Why the American shoe disappeared and is hard to bring back (2019)

I did some work with manufacturers who were in the process of moving manufacturing overseas some years ago. From my experience, the way the article presents the issue is detached from what really happens.

For instance, people look at a labor difference of $3 and $12, and assume that if these things were manufactured in the U.S. they would cost five times as much. But the thing is, labor is just one part of the cost. You also have things like R&D, advertising, raw materials, transportation, machinery, the cost of the manufacturing plant, etc. Some of those (like advertising) are going to stay the same no matter where you make your product, some would probably cost less overseas (real estate needed for factories), some would cost more overseas (transportation cost). There are also other issues that come up (like quality control issues) that come up when moving operations overseas that can be quite costly.

Here's the thing, though - let's say that a manufacturer makes a product for $10 and sells it for $12.50 - they're making $2.50 per unit sold. Now let's say that moving things overseas, when everything is taken into consideration, they can now make a product for $9.50, of which they keep 25 cents and pass the remainder 25 cents forward. Now they've increased their profit 10%, which is pretty big for them.

But what about the consumer? For simplicity, let's say that the 25 cents goes directly to them and the middlemen don't take a cut. And let's say that the final retail price doubles (the results would be even more extreme if they quadrupled like the article says). So the price goes down from $25.00 to $24.75 - they save 1%.

Now, obviously things are a lot more complex, and things are going to vary greatly depending on what's being manufactured. But from my experience, moving manufacturing overseas can often be profitable for companies while being only negligibly beneficial - or even detrimental (for instance, with poorer quality control) - for the consumers.

Note this does NOT include indirect labor (skilled trades), salaried employees, or the time taken to make the parts installed at the assembly plant (engines, transmissions, bolts, glass, etc)

"Indeed, many of the remaining 200-some U.S. footwear factories serve the military, said Tom Capps, whose Capps Shoe Co. in Virginia mainly makes uniform shoes for the government."

Thats 200 sources of American-made shoes. The quality is not bad in the ones I have owned. The US government is probably getting better quality and value from its contractors in shoes than it is in, say, software, including "cloud services". :)

Patagonia used to source fleece from Malden Mills, a US manufacturer. Malden Mills, now Polartec, is a government contractor so maybe that has helped them to remain in business.

https://www.encyclopedia.com/social-sciences-and-law/economi...

Shoemakers are already charging what they believe to be the highest price they can regardless of costs. They don't believe they can raise the price, or they already would have.

Is it really possible to make anything that isn't a product of the global economy?

When something is labeled as "manufactured in the US", I always thought that was a term of art that meant final assembly.

It is said that around 1/5 of the world's cotton comes from forced labor. This has been reported on by the BBC and The Guardian.

The true reason has to do with use of capital. The US has perfected a system where capital is highly rewarded for pure financial operations: stock market, futures speculation, banking, real state lending.

Manufacturing requires a lot of capital that US players don't want to tie to a lower reward structure. Germany and Chinese capitalists are completely Ok with employing their capital for manufacturing for political/structural reasons.

That's why American economists will make thousands of excuses that really make no sense when it comes to the fact that they want to invest as little as possible in manufacturing.

Even Switzerland has a number of mass market shoes companies with 100% of manufacturing inside the country. And Swiss manual labour salaries are out of this world.

The problem is Americans suck at doing business: lack of entrepreneurial spirit, creativity, wits, and grit. A universal solution of overcoming adverse conditions: "exit, and sell."

I worked in OEM manufacturing my whole career, soon to be 10 years of full time work. Every time I hear we get a big new buyer, and he/she is American, I feel joy, and dread at the same time.

Joy, because big American companies are as a rule well moneyed. Dread because there is so much truly unnecessary tedious work, and ceremony with them.

Once upon a time, a buyer demanded our "risk management," and "crisis management plan," I dropped from a chair laughing.

Any problem faced by a big company is solved by throwing consultants, and attorneys at the problem, which don't solve anything 9 out of 10 times.

You should probably stop buying clothes made in the US then. A lot of clothes are made by prison (very nearly slave) labor.

https://laborrights.org/in-the-news/your-valentine-made-pris...

you don't understand finance, and why it has to work the way it does, hence your naive thinking :)

when a manufacturer sells a product to a distributor, the mfr ships the goods but they don't get paid right away, they get paid later. Invoices are marked "net 10" or "net 30" or "net 60", where the numbers refer to how many days the buyer gets to pay the bill after receipt of the goods. (length depends on your credit worthiness and potentially the goods in question, dairy for example is perishable)

And the same goes for the distributor selling those same goods to the retail merchants. (and, with credit cards, the same goes for the consumer buying the item)

but let's go back to the mfer above: they've sold the goods, but they haven't been paid... and they still need to manufacture more goods to have on hand for the next order that comes in, and they need to keep paying rent on the factory, and they can't just lay off all the workers till the money comes in and then rehire them, and they don't want to tell new customers to wait for their orders.

So the manufacturer has to buy more raw materials and keep the lines operating. So they go to the raw materials suppliers and say "hey send us more stuff, so we can manufacture more, we promise we'll pay you later" and the raw materials supplier said "you said that with the last order and you haven't paid it yet" and the manufacturer says "well we didn't get paid yet..."

so, as you can see, already there is debt ("financing") at every stage of the supply chain. Now consider that the manufacturer has introduced a product that's growing in popularity, and growth is the goal if you want to make more money and or spread your costs. In this instance the manufacturer is asking his suppliers for a double or triple order of supplies, because the retails and the distributor are clamoring to double or triple their orders over the previous orders... that they haven't paid for yet.

To smooth this process out, these different entities go to their banks and say "hey, I can sell triple my previous orders if I can just borrow some money short term, demand is so good that I can pay you interest". And the bank says "yes, borrow the money, it's the same interest rate, but borrowing triple at the same rate is triple the interest you have to pay, right?"

or the bank might say "that's waaaayyy too much money to borrow, look someplace else" and the manufacturer might instead be forced to sell stock on a stock exchange, giving partial ownership to investors in exchange for the cash they need for expansion.

This is why banks exist; this is why the stock market exists; and this is why it is not naive but incredibly sophisticated how finance works.

Most people on HN love to hate on MBAs, but this is just what they teach you in the first couple weeks of your first accounting class, a tiny piece of the curriculum.

For anybody who really wants to grok thinking this way, I'd highly recommend a book titled "The Goal" by Eliyahu Goldratt. It's written as a novel, it's a breezy and fun read with some deep ideas in it.

EDIT: addressing the complaint about something I susposedly left out: When you want to start a company, you need some seed money for a computer, a chair, a desk and a place to sit. If you are going to manufacture, you need equipment; if you are going to sell, you need space to store and display.

This entails money which you get from somebody else who will want interest, with higher interest for higher risk; or which you fund yourself from your savings but you were making money on your savings which you need to forego (cost of capital) so that's essentially the same thing. And when you are successful and expand, at some point you run out and need to go outside to finance anyway.

It has nothing to do with fixed percentages of profit on goods or services. Instead look only at the flow of money and what you are required to pay your financiers. You can tell your financiers "I'm willing to make less profit, so charge me less interest" but they will say back "you're making less profit? you just got riskier, we need to increase your interest rate"

if less profit is charged at any stage in the chain, that stage will have less money to reinvest in the next round of growth, and will need to borrow more. Sellers are not choosing their own profit margins, these numbers come from market bid-ask norms.

For example, in some European countries where VAT + transaction fees get close to 25% a $10 decrease in manufacturing costs would allow a product to suffer a nearly $12.50 reduction in price whilst keeping the company’s absolute margin constant.

Naturally this channel doesn’t apply to most transport and logistics costs though.

I emphasized the _"you"_ in the above quote to show that your explanation inadvertently combines separate business entities into one.

The following are separate independent businesses in the chain with their own profit markups:

- manufacturer e.g. Wolverine Worldwide makes and sells shoe for $25

- distributor (importer wholesale buyer) (e.g. Bonvita Aps[1]): add 100% markup or ~2x price which increases to $50

- retailer (e.g. H&M clothing retailer): buys for $50 from distributor and adds another 100% markup or ~2x price which increases it to $100

So the counterintuitive ~4x markup math happens because the separate businesses don't add a fixed flat margin but instead, a ~100% percentage margin. This multiplier effect (2x times 2x) across layers of middlemen causes the ~4x increased price difference the consumer sees. So it's not just labor cost but any component cost by the manufacturer can be multiplied by the chain. If a raw material like polyurethane goes up +50 cents, the final cost to the consumer can be increased ~4x to ~$2. This is what Wolverine Worldwide's Mike Jeppesen means in his quote "that cost quadruples after wholesale and retail markups,.

This is a great example where journalism on financial topics would actually easier and clearer with spreadsheets so readers can easily see the cause & effect of input costs to final costs. Using a narrative structure and isolated quotes from vice presidents just confuses readers because it seems like "4x" got invented out of thin air.

Btw, your explanation that assumes a flat fixed profit margin would be more realistic in a direct-to-consumer model. It looks like Wolverwine Worldwide does run some direct customer websites to sell Keds shoes but most retailer contract agreements require that the manufacturer never undersell the retailer. Therefore, you'd still have the ~4x increase in price but in the D2C channel, the manufacturer captures more of the profit instead of middlemen.

[1] https://www.wolverine.com/US/en/international-distributors/

Of course thats simplistic thinking, the tangent portfoglio is unknowable.

And there are other benefits of not charging the same profit margin.

But, in general, you’re going to have a bad time w/ investors if your profit margins are industry standard.

Do you have any relevant clothing industry/manufacturing experience to base your expectation on?

I fully expect they will last me the rest of my life. That’s very expensive, you may say - but consider how many pairs of $150 boots I would have gone through in that time.

I also have several pairs of high quality English dress shoes that are decades old. They look better than ever. They don’t crack and the stitching doesn’t fall apart. The biggest problem is finding a cobbler who can do a full high quality resole without damaging the uppers. They are all rapidly dying off.

Modern cloth and rubber shoes don’t last. The rubber deteriorates, the stitching and glues fail, and the cloth frays. They can’t be repaired. It’s not worth trying to make long-lasting, custom shoes from materials like that. Thus, the throwaway culture.

Since then, I found out about Solovair, which manufactured shoes under the DM name in the UK for decades. I bought a pair about 8 months ago. What an incredible difference in quality. This pair still look great, and unlike Docs, I didn't immediately need to put insoles in them. I definitely will not buy Doc Martens again.

Honestly, the higher quality pair is now significantly cheaper per use than the cheaper ones (if we disregard REIs return policy at least).

https://www.youtube.com/watch?v=19ef5pqWLrE

This is an outdated stereotype. Asian manufacturers have well and truly moved up the value chain and currently produce many high quality products.

Yes you can still buy cheap low quality shoes produced in Asia, but you can also buy extremely high quality durable shoes if you so desire.

I will never buy another pair of flip-flops. So comfortable and the durability is so good I'm only on my second pair after 15 years of very consistent use. I literally run the treads out.

Breaking them in takes a solid month which is just getting your foot imprinted into the cork... but any initial discomfort is 100% worth it, and minimal in my experience.

There's also a very good warranty but I haven't personally used it.

So you’re part of that 1%, congratulations.

By specializing in just one thing (e.g. making shoes), and letting someone else package them, transport them, market them, help customers try them on a store, etc., you can get really damn good at just making shoes. The shoes you make will almost assuredly be cheaper and of higher quality than the guy that tries to do all the other stuff himself (in addition to making shoes).

In America, for physical goods, specialization almost always wins out despite the profit taking at each step, because labor is so much cheaper in other nations. Tesla and Trader Joe's wine are two great counter examples of vertical integration winning out big in industries that had become over-specialized over time.

However business is not a zero sum game and everyone wins when there are wins. Especially when those wins create new secondary industries Adding to the overall infrastructure that make possible and lower the barrier to entry for everyone else.

$50 has nothing to do with the cost, it's an entirely made up amount that is the estimated maximum increase the market will bear. It's the price of the conscience of the consumer who feels they should buy American.

Remember, nobody is trying to make a "fair" profit, they're trying to make as much as possible.

https://en.m.wikipedia.org/wiki/Inland_Customs_Line

> Footwear manufacturing has long included machines — cutting or gluing soles. But higher-level innovation? Ironically, factory owners said that's happening where the industry is — overseas.

Even the automation is happening in Asia.

If we don't use this as our opportunity to re-onshore, we're going to fall far behind. Perhaps permanently so.

We should be providing every tax incentive under the sun to domestic companies working on automating manufacturing.

The article mentions factories moving to other Asian countries as it's cheaper there.

More obviously, Vietnamese factories cannot afford to hire Michael Jordan et. al. and the world's top Ad Agencies who actually drive sales.

Of all of the sectors that we should be concerned about, this one is not it.

1) Shoes are odd and there's no way we're going to make robots anytime soon to do all these nimble things that require hands.

2) Overseas makers don't have any technical leverage - and definitely not brand power - so it's unlikely they'll usurp the system.

3) It's not a strategic sector.

I don't think there's much we can do here.

I'd be more interested in high end robots to make cars and electronics cheaper.

Electronics is one area that we could endeavour to 'bring jobs back'. Shoes, not so much.

You could try to attack a different market segment, like more expensive shoes, but that isn't disruption.

You could try a marketing gimmick, like "buy these more expensive shoes and we will send you replacements for life." But it wouldn't be sustainable, and the competition could just offer the same thing and there goes your disruption. You could probably get a couple of years of press, just long enough to sell the company and make the founders a mint (if anyone's dumb enough to buy it).

>"it's very hard to envision a scenario where we'd make the types of products that we make, at the effectively slave labor prices we pay people to make them, in a place that would require us to pay them more."

However, making shoes more cheaply almost assuredly means finding a way to get rid of the human labour.

Isn’t the problem the high manufacturing cost? How would you “disrupt” that?

... along with many of the most high-quality, low-tolerance manufactured parts and products ever made.

But they are made in Sweden?

https://en.wikipedia.org/wiki/List_of_Volvo_Car_production_p...