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Inside, Outside U.S.A

Inside, Outside U.S.A

While there are many complex factors influencing the state of States-made apparel, the segment seems to be strengthening in the face of universal uncertainties on many fronts. Offering their take on the what and why, a few U.S. manufacturers sound off on the intrinsic and comparative benefits, economic nuances and implications of made-in-U.S.A. today.

Situation stateside

“The last few years have been tough for everyone, U.S.A-made or imports,” American Apparel’s Ray Hughes says of the industry’s performance during the Great Recession. “No matter what you are selling—whether it’s hard goods or apparel—we have all had to work harder for the available opportunities. That said we are starting to see some loosening of budgets.” With indications of some recovery in 2010, 2011 is getting stronger, in Hughes’ estimation.

The ability to embroider cut parts prior to manufacturing a bag or a baseball cap reportedly opens up the opportunity to add value, with dozens of styles for customers who don’t want huge quantities. (Image courtesy Unionwear)

Tommy Jensen of Jensen Apparel thinks that, while the average person walking into a store these days pays more attention to price than country of origin tags, over the last couple of years, more people are waking up to the idea of supporting America before other countries. “When people think about U.S.A.-made, many have good intentions,” remarks Jensen. “And then when they hear the price difference, intentions, a lot of times, go out the window and they jump right back into the less expensive product. But then there are a lot of people out there who want American made.” Some of those include the government sector.

According to Unionwear’s Mitch Cahn, this segment presents a major opportunity to expand into new markets, with U.S. state, local and federal procurement accounting for 23 percent of the United States GDP (Gross Domestic Product). “The Federal Government requires that its purchases be fifty-one percent or more made-in-U.S.A. The military requires that one-hundred percent of the products qualify as made-in-U.S.A., including the raw materials,” Cahn points out. “Several states and cities have domestic requirements as well and a growing number have laws requiring that their vendors be certified as compliant with core labor standards; at this time, only U.S.A. factories comply.”

What’s more, U.S. political campaigns require U.S.A.-made merchandise, Cahn goes on, stating that the 2012 presidential campaign season, including all congress people, dozens of senators and governors, three party conventions, 529s, unions, lobbyists and volunteers will purchase more than $100 million in domestically-made merchandise.

While the average person walking into a store these days may pay more attention to price than country of origin tags, over the last couple of years, more people are said to be waking up to the idea of supporting America before other countries. (Image courtesy Jensen Apparel)

In addition to these angles, Cahn observes more business from all sides. “As the premium paid for domestic goods shrinks, it starts to approach the premium that any customer would pay for the benefits of buying domestically,” he offers. “I don’t think consumers or b-to-b customers are switching out of patriotism or the belief that they are helping our economy; they are switching because they’ve done the math and it makes sense.”

While realities realized from the Great Recession may not have moved many consumers toward habits of label consciousness, Hughes hopes we don’t end up with short-term memories once our economic situation is restored to full-force. “While the bottom line creates the need to find lower cost, it doesn’t always end up cheaper simply because the amount we are paying today is lower,” Hughes remarks. “The long-term effect has been evident to our economy and hopefully we keep this in mind.”

Foreign factors

More than what’s been happening on our soil, compounding factors in manufacturing throughout the rest of the world seem to be sweetening the domestic deal. “Raising wages in China, increased transportation costs to ship to the U.S. and a strengthening of the Yuan are starting to erode the cost advantage versus U.S. production,” states Hughes.

Jensen names oil prices as the number one factor pushing production back to the U.S., but says that we may not see all the action leaving China, with much of it likely to wind up elsewhere.

“Textile importers have seen many prices more than double in the last two years,” explains Cahn, stating that margins on imports used to cover unforeseen costs. “Now, if a natural disaster cripples your supply chain, all the money in the world might not be enough to buy a recovery, because the exploding consumer markets in China and India get fed first.”

In Cahn’s opinion, we’re beginning the end of an era in cheap imports. “The same social media that enabled revolution in North Africa has caused a great awakening to worker rights in the factories of Asia,” comments Cahn. “Union strikes in China this summer? You bet. Worker riots in Bangladesh that caused a doubling of the minimum wage? Just happened.”

In addition to federal government and military requirements, large domestic manufacturers also have patriotic preferences, according to Cahn, who mentions union companies like Ford, GM, GE, Verizon and the U.S. Postal Service that require domestic, even union-made uniforms, when possible. (Image courtesy Unionwear)

Long lead and shipping times equate to unpredictability, Cahn continues, with ships held up in ports and customs. Along those lines, he says that inventory and storage considerations can also make imports more expensive. “Economical quantities to have products made overseas might be ten times the amount to make them domestically, which means ordering and sitting on product, paying for everything well before you sell it, and the odds that product will be obsolete before it is all sold.”

Companies can get around this by opting to import components and find a domestic manufacturer to assemble them as needed, which reportedly requires less inventory and offers flexibility if styles change. Options for customization also increase this way.

Dollar for dollar

With less disparity between import and U.S.-made pricing, Hughes believes buyers are more willing to consider domestic manufacturers. “Price sensitivity is always going to be a major issue in this industry,” states Hughes, adding that, given the potential for added value, the inclination to spend the extra dollars may make sense. “I think the end users want to do the right thing when making the made-in-U.S. decision, it just gets down to the ROI. How many times will I see that logo against the investment in dollars?”

To that end, he notes the importance in distributors familiarizing themselves with U.S.-made garments and the inherent benefits they offer, with the idea that this will take away the need to run from the higher-priced option. “Very few end users want to buy a throw-away if they can be taught why it makes sense to spend the extra dollar on a garment that will fit and be worn. The desired result from all end users is to see that logo on the street.”

For the first time in 20 years, costs can actually be reduced by manufacturing some products or assembling parts of products domestically, according to Cahn. “Products with expensive materials are a great place to start,” he says, as most raw materials cost the same overseas and domestically.

More than what’s been happening on our soil, compounding factors in manufacturing throughout the rest of the world seem to be sweetening the domestic deal. (Image courtesy American Apparel)

As an example, a tote bag might have $1 in labor in the U.S. and $0.40 in labor in China. If that tote is made out of $0.20 worth of polypropylene, it might cost twice as much to manufacture domestically—$1.20 versus $0.60. But if it’s made out of $20 worth of high-quality leather, the difference in cost is negligible—$21 versus $20.40.

“After you factor in the time costs, shipping costs, duties and tariffs, the costs of inventory and finance, it is a safe bet that it would have been worth it to manufacture that product domestically,” reports Cahn.

“Products that have a high percentage of their costs in shipping also warrant domestic consideration,” he adds. “Shipping costs are dependent on fuel prices, but they also have other considerations. During the last recession, many tankers were grounded and were not put back into service since so many Asian factories started putting their efforts toward demand in their own countries. This led to a shortage in cargo space, which bid up freight charges.”

A case for the states

A factor that might prove to actually—rather than relatively—lower domestic dollars in manufacturing is cotton itself. “If cotton production is increased here in the states, it should lower our cost of cotton/yarn and reduce the cost related to this aspect of the fabric,” reports Hughes, who says market influence provides the incentive to do so. “The price of cotton goes up and therefore it makes more sense to grow cotton. We have seen subsidies in corn and other products take away acres from cotton production. Let’s hope the increase in cotton prices incentivizes the farmer to return to cotton.”

As for incentives to purchase what’s produced here, Jensen Apparel’s Tommy Jensen sees it as a pay-off path. “The only way this country is going to pay its debt off is to put its people back to work and bring its jobs home. And it’s not going to happen until people start demanding American-made products,” he asserts. “We’ve lost millions of jobs; there are a lot of people collecting a check instead of working and that does not pay debt. The only thing that pays the debt back is to force people to go back to work so the government can collect taxes off of it.”

To the list of benefits in the U.S.A.-made corner, Cahn adds that the college market, along with socially-responsible non- and for-profit organizations are always sensitive to purchasing products that may have been produced with sweatshop labor. “While sweatshops do exist in this country, a made-in-U.S.A. label and, more specifically, a union label, serves as a de facto certification that products are not produced in sweatshops. As inflation overseas shrinks, the premium paid for domestic goods and standards for labor content tend to be raised and enforced,” Cahn goes on. He reasons that as prices converged, first we saw unions beginning to enforce standards, then colleges, government, nonprofits and now, many corporations. “Ultimately, we’d love to see consumers consider labor content the way they consider carbon footprint or organic.”

Whether or not your customers are at that point, the way Cahn sees it: “Even just presenting these products as part of your offering will open up entire new markets of clients you never dreamed would pay a premium to make sure no one’s rights were violated in the making of a product.”