, little red dots to tell you what's wrong with the art, not just to tell you that it's wrong, but here's what you need to fix. Eventually, I guess we'll just fix it for you. But what we're trying to do is make sure that you have something that works and your customer is happy and you're not spending hours trying to place an order that should take minutes to place an order. I can give you a couple more, but I don't want to steal their time.

Well, earlier this year we launched our EPO integration with PCNA. What impact has that had on your business internally?

Well, I think the real question that I would flip it around and say is what impact has it had on the distributors in the room? For us as a supplier, we love it, right? We want to get a clean electronic order from you. EPO allows that to happen. What it does for you is we know the PO is good, it's configured right, it gets you to the front of the line. So if we get an EPO, boom, it flies right through our system. If we don't, we may have to come back and forth and validate something and what's missing and what size did you really want? Now, if you submit the EPO to us, it kind of zips right through. So I think it's good for us because we're getting a clean order, but it's good for you because it's saving you time.

And to add to that, a lot of times there's limited stock on a product and there's 17 orders going in for the same product at the same time. And you guys call up frustrated, well, how the hell did you lose my stock on this order? We just placed it. If it's being executed electronically, that's typically not happening and you're at the front of the line.

Do any of you foresee kind of a time where distributors would either be penalized or incented to place orders digitally?

Well, I mean, it's that my personal opinion is I think to change behavior, and I think there's a lot of different ways to look at this. When you have integration, which common SKU is, right, and there's a lot of efficiency for that, then you have websites. We all have websites. And I think to get customers to change their behavior to use I'll give you an example, our website. I think there's at times you're going to have to incent them to do something differently than they did before to get them to do it. But over time, when you get to a critical mass, then there's disincentives around it. And I think when you hit a critical mass point is when you start to see things go from incentives to disincentives. I think we're a long way from that.

Yes.

So how far away do you think we are from that?

I couldn't put a time frame on it, but at some point that happens. And, you know, this industry— I mean, Neil said it, right? We're all spending too much time processing orders and not enough time innovating and finding solutions for customers. And so getting that process to be as automated and as hands-free and as touch-free as possible, that's the holy grail for the industry because I think we're just spending way too much time in supply chain and order management. And our focus, I can speak for all three of us, is to make that as efficient as possible. So everyone out here is selling and not processing orders. And I think to do that via the web, I think you have to— you probably have to incent people to do that because it's different. It's a change in behavior. And at first it may feel more like it's more inefficient, but over time it becomes very efficient because it's self-service. You have all the answers right there. And I do think that will take time to get to a point where you have enough critical mass than those that haven't adopted, then there should be a cost to process it manually.

Well, especially in the blank apparel world, I would think it's got to be much easier for you to look up the inventory, what warehouse it's shipping from, and buy it all. I understand systems don't necessarily talk to one another, but if you can be disciplined enough and your team can be disciplined enough, that's an easy win right off the bat. When it's decorated and there's 15 different ways to decorate an item and You want to position it in the small bottom right corner, not as easy, right? But in the blank world, that's something that can be easily fixed immediately without being penalized.

Okay, I think the last thing we want to do is penalize anybody. I'll speak for all of us there. I think our job is to try and make it easy. We were talking about technology. If we build the right tools and they work for you and you see value in them, you'll adopt them. Whether we incent you for it or penalize you for not doing it, if we do our jobs right and give you the right tools, we don't have to have that conversation. And that's, I think, what we're all trying to build toward right now. That's what your entire business is trying to help us do. So I'm not a big fan of penalties.

Stay out of the penalty box.

Question about robotics. So CJ, both you and Dan have invested heavily in robotics. This time last year, Dan, we were talking to you about kind of the initial investment around that. Dan, what changes have you seen this implementation make in your team now that you're over a year into that investment?

Yeah, so I think when we were here last year, we had 2 of our distribution centers rolled out with our robotics technology. This is our apparel distribution centers. And as of May this year, we've now rolled it out to all of our US distribution centers. We'll do Canada in October. It's had a huge impact on us, first from just an employee satisfaction perspective. It's a much safer environment having robots running around versus the mules and how we used to pick orders. And literally, from 2 o'clock to 5 o'clock in the afternoon, pretty chaotic in our old distribution centers. And now with the automation, it's a much safer environment. And it's reduced, basically reduced overtime to next to nothing. We have peak times at certain points of the year, and we have gotten rid of all of our temp labor for the most part. And it's created an environment that has helped us retain our employees. So remember a year ago, we were talking about how much churn was going on with our employees in our distribution centers, and it has really helped reduce that. That. So it's just made it better for our associates. There's a better work-life balance when you know you're going to go in to work every day and you're going to get home by whatever your shift is, 5 o'clock or 8 o'clock, and you can depend on that. That makes life at home and scheduling and taking care of your kids so much easier. So that's been probably the biggest impact, and we've heard that from our associates. And obviously, productivity-wise, we're about 25% more productive picking orders than we were before because we're using, you know, automation to do that. So it's fundamentally changed everything we do from how we pick orders in the apparel warehouse. And it's also now given us a platform to look at other forms of automation that can tie in more on the receiving side. So it's been a big, big plus for us, both subjectively and how people feel, and then also just from a productivity perspective, we're much more productive than we were before.

That's a more recent investment for you guys. CJ, what are you seeing?

Yeah, in the pick-pack distribution world, it's a lot more prevalent. It's a lot easier. It's the same mundane task over and over and over again. Unfortunately, in our world, we could be selling notebooks one day, it's the hottest thing going, and then the next day it's sunglasses, and then the next day it's tote bags. And it's hard to really get an ROI on your investment when you're putting a lot of money and time and effort into the robotic situation. It's not just— I want to add, this is where the real expense comes in. It's not the actual robot itself, it's the development of how the robot moves around in the path and whatnot. So distribution center, if any of you guys are in the fulfillment world or whatnot, I would urge you to look into it. But we're slowly testing in the hard goods world and basically just moving things from one location of a factory to another. So for an unpacking area to a printing area to a shipping area. But again, it's challenging on our end. We have about 10 total and about 8 of them work all the time. 2 of them break down every day and have a team that has to deal with that now too. But we're pretty pleased and I think it's the wave of the future and it's been, it's been good for us.

So whether it's robotics or technology infrastructure, what impact is technology having on your teams today in terms of speed of servicing the client? Neil, you want to take that?

That is a big question.

Yeah, I'm expecting a big answer.

Yeah, well, I don't know. I didn't get singled out for robotics. I'm going to take a shot at this one. The technology is impacting everything that we're doing right now. Just to finish off on that last question and kind of lead into this one, CJ is right in terms of we're in a very customized business and things change quite handily. And it's hard to get a robot, which typically does a process, and have it do it over and over repeatedly when things change for us. But we are using what we would consider cobots, which are robotic arms to help pack boxes, unpack boxes, things like that. That level of technology allows us to go faster in our production facilities. To your current question, what's the impact? That thing doesn't take a break and it works 24/7 if we want it to. So we need less operators to tend the equipment and we use more robotics or cobotics to help pack and unpack around it. That's just one example of using technology in a way to help unlock production capacity, and that unlocks speed.

So biggest investments in technology upcoming in the next 1 to 2 years, what do you all see as being the key focus?

I'll add on to Neil's art perspective. That's a, that's a big deal for us. We spend a lot of time in the textile world. Think about a non-woven bag and you're trying to put fine print on there. One bag might work, one might not. Not work if the imprint's 10 by 10 versus 8 by 8. What are the rules? So we've heavily, heavily invested in technology there. And again, our product categories are widely diversified. So each category kind of runs its own factory, so to speak. And that's been a humongous investment for us. And we're going to continue to do that in the 7 figures and hopefully make everybody's life easier. I can't tell you how many times we go print a job and everything's great. You guys think things are rolling along perfectly. We go to print it and this fine text isn't going to work. Got to go back to the screen room, got to change it, got to change this out, got to change that out. So that's a, that's a heavy area of focus for us.

Yeah, I would say definitely on art, art processing. That's huge unlock for us from a mutual speed perspective, number one. Number two would be the investments we continue to make in our website. We've pumped a lot of money into our website over the last few years. Hopefully you noticed. And it's, it's all about trying to create a better experience, better presale experience for folks and make your own virtuals, do all that kind of stuff because we want to again go to that easy speed combination. So we'll make well into the 7-figure investments again this year on the website. Continuing to build out things like the art validator. But also we introduced a tool that we call Givey Select. And if you go to our website, you can see that. But it's trying to create tools that will allow you to not have to go to a third party. I don't want to name them, but to help build pop-up stores and things like that, that would be integrated with our website. So a lot of website investment all wrapped around speed and convenience.

So I'm going to push you a bit on that. You're speaking to an audience who doesn't necessarily want to go and do those things on the website. You want to be able to do it inside Comms Key. So how do you balance investments on that front in terms of how you're supporting integrations into platforms to be able to enable that kind of functionality inside where the workflow is happening versus causing them to go to the website?

Yeah. So we continue to and always will continue to develop our website. That's our face to the market. But all of the tools that are available there are available through other platforms if we do the plumbing together. So, and some of which we've started to do. So it's build it for the masses and then take it into the individual platforms.

Yeah, we're— our biggest investment will continue to be both in the website and customer integrations because to your point, Catherine, lots of customers like Commscue aren't going to go to our website. They're going to use their platform, their system. We have to be plugged in and we have to make that as self-service as possible. So that's, it's been our biggest area of investment. I think, as you know, we launched our new website in April this year. We spent, you know, 2 years developing that, but every month we're putting out new releases, new enhancements. So that's just an ongoing process. But the customer integration piece is a huge expense and huge focus of ours because it's not the same. You know, promo standards hasn't driven standards yet from an integration perspective, so it's still a lot of work, but you're capturing a lot of the demand out there if we're able to do that with a lot of the big platforms, and obviously Commonsku is one of them.

Yeah, promo standards is a very big buzzword for those in technology, and it's advancing, but it's not It's not perfect by any means, and if you say, oh, we're Promo Standards accepted, that doesn't really hold too much weight in the 3 of ours book. I will say, I'm going to add on to the website deal. I don't think any of our search engines— and I spend some time on my competitors' websites— none of them are really that robust, and you guys probably get very frustrated with— I typed in folding chair and a a beanie comes up or something of that. We're spending a lot of time on that. We've hired a data science team. I'm 40 and I feel very ancient in the room. I have no idea what these folks are talking about, but anxiously learning. And it's pretty interesting to see what's out there and I think what can be available to make your searches a lot more robust on our websites.

Switching gears to labor. So employers added 187,000 jobs in August in the US, beating expectations. Unemployment rose to 3.8%. Dan, sorry, it was only to 3.8%. Dan, one thing you mentioned was that you have more jobs than people to fill it. What areas are getting hit the most?

Yeah, I mean, if you think back a year ago, the labor market was really, really tough, right? There was You know, there weren't— people weren't applying for jobs. People you had were leaving, going, taking other jobs, going to make $1 an hour, $1.50 more an hour. So it's a much better environment than it was a year ago. But there's— it's still very, very difficult. And we stepped back, and that's part of why we did the automation solution, was really more about employee engagement, employee retention. And it's really helped us within our warehouses to get a more stabilized workforce. But we've, I'm sure these guys can attest to it, we've done 3 or 4 wage increases in the last year and a half. And so I think we're now at a point where the market is more stable, and I think depending on the type of role you're hiring for, it's, you know, the environment isn't that difficult now from a hiring perspective, or isn't as difficult as it was before. But if you're not driving employee engagement, And if you don't have the right kind of compensation models and tools out there, people will leave. I mean, there's just— there's still a lot of opportunity to go other places, but it starts with stopping the leaky bucket of losing good people, you know, and being able to retain them. And we've been able to do that, and that's helped us. So we don't feel the pressure we felt a year ago.

Yeah, we Right after, kind of right in the pandemic, we lost a lot of folks to the DoorDashes, Uber Eats that have more flex schedule. Those have slowly worked their way themselves back. Our biggest challenge from a hiring perspective is a customer service or a detailing perspective. I would say, we communicated this in our little group over here today, we had about 350 people in our office 2 years ago, or 3 years ago, we have 10. Today. Nobody shows up to the office. It's very, very, very challenging to measure or put metrics in place, have that water cooler talk, and it's hard to recruit folks accordingly. You don't have a lot of good leads and referrals, so to speak. That's our biggest area of challenge. So what do you do? We now outsource a lot of stuff overseas, and they perform pretty well. But in the States, we have a really, really big challenge with CSRs.

From a production labor standpoint, that was an issue a year and a half ago. It's not an issue now. The amount of digitization and automation that we've put in reduced the need for as much labor as we had pre-pandemic. And so I feel very comfortable that, you know, to the point of the cobots and everything else, We're staffed and we can scale nicely with what's available. I think the white-collar labor issue is not an issue we're necessarily dealing with. I think the pandemic, we did the same thing I think as CJ did, whether it was intentional or not for both of us, is we sent a lot of people home and they didn't come back. And we allowed a work-at-home policy, but it's also allowed us to recruit from a much bigger geography than suburban Pittsburgh. Which, you know, was limiting the talent pool. So our talent pool is more open. And so we've filled the gaps that way.

When we did this supplier CEO panel 2 years ago in SKU Camp, the overall consensus was that supply chain was a complete shitshow at the time. Last year we revisited it and it seemed like supply chain was still a bit of a shitshow. That seems to have have shifted now into two things, one being that an excess of inventory in some cases seems to be a bigger problem versus trying to figure out containers to get things here and unloading those. Now that there's a little bit more kind of breathing room from that perspective, how does that allow kind of each of you to be shifting the focus around whether it's the US's decision to decouple more from China and the implications kind of on your business like what does that create more room for?

I'll start. Supply chain's leveled itself out. Like I said before, we're still buying a lot of stuff from China. We're going to continue to buy a lot of stuff from China. Textiles, cut and sew, very easy to move. 18 parts in a power bank, not very easy to move. There's not enough labor, there's not enough raw material to support that. Don't see those moving for a long time. As far as over-inventory positions, I think we're all there.

Good news for you guys, not good news for us.

No, no, no, no, it's the wrong stuff though. We got in panic, it is, we got in panic. We all have too much sanitizers that we're trying to, now we have to get rid of due to expiration dates. We tried everything we possibly could to get out of that one. Millions and millions of dollars worth of sanitizers that have to be disposed and it costs a lot of money to get rid of them as well. So it— and we're pretty big risk takers when it comes to inventory, and we've been a little bit more reluctant over the past 18 months because we just don't have the space and we have to keep leasing buildings, leasing buildings. So we're finally building a state-of-the-art distribution center, but that took— it's taken a long time and, uh, we'll be up and running in November. But for 18 months, we really struggled finding, uh, ample space to support all this.

Yeah, I mean, and maybe you had a couple of different questions in there, but on the apparel side, I think last year we talked about it here in this forum. We basically, with our major manufacturers on the apparel side, we placed orders for a year. So we tried our best to forecast and probably over-forecasted because demand was going like that at this point last year. And that gave the ability for our manufacturers to basically do production planning. They Some went out and actually invested in new plants. They've finally started catching up at the end of last year, and then this year we've been getting obviously a ton of inventory. We have more inventory on the apparel side, and I could probably speak for my apparel competitors as well, than we've ever had, to a point where it's unhealthy and we've got to work it down. But it's not hand sanitizers, thank God. It's t-shirts and it's hoodies. And we don't quite take the risk you took. But it's t-shirts and it's hoodies and things like that that will eventually sell through. And I think right now we're, you know, last year we were in an under-inventory position. People would, they wanted a black polo, they're going to buy whatever black polo they can get their hands on. And now we've got lots of black polos and lots of black t-shirts. But I think by the end of the year, the inventory, you know, on the apparel side will be, I think, more in balance with demand. And we got out of balance last year, we didn't have enough, now we have too much. And It's a roller coaster, and I think next year will be a much more stable environment from an apparel inventory perspective. I think the China issue, I mean, CJ hit it. I mean, there's some products that are very easy. We've been focused on this for the last several years, and the easy stuff we've been able to move out. The harder, more complex, more expensive products, I mean, we'll eventually, we want to get more diversified anyway, despite all the geopolitical issues going on. But there's not ready markets for that that are ready to handle that kind of complexity from a manufacturing perspective. But over time, I think you'll continue to see companies like ours collectively start to move production away.

I think we all have the desire. I think the will is there, but the price would be outrageous for us to move some things nearshore to Mexico or elsewhere for things like drinkware that Even if they could do it and they really don't have the capacity to do it, it would cost too much. So, you know, look, we're, we're all sitting on a little more inventory than we'd like. And I know that folks out here, certainly on the distributor side, have an appreciation for the fact that we've got to guess 6 to 12 months in advance what's going to be hot and get that order, get it made and get it over here. And none of us saw the economy turning down. So we plan to sell through what we had ordered. 6 months or 12 months ago. So we all have some excess inventory. We'll sell through it. We, again, maybe with the exception of some things that have expiration dates, it's just a matter of timing. So for us, long term, would we like to buy from outside of mainland China? Of course. And I think that even the pandemic pushed some of the sourcing we had moved away back to mainland China. Some of the smaller countries really locked down and went sideways during the pandemic and forced us to go back to China for goods. But that is part of our collective supply chain and will be for a very long time.

So two points onto that. We're incentivized to move out of China for many, many, many reasons. We move into all these other countries. We moved a bunch of stuff to Myanmar. And then, and then 6 months later, Myanmar has political unrest. They're at war with one another, civil war. So Now we're screwed there.

It's—

you just never win this battle. And what it does is it halts innovation as well. We're not wanting to develop as many new products as we had in the past. And the single hardest job that inventory teams and the overall supplier network has is the reorder of a new product. We have no idea if something's going to sell or not, and then how many do you order? And then Next, are you over-ordering, which we've done very much so on our version of Mr. Stanley. And that's the hardest part of our job. And through innovation, what do you do? It's kind of, like I said, it's kind of halted, I think, all of us from adding as many new products as we had in the past, which you guys don't want to hear, but from an inventory and planning perspective, we kind of have to do that.

I just think the key is you got to have a diverse supply chain because, to CJ's point, stuff happens everywhere. Central America, things happen all the time. A lot of apparel comes out of Central America. So you've got to have a well-diversified portfolio of manufacturers or otherwise you can get into trouble when something goes south quick. And in some cases, it's pretty hard to predict when that's going to happen.

You have to add to that, right? Sorry. We all say China, China, China. I would say about 25% of our industry spend is on t-shirts. Not a lot of t-shirts are coming from China. So we're not buying as much as everyone makes it out to be. That was a great point about Central America.

What do you think the downstream implications are to distributors of excess inventory?

The downstream implications, I mean, For right now, I mean, the inventory that— again, I'll speak for the three of us here because if we all have excess inventory, we all still have it at container costs that were exceedingly high, right? So we have the inventory. It's sitting there. It cost a lot of money to get here. We still have to sell through all that stuff, right? And until we sell through it, bringing in new product at lower costs is going to be quite a quite a bit of time. So I think the downstream implications aren't bad. They're just not going to see some dramatic improvement in the next 6 to 12 months because we, we've got warehouses full of product now. At the same time, it hasn't stopped. I mean, you talked about the 40-ounce drinkware. That's all new product for all of us in the last 6 months. So we're still bringing new product into the space. Whether it's branded or unbranded, there's still innovation that's happening. So product innovation that's happening. I don't think there's a downstream negative impact to this other than we're not developing as much as perhaps we would've if we weren't so full.

Yeah, we're still selling fidget spinners, if that gives you any—

How many you got left?

We've whittled our way down under a million at this point. 7 years later, you're all going to find fidget spinners and hand sanitizers as co-packs in every door you ship out. Every sample for free.

Yeah, but, but what's different this year though than last year, if you remember at the end of '21 and '22, and more probably on the apparel side than the hard goods side, but there were 3 successive price increases, like unprecedented, that we hadn't had in this industry since going back to like 2010 or '11, before my time. And so, you know, everyone benefits from that, right? You get revenue dollars without having to sell more units. And so in some ways, that's a healthy environment as long as we're able to pass that on to the end user. And I think the industry did a really good job of that. Now we're starting to feel the pressure the other way because of inventory. To a certain extent, even manufacturers have too much inventory and you're starting to see more downward pressure. And that's, that's less healthy. I'm not worried about the inventory. To Neil's point, we're going to sell through the inventory that we have.

But it's—

it puts pressure from a pricing perspective in the market. And then anytime you're devaluing the products and the solutions we're selling, that's never a great, a great place to be.

I would say a negative implication would be that we support— sometimes we buy from smaller factories and a lot of us support their livelihoods and their day-to-day activities and whatnot. And if we're halting our purchasing, Some of these factories are going under or basically begging you to continue to do business with them. And, you know, all of us— I spent a lot of time in Asia over my career, and they become your friends and family and whatnot. You feel bad about it, but you have to support a business back here as well, and you have a lot of families here. So that would be a negative implication that if we're all not buying as much— and the three of us on our hard goods side buy from very similar suppliers. And if we're not all supporting it, it could be a challenge in that regard.

I'd say the last word on China for me would be 2 years ago, we were talking about tariffs. The industry passed them, you passed them. It was multiple waves. I think it is maybe the only policy that the Republicans and Democrats agree on is nobody's touching tariffs. So I don't see them going away anytime soon. You certainly didn't see it in the last administration, you didn't see it in this one. So I think they're here for a while.

Let's talk about growth in the economy. The latest financial indicators show the economy's cooling from a post-pandemic surge. Are we in a recession? Are we not in a recession? Nobody seems to know the answer to that. As we think about kind of the end, you know, Q4 as we head into it for this year and looking into planning for 2024, I mean, how are you all thinking about that?

No. First of all, I think we're in a recession. I mean, whatever the technical two quarters of stagnant growth, whatever it is, you feel it in your business today. I think people have tightened their belts, whether that's a recession or some other definition. It's certainly not robust growth. I don't care what's happening with jobs and anything else. The question I would ask is the one you just asked of us. What do you think is going to happen in the future? It starts with what do you think your customers want over the next few months? For us, I think we're, we're staffed, we're inventoried, we're ready to go. But it's about demand. And until you all tell us that there's more demand coming, I think it's going to be this way for a little bit.

If there is stagnant growth, and the numbers I hear is our industry is down between 7 and 10%, then some people tell me they're up 2 to 3%, whatever it may be. Inflation caused most of that growth. Um, I do not see our industry or economy growing, uh, without price increases, essentially.

Yeah.

Um, we're planning to have a same type of deal we do every year, 5 to 7% growth. And if we exceed that, awesome. If we don't, we're pretty safe in that regard. Fourth quarter should be okay. 2024, a little bit more reserved. But again, to Neil's point, that depends on what the market demands. The tech sector seems to be coming back a little bit, although Apple halted some deals in China. That didn't help my stock position, but geopolitical forces that are going to cause things to occur. Um, pretty, pretty semi-positive about the fourth quarter and next year.

Yeah, I just jump in. I mean, I think we were, we were actually talking about this earlier today and trying to predict the future. And you go back and you look at 2022, like 2022 is an anomaly.

Yes.

Not enough inventory. We're just talking about all these price increases. Every, you know, all these businesses opening back up, everybody hiring, trying to retain their people, just spending. You had stimulus money still out there. And so last year was, you know, like kind of the perfect storm and, you know, just really unprecedented from a demand perspective. As we all went into 2023, maybe we didn't think it was going to be quite like 2022, but we thought it was going to be a pretty healthy year. And it's turned out to be a pretty soft year. And I think as you look forward, you know, the only good thing about 2024 is we have 2023 as the base comp, right? I think we all— everybody does everything year over year. And so I think as you think about 2024, it should be better than 2023 from a year over year performance perspective. But I don't— I don't have a crystal ball, but I think it's going to be a more stable environment. We really haven't had kind of a normal year since 2019. I mean, you go back, right? We've had all these gyrations. And I think next year may not be a really strong year because I do think it's an election year, which makes markets jittery. And I think companies, publicly held companies, are less apt to spend discretionary dollars. But it's healthy enough that it should be a pretty stable year. And I think you're comparing it to 2023. Hopefully there's growth. Maybe it's single-digit growth next year if I were to you know, put my finger on it, that's probably what I would say at this point. But I mean, none of us got it right in '23, so I don't know what makes us think we're going to get it right in '24.

I would say, I don't— yeah, I agree with you, Eric. I think one catalyst will be when interest rates begin to come down. I mean, this market started to tighten when interest rates started to go up, and I think businesses have curtailed spend for that very reason. That's why you don't see that many mergers and acquisitions. That's why you're not seeing, you know, the kind of capital investment going into these big tech companies that was before. When interest rates start to come down, I think we'll see spend start to go up again.

I also equate everything to sports and the two biggest contracts in the history of the NBA and the NFL have been signed over the past two months. We all— we're still going to sporting events. We're still spending $6, $7 more than you would for each beer and hot dog and whatnot that you buy. So until that whole world slows down, the economy's doing okay in my mind.

There you go. Economy's not in the penalty box yet. No. I'm going to put you guys on the spot for a second. I want to talk about leadership. All of you run very large organizations. What were your learnings out of the conflict session this morning that you're going to take back to your companies?

It's more so about my personal life.

Can you have a private session?

Yeah.

CJ's wife, Mai, is expecting baby number 4 in the next few weeks.

I already signed her to come speak at our meeting at this point now. Just a little bit more humility listening. The hard part got me, right? You have to use all 3 components. And I mean, I can go on for hours about how much more we can do for our customer service team or inside staff, and it's especially challenging now that they're, they're remote for the most part. Um, that was the best session I've— and we go to a lot of these— that was the best session I think everybody in the room can attest that I've, I've been a part of in a long time. So that was very well done.

Yeah, I mean, I, I think as you think about your own organization, your own leadership team, and I— we can do a much better job of pulling out conflict and creating good, healthy conflict, and we probably avoid it more than we should, and I think that came through. I also thought some of the tools that she uses to get people that maybe aren't as comfortable putting out something, that affirmation without agreeing, I thought was a really powerful statement she made that kind of stuck with me, that really, I think you can make somebody feel like you're listening to them and you understand them without saying you agree. Agree with them. And then that gets the discussion going. And I think it's a tool that for sure I can do better. And I think it's something that can get a team to communicate and collaborate better as well. So I thought, like CJ, I thought that was one of the best sessions we've had.

I did too. Just a great reminder that conflict does not have to be negative and shouldn't have a negative connotation. I thought that was just a great reminder.

Now it's your opportunity to put these 3 on the hot spot. Questions. John Norris, first to the gate.

All right.

I'll probably never get another opportunity to ask some of these questions.

So how many you got? He's got a list.

Buckle up, everybody.

Buckle up. Joke's on you guys.

All right. So you've all been talking about deflationary pressures on prices, wages, supplies, the entire gamut. So that obviously has a trickle-down effect. Then on the flip side, you all talk about the call to arms that's going to all of your websites, does there become a point where the inflationary pressures and pricing pressures on the promotional product itself start to put pressures on the viability of the B2B supply chain in the auto industry?

It's a very indirect way of saying something. All right. No. Wait 20 years for that. No.

I'll repeat the question.

So you're saying because of all—

like, we're not going to invest in the business Tally's got your head up on the mic.

It was more along, there's only so many pricing pressures that the industry can take and pass on. Dan mentioned it. We've been able to pass on, distributors have been able to greatly pass on the inflationary pressures. And eventually that starts to put pressure on the B2B supply chain, the margin structure, the whole layers of the industry. Is there a point where those two start to collide and there's a tightening? We've been hearing for 2 decades of the pressures on the B2B market. Everybody's quoted every other industry in the world that has had these same challenges. Is there a pending pressure on the promo industry to, you know, have a similar fate? And if not, what are we doing to push ourselves above that?

Well, I'll take a first crack at it. I mean, at the end of the day, in a B2B world, wherever you're at in that value chain, if you're not delivering value for your customer, and you think about where we sit in the value chain and then where our distributor customers sit in the value chain, you're going to have a problem, right? If you're just selling product based on price and you're not adding value, you put yourself at risk, right? We do as a supplier. You know, we're in the middle, you know, with manufacturers and our distributor customers, and we have to provide value both up and down down the supply chain. So we have to constantly challenge ourselves. If we're not doing that, then yeah, we're going to have pressure, and we're going to feel it, and it's going to impede our ability to continue to innovate and invest in all those things. So we have to constantly make sure that that's what we're providing both up and down the value chain.

In the soft good world, it kind of already happens already, right? There's so many different channels that you could sell a t-shirt through. It's not just in our industry. So that's out of the question. I don't foresee it happening. And we're here for— it's a technology conference. It's a community, but it's a technology conference too, right? You use this software for a reason. That helps eliminate some of the additional costs that we are all absorbing. But I don't think in the next decade anything drastic happens.

We have another question back here.

Hi, I'm Danny from All Branded Group down in good old Aussie land. And so I want to know about kind of keeping in today's theme, I feel that with conflict, I want to know as an industry, and very much so with the suppliers and us distributors, What responsibility do we have to change the way our consumers behave in the promo industry? Because I feel we have a huge responsibility on our hands from a sustainable perspective. I feel as though it's all very well to talk about sustainability, it's all very well to say We'll offer this bag and it will do something good for the human race because we won't have another plastic bag out there. But as distributors and as suppliers, and more to you guys as the suppliers, would you ever consider going purely recycled goods and no longer selling a plastic pen? Because at the end of the day, I know that you'll say, well, that's my company, that's what I do, that's how I make my money.

But— Well, that's a, that's a, it's a great question. And I don't think that we're going to go from here to here overnight. I will say, though, for, for, for our company, Under the Proud Path initiative that we put in place, we said we would not introduce any new products that didn't meet certain ESG or environmental standards. So even, even the non-Stanley, Stanley-like product that we introduced is recycled steel. So we're looking for ways to move every product that we put into our portfolio, 'cause about 15% comes out each year. It just, you know, we decide not to renew it, it doesn't sell enough, it's run its course. But as we replace it with new product, it's gotta meet our ProudPath standards. So we're trying to move our portfolio. Now what that's done, and we had this conversation, a few of us at lunch today, we've probably reduced a few thousand SKUs from our assortment, things that I would call a little more landfill-like lower end that doesn't fit where we're trying to take our business. So for us, the answer is yes, we're trying to be responsible by not offering things that are at the more disposable end of the scale and introduce things that are either, for pens as an example, recycled plastics as opposed to virgin plastic or wheat straw or something else that has more environmental sensitivity to it.

My answer to that is how many— raise your hand if you sold a stress ball this year or someone on your team sold a stress ball this year. Everyone in the room. Will you continue to sell stress balls?

Not if we change that rhetoric. I think that— I think you're wrong, actually. I don't remember the last time I saw a stress ball. I don't remember the last time an Australian company asked for a stress ball. I think that it has been a big eye-opener for me personally, seeing the promo industry over the years and how it's not— I'm being in that conflict mode. Don't take it as a personal attack. We're going to name that.

No, it's not. We're all trying to do the right thing here. But I think that any one of your sales folks would sell a stress ball today and that we've had this conversation in a similar environment. We're up 38% in stress balls and it's literally the worst product in the world you can make because we stopped selling it.

Yeah, but you're probably up in it because you're still selling it and it's sometimes it's just a cheap product to just get that name out and do it, but it doesn't. But if it wasn't there and we stopped selling these products because we are so responsible and trust me, I'm not a, I'm not a hippie, I'm not a tree hugger, I'm not any of that. But I've come to realize how responsible our industry is for landfill. And if we stop producing products that are virgin material, then the consumer can no longer ask for it. It's not there anymore.

Yeah, but it's, but it's still being— I think to CJ's point, it's still being driven by the end user. Right. And it's got to be a combination of what the market wants, what the customer wants, what the consumer wants. With what suppliers provide, and we're listening to what is being asked for. So I do think over time those unhealthy products do go away, but we're just not going to go from where we are today to that overnight and just stop selling products. I just don't see that happening. But I do think everyone is trying to move in that direction, whether it's companies and what they buy and in the products they buy and suppliers and what we produce and what we sell.

They're not going away because we decide not to sell them. Now, I just told you we decided not to sell them. That's fine. That, that, that has nothing to do with trying to change the world. It's changing the profile of our company and where we're trying to take it and where we think the world is, is going. But it's a free market. So if the three of us decided we weren't going to sell stress balls, a stress ball company would pop up tomorrow to fill that demand, right? So it has to change at the consumer level, right? When suppliers don't see demand, suppliers stop buying the product or manufacturing the product. Until that time, someone's gonna fill that void, and that's fine because if people want it, that's how companies operate in a free market. But, you know, I think all of us to our, First 15 minutes are really trying to be responsible environmentally. And you're seeing that in the things we do from the way we ship to the way we manufacture. So your question's a great one, but I think it starts with the demand, not the supply.

So, Neil, what you're really saying is this distributor's responsibility? Well, it's a great question from Danny. It's a great question.

I think it's— I think it's the— at the end of the day, I think it's the end customer's responsibility. But I think if the distributor is being met with a, hey, I need stress ball challenge, they could try and sell into something else or they could take the order.

Yeah. And suppliers typically take the hit for selling that when really it's our responsibility to divert the sale to something more responsible.

I don't want to equate cigarettes to stress balls, but it is, you know.

Yeah, but then people figure out how to vape.

Right, exactly.

Yes, we have another question here.

Thank you. Hi, is this— can you all hear me?

Okay.

Hi, I'm Jamie. Thank you guys so much. This has been lovely. I have a question for you all. Um, is there anything that excites you all about the future in the next couple of years that we haven't discussed yet? Like something that you're just like bursting to talk about that you haven't talked about? Each of you, I would love to hear that.

That we haven't, that we haven't talked about? I think we talked about a lot that—

I mean, we're—

I think the whole technology play in this industry and the opportunity that's in front of us to just drive out inefficiencies and time wasted and time spent on order fulfillment, order management, like, that's exciting. If we ever get to that point where we're not all spending a lot of time processing orders That to me is going to have a huge impact on our ability to be creative and more innovative in this space. So that, that is exciting, and technology is what's going to make that happen.

To add to his comment, we're moving into a print-on-demand world, and that's pretty cool. You can do a lot of cool things and not have to buy as much and still satisfy your customer. You can do limited launches, things of that nature. What that also does In order to survive in the print-on-demand world, you have to be vertically integrated, you have to be electronically integrated. So that's kind of forcing the card in many cases. So we're pretty stoked about that and put a lot of effort into that world.

I don't think you could pick up a newspaper in the last 12 months that none of us knew what ChatGPT was 2 years ago. Today, DALL-E, ChatGPT, generative artificial intelligence. I mean, don't know how that's going to come into our space over the next few years, but That's probably the most exciting thing in the last 20 years to come along.

So a pretty prominent guy in our— at our company is going to get his MBA right now. And I wrote his recommendation letter based on ChatGPT.

So— and there you go.

So you're a plagiarizer is what you're saying.

I added my own flavor in there. But I mean, it's pretty neat what it can do.

Yeah, it's pretty cool.

Yeah.

One more question. We have time for one more question. That's okay if we don't have one. All right, that's all right.

Thank you, our wonderful panelists, for this incredible time. Thanks so much for tuning in to this episode of of SkuCast. Be sure to keep up with our latest content by subscribing to SkuCast on iTunes or to our blog at community.commsku.com. Until next time, friends, thanks so much for listening.