President Trump is absolutely right to use his bully pulpit to encourage American manufacturing. But I believe an important factor in success in manufacturing in the country is where the firm sites its facilities. Some states are much more business-friendly than others, resulting in competitive price points for a firm’s final product.
Exhibit A: American Apparel. Founded in 1989, it once employed 3,400 factory positions, plus more at its retail stores. In January 2017, Gildan Activewear (a Canadian firm with production sites in the United States and Central America) purchased American Apparel’s intellectual property.
Gildan did not buy its retail stores. Thus, all of American Apparel’s stores will close by the end of this month.
American Apparel boasted its clothing was made in Los Angeles. That might sound sexy to fashion magazine writers, but as an economist, it was a horrible location. California’s not a right-to-work state, and has a mountain of regulations regarding wages and working conditions. Thus any apparel company manufacturing in California must comply with federal wage and workplace rules – as well as California’s rules, such as its minimum wage of $10.50/hour.
If American Apparel had chosen to site its factories in certain right-to-work states in the South, it still might be in business today.
For example, if you own a pair of Gildan athletic socks, they probably were made in the USA, perhaps in North Carolina.
Further, contrast American Apparel with American Giant, best known for its U.S.-made high quality hoodie. Yes, you could buy a cheapo hoodie at a big box outlet, but they’re the hoodies you throw out after a year. American Giant’s products are made to last.
American Giant saves money by eschewing brick-and-mortar stores (except for its lone store in San Francisco) and taking a high-tech approach to design and manufacturing.
Like American Apparel, they began in California (San Francisco), but by 2014 had three operations in… North Carolina. Smart.
The lesson of American Apparel versus American Giant is: when it comes to U.S. manufacturing, not all states are created equal.
Thanks to Governor Jerry Brown, California is hostile territory for manufacturing.
And despite New York Governor Andrew Cuomo’s television ads begging firms to locate their manufacturing operations in his state, I don’t think it’s a good idea. Last year, Forbes ranked New York as 24th in the nation in its ‘Best States for Business’ survey. That’s the tiniest smidge above average.
But at least Cuomo can brag that New York is ahead of California, which is 30th on the list.
By the way, North Carolina snagged second place – proving American Giant is a very smart company.
North Carolina (and similar business-friendly states) may lose out to California and New York in hipness, but it beats them where it matters most: making money in U.S. manufacturing.