Is the Shoe Industry Homeward Bound?

Onshoring is the new offshoring.

With cost pressures mounting in Asia — and a renewed sense of patriotism that focuses on job-creation — a number of American footwear firms are moving production back to the U.S.

“Manufacturing overseas is becoming less attractive: Transportation, material and labor costs are skyrocketing, and you’ve also got ocean carriers implementing slow steaming to save fuel, so it’s taking even longer to get product,” said Nate Herman, VP of international trade for the American Apparel & Footwear Association. “That doesn’t work for the type of retail environment we’re in, where companies need to react to trends and changes in the market more quickly than ever.”

Following decades of sharp declines, the amount of shoes being made in the U.S. has inched up each year since 2009, Herman said. This year, 30 million of the 2 billion pairs of shoes sold in the U.S. will be produced domestically. Herman predicted the upward trend will only continue as the cost advantages of producing overseas begin to disappear and more footwear firms look to capitalize on the many benefits of making shoes at home, including significantly shorter lead times and greater control and flexibility.

“The situation in China is very uncertain. Prices continue to creep up, and it’s increasingly challenging to manage logistics and quality control, especially as a smaller company,” said Arkady Altskan, GM of Baltimore-based comfort brand Pilgrim Shoes, which opened U.S. production last year. “We want to stay ahead of the changes. So far, having our own factory here has been a huge advantage.”

Still, manufacturing domestically is a difficult process to navigate. Perhaps the biggest challenge is the lack of infrastructure. “Back in the heyday of American shoemaking, you had everything you needed here, from machinery and processes to a robust supply chain, but those things don’t exist anymore. If you’re going to start manufacturing here, you’re basically going it alone. You’re reinventing those processes,” said Colin Hall, chief marketing officer of Port Washington, Wis.-based Allen Edmonds, which has been manufacturing exclusively in the States since 1922.

Sourcing Materials
When it comes to materials and components, from leathers and threads to heels, U.S. manufacturers say they strive to purchase as much as they can domestically, in part to skirt certain duties and freights. But the scarcity of suppliers often necessitates having to source overseas, which can significantly lengthen lead times.

“It’s a huge challenge: Instead of your supplies being a short truck ride away, you’re looking at supplies that require a plane or boat ride to get here from overseas,” said Jim Kass, Allen Edmonds’ VP of operations. “So we dedicate a lot of resources to finding ways to strengthen our supply chain.”

That includes tapping resources in more logistically attractive regions such as Mexico, he said.

John Wilson, VP of manufacturing for New Balance, another veteran of the U.S. with five factories in the New England area, said he is optimistic that as more footwear firms move production back onshore, the domestic supplier base will begin to revitalize. “It hopefully will drive the need for raw materials suppliers to relocate, improving the supply chain and infrastructure here,” he said. “We’ve seen that in the shoe industry’s migration to different parts of Asia over the years — the raw materials companies moved their plants closer to the manufacturing sites.”

Still, Herman said, the supply chain won’t come back overnight. “It’s going to be at least a five- to 10-year process, so it’s an issue companies will continue to grapple with. The availability of those inputs is what can make the industry work or not work.”

Complex Machinery

Not only are raw materials scarce but so are the machines and other equipment needed to get operations up and running. When sandal-maker Vere opened its factory in Geneva, N.Y., two years ago, procuring equipment was one of the biggest hurdles, according to co-founder John Eades. Although sewing and embroidery machines were easy to acquire, many of the shoe-specific machines were difficult to track down, he said. “Our intent was to get all our machines in the U.S., but we just couldn’t find everything we needed, especially the footwear presses. Anything we could find was used — and I mean really used. So we ended up importing some stuff from China.”

The team at Allen Edmonds is constantly looking to buy used machinery due to the scarcity of equipment. “When we hear of something, we’ll immediately fly across the country to look at it because machines are just not readily available, especially for the way we make shoes, which is the Goodyear welting process,” said Tim Cronin, the company’s SVP of sales.

When Chicago-based Oak Street Bookmakers was prepping to launch in 2009, founder George Vlagos got word that a small Maine factory was closing its doors and putting its equipment up for auction. Vlagos swooped in and became part owner in the factory, which specializes in handsewn product. “We got really lucky,” he said. “There are so few factories remaining that even have the capability to do the type of work we needed.”

New Balance has resorted to customizing many of its devices. “Because we have a lean production process, most of the standard machines don’t work for us anyway, whether it’s the dimensions or the capabilities,” Wilson said. “So we’ve engineered and redesigned a lot of our own units.”

The Keen brand purchased a fleet of Desma direct-injection machines to equip its 15,000-sq.-ft. Portland, Ore., factory, which opened last year. But the company, which was new to manufacturing its own product, sought the expertise of a seasoned shoe factory manager with 20 years of experience working with the German-made equipment. “That’s why the setup process went so smoothly for us,” said Kelly Wallrich, VP of product. “We hired an expert, someone who could handle the whole process for us, from getting the machines running and training the workers to establishing a long-range production plan. He’s helped us work through a lot of those kinks. I always say, hire the best operations person and you’re going to do just fine.”

Hire Learning

However, Wilson said, such manufacturing experts are hard to come by. “Because the shoe industry left the U.S. long ago, there is a real lack of knowledgeable manufacturing people here, whether it’s factory managers, process engineers, industrial engineers or even workers on the floor.”

And although the made-in-America movement is gaining momentum at a time when the country’s unemployment remains stubbornly high, thus giving companies access to a large and motivated labor pool, most incoming workers lack the necessary training. “A lot of people are looking for work; the issue is finding workers with the right skill set,” AAFA’s Herman said. “So many vocational and government-run training programs have been eliminated, with the money and resources transferred to high-tech jobs.”

That means companies must conduct on-the-job training, which often requires taking workers and machines offline. “[That training time] creates some inefficiencies in the factory, but we do start to see those efficiencies come back after about six to nine months,” said Hall, noting Allen Edmonds benefits from having generational workers who can mentor new hires.

Oak Street is facing the challenge of an aging worker community within New England’s once-thriving handsewn shoe industry. “The majority of our workers are older, so we need some new blood to carry on the craft so we can not only sustain but grow our production,” Vlagos said. “But we’re finding that the younger people are just not interested in doing this type of work. It’s a major concern for us.”

Some firms, such as Pilgrim Shoes, have overcome the shortage of qualified workers — and significantly reduced their labor costs — by automating their factories. “We are highly robotized, so we don’t have to employ hundreds of workers,” said Altskan.

Finding Allies
For companies making shoes in America, especially those new to the manufacturing side, support is critical, whether it’s from the local government or fellow shoe companies. When Vere moved into Geneva, nestled in New York’s Finger Lakes region, the city rolled out the welcome mat, knowing the company would bring much-needed jobs and revenue to the local economy.

“My business partner and I grew up here, so when we looked around for a place to manufacture, we included Geneva almost as a courtesy, never imagining it would be competitive,” Eades said. “But the city was very aggressive with loans and grants and the lease rate on our building. It continues to be our biggest supporter. In fact, the whole community has rallied around us — a couple of hometown boys doing this here.”

The company also has been able to tap other upstate New York footwear firms, including P.W. Minor and Aura Shoes, for advice, used equipment and supplier contacts.

Sheepskin boot brand Ausiie Couture, which manufactures in Los Angeles, has found plenty of support within the city’s small but long-established and thriving shoe industry. “There’s a very tight community among the shoemakers here,” said co-founder Ivan Tampi. “Everyone shares workers, contacts and other resources. It’s been a huge help for us starting out.”

Competitive Edge

Despite the difficulties, companies say the advantages gained from manufacturing domestically far outweigh the challenges. Speed-to-market is one of the biggest benefits.

For Allen Edmonds, having a production facility just feet from its design offices means the company can quickly jump on a new product idea or react to an emerging trend. “We can have a prototype made and then get product shipping to our stores and wholesale accounts inside of a month,” Cronin said. “If you’re trying to do something like that from Asia, you’re talking as long as 12 weeks [when you factor in] manufacturing, shipping and processing.”

Added Hall, “We’re also not fighting against someone else for manufacturing time if it’s a shared facility. We can control our own destiny.”

Flexibility is another key advantage. As a running and walking shoe brand, New Balance offers an extensive selection of widths. Wilson said managing such a large number of sizes would be extremely difficult if production was being done in Asia. “We just couldn’t do this without having to carry significant inventory and dealing with much longer lead times,” he said. The company also can turn around custom orders within 24 hours.

Pilgrim is able to accommodate consumers who require different-size shoes. “Because we have our own factory, we can easily do mismatched pairs,” Altskan said.

Vere’s Eades noted that being a domestic manufacturer puts his company in a better position to compete against bigger Chinese-made sandal brands. “We sell to a lot of small surf and outdoor shops that are not high enough on the priority list for the bigger brands when it comes to getting fill-ins. We have the capability to build out replenishment orders for customers very quickly, without having to warehouse a lot of finished inventory. We’re finding that’s one of our biggest advantages,” he said. By producing in the States, Vere also avoids the hefty 38-percent import duty that is slapped on textile-upper sandals. “It’s a huge savings and one of the only ways we’re even able to do this and still have a competitive retail price,” Eades said.

Loyalty Program

Beyond the many strategic business advantages, however, companies said making products at home is a point of pride, particularly when the country’s economy is ailing. “We like the idea of being a U.S.-made brand, of creating jobs and opportunities within our community,” Ausiie’s Tampi said. “It’s not always easy, but there is a great feeling of accomplishment in it.”

For Keen, bringing a portion of its production home to Portland wasn’t a question of if but when. “We just felt it was the right thing to do,” Wallrich said. “When you see so many Americans out of work and struggling, it really gets you thinking. We looked at it as, let’s bring it home, let’s bring it to our backyard and create jobs for Americans.”

This patriotic sentiment was brought to the fore by the recent dustup over Ralph Lauren making this year’s U.S. Olympic team uniforms in China. “The problem is it’s just so easy to outsource; it takes more work to produce domestically,” Wilson said. “But to have our country’s athletes, whom we’re so proud of, clothed in Chinese-made products is just embarrassing.”

Eades said the rapidly changing landscape in the industry means “things absolutely have to get more local — not just domestic, but local. It can’t all come from Asia, from one region of production. It just makes sense to do things closer to home.”

 

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