caroline: i'm caroline hyde. today, inflation was in top of mind. many wall street executives have been weighing in. rising costs, supply chain bottlenecks.

tomorrow morning, we get u.s. retail sales. a fresh read on how these are affecting consumers. why one of our guests says -- it's broken. taylor: one of the most popular items that goes into making clothing is cotton. take a look at this. what is this, since on the pound? you nail this every time. romaine: it's $1.07. taylor: i didn't know if it was bushels or barrels. the bottom line is it's going up. romaine: we have been conditioned over the last few years into fast fashion. you buy it and wear it and move

on. there's a supply chain built around that idea. that's all broken down and you are seeing companies who made their bread and butter off of this start to struggle. does this start to change consumer behavior? caroline: maybe in a positive way. maybe we start to think about things being less disposable. romaine: i would never get caught in the same suit twice. let's more insight in how the rise in prices is impacting clothing markers -- clothing makers. our next guest is without clothing manufacture. we have been talking about consumer behavior. we have been conditioned that we can get what we want when we want it whether it's clothing or anything else. the past year and a half is

taught us that if one thing goes wrong in the supply chain, then everything goes wrong. >> it's very true. we're seeing problems happening from getting the supplies then timeframe to make them now cartons are in short supply then it's longer to transport. we are not seeing nearly as much as factoring on the other side of the planet, but it is showing up everywhere. caroline: how is it impacting your pricing? how are you able to pass it on? >> that's a struggle. we have been seeing 15%, it was 25% higher, the latest numbers are 30% higher. this means we can't continue to hold the prices. our prices are going up to the point that we can't be

profitable. at that point, we have to point -- pass it on to the brands and our customers and they have to pass it on to the consumers. taylor: you talk about the retailers having to absorb those costs then pass it onto the consumer. do we hold onto our clothing longer? were also talking about sustainability and not discarding things. >> that could be a good potential consequence. if you're buying a t-shirt now for $30, you might have to pay $35 or $40 for that t-shirt. is that long enough to make you hold onto it? when you talk about a government that uses more fabric like a bathrobe, you may pay $75. now it's going to cost you $90

at these prices. the other caveat is we buy a lot of low-quality clothing. we wear them a couple of times, it's fast fashion or the style goes out or the quality isn't sufficient. the price changing is not affecting the quality. from a sustainability perspective, we would be better off paying more for our clothes and higher quality that we would wear for longer. romaine: i'm curious about with regard to the end customer and what they're willing to accept with regard to the price increases, we have heard anecdotally from other business owners that they were surprised about their ability to raise prices. i'm talking small to medium-sized businesses. they were surprised the people were willing to eat the cost is they felt that worth it or have

money in their pocket. what are you finding out with regard to the people you talk to and their pricing power? >> it really depends on the brand and the company. there are certain brands that quality is important, sustainability is important. they are typically able to raise their prices a little bit. there are certainly brands and categories that the consumer is not going to allow that. teenage shoppers and younger shoppers who are buying fast fashion items generally don't have the income to spend that much more on their clothing. caroline: i'm interested in your business model. talk to us about the recycled because is that going to become the same that new cars became harder to come by, are we going to see more recycling of cotton if cotton prices go up?

>> we are already seeing that. one of the challenges is the science. we have recycled cotton for quite some time. it's different quality. it is getting better, but we are seeing recycled cotton and polyester demand. the next thing that people are paying attention to is the ethical treatment of workers. whether that's the people that are picking the cotton, processing, working in the plants. we're starting to shine a light on that segment of the industry. taylor: when you bring up china, there has been of focus that you don't just want cheap close at any cost. you want to know what type of cheap labor is being used. the china band it's about 20% of the world supply.

how's that impacting prices? we have a chart showing the other producers. can they make that up? >> right now in the short term, the answer is probably no. it will take some time to ramp up. so much of that cotton grown in china comes into the u.s.. what's happening and we're seeing it in central america, people are saying where can i get the cotton? it is shifting where the production is happening in the world and creating bottlenecks. i think where we were hoping we would see cotton prices starting to go down, the opposite is happening. romaine: there is a broader discussion going on with regard to the supply chain issues and the u.s. making more of its own goods. whether it's semiconductors or something simpler like cotton

fabrics. i'm curious as to whether you think our economy the way it is structured in terms of wages and also labor laws and things like that, that we have the ability to bring more of the stuff on shore without a massive increase in pricing. >> the answer is it depends. there has been a push for a number of years to bring more production to the u.s. and we have done insert sectors and garment categories. the fact of the matter is, the cost of labor is so high in the u.s. that there are a lot of things that are appropriate to bring back. fabric has a better opportunity to come back and actually selling. much more of the fabric can be done by machine. sewing is still a manual process. every garment you have, a human being handled it.

romaine: you can't even find one anymore in the u.s.. the major manufacturers, they don't do that. the individual tailors, you pay an arm and a leg. caroline: an art form. what are you putting in place to be able to ensure that you have some sort of price transparency for the next six month or so? >> we operate on a model of transparency which is not super standard. we are transparent with our customers come up with price structures, how we pay our workers, what materials cost and where they come from and look at standard and recycled fibers, looking at ones that are documented. it changes the conversation a little bit because of the transparency and hopefully, that will become more prevalent in the industry. caroline: fascinating.

come back. to see what it's like managing these cost pressures. when we talk about where the pressures come from to begin with, our next guest is with us. what is the pressure that is occurring? >> we have several factors. as you mentioned earlier, we have the ports delaying. high freight cost. on top of that, the u.s. has seen strong demand for supplies that are dwindling. the u.s. is the biggest exporter. china is trying to diversify, but most of it is from -- their

confluence is pushing the prices higher. at a time when apparel sales are above pandemic levels. romaine: one thing that cotton has going for is that it's not a perishable product. we know that some mills and manufacturers stocked up on this the best that they could. what do we know about inventory levels right now and how much that might suffice in the short-term? >> in terms of cotton, china has a lot from previous seasons. in 2011 one prices went to record highs, china began to pilot on. there is cotton from kenya which is the bulk of it. many companies do hedge their needs for cotton, but apparel

ratio versus sales is at record. for those people who have that average, this shortfall we have a second year -- this tightness will exert more tightness on the margins because they need to replace at higher prices. or use up, for example in the u.s. they are tightening a lot. taylor: do you feel and we were speaking with our previous guest about picking the slack given the bands from china. do you feel that the u.s. or globally they can pick up that capacity? >> that is always the case. higher prices for supply shortages.

they are going to face a lot of competition for acreage for cotton. because of revenge shopping for consumers that have been locked down, they are just going to the shopping mall. we have to see. then, we will see a lot of erosion and maybe pockets will disappear or fewer pockets and your shirts or fewer bargains at the mall. taylor: thank you as always. >> i love pockets in the shirts.

romaine: where you supposed to put everything? taylor: romaine usually hides those in his pocket. i love a good secret just pocket. -- dress pocket. coming up, we're going to dig deeper into the supply chain and the disruptions that continue to plague retailers. this is bloomberg. ♪

romaine: today we are focused on the pressures hitting retailers.

hoard as much as you can and fashion. taylor: maybe that's what explains this chart. this is different than what we've heard from companies who say that their inventories are not being replenished because they can't get their items and things are flying off the shelves. this is inventory is rising. maybe if you can get something, you're snapping it up. or companies that have things in their facilities in the store but customers want it online. maybe that behavior is creating the extra inventory levels we have seen. either way, fascinating that this is back up on the rise. romaine: i have a closet full of cotton bales. right next to my jars of natural gas. i have to keep the oil in the bathtub. caroline: let's debate, how

broken the supply chain is. nick little is with us. an expert in supply chain management. your expertise is highly sought after at the moment. how problematic is this transitory? or are we broke into a certain degree? >> it's a place we have never been before. that's the real problem. for many years, we have looked at supply chains with a scientific lens. we have applied a lot of theories to trying to find the best way to reduce inventory so that firms can do best for their shareholders. what's beginning to happen is a big realization that that's not what it's all about. there's more to it than that. if we want to be successful with

supply chains, we have to change the way we approach them. just in time came from the 1970's, i think it was toyota that just started. that was over 50 years ago. things change on a 20 year cycle at the most. we have to do something to look at supply chains and say what is it that we need to do differently? romaine: let's talk about what we need to do differently. we heard from the president yesterday talking about how some ports should go to a 24/7 schedule like some ports overseas. there's talk here that it's not about the ports themselves, it's about the truckers, trains, other things that takes stuff from the ports to work needs to be. what is the solution in the short-term and is that short-term solution also going to be long term? >> unfortunately in the short-term, i think we will end up moving the bottleneck somewhere else. we have already seen that

bottlenecks can travel through the supply chain. when you get supply chain forecasts wrong and everybody knows that forecasting is a difficult art, the magnitude of variants doubles or takes a power of two through the supply chain. looking at what is happening in the ports, yes moving to a triple shift system or a 24 hour system at long beach and los angeles will help get stuff off the books, but where you put it? it has to be able to move inland. to do that, we need the truckers, the railways to shift it. that's where there's another bottleneck that were going to find. it's a band-aid that i believe is being put on. all we have to do is say we are all in this together, we have to take an end-to-end view of the

supply chain. we have to remember an incredibly important fact which is the end consumer is the one who gets the experience. that end consumer is the only person the puts real money into the supply chain. taylor: are there key permanent learning lessons that we can take away from this? that running this on such a tight ship, maybe that was a mistake. maybe there should have been more room for error so if one thing breaks down, the whole system doesn't fall apart? >> what we did, we took away the safety stop. that's why inventories were so small. we took away the redundancy that in the past we were prepared to pay for it by having alternative means to do things. what that has done is it has left us struggling to be able to get goods to market. the way to address this is to

say let's build a relationship that is not based just on price and delivery time. let's build a relationship based around understanding each other's strategic intent over the longer-term. caroline: interesting as to whether we can educate the consumer on that and educate loyalty between brands on that or whether we are fixed on next day or next few hours delivery system. fascinating comeback. intricate knowledge of how finely tuned these supply chains are. this is bloomberg.

romaine: we just had a great discussion about supply chain

issues with respect to apparel, cotton, and other products out there. the message we are hearing is it's not going to get easier. caroline: supply chains are so finely tuned. taylor: we stopped putting profits at all costs, to pad a little bit of inventory for times like this. fewer pocket dresses. ♪

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