While many retailers are struggling to preserve relationships with overseas vendors and manufacturers, against pandemic uncertainty and shaky foreign relations, one is doubling down on its presence in North America.
New Balance, a privately held business known for its cushioned sneakers and retro-inspired workout gear, has opened a manufacturing facility in Methuen, Massachusetts, the company announced Monday. The move strengthens its reliance on North America for production, as businesses try to navigate an obstructed global supply chain, said President and Chief Executive Joe Preston.
The move comes as prominent business leaders are considering whether globalization as we know it is coming to an end. Larry Fink, chairman and CEO of the world’s biggest asset manager, BlackRock, said last week that Russia’s invasion of Ukraine has upended the world order that had been in place since the end of the Cold War. Over time, that could result in U.S. businesses lessening their reliance on foreign economies to grow.
New Balance said the 80,000-square-foot space recently underwent about $20 million in renovations.
Currently, almost 100 people are employed at the facility, where they make New Balance’s most popular Made 990v5 running sneaker. New Balance said it aims to more than double the size of its workforce there as well as its production capabilities by year’s end. It will help to produce an additional 750,000 pairs of sneakers annually.
“It’s part of our overall mantra of controlling our destiny, which has really come into play in the last couple of years with with Covid,” said Preston, in a phone interview. “The supply constraints have certainly impacted our business, but we were still able to grow [revenue] over 30% in 2021.”
The Boston-based shoe company is building on its current production capabilities in the U.S. Including the Methuen space, New Balance owns five manufacturing facilities across Maine and Massachusetts that employee about 1,000 workers. These spaces help to put together its line of “New Balance Made” sneakers, which are at least 70% domestically manufactured and make up a limited portion of U.S. sales, according to the retailer. New Balance said its worldwide sales totaled $4.4 billion last year.
According to Preston, the goal is to keep growing in North America — a move that is core to the brand’s “Made in America” ethos.
“It differentiates us from our competition, if we make product and don’t outsource all of our production,” the CEO said. “That helps in the quality and the craftsmanship.”
The footwear industry has been particularly whacked by pandemic-fueled supply chain obstacles, including temporary factory shutdowns across both China and Vietnam. Retailers including Nike and Adidas are incredibly reliant on cheap labor and materials overseas.
Pre-Covid, about 70% of shoes sold in the U.S. came from China, according to the Footwear Distributors & Retailers of America. In recent years, however, a trade war between the U.S. and China has pushed retailers to increasingly diversify their manufacturing presence into other countries with hopes of avoiding steep tariffs.
But then the coronavirus pandemic struck, and factory shutdowns hampered operators in places outside of China, including Vietnam. Russia’s attack on Ukraine has heightened uncertainty, as has the resulting tension between the U.S. and China.
Matt Priest, president and CEO of FDRA, said the unpredictability is forcing brands to make decisions day to day, such as where to source from for the next batch of orders.
“There’s this big geopolitical shift that’s happening underneath our feet,” he said in a phone interview. “When you see what can happen in a place like Russia, where brands across the whole Western corporate world collectively pull out in a matter of weeks … it just blows your mind about the kind of the shifts that are happening.”
Nike said last week that its facilities in Vietnam are all up and running, but that the window of time to get goods to North America from overseas remains elongated. It still takes about six weeks longer to get goods compared with pre-pandemic levels, the company said, and two weeks longer than the same period a year earlier. As a result, Nike said it was moving up buying timelines to prepare for the fall season, to try to keep shelves stocked.
It might seem as if the easy answer would be to bulk up production in the U.S. But, according to Priest, it’s a costly option and workers can be hard to come by.
“If you can’t find someone to work at the cafe on Main Street in your hometown, you’re definitely not going to be able to find workers for a shoe factory,” he said. “We don’t have the raw materials. We don’t have the supply chain here.”
New Balance says it sees low turnover rates among its U.S. workers in factories. And, to be sure, the retailer still relies on factories overseas for the remainder of its production. So it faces some of the same challenges as Nike and Adidas, but it can at least offset some hurdles with a North American presence, according to Preston.
“The fact that you can get product quicker to market, the fact that you can respond quicker to consumer trends if you’re closer to the consumer … that’s what domestic manufacturing affords you,” he said.
And, he added, New Balance needs the extra capacity as it sees heightened momentum for its running shoes and reaches a new generation of younger customers.
New Balance is the fifth-largest sneaker brand in the U.S., in terms of dollar sales, with 3.4% of market share, according to data from The NPD Group. While that might seem like a small percentage, it only trails four rivals: Nike, Adidas, Jordan and Skechers, NPD said.
“The brand momentum that we have right now is rooted in our performance business and our lifestyle business,” Preston said. “And it’s the intersection of both of those things that can really drive some energy.”