Posted 9/18/2010

FOOT TRAFFIC: IS AMERICAN MANUFACTURING DYING?

You would think so, from all the bad news in the stores.

Every time you pick up something at Wal-Mart, the label shouts "Made in China."

Every now and then you can find a label that says "India" or "Bangladesh" or "The Philippines" – or some other ten-cents-an-hour place in Asia.

Toys R Us ought to give prizes to customers who can find something in their stores that has "Made in the USA" stamped on it.

How about Nike? They make a fortune selling high-priced athletic shoes made in the poor countries of Asia. That's why Nike profits are so high.

My LL Bean catalog now sells Irish Harris tweed rain hats – made in China.

Economists are quick to explain that fabric, clothing, shoe and toy manufacturing are "labor intensive," which gives an unbeatable advantage to countries with low labor rates. They can trace the way jeans manufacturing chased low labor costs from New England to South Carolina to El Paso to Mexico to Hong Kong to Guangdong, China. Now that labor rates are rising in that Chinese province, its factories are closing and the clothing business is moving on to Vietnam, the Philippines and Bangladesh.

But does it have to be this way?

Can America compete in manufacturing? Even labor-intensive manufacturing?

Apparently we can. All it takes is for us to find men and women with imagination.

One such man is Steve Madden, who designs, manufactures and markets shoes in the USA. They're very popular, with sales and profits increasing every quarter.

You can find his shoes in his 85 retail stores, and in department stores like Sak's and Nordstrom. Customers rave about the designs, styles, quality and affordability. They probably also like his "Made in the USA" label in this era of job scarcity.

Because here's a shocker: All Steve Madden shoes are manufactured in Long Island City, New York.

What's his secret? How can he compete with China in the labor-intensive shoe business?

His secret is imagination – and the ability to comprehend that there are many costs in the shoe business other than labor.

Most important, he has found that China's shoe manufacturing model, while strong in low labor costs, is weak in all the other costs factors of the shoe business.

For example, China is weak in market response time. Shoes manufactured in China take six to eight months to get to the American retailers. Steve Madden shoes get to the retailer in a matter of weeks. With fashions changing so quickly, this factor gives an American supplier a tremendous advantage in marketing and costs.

In the current uncertain market, retailers are reluctant to order back-to-school shoes from China in January or February. With Steve Madden, they don't have to commit until May or June. This gives him a tremendous advantage in retailer goodwill, which increases sales without additional sales and marketing costs.

With its slow delivery schedules, the China shoe manufacturing model prevents shoe designers from test marketing new designs in a timely fashion. This leads to a high percentage of design failures, which require major markdowns – which add to costs.

Steve Madden, on the other hand, sends new designs to his New York factory, which produces small quantities, which are test-marketed in some of his stores. The winners go into national production, while the losers are abandoned without running up the costs of national markdowns. Thus the heavy costs of new product failures, which plague Asian-manufactured shoe brands, are avoided.

Finally, Steve Madden realizes something we all know: Women love to shop. But they don't love to shop in stores that have the same merchandise and same products week after week. Most shoe outlets have that problem, with corresponding lower traffic.

So his business model calls for constant innovation. Nearly every week, his stores feature new merchandising and new products. As a result, shoppers find something unique and exciting nearly every time they visit. This attracts them and substantially increases store traffic. And of course, the more lookers, the more buyers.

Steve Madden has created jobs for Americans in a business which has been written off by the experts, who have myopically focused on labor costs. His company has proven that comprehensive business understanding, coupled with old-fashioned American ingenuity, can trump low foreign labor costs.

The larger lesson for America is that the Steve Madden business model can create a huge number of American jobs in the so-called "lost industries" like clothing, shoes and toys.

And if it can be done there, it can be done in every industry. (Please note that no country has higher labor costs than Germany. Yet it prospers mightily with its export business model.)

At the moment America thinks it is being plagued by foreign labor costs.

But the truth is that we are suffering from nothing more than a lack of imagination.

All shoes used as illustrations for this article are from www.SteveMadden.com.

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