Best Foot Forward

They said it couldn’t be done – but New Balance is proving that it is possible to be successful in the sneaker business and still retain a manufacturing foothold in the US.

“The business is so much more fragmented today in just about every category that understanding what the customer wants is far more important to success than it used to be”
-Rob DeMartini

Which would you prefer? Athletic shoes built around the belief that the marketing prowess of an NBA superstar can sell anything? Or shoes founded on the belief that better fit and technology mean better performance? For New Balance CEO Rob DeMartini, it’s a no-brainer. “Performance is everything for us,” he says. “Instead of paying celebrities to tell you how great our products are, we invest in research, design and domestic manufacturing and let our products speak for themselves. We celebrate the true stars: every day athletes who choose New Balance footwear and apparel because they fit and because they perform.”

Indeed, since the days of selling arch supports to police officers and waiters in the early 1900s, New Balance has been concerned with meeting the needs of the everyday athlete. According to DeMartini, it’s all about getting the details right – and one of the ways his firm is maintaining its focus on the finer points is by keeping a manufacturing base close to its largest market, right here in the USA.

In contrast to major rivals like Nike and Reebok, New Balance still makes approximately 25 percent of its shoes domestically, an approach the firm’s forthright CEO feels has contributed significantly to its success over the last decade. New Balance is a rare success story amid increasingly dire headlines: an American manufacturing company that has not only resisted the urge to outsource all its production overseas, but that is thriving as a result.

For confirmation, just look at the numbers. Over the last few decades, growth at the firm – America’s second-largest maker of athletic shoes, and the fourth largest in the world – has significantly outpaced that of the industry, with global revenues growing from $100 million in 1991 to $1.63 billion in 2007. Since 1972, the workforce has exploded from just six people making 30 pairs of Trackster running shoes each day to a company that today employs approximately 4000 people around the globe to produce upwards of XXX shoes per year. Since 1995, the firm has increased the number of manufacturing jobs at its six US manufacturing facilities (three in Maine, two in Massachusetts and one in California) by 45 percent.

New Balance faces unique challenges in domestic manufacturing, yet remains undaunted. In this exclusive interview, DeMartini explains the secrets behind the firm’s trend-bucking success.

BM. You’ve made a commitment to American workers and American manufacturing part of your core strategy. Why is maintaining a domestic manufacturing base so important for New Balance?
Rob DeMartini. There are three main things that we get out of this. The first is it builds our knowledge of the manufacturing process, and in an industry that is primarily driven by shared manufacturing we feel it gives us a better understanding and enables us to work with our partners better. The second is that it’s an important aspect of the company culture, and gives us a significant sense of pride. In the early 1980s when manufacturers started to leave the US marketplace, we maintained a presence here and I think it’s become an important definition of who we are as a company. And then the third area is that there are some consumers for whom the ‘Made in the USA’ label makes a difference. It’s a unique brand differentiator, and we take advantage of that.

BM. Many of your competitors have taken the option to go overseas and outsource their manufacturing. So how have you managed to retain a focus on domestic production in the face of such intense competition?
RD. We do manufacture some of our products in Asia as well, but in our domestic factories we use a manufacturing process called ‘lean’ that we adopted from Toyota, and it’s allowed us to be significantly more competitive than we were previously. And with the increased costs coming from some of those developing markets, we’re seeing that gap close back down again. I think it also puts us closer to the consumer. We are regularly looking for ways to do late-stage customization – to take components and not fully assemble them until late in the process – so we can get a little bit closer to the customer and closer to the demand signals.

BM. Do you think that ‘Made in the USA’ as a concept is going to start on taking a bit more significance given the Buy American provisions in the recent economic stimulus bill and a climate where people are perhaps more inclined to spend patriotically?
RD. I think there’s no question there is an existing consumer base that has always valued domestic manufacturing and its products. I think the question you’re asking is an interesting one: will that interest expand with the economic challenges that just about every country is facing? I’m not sure if it will or not, but do think it helps differentiate us and we don’t think there’s any negatives associated with it. I don’t think any country should get too protectionist, because that’s just going to create other problems further down the line. But we employ about 1500 people in our domestic factories, and we’re proud to have them do something that they feel good about and the consumer responds to. In that respect, we think it’s an angle that’s worth talking about with our customers.

BM. Given the global nature of the economy and the complexity of global supply chains, is it even appropriate to think of products in terms such as ‘Made in the USA’? Is the concept of American-made still important?
RD. Well, we think it is. New England, where our five factories are located, has been the hub of domestic shoemaking for 200 years in the US economy, and we think there’s a history of craftsmanship there that resonates with consumers. However, I think it’s less about where the product is made and more about the craftsmanship that goes into making it and the experience base that’s there.

BM. So having a domestic manufacturing base has allowed you to capitalize on the specific skills, knowledge and innovation within that geographic area?
RD. The average tenure in our factories is probably upwards of 20 years of experience, and we have so much stability that we haven’t had to replace that workforce in some time. But we do think that we’re fairly well known in the areas where the factories are, and whenever we do have openings we’re able to attract talented people quickly. And given the experience already there, we’re able to train those new hires with people who have been doing it for a long time. It allows us to pass on the experience and the knowledge that they’ve gained.

BM. As retail outlets consolidate into fewer stores serving more customers, it’s even more critical that manufactures know what consumers want. Does having production so close to your key markets offer any particular advantages in this regard?
RD. It does; it’s allowing us to customize products much later in the supply chain, and that allows us to better meet demand. The shoe business is fairly complex because of the size and the width of each shoe, and by having production closer to the marketplace, we feel that we’re able to supply it as well as anybody out there. One of the things we’re pretty excited about right now is our ability to customize shoes. For example, we’ve been a long-term sponsor of the Komen Breast Cancer Foundation, and we recently offered consumers the opportunity to order shoes with the name of a survivor or loved one or messages of support embroidered onto the product. Because we’ve got that domestic manufacturing capability, we’re able to customize the shoes and deliver them specifically as ordered, inside of two weeks. I wouldn’t want to say we couldn’t do it with an overseas factory, but I think it’d be far less appealing if the consumer had to wait a month to six weeks to get the product.

BM. You mentioned earlier the lean production system that you’ve implemented in your plants. Can you tell us a little bit more about this approach to manufacturing, and why it works for you?
RD. New Balance has been using lean for about 10 years, and we continue to invest in it. What we find most productive about it is that it puts problem solving directly onto the manufacturing floor in the hands of the associates that do the work. They work in teams, they’re cross-trained to be able to support each other, and as a result we’ve been able to drive productivity up dramatically. We also think that’s a big reason why our staff retention is so good: because instead of supervisors telling them how to fix problems, we’ve used the lean system to teach workers how to solve the problems themselves and how to work in teams to produce better results.

BM. So how can companies best take advantage of the knowledge of a highly skilled workforce, and how does using American workers offer an advantage here?
RD. Well, we’ve already got a very tenured and experienced organization that’s making shoes and using lean manufacturing. What we’re doing now is trying to find other parts of the operation to import the lean system into, because it’s been such an eye-opener and a better way to solve problems. Historically, it’s been thought of as a manufacturing floor program, and we’re now bringing it into the office. For instance, we have a program in place that’s going to take about four weeks of lead time out of the supply chain from inside the office, not on the manufacturing floor. We also have a pilot looking at the production-planning portion, and we’ve seen as good a result there as we did on the manufacturing floor. So we’re getting more and more excited about exporting that lean technology into all aspects of the business.

BM. You’ve had considerable experience in the consumer product industry over the course of your career. Have you seen it change over that time, and how have the challenges evolved?
RD. It has changed a lot, and in particular I think the consumer’s voice has gotten much more important. When I started in the consumer product business, you did some research, pretty much guessed at what the customer wanted, and that’s what they got. If they liked it, great; if not, there wasn’t as much choice for them to go elsewhere. But the business is so much more fragmented today in just about every category that understanding what the customer wants is far more important to success than it used to be.

In addition, manufacturers and retailers work much better today than they used to. When I started, it was a very combative environment and quite frankly, none of us – either on the manufacturing or retailing side – can afford to invest that kind of time and not give the consumer what they want. The end result is that you’re seeing a much better partnership today. And from a brand building standpoint, it is a far more complicated effort than it used to be when people just watched three or four television stations and read five or six magazines. Now the choices are endless, targeting the consumer is much more valuable and if you get that wrong you’re in trouble. Having that domestic manufacturing base allows us to be more responsive and react quicker to changing tastes and demands, and to figure out exactly what the customer wants. And it certainly seems to be driving our premium business nicely right now.

Key dates
1906 The New Balance Arch Company is founded in Massachusetts
1961 New Balance introduces the Trackster running shoe
1972 The company is acquired by James Davis for $100,000
1975 A new model, the 320, is worn by Tom Fleming during his winning run in the Boston marathon
1982 Sales reach $60 million
1991 Sales reach the $100 million mark
1997 A new manufacturing facility in Maine is constructed
2004 New Balance becomes a sponsor of major league lacrosse and purchases a manufacturer of lacrosse equipment
2006 Worldwide sales hit $1.5 billion

Made in America
Many New Balance brand shoes are produced in one of six United States factories. While most of the footwear industry has moved its production overseas to take advantage of low labor costs and generally cheaper production costs, New balance continues to make many of its shoes in the United States and has expanded production substantially to meet demand.

But in today’s manufacturing environment, there’s not much that is 100 percent made in the America. The Federal Trade Commission has attempted to determine what it means to say a product is ‘made’ in the United States, and while this seems like a simple question, the answer is not always obvious given the global nature of the economy. New Balance believes most consumers think ‘Made in USA’ means that real manufacturing jobs were provided to US workers in order to make that product – and in that regard, the shoes produced in its US factories are made by US workers using both US and imported materials. Where the level of domestic value is at least 70 percent, the company labels the shoe ‘Made in USA’. Where it falls below that level, it qualifies the product as containing both domestic and imported materials.