Summary
In this episode of the Ecommerce Finance Podcast, Stephen Brown interviews Ryan King, CFO of Thread, discussing the evolution of the company from handcrafted wallets to a diversified manufacturing model. They delve into the complexities of navigating tariffs, the impact on pricing strategies, and the importance of supply chain diversification.
Ryan shares insights on managing costs, consumer behavior in response to price changes, and the future challenges facing the business as they adapt to a changing economic landscape.
Takeaways
- Thread started in 2014 with a simple idea of a better rubber band.
- The company evolved from handcrafted products to industrial manufacturing.
- Diversifying the supply chain helped mitigate risks associated with tariffs.
- Tariffs have a significant impact on pricing and consumer demand.
- Raising prices can lead to decreased consumer interest in non-essential items.
- Managing costs is crucial in response to increased tariffs.
- Finding new revenue opportunities is essential for growth.
- Consumer behavior is shifting due to rising prices across the board.
- The manufacturing landscape in the U.S. presents challenges for many businesses.
- Building relationships with manufacturers takes time and trust.
What We Cover:
- 00:00 Introduction to Thread and Its Journey
- 08:33 Transitioning from Handcrafted to Industrial Manufacturing
- 11:54 Navigating Tariffs and Supply Chain Diversification
- 18:55 The Impact of Global Tariffs on Business Strategy
- 22:44 Navigating Tariffs and Product Costs
- 26:37 Challenges in Manufacturing and Supply Chain
- 28:30 Pricing Strategies Amidst Uncertainty
- 30:42 Consumer Behavior and Price Sensitivity
- 34:35 The Impact of Cost of Goods on Business
- 39:02 Mitigating Costs and Revenue Strategies
- 45:09 Short-term vs Long-term Business Strategies
Guest Information
- Threadwallets.com
- Ryan King – Find him on LinkedIn
Ryan is currently the CFO at Thread Wallets in Provo, Utah. As a company, they focus on selling fun and functional minimalist wallets and other carry accessories. Over the past few years, the company has seen tremendous growth from making their wallets by hand in a garage and selling their products at farmers markets and local retailers, to now having a presence in all 50 states and many countries around the world.
Outside of work, you will either find Ryan skiing or at the golf course. If you ever want to experience the greatest snow on earth, connect with him. He’ll bring a few wallets to show you, too.
Work with LedgerGurus
If you need help with your ecommerce accounting, reach out to us at LedgerGurus. We are an ecommerce-specialized accounting firm, and we can handle all your numbers so you can focus on growing your business.
Transcript
Stephen Brown (00:00)
Welcome to the Ecommerce Finance Podcast. I’m your host, Stephen Brown with LedgerGurus. In this episode, I have Ryan King CFO with Thread. And we’re going to talk about real navigating tariffs. Ryan, thanks for joining me.
Ryan King (00:13)
Hey, Stephen, it’s great to join you. It’s always great to chat. glad we’re doing this over podcast for the first time.
Stephen Brown (00:19)
We’ll try not to go on tangents. You and I, we could probably talk for an entire day because we have very robust conversations and you’ve been on my short list of to have on the podcast because I think we just have really good conversations But today we want to talk about navigating tariffs, but before we do that, let’s get a little background. Tell us a little bit about Thread. Kind of what Thread does, your history of Thread, and then let’s go from there.
Ryan King (00:43)
Yeah, so the history of Thread, it actually starts in 2014, where I was the beneficiary of good old nepotism, to be honest. And because it was my him and my sister are the ones who started Thread. But what happened is he lost his wallet, surfing in Hawaii. And he lost his wallet and then went and got a broccoli rubber band from the grocery store and put that around his remaining cards. That was the idea for Thread. And you might be like, well, what’s the connection between the broccoli rubber band and Thread? Is he basically thought, “Hey, I can create a better rubber band.” And he did that. And that was Thread. So he made glorified rubber band with fun designs on it. So that was back in 2014.
Thread was incorporated, January 1 of 2015. And been off to the races since. So when I got back from an LDS mission in the spring of 2015, I started making the wallets with my brother-in-law and sister in their spare bedroom and in my parents’ garage. And so you talk about supply chain as back then, it was super simple. We made these wallets by hand.
I remember vividly stories of Colby saying, hey, we’ve gotten 15 orders for this wallet today and we have five units. We need to ship these out by the end of the day. So we would literally make those wallets that day. I mean, talk about just in time inventory. ⁓ that’s what we were doing early on. And then I studied finance at BYU. So I took a little break from working in the business while I was heads down in the finance program.
Then 2018, I started back up and at that point, Thread, the ball had just really started rolling and we were growing as a more products, not just our original elastic wallet, but lanyards, other wallets, we’ve been bags, shoulder slings, backpacks, air pod cases, stuff like that. So we just hit 10 years in business in January of this year.
Which we’re pretty proud of honestly internally, mean, making it to 10 years, that’s a huge milestone and we hope to make it 10 more. And just for the listeners or viewers is, we sell on our website, Amazon, we sell in wholesalers or retailers nationwide. We own a few stores ourselves ⁓ here in Utah, up and down the Wasatch Front. And then we have a corporate gifting and custom division in the business. So that’s where we sell our stuff.
Stephen Brown (03:18)
One of the I love about Thread, I mean, you guys your online store is still threadwallets.com, right? But you started with the This is my favorite type of customer that people that around a product and the desire to build something better. And then it evolves, like now it’s not just Thread wallets, it’s Thread. And you guys have a variety of things for carrying kind of your underlying principle, right? Carrying things, right?
Ryan King (03:44)
Yeah, carrying things is what do you carry every day? That’s at least where we’re at now is like, talk about everyday carry, where it’s like, hey, you carry your stuff to school most days, you carry your wallet or your cards most days. So we’re not yet to the, do you take your, you know, a duffel bag or a carry on case, whatever luggage is, that’s not something you do every day. So we haven’t branched into that, but it’s kind of a focus on what do you do with your everyday stuff?
Stephen Brown (04:12)
You know, who else says everyday carry just as a side note. Do you know who else uses the term everyday carry? That’s in gun culture. That’s like the concealed carry. They’ll be like, what’s your everyday carry?
Ryan King (04:12)
Interesting. I actually didn’t know.
Stephen Brown (04:27)
So, as you use that terminology, just be aware that if you ever collide with the gun guys, which I know there’s a lot of here in Utah, they have a whole different mindset of everyday carry.
Ryan King (04:37)
Well, if my dad listens to the podcast or my brother, they might be ashamed because I come from a big hunting family. And although they don’t really do the concealed carry themselves.
Stephen Brown (04:47)
So then everyday carry usually what you’re concealed that you do have but I do think the concept makes sense and honestly, maybe you will branch into everyday carry holsters, right? That’s awesome and so after your came back, were you immediately over finance when you up college and came back?
Ryan King (04:53)
Yep. Maybe, yeah, people are carrying that every day.
So a little maybe just backstory of me is my Dad was in wealth management he was a Merrill Lynch lifer is literally from day he graduated college till the day he retired. He was just wealth management, financial advising at Merrill Lynch. And so I thought I would go into that, to be honest. I thought I would be take over his practice, something like that. But something kind of led me a different route.
I went and did an internship with a mutual fund. I didn’t love it. And then this, I was offered the job here. So yes, I was over finance from day one. And it’s actually funny, you can look at my LinkedIn profile and I’ve kept it there for a few reasons, but I was truly, I was so, I had so much like imposter syndrome of I’m not qualified to be the CFO, so Colby hired me as the CFO, my sister hired me as the CFO, but on LinkedIn I put head of finance because I was like, I’m not qualified to be the CFO.
And I also was running, I mean, startups, you have multiple hats. So I was also ⁓ helping do our custom wallets. And so I had head of finance and brand collaboration was the title I came up with. And then Colby was like, what are you doing? Like, that’s not your title. I didn’t hire you for that. And so I changed it, but I’ve kept it. And it’s kind of just a reminder to me of always keep a bit of humility and don’t take yourself too serious or your title too seriously.
Stephen Brown (06:35)
You guys have done a lot of things, a lot more than a lot of brands, so I’m sure you’ve had to grow tremendously as a professional as the business has grown.
Ryan King (06:43)
Absolutely, yeah, I also remember vividly, and this might be like, well, why the heck did Colby hire you? I think it was because him and McKenzie, they were doing it full time. They hired a few other people. They hired a CMO ⁓ at the same time as me. And they wanted to just kind of build the C-suite team, but neither of them had a finance background. So they thought, Hey, this guy cares about it. He wants to dive into the numbers. He cares about the brand.
He’s been building, helping make the wallets, you know, pretty much since day one when we incorporated as a business, but they were like, we’re not finance people. So they took a risk on me. ⁓ but I also remember literally those first few months, like Googling, what does a CFO do or what is a CFO’s daily job look like? Cause I knew the basis of, think the finance program at BYU did a great job of teaching me the language of business and I knew what a P and L was obviously. I’ve done case studies with them, made my own for mock companies or whatever for classes. But when it came to putting rubber meets the road, it was a little different and a lot different, honestly. And so a lot of learning on the fly, but I think that’s been really helpful, honestly, for all of us.
Stephen Brown (07:55)
Well, let’s dive into the topic. So interestingly, you talked about supply chain, you guys were manufacturing yourselves in almost like an Etsy store, right? When did you guys move to like industrialized manufacturing?
Ryan King (08:04)
Yeah, totally. Yeah, and this is maybe just as a side note, because we wanted to touch on tariffs today, is One thing that was interesting is we were making, like early on what hampered our growth is we could have grown a lot quicker. We had a lot of just positive feedback on the product, but it was just bandwidth. Like I mentioned, we were literally, we would get an order for 20 wallets or something from someone and we didn’t have that in stock. So then we just made it by hand.
And I remember one time actually had Maverick, the local gas station was early I’d been here at full time at Thread, I think it was probably 2018. No, it would have been before that because we didn’t have, we were making them by hand still. Is I literally didn’t even know like logistics or how it would work but, they ordered like 5,000 wallets and we had seamstresses and that we had contracted with that helped make things. And she would drop off a hundred every night. She could do a hundred every day. And so it was just this process of we would print on the elastic, we’d give them off to her. She had a day job, so she’d do them at night. She’d then bring back more. And then we got done with them and I’m like, they’re all in the house. I don’t know what to do with them. So I literally went to Walmart and got those plastic, like, Rubbermaid bins.
Cause I was like, where else am I going to put 5,000 wallets? We weren’t using a 3PL. We didn’t have a warehouse, it was the spare so I literally just shoved them all there. And then I called up the lady and said, Hey, I’m on my way to, or I’m in the parking lot at your headquarters. Like where do you want the wallets? And she was like, what do you mean? Like USPS or like FedEx or what? And I was like, no, I have them. And she came down and then got some coworkers and we just brought bins up. And like, we were so proud of the order.
But I think she was so confused by the order because it was, we were way bigger than we were, but we made them all by hand.
Stephen Brown (09:55)
That’s a great story. When did you guys move from doing it? Did that push you guys over the edge or was it sort of?
Ryan King (09:56)
Yeah, stuff like that pushed us over the edge of like, we can’t sustain this. And to tie this into, you know, not to make this too political by any means, but we like originally looked of, can we do this in America? And the manufacturing base just isn’t here. Certain things there are, right? We still make a lot of cars in the U.S. We obviously import a lot of cars too, but there just weren’t companies making what we were doing.
We reached out, we tried to find people and it wasn’t. And then we reached out, ⁓ some of our first factories that we found literally were just on Alibaba. And it was, “hey, do think you could make this?” conversation. We’d send a sample over, they’d send a sample back. Some of them were like pretty spot on right off the bat. And then it was like, what’s your capacity? And some of these factories don’t quote me on the numbers because this conversation is back in 2016 probably type thing is some of them were like, we could do a million a month, you know, or something like that. And we’re sitting there and we’re like, man, by hand, we were doing a few thousand a month. That was like the most we’d doing. They’re like, yeah, if you gave us like, you know, 12 week lead time, we could do a million units or whatever. And we’re just like, what on earth? And so they just have the manufacturing capabilities.
And then when we moved that over, it just freed up so much time, especially for Colby and McKenzie, who Colby was overseeing all manufacturing of the wallets. I was helping him. I was kind of grunt work to just make the wallets. My mom would sit watching, you know, a show in the afternoon, cutting elastic or cutting the paper that you print onto the elastic while she’s watching reruns of Seinfeld or something like this was early on.
And then it’s like going from that to just like very sophisticated manufacturing in Asia. It was just crazy how much time that freed up for. It was China initially. And we worked with just Chinese manufacturers for years. And then with during the Trump administration, the first Trump administration,
Stephen Brown (11:51)
Did you guys go to China initially or?
Ryan King (12:06)
We saw his stance towards China and thought, hey, it’ll be good to diversify the supply chain to include countries outside of China. So we really hit it hard to diversify to where now we’re making stuff in China. About a third of our product is made there, a third in Vietnam and a third in Cambodia.
Stephen Brown (12:26)
So when you guys did that initial diversification, it seemed like for the most part, the tariffs, Trump part one, were very targeted towards China. So did that diversification more or less mitigate the downside financial risks?
Ryan King (12:35)
Right. Yeah, so the honest answer would be, and this is, I’m not the COO, so I’m not in the weeds every day interacting with the factories like our operations and product teams are. How I understand it is even now, if there weren’t the tariffs, it would be cheaper to make things in China. And also just really well too, right? But also you just have to factor in shipping, right?
Ports are more built out in China so you can get stuff quicker, lead times are quicker. And so it is a trade off. It’s not as quick and it usually is a higher cost, not factoring in the tariffs outside of China. When you factor in the tariffs, it can be cheaper to make than in countries outside of China.
Stephen Brown (13:26)
This is my understanding as I’ve heard people say they’re not even the cheapest place to manufacture anymore. They’re just really, really good.
Ryan King (13:32)
Totally. And that’s another thing is I have friends who, I mean, luckily being in this business for full time since 2018 and on and off since 2015 is I’ve gotten to know a lot of other business owners and they’ve said that exact same thing as they say the molds and just what is being built is it’s not a matter of a lot of people think it’s just cheap crap that’s built in China. And sure, there is that, right? There are really cheap things, tchotchkes, that break really quick, but they also just are really good at it. They’ve gotten good at manufacturing.
Stephen Brown (14:08)
Yeah, and this, you know, this is my part of my frustration with this economic policy that we’re experiencing is I think, I mean, I don’t know about you, but I think COVID was a wake up call. Like, Hey, we’ve got an over dependence on the foreign supply chain for a lot of us, especially for critical goods. But, you know, it’s not like you can flip a switch make a million wallets a month the United States. Like could, were you able to find anybody in the United States that could make what you guys were selling?
Ryan King (14:39)
I mean, I think lanyards we could have lanyards, one of the goods, I think, yes, that could have been done here. But outside of that, I really don’t think so. And this even just comes to bear in the last few months, Stephen, which ⁓ let’s say April, right, when these Liberation Day tariffs kicked in or were announced, we reached out to some US manufacturers and they said, look, we could do your simple one color way, you know, black bag or your off white bag. But when you’re doing color blocks and sewing, you know, there are some wallets that we have now that are a patch of blue on one side, the other side’s red. And there’s a yellow with a colorful, ⁓ like little strap or something. They’re like, we literally can’t do that. And then we’ve also had some US manufacturers, which is another interesting point that could be discussed, one manufacturer in the US we talked to is he said, we can’t do that. But even if we could, we don’t have the labor to increase demand. Like we don’t have people wanting, we can’t find and keep labor in these factories in the US. So you’re going to run into a labor shortage, which then constrains the quantity that can be made.
Stephen Brown (15:55)
And this is my, again, building on the frustration. Like even if we all said yes, I think it’s good to more manufacturing in the United States. The capacity is not there. Starting a I mean, it’s not like a turn of key and a factory emerges, right? It’s months, years of sometimes you get these factories going.
Ryan King (16:10)
Exactly.
Stephen Brown (16:14)
This is what I really struggle from an economic policy standpoint. easily have a this is dumb conversation. What I really want to talk about though is how you guys are navigating this. So you gave a little bit of the I think everybody knew more tariffs are coming. I think my thought was it’s going to be very targeted on China.
And then when the announcement came in April was like, oh my gosh, like he’s going nuclear on like the entire world. And then for they had the UK deal come out, because I’ve been watching the news like a hawk and I run the ecommerce newsletter that we do every week. But I’m also wanting to understand what we should be considering. And I saw the UK deal and I was like, okay, UK deal has a surplus, which is one of the issues they claimed was how they were tariffing.
We’re shipping more to the United Kingdom than we’re getting back and they still got a 10 % tariff. So I was like, dang, that is the floor. We’re not gonna see anything better than that. And what we’re seeing is that case. As you guys have been dealing with these announcements this year, maybe let’s take me through how, I mean, initially, I think, let’s go back up. You guys did some supply diversification in the first Trump administration.
Did that prove to be, and you kind of mentioned it was successful, but any other insights on diversifying your supply chain and what that’s done for you guys?
Ryan King (17:35)
Yeah, mean, candidly did, in a good way is it put fewer eggs in one basket. And so I think that’s always good too. And especially when, you know, take out the tariff announcements out of it, but you deal with in China, you have Chinese New Year, right? And so then that is kind of a lull for manufacturing for weeks.
But it’s, hey, if you’re in other countries that don’t celebrate that or have factories and you need a PO, chase buy of some of your, one of your products that’s selling really well to start the new year, you can get that done at a factory, you know, outside of China. And I would be remiss if I didn’t make a skiing analogy here. And I could just not make the skiing analogy, but I am because I’m just such an avid skier.
Ski resorts talk a lot about like with ski lifts. It’s that you want redundancy because it’s like if there’s only one way to get out of a basin or a back bowl or even to the summit and that lift goes down, well, no one’s able to ski that area. So resorts really like to have redundancy in their ski lifts or ways to get in and out of areas. And I think that’s very similar with us and just with ecommerce or consumer goods, I should say, in general, Is just having redundancy is good. Having multiple factories who are dialed and know how to make your goods, it helps. And there might be slight variation, but if they meet your quality control standards and, hey, this factory doesn’t have the capacity because they’re not just building or making your stuff, you can go to another one of your factories and get it done there.
And then you also just have competition, right? Of pricing of, hey, they know that they’re competing against someone else. That’s huge. But yeah, we, we were really, I remember being like proud of us. Like truly like, look, we’ve done what this, the administration, we thought was good is diversifying outside of China, understand very well, I think of just some of the challenges you have with manufacturing in China.
Intellectual property theft and issues that we’ve had geopolitically with these countries. I was like, hey, it’s good that we’re diversifying away. And then I remember even at the beginning of this year reading articles of like, know, might just be China that President Trump is going after. And it was like a few weeks before the Liberation Day tariff announcement, you started seeing some articles in the Wall Street Journal or something that were like, Hey, there might be a base 10 % tariff worldwide.
And it was like, Whoa, that’s higher than anyone ever thought. And then when they got announced, it’s like, well, that’s worse. Like I, I will never forget sitting in my seat and scrolling Twitter and seeing this announcement. And then the paper that the Trump administration was handing out to the press and they had the big plaques of like, here are the reciprocal tariff rates. And I remember telling our president, did you see Vietnam? I can’t remember Vietnam and Cambodia, which one was which, but was like one was announced at 46 % and one was 49. And he was like, you’re joking. Like, what is it actually? And I was like, no, that’s literally what’s being announced. And then it just does a sinking feeling of, well, that could put us out of business if that goes, you know, actually goes into effect.
Stephen Brown (20:48)
Well, then you have the kind of this the tiff with China where they were like escalating to I think it got like 145 % and it’s like at that point it’s basically an embargo. Yeah. And it’s just like, are you kidding me? Like this is this is crazy. So the announcements drop, you guys are diversified, but nobody’s safe. mean, how have you guys been?
Ryan King (20:58)
Yeah, at that point, it’s an embargo. Right.
Stephen Brown (21:13)
How are you guys approaching the tariffs now that they’re coming into reality, now that we’re moving on beyond that 10 % baseline to something on a more permanent basis? What What are some of the things that you’re thinking about to address increased product costs?
Ryan King (21:28)
Yeah, I mean, you’re reading about it quite a bit. And the honest answer is in some regards, especially for months, because We didn’t know what tariffs would be long term, is we were eating that cost. We haven’t raised prices on our products yet because we wanted to see where things would land. But I want to touch on one more thing, Stephen, that makes it difficult. And then we can dive into just how Thread is responding and they tie in together.
But One thing that’s really tough with how these tariffs have been enacted, and I don’t want to get too wonky for those who aren’t terribly political, but is how tariffs have worked in the past is Congress sets what’s called like the tariff schedule. And so it’s what’s being tariffed at what rate from what countries and it’s passed as a law. So once you get Congress acting, it’s passed in the House and Senate and then to the President is you get just stability in knowing what the rate will be. With how these rounds of tariffs have been enacted is President Trump has declared a national emergency saying trade deficits are an imminent and serious risk to the United States, which then triggers emergency powers for the President to then implement or President Trump thinks there are to then implement tariffs.
And so what’s really tough is even now that these trade deals are being announced, it’s like they’re not binding from Congress. It’s President Trump saying that this is the deal. Who’s to say China or Vietnam or some country doesn’t do something that upsets him again or one of their leaders gives President Trump a really glowing letter or something and they get lowered or they get increased because he didn’t like an article he saw in the news or something like that. And so that’s just made it extremely difficult to plan and give us like businesses love stability and knowing what’s the future brings.
We still, I would honestly say don’t know what the future holds because it’s like some of these deals, it’s been one page letters that are really bare bones of what’s actually gonna happen. And who knows if they actually stay the same. And I’ll just share one example of that is when the tariffs were announced, the liberation day tariffs, these reciprocal tariffs, we’d done some initial work with some countries in Latin America that are building out manufacturing bases.
And they were only taxed or tariffed at 10%. And it’s like, well, we should have gone there ago if we would have known that this was going to be the cheapest place to manufacture, but they weren’t quite ready. But then it’s like, well, now the reciprocal tariffs are paused and it’s a 10 tariff. Well, then that makes them all on the even playing field. And then we get announced a few weeks ago that Vietnam is at this percent and Cambodia is here. So it’s like, well, okay, higher than these Latin American countries. We should have gone there months ago and been working on building out a supply chain there. So it’s still, there’s just a lot of stuff up in the air.
Stephen Brown (24:31)
Yeah, I think I agree with that. When you’re talking about inventory, product development, can take, how long to find, bring online a new manufacturer for you guys?
Ryan King (24:42)
It takes a long time. I mean, it’s, I wouldn’t actually know, should have, I could get that answer. Like in talking with our ops and product team, but this isn’t like you said, it’s not like you flip a switch and it’s working overnight. It’s not even you flip a switch and it’s working a month from now. I mean, especially when you’re dealing with places overseas is it might be multiple factory visits over a year or six months.
Stephen Brown (24:53)
It’s not. Yeah.
Ryan King (25:07)
Or them sending samples and saying, Hey, we can do this, but then you do small test runs to see how those go. And then you build into it. You never just give a brand new factory a million unit, got to build into it. So, to truly build trust with a manufacturing partner and a factory, It is year, if not years to get that fully up and running and then building trust. And also there’s the financial implication.
Stephen Brown (25:18)
Yeah.
Ryan King (25:34)
Stephen what a lot of people don’t realize is when you’re working with a factory and just starting out, you’re not gonna get nearly as good a terms as if you’ve been working with them for years. Because if there’s trust built of, hey, we pay on time or we pay early or whatever over time, you can also build to say, hey, instead of 30 % upfront, 70 % on the backend, that goes to 20/80 or zero upfront, 100 % on the backend or it can even be zero upfront, 100%, 15 days after the boat leaves the dock, that can just have an effect. And so it’s like when you’re having to constantly rebuild a supply chain or move it to a different country, you’re then just building those relationships from scratch.
Stephen Brown (26:16)
Yeah, so we’re dealing with uncertainty. You guys haven’t raised prices yet.
Ryan King (26:21)
That’s a great question, lies in an answer I gave you right at the beginning in introducing Thread is just where we sell our product and our channel mix is what happens is if we were just selling online, it would be easy to adjust prices. But a lot of our stuff is we’ve committed to wholesalers.
We’ve committed products at a certain price, letting them, their buyers sell at a certain price point. Cause they want to hit, okay, maybe we’re in the accessories category and they want everything to be under 15 bucks in their price point or in their part of the store. So we committed to those months ago for a December delivery date or a January delivery date. So you’re just so far ahead on calendars and planning, especially from a wholesale perspective, is we’re already sending out catalogs to get pre-books is the term that’s used of, you know, stores saying, hey, we’ll buy this many of this for orders for well into next year is where we’re starting to get orders. And it’s just, you’re not sure. We haven’t been sure since April of what the tariffs are actually going to be.
So was really hard to then tell a wholesaler, well, here’s what your price has gotta be. And so now that we’re getting, like I said, it’s still so much up in the air, but we seem to be getting at least some more consistency of here’s what the tariff rates are going to be, is this is a conversation that we’re starting to address again. So candidly, I wouldn’t be surprised if we do see prices go up in next few months or for our good starting 2026.
Stephen Brown (28:01)
Here’s a two man poll. How likely do you think consumer product prices are going to go up for significant number of products in the next six months? What’s your take?
Ryan King (28:12)
I think it’s a hundred percent. Like I’m a hundred percent certain that products go up we’re not the only business that has been kind of in this wait and see, we’re just out circling. We’re in a holding pattern and wait to see. then now that we are, it’s like, I mean, to just walk people through as the finance guy. I understand like people, I don’t want to make this too elementary, but it’s like you look at a profit and loss statement.
And just your income statement, right? You have revenue at the top. Hopefully that’s your, that’s gotta be, should be, if you wanna be profitable, your biggest line item, right? Then you get dipping down into your expenses. And for the vast majority of companies I know in the consumer product space is marketing is gonna be one of your biggest expenses. And then cogs, your cost of goods, either are your biggest or close to your biggest expense. There might be some that have really good gross margin than they spend more on marketing than their COGS.
But COGS are, I mean, I’d be curious your take. don’t know what the percentage is, but it’s clearly it’s one of a business’s biggest expenses. If you all of sudden up that by a minimum 10 % because I don’t know any country that’s tariff less than 10 % at this point. So a minimum 10 % increase on your item or line item. Well, then the business has to change other areas, in other areas. So you either have to lower salary costs, layoffs, that’s pay cuts, something like that, or less marketing, less, hey, we’re cutting back on employee meals. We’re not bringing in lunch to the office every week now. And so all of these things have a ripple effect through the economy. And just, it’s really hard to swallow as a company.
So yeah, the business has got to change in some way. So it’s either you got to increase revenue by a lot to compensate for the money you’ve lost or the increased costs you’re paying for your goods or cut expenses elsewhere.
Stephen Brown (30:05)
Yeah, answering your question, because I look at a lot of brands, I would say a good direct to consumer brand is going to have a cost of goods sold that’s between, I’d say at the most efficient level is about 20%. So case in point, I’m a co-owner in Sole Toscana. It’s Italian organic skincare. Skincare tends to be a high gross margin product. We’re about 20%. But it’s found a lot on customer acquisition.
Because you’re competing against a million skincare vendors out there. Usually when you get over 40%, it makes it really customers because marketing, I’d say you’re between 20 and 35 % for a direct to consumer brand. I actually saw one yesterday that’s really interesting. It’s apparel and they’re only spending about single digits of it was between five and 10%.
And I was like, dang, that’s amazing. I don’t usually see in a direct to consumer. I will see higher cost of goods sold like in somebody that’s just reselling. Like they go out and they get product from a And my thesis there is you’re competing against multiple people that are selling the exact same way widget. So there’s a lot of pricing pressure on how much you can sell it for. You don’t have the leverage to increase prices.
Sometimes your manufacturer suggested retail price is the price you have to use or that’s usually the ceiling for lot of reselling of product. So that’s usually what I see from cost of goods sold. And the challenge there is the higher the cost of goods sold, the higher the financial impact is going to be to a business. And you’ve got to either, like a reseller can’t necessarily raise that price, but even a direct to consumer, like there’s only so much you can raise a price before the consumer says, I’m done.
Ryan King (31:51)
Right. And that’s been what we’ve been debating because total pun intended is our elastic wallets are an elastic good. Like the more you raise the price, people don’t need a new wallet all the time. It’s not like milk, Or, know, diapers, whatever. And so you raise prices too much and then consumer demand falls off. And then another thing that we haven’t talked about, but it’s been something that weighs on us daily, is just what is the, not only are people gonna maybe face higher prices our wallets and our accessories and bags, but if they’re paying more for all of these other accessories, what does that do to their appetite to spend more, right? If you’re all of a sudden going to wherever it is or whatever it is and you’re spending more money, then you might be spending, decide, hey, I don’t need that wallet.
So then you’re also not just dealing with higher costs, but you’re dealing with softer demand. And that’s just a recipe for disasters, soft demand and higher costs.
Stephen Brown (32:49)
Yeah. I’m not an economics expert, but I’m sure there’s a concept for this, but I kind of feel like there’s your micro elasticity. And then I feel like kind macro elasticity, which is when everybody is being impacted by higher prices, not only are they, you know, is there that willingness to pay for your product they’re having to juggle. They may buy a wallet or they might keep their Netflix subscription, right? So there’s gonna be pressure for the consumer to say, they might just be like, ah, well, I’ll just live and let live with this category of consumption. but I’m gonna, because I want this other category. I think as an economist, the next couple of months are probably gonna be fascinating because you’re gonna behavior that we probably haven’t seen in decades, if ever.
This is the kind of thing I’m thinking about is not only, you know, if you do a price increase, there’s that kind of volume elasticity thing you have to consider, but there’s also like, it’s not like people’s, to use your analogy, it’s not like people’s, the money in their wallets is expanding, right? It’s, they’ve got, you know, we’re not seeing wages go up. And so they’re going to have to pick and choose where they spend as prices increase across the board.
Ryan King (34:05)
Right? No, I totally agree. And especially for a brand like ours is we’re very much an impulse buy. There’s a lot of stores that we sell into our products are on display right at the checkout. And so it’s like, oh, hey, I’m here in REI. It’s one of our our wholesale partners is, hey, they might’ve bought new skis, I don’t know, or new jacket. And then they see the $10 lip balm holder.
And it’s like, oh, it’s only $10 on top of I’m already spending here. But what does that do to consumer demand when they’re spending more in every aspect of their lives? They might get to check out and be like, I don’t need that wallet. You know, I’m still buying the coat because I need that for my ski season or haven’t gotten one of those in years. I don’t really need that extra thing. And that’s where we’ve thrived is being that little extra add-on at checkout. And so what does it do there?
Stephen Brown (35:03)
Yeah, I’m looking at your best sellers right now. Your lanyards are like on the website for $10.99. You’ve got of your tote bags for 65 bucks. Fairly affordable as a consumer good, easy to just be like, hey, I want a wallet. I also kind of think to a certain extent, you’re fast fashion with your wallets and you come out with new designs. So make the affordable price points.
So you can, you could have different wallets, you know, kind of almost like clothing, you can go out and have one wallet. Yeah, that really changes the dynamics. So with the wholesale, with the uncertainty, you guys have been slow to address prices. So what are you guys, are you tackling costs? What is it that you’re doing to do?
Ryan King (35:47)
Yeah, that’s been something that we have been like dogged in trying to, rein in and it’s unfortunate in some ways because it’s like, we’d like to be spending more, but you know, it’s like, Hey, we’re thinking of doing this high level, high funnel brand initiative. We might not see the results right now. Can we do it? No. The answer is going to be no from finance or budgets are being tightened on just, hey, how much our team’s traveling. I know we’ve postponed trips to go visit factories or even retailers or trade shows, or we’re taking fewer people to trade shows because it’s just, we’re trying to cut back where we can to mitigate the increase in costs associated with tariffs.
Stephen Brown (36:31)
Sounds like my Fortune 500 days. I worked for one Fortune 500, a couple of public companies, and that’s the kind of things that they would do. My favorite though is I worked for Fortune 500, Symantec. They’re long gone as an independent company. But they were so funny. We had no travel policy all the time. They’d be like, hey, need to have a meeting. Not a customer meeting, an internal meeting. Next week, can you come down to LA, which is where we had a big office. And then things would get tight and finance would come in and it be like, no travel whatsoever. like, I’m not just being smart and like, don’t have travel policies that, you’ve booked in two to three weeks out instead of like five days. But you know, when things are tight, gotta make those moves.
Ryan King (37:18)
Right? No, and it’s unfortunate that we’ve had to do it because the finance department and our president, you know, sometimes have to be the bearer of bad news, which honestly sucks. I wish we could say, hey, let’s do that brand initiative. And candidly, too, like there have been some good wins over the last few months, too, because of just our low price point.
I think we’re beating out other brands who maybe are at a higher price point because of people’s thinking of, there’s this cool brand that has the $11 lanyard. I’m going to buy that instead of this other really high end whatever. And so they’re almost shifting their focus down to lower price point items. And we’ve seen some wins there, but we’ve also seen some losses since April.
And if I can, would have been, I’m kind of going back to a topic that I should have addressed earlier, but I wanted to get out there is one thing that I find interesting. And this I just all ties in is cause like I am a born and raised Provo, Utah American, right? Lived here my whole life outside of a few years on a Mormon mission and then an internship.
But What’s interesting is I think people sometimes forget that the manufacturing of a product is only one aspect of a business. And so we’ve the heat from people, whether it’s family members, friends, or customers of like, why don’t you make things in America or why aren’t you an American business? And it’s like, we’re about as American as it gets. Like we started in Provo, Utah, I guess Hawaii was where the idea was. but we started in Provo. We have been in Provo, our headquarters since day one.
We bought a building a few years ago that was dilapidated in America. We renovated that. That’s our HQ now. And then if you look at just any business that’s an American, even if they manufacture overseas, is what they add to the American economy. As I look at just, I’ve been telling people this in these tariff conversations is, and they’ve come back to me and said, you bring up a good point. And again, I’m open to pushback is it’s, I’m not sitting here. I’m just sharing our experience, but you look at the building, for example, when we bought it, it was in a dilapidated part of downtown Provo.
The building was falling apart. Where you had the architect who we paid to help design the space. You had the general contractor who got paid to build the space, who’s buying goods. A lot of those are made in America. A lot of those are made abroad. And you have his subcontractors who are coming in and getting paid. You then have our employees here who getting paid. You have people who come down, shop at a, eat at a restaurant down the street and then buy from us.
Well, then the display in the retail space, the printouts that are on the windows, the window displays, those were printed here in America. So we’re paying for those to made here. You have the models who were on the photo shoot on the window display that are American that were paid in US dollars who then our team traveled to California to do that photo shoot.
So you look at it and it’s like, there are hundreds of people throughout a year. And I’ve never, actually haven’t done the deep dive into this, but it’s hundreds of people every year that are American that are getting a paycheck in one way or another from Thread. And this is how a lot of consumer brands work is it’s a lot of people and it trickles through a lot of things. And just because you don’t have that one aspect of your business in America, it is interesting to kind of hear the pushback of well, why wasn’t that done in America? You don’t ever get pushback of, hey, we went on a cool photo shoot in Europe to get pictures of these bags. But when you make the product overseas, that’s where the pushback starts.
Stephen Brown (40:56)
You guys are looking at pricing, but it takes time. You’ve cut some, I won’t say discretionary, but some of the non-critical spending, some discretionary, some non-critical spending. What do you guys, as this continues to unfold, and I’d agree with you, it’s hard to say things are gonna better, worse, the same in six months because it’s so turbulent, but How are you guys thinking about the short term and the long term future as you guys are navigating costs and all of that?
Ryan King (41:24)
Short term, I kind of laugh at this, but it’s true. It’s kind of just like get through the day, get through the month, get through the week In the sense of like, hey, if we can book another week where demand hasn’t fallen or we have good sales, it’s like, hey, that’s another week of, in some ways, kick the can down the road a little bit more. ⁓ We’re even more aggressively because it’s a weird kind of thought process, but you’ve got to think on the expense side of where can we cut. But you also have to think of the revenue side, which is the raised prices, which we’ve talked about, but it’s also just find more revenue opportunities. Because if you can find a new vein of revenue, so to speak, or maybe it’s a subsector and wholesale of, we haven’t hit up ski resorts, that’s coming up in the winter and we’re not in a lot of ski resorts, ski shops at the base of the mountain.
They’ve got logo stuff there. Well, hey, if we can unlock that and get that more revenue, well, then that helps offset fixed costs, helps you become more profitable. So it’s not just a raise prices to increase revenue to help offset, but it’s where can we find more revenue to help offset these increased costs with tariffs.
Stephen Brown (42:35)
Q4 is right around the corner. We’re recording this August 2025. What’s kind of the feeling around there for Q4? You guys think it’s gonna be good? Meh, or not so good?
Ryan King (42:46)
Well, I mean, I feel like they’re mixed signals. One of the big barometer for us here in a few days will be, we always do a Labor Day sale. And it’s one of our bigger ones for the year. ⁓ Is it’ll be interesting to see what demand is on the Labor Day sale. We got through Prime Day in July and talking with a lot of friends in this space, Prime Day wasn’t great in July.
They spread it over also instead of two days, was longer. So it kind of packed less of a punch, but even those four days, a lot of brands we talked to were either down year over year or roughly flat, but it was over four days instead of two. So, I mean, if we could, if we could sunset what we did last year, we’d be happy. If we could eke out a little bit of growth, that would be great. But, ⁓ I mean, I’m not like sitting here being extremely bullish of we’re gonna do the up 50 % over Black Friday, Cyber Monday over last year.
Stephen Brown (43:45)
Yeah, I agree with you. It’s I think there’s more headwinds. I do see some I think big, beautiful bill, so called big, beautiful bill has in the short term. I do have concern with it economically in the long term, but I do think some of that could provide consumer, a level of consumer stimulus.
It’s kind of a to look as I look ahead. think it’s kind of meh in Q4 and beyond that it’s even more opaque as to how things are going to play out.
Ryan King (44:22)
I totally agree. spot on there.
Stephen Brown (44:23)
Awesome. Well, Ryan, if somebody wanted to buy a Thread wallet, where’s the best place to do it?
Ryan King (44:28)
The best place I always say is our website, but we’re really happy with any of those sales channels. So threadwallets.com, you can find us on Amazon. On our website, we have a store locator so you can see all of the different stores we’re in, wherever you are. And I think we’re into like 14 or 1500 different wholesale accounts around the country. Chances are there’ll be something decently close to you, but threadwallets.com is where you can find us and that’ll…
Stephen Brown (44:56)
And if you live around Provo, Utah, you guys have an amazing headquarters slash also a retail store right there on Center Street. I’ve been to it. It’s amazing. Check it out. And if somebody wanted to connect with you, what’s the best way to do that? Connect with Ryan.
Ryan King (45:05)
Yeah, we love it. It’s a cool space.
It’s a good question. would say LinkedIn as I’m fairly, I definitely look on there. That’d probably be the best space. If you really want to find me, reach out to Stephen here, or whatever, and you can get my contact information. I don’t know. I’ve never given that out in a podcast interview before, but yeah. ⁓
Stephen Brown (45:28)
I wouldn’t suggest you should, but yeah, go, go find Ryan on LinkedIn.
You have some great posts, very popular. Um, okay. Well, thank you for joining me today on a Ecommerce Finance Podcast and let’s cross our fingers for a better future.
Ryan King (45:34)
Yeah. Okay, thanks Stephen. It was great chatting with you.