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The story of Matt Scanlan, Diederik Rijsemus and cashmere apparel brand Naadam reads like an adventure novel.
During a globetrotting vacation in 2013, the two college friends found themselves stranded among Mongolian goat herders in the Gobi Desert for three weeks. They learned about the wool trade, and came away with a business idea: Make low-priced cashmere goods by purchasing wool directly from those herders, skipping the middlemen who bought low and sold to apparel brands at a high markup.
Neither co-founder had any industry experience or enough money to fund a startup. But in 2015, Scanlan’s parents put up their home as collateral for a $2.5 million loan from a private lender. Scanlan and Rijsemus transferred it to a Mongolian bank, withdrew all of it and drove the cash — stuffed into 32 plastic shopping bags, filling the back of an SUV — deep into the desert to buy Naadam’s first 50 tons of unprocessed cashmere wool.
In 2022, Naadam brought in $100 million in total revenue selling a wide range of cashmere products, from its top-selling $98 sweater to sweatpants and tank tops. (The business declined to share its 2023 sales numbers before the close of its current fiscal year.) It sells online, in stores like Saks 5th Avenue and in three of its own New York and Los Angeles brick-and-mortar locations.
Scanlan, the company’s CEO, is well aware how insane that sequence of events likely sounds. Given the inherent risk of a desert shopping spree with borrowed money and the fact that he’d never run a company before, he says “there were many moments” early on when he “had no idea how we were going to pay back that loan.”
Here’s how Naadam defied the odds.
‘A little bit of luck and opportunity’
First, Scanlan and Rijsemus obtained the wool. Then, they needed to figure out what to do with it.
They sent it to Beijing, where it was cleaned and scoured for impurities. From there, it went to Italy, where another third party spun it into yarn. The co-founders sold most of that yarn to pay off their loan, and used the leftovers to make sweaters, says Scanlan.
Scanlan loaded the sweaters into a car for an east coast sales trip, pitching “every store I could” between Maine and Charleston, South Carolina, he says. “I’d pull the sweaters out on the table and I’d lay them out neat and I’d tell my story. We had 50 orders, each one like $1,000, and I learned how to perfect my story … I didn’t realize at the time that I’d be doing that for the rest of my life.”
Simple as it sounds, the business grew from there. In 2018, Naadam posted a three-minute video online detailing the co-founders’ early desert exploits and their vision for the company. It’s been viewed more than 35 million times since then.
“That video defined Naadam’s success for a long, long time,” Scanlan says. “It probably is still the best advertisement we have for who we are and what we’re about.”
Along the way, Naadam picked up more funding: over $50 million from investors like private equity firm Vanterra Capital, according to Scanlan. None of it could’ve happened without a lot of luck, he notes — including his parents’ willingness to put their home up as collateral for a business that had no guarantee of succeeding.
“You can have a great business plan, but if you don’t have a little bit of luck and opportunity on your side, it kind of doesn’t matter,” Scanlan says. “Every major inflection point that we’ve had along the way … we’re just [at] the right time, right place.”
A good story only gets you so far
Companies also need profitable economics to stay alive. Naadam only exists because of the cashmere industry’s middlemen, who buy goods from remote farmers at low prices and profit by reselling up the chain, resulting in the sort of exorbitant costs typically associated with the fabric, says Scanlan.
“[The goat herders’] remoteness led to, essentially, fixed pricing strategies that meant they couldn’t negotiate up the value of their raw material effectively,” he says.
He and Rijsemus reasoned they could pay the herders double what they typically received for their wool and still pass on considerable savings to consumers. Naadam’s most popular cashmere sweater costs $98. Comparable sweaters often cost hundreds of dollars, or even more than $1,000 for luxury brands.
Naadam also offers more expensive options, like a cashmere coat that costs nearly $700.
But reasonable prices and an entertaining story only get you so far. Clothes that look ugly or fall apart at the seams wouldn’t sell, no matter how cheaply you price them, says Scanlan: “All that work, [from] being in Mongolia to getting you that product, [would be] for nothing.”
A Wirecutter review of Naadam’s $98 sweater, most recently updated in December 2023, says it does develop some fuzz over time, but its quality “rivals that of sweaters costing twice as much.”
“I need to make sure that that product is amazing, and you get it, and you go, ‘I’m going to tell everyone I know about this, and I want ten more of these, and I want every single color,'” Scanlan says. “That’s how we make money.”
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The economy grew at a much more rapid pace than expected while inflation eased in the final three months of 2023, as the U.S. easily skirted a recession that many forecasters had thought was inevitable, the Commerce Department reported Thursday.
Gross domestic product, a measure of all the goods and services produced, increased at a 3.3% annualized rate in the fourth quarter of 2023, according to data adjusted seasonally and for inflation.
That compared with the Wall Street consensus estimate for a gain of 2% in the final three months of the year. The third quarter grew at a 4.9% pace.
In addition to the better than expected GDP move, there also was some progress on inflation.
Core prices for personal consumption expenditures, which the Federal Reserve prefers as a longer-term inflation measure, rose 2% for the period, while the headline rate was 1.7%.
On an annual basis, the PCE price index rose 2.7%, down from 5.9% a year ago, while the core figure excluding food and energy posted a 3.2% increase annually, compared with 5.1%.
The two components together added up to “supersonic Goldilocks, because it’s really a strong number yet inflation hasn’t shown up,” said Beth Ann Bovino, chief economist at U.S. Bank. “Everybody wanted to have fun. People bought new cars, a lot of recreation spending as well as taking trips. We’ve been expecting a soft landing for some time. This is just one step in that direction.”
The U.S. economy for all of 2023 accelerated at a 2.5% annualized pace, well ahead of the Wall Street outlook at the beginning of the year for few if any gains and better than the 1.9% increase in 2022.
As had been the case through the year, a strong pace of consumer spending helped drive the expansion. Personal consumption expenditures increased 2.8% for the quarter, down just slightly from the previous period.
State and local government spending also contributed, up 3.7%, as did a 2.5% increase in federal government expenditures. Gross private domestic investment rose 2.1%, another significant factor for the robust quarter.
The chain-weighted price index, which accounts for prices as well as changes in consumer behavior, increased 1.5% for the quarter, down sharply from 3.3% in the previous period and below the Wall Street estimate for a 2.5% acceleration.
“This year has been like Rock ‘Em Sock ‘Em Robots, and the economy is knocking the blocks off the economists, always outperforming,” said Dan North, senior economist with Allianz Trade Americas. Fed Chair Jerome Powell “has got to have a smirk on his face this morning. Again, he’s defying the economists’ predictions with strong growth and inflation clearly coming under control.”
Markets showed only a modest reaction to the report. Stock futures gained slightly while Treasury yields moved lower. Futures markets continued to reflect the likelihood that the Fed will enact its first rate cut in May, though the CME Group’s FedWatch gauge put the odds of a March cut at 47.4% around 10 a.m. ET.
“It was a great report, but you didn’t see the market move much because GDP is backward-looking. It told us what happened in October and November and December,” North said. “It’s great for historical patterns, but it doesn’t really tell us much about where we’re headed.”
In other economic news Thursday, initial jobless claims totaled 214,000, an increase of 25,000 from the previous week and ahead of the estimate for 199,000, according to the Labor Department. Continuing claims rose to 1.833 million, an increase of 27,000.
The GDP report wraps up a year in which most economists were almost certain the U.S. would enter at least a shallow recession. Even the Fed had predicted a mild contraction due to banking industry stress last March.
However, a resilient consumer and a powerful labor market helped propel the economy through the year, which also featured an ongoing pullback in manufacturing and a Fed that kept raising interest rates in its battle to bring down inflation.
As the calendar turns a page to a new year, hopes have shifted away from a recession as markets anticipate the Fed will start cutting rates while inflation continues to drift back to its 2% goal.
Concerns remain, however, that the economy faces more challenges ahead.
Some of the worries center around the lagged effects of monetary policy, specifically the 11 interest rate hikes totaling 5.25 percentage points that the Fed approved between March 2022 and July 2023. Conventional economic wisdom is that it can take as long as two years for such policy tightening to make its way through the system, so that could contribute to slowness ahead.
Other angst centers around how long consumers can keep spending as savings dwindle and high-interest debt loads accrue. Finally, there’s the nature of what is driving the boom beyond the consumer: Government deficit spending has been a significant contributor to growth, with the total federal IOU at $34 trillion and counting. The budget deficit has totaled more than half a trillion dollars for the first three months of fiscal 2024.
There also are political worries as the U.S. enters the heart of the presidential election campaign, and geopolitical fears with violence in the Middle East and the continuing bloody Ukraine war.
Correction: The price index for personal consumption expenditures rose 2.7% on an annual basis, down from 5.9% a year ago. An earlier version mischaracterized the figures.
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