Will Buying American Cost American Jobs?

“I grew up with a sweatshirt that my father had given me from the U.S. Navy back in the ’50s, and it’s still in my closet,” [Bayard Winthrop] told me. “It was this fantastic, classic American-made garment—it looks better today than it did 35, 40 years ago, because like an old pair of denim, it has taken on a very personal quality over the years.”

But few companies make sweatshirts—or any clothes, really—like that today. In the 1970s, when the fashion industry morphed into a mass-market business dominated by mall stores, its marketing and distribution costs began to skyrocket. To keep retail prices down, companies began to shrink the price of producing clothes. Today, when you buy a hooded sweatshirt, most of your money is going to the retailer, the brand, and the various buyers that shuttle the garment between the two. The item itself costs very little to make—a $50 hoodie at the Gap likely costs about $6 or $7 to produce at an Asian manufacturing facility.

American Giant has found a loophole in the process.

That loophole seems to be to cut out the middlemen — marketing, distribution and retail — and sell directly over the internet. Of course a little free advertising from Slate from Slate doesn’t hurt:

A basic American Giant sweatshirt costs the factory $12 or more to make—about double what it would cost a foreign factory to make a much lower-quality garment. American Giant pays the factory about $25 to $30 each, and then it sells it to you for $60 and up. Compare this to a model under which you’d buy standard sweatshirt at the mall—say, this $58 Levi’s crewneck. The department store likely buys that shirt from Levi’s for about $30. Levi’s, in turn, pays the factory about $12 to $15 for it, and the factory likely makes it for $6. So you’re paying 10 times what the shirt costs to make, and Levi’s is earning $18 per garment. With American Giant, you’re paying five times what the shirt costs, and American Giant is earning $35. Since there’s no retail middleman, everyone does better under the American Giant model—the clothing company, the factory workers, and you.

But not the retail middlemen, which could frighten you if you are also a middleman, or middlewoman, of sorts. One of my old bosses used to complain that there was no way he could run a legitimate architectural firm and compete with architects that had day jobs and were draughting up office renovations and house additions in the evenings. His office was in Bethesda MD, and he believed that some government employees were doing such work on government time with government materials. Oddly enough, he passed along all his small project inquiries to the young architects on his staff, and I designed a lot of small houses as a result.

American Giant is not an exact parallel to evening entrepreneurs, of course, but they are a part of the attack on the brick-and-mortar retail establishment that I discussed after I bought tires on the internet.

On the one hand, if you are selling stuff, you need to find people with money that can buy it. If you are eliminating jobs, even those of middlemen, you might also be eliminating potential customers. That, to me, is the flaw in the reasoning behind sending jobs to China. You eventually run out of prosperous customers in your home market.

On the other hand, if you are making a better product, and employing local workers, why should middleman jobs like advertising be preserved just to make a poorer product seem like a good deal to impulse buyers?

Again I think people will have to support the businesses that actually deliver good value, not just the lowest price, and bypass the ones that just markup commodities.

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