It’s a shopworn story, but it also happens to be true: American companies have been shifting manufacturing operations overseas over the last 40 years. The cost-cutting exercise—driven primarily by the cheapness of foreign labor—did, for a time, seem irreversible. Until the laws of economics caught up with it. Over the last decade or so, American labor costs have actually been falling relative to both low-cost manufacturing centers like China as well as other developed economies, and the result has been a mini-revival in American manufacturing. But here’s the real surprise: it’s not just iPhones and General Electric refrigerators that are once again being made stateside. A small group of luxury manufacturers are making a strong case for a term we never thought we’d hear again: American-Made Luxury.
Shinola is the brand that epitomizes this trend. The present-day Shinola took its name from a Rochester, N.Y.-based maker of shoe polish that closed its doors in 1960, before the word “outsourcing” had been coined. Shinola’s American workers make watches, hand-built bicycles, journals, leather products, and even Shinola Cola. (Also shoe polish. Why not?) What’s more, they do it from Detroit, a bankrupt city that was once synonymous with American manufacturing muscle.
Shinola’s watches, which are carried by the likes of Barney’s, Neiman Marcus, and Saks Fifth Avenue, are central to the brand. The company makes its timepieces in a state-of-the-art, 30,000 square-foot factory space rented from Detroit’s College for Creative Studies. The watches’ Argonite movement components—46 pieces in all—come from a Swiss partner, Ronda AG. “By bringing Swiss parts to the United States and assembling them in Detroit, we’re bringing back an industry that has not existed in the United States for decades,” said Shinola CEO Steve Bock. The precise assembly process involves coils, springs, and wheels so tiny that workers—who receive 6 to 12 months of training under master watchmakers from Switzerland—must use magnifying loupes, tweezers, and micro-screwdrivers to put them together, a process that takes almost two weeks per watch.
Priced at less than $700 apiece, the company plans to make between 40,000 and 45,000 watches this year, each individually numbered and proudly displaying “Built in Detroit” on the back plate of its case. “This city has an incredible manufacturing heritage,” says Bock. “It’s clearly going through a difficult time financially, but it’s also got a lot of creative youth, and we believe it has an exciting future.”
There are plenty more where Shinola came from. In 2011, the Boston Consulting Group published a report, “Made in America, Again: Why Manufacturing Will Return to the U.S.,” and predicted that with the cost of wages and benefits for Chinese workers rising 15 to 20 percent a year, China’s labor-cost advantage over the U.S. will narrow significantly over the next few years alone. In 2011, China’s per-unit labor costs were just 45 percent of those in the U.S., but BCG sees them rising to 61 percent in 2015.
This August, BCG designated the U.S. as “one of the developed world’s low-cost manufacturing centers,” forecasting that the country will create between 2.5 million and 5 million new manufacturing jobs by 2020. By 2015, say the consultants, the average manufacturing cost in the U.S. will be lower than in the U.K., Japan, Germany, France and Italy—British costs will be 8 percent higher than in America, while Italy’s will be 18 percent more, with the rest in between.
When entrepreneurs Ryan Donahue and Matt Rowe teamed up with actor Ashton Kutcher in 2012 to make what their website refers to as “T-Shirts Worth Obsessing Over,” they were surprised to find that it was just as cheap to make quality t-shirts on American shores, with American workers. Pickwick & Weller’s tees – priced between $26 for a simple cotton cut to $79 for a cashmere number – are geared toward young professionals at hip companies for whom casual-cool is the unofficial dress code. “I had just assumed that we would make them in China,” Donahue said. “We weren’t going to skimp on quality, but you don’t want to pay more than you have to.”
Donahue toured factories and fabric mills in China, tracing every step on the supply chain. And it all looked pretty good to him. But just to ensure he was making the right decision, he checked out a few production facilities outside Los Angeles as well. As it turned out, the family-run operations he visited just 30 minutes away from the company’s design studio could do everything the Chinese facilities could—for roughly the same price. The one drawback: whereas Chinese production facilities can—and do—coordinate every last production detail, making the t-shirts in the U.S. would require handling more of the logistics in-house. But geographical location won out in the end. “The fact that I could go visit the operations at a moment’s notice was worth the extra level of hands-on work required,” Donahue said.
Brooklyn’s Watermark Designs makes ultra-luxurious faucets for customers that include the MGM Macau and Venetian Macao casinos and New York’s ultra-hip Ace Hotel. It also outfits luxury residential buildings and works with individual homeowners. And Avi Abel, the company’s president, says they’re doing something they couldn’t do in China if they wanted to. “We mainly do custom-design, small-production runs – we’ll literally make one custom faucet for somebody,” Abel said. “You can’t do that overseas. If you’re not making 1,000 pieces at a time, they don’t want to talk to you.”
Abel said that being close to the large concentration of artists and designers in Manhattan and Brooklyn has two advantages. First, it allows the company to stay on top of trends in design. Second, it increases the likelihood of Watermark faucets being incorporated into architectural pitches in the first place. And then there’s the whole Brooklyn thing: “Ten years ago, we were embarrassed to say we were in Brooklyn,” he said. “We would list our address as Spring Creek, N.Y – a neighborhood in Brooklyn.” Today, the company slaps a “Made in Brooklyn” label on every product it ships.
While the American worker is enjoying a small measure of relief from such reversals, there’s another, more powerful trend that is working against them: high-tech industrial automation. Credit Suisse recently reported that the $152 billion global industrial automation market has grown 6 percent a year, on average, since 2003. But here’s the silver lining: development in automation also has American companies rethinking the question of where they should base their manufacturing.
David Littman, founder and chairman of the high-end lighting company Littman Brands, says the ability to use additional automation in his company’s factories played a key role in a decision to repatriate some of its manufacturing from China. “We build some items here instead of in China because through mechanization, we’re actually able to save money producing them in our own facility,” he said. “The U.S. is never going to have the cheapest labor in the world, so the way that we’re going to win is through value-added manufacturing and automation.”
While it’s easy to see how both automation and 3-D printing could pose existential threats to manufacturing jobs in the U.S. and everywhere else, it’s clear that right now, the narrative about American manufacturing is no longer that it’s going away. The real question, though, is whether the U.S. is ready for its return. According to Watermark’s Abel, “It’s a constant struggle for us to find workers.” And he only sees the problem getting worse. “No one grows up and says, ‘I want to grow up and go into manufacturing.’” According to the Boston Consulting Group, the U.S. may only be short about 100,000 highly skilled manufacturing workers, at the moment. But if onshoring picks up as expected, the U.S. economy could require as many as 875,000 highly skilled workers by 2020. Somebody is going to have to tell the kids about this, as the average highly skilled American manufacturing worker of today is 56 years old.
One surefire way to get the attention of America’s young is to appeal to their entrepreneurial spirit. In other words, to bring them on board when the new American manufacturing is starting from scratch. Companies like Pickwick & Weller or Shinola, which could base their operations anywhere but have chosen to make their high quality, luxury goods in the United States. Because of them, “Made in the USA,” isn’t just a marketing gambit anymore. It’s downright chic.
All photos courtesy of Shinola, Watermark Designs and Littman Brands.