How American Giant's commitment to manufacturing in the U.S. pays off.
American Giant Hoodie
Google grabbed headlines recently for its decision to make its wearable computer, Google Glass, in California. The tech giant is not alone. As wages in China rise and intellectual property laws continue to be ignored, more companies are doing their manufacturing closer to home.
American Giant is one of them. The San Francisco-based clothing company sources its materials and manufactures its polos and sweatshirts in the U.S.
A lot of companies underestimate how much American suppliers have closed the price gap, particularly for high-quality materials. American Giant, for example, discovered less-expensive fabric here at home. And Bayard Winthrop, founder and president of the company, doesn't have to worry about currency fluctuations and the longer lead times required when dealing with overseas suppliers.
Manufacturing in the U.S. is not for everyone. (Nor is China the only option: See "Is Mexico the New China?") Labor will always cost more in the U.S., so if your company competes solely on price, that might be enough to push you toward overseas factories. American Giant primarily sells directly to customers, eliminating the added costs of wholesale--and still, at $79, its hoodies can't compete with prices at the Gap.
But for Winthrop, the strategy has paid off: Customers fawn over the product, enduring multimonth waits to get their hands on one of his hoodies. And he makes a tidy profit.
THE BOTTOM LINE
Soft Costs Help Close the Gap... If Winthrop manufactured in China, he would face currency fluctuations and higher financing and inventory-management costs. Then there's the value of clear communication. Recently, a quick email exchange with a supplier saved a potential $70,000 fabric dyeing problem.
...But it Still Costs More at Home... Cost premium for manufacturing in the U.S.: 10%--30%
...Even So, the Bottom Line Still Works. Profit margin for direct-to-consumer online sales: 50%--75%