Despite recent high-profile examples of “onshoring” in other industries, the promotional products market is likely to remain overwhelmingly reliant on overseas manufacturers to make the items it sells domestically. Even so, there could be an uptick in stateside production, particularly in certain categories, and additional manufacturing may move to countries nearer American shores.
Such is the candid consensus assessment of sourcing experts in the promo products space whose companies sell apparel, bags, drinkware, technology items, outdoor goods and most everything in between.
“There’s a strong interest and drive for domestic manufacturing to increase, not only in the U.S. but in many industrialized countries,” says Jose Gomez, president of Kalamazoo, MI-based Top 40 supplier Edwards Garment (asi/51752). “There’s evidence that the needle is currently moving in that direction, but there are structural constraints that will limit the scale of this move.”
Adds Teresa Fang, vice president of supply chain at alphabroder (asi/34063), promo’s second largest supplier: “There will certainly be efforts to bring promo supply lines closer, but the reality of the situation is that for many reasons – from labor cost to the ability to secure raw materials in a cost-effective manner – it will be very difficult to do so.”
The Sizeable Roadblocks to Reshoring
The global supply chain disruption of the last couple years, a result of fallout from the COVID-19 pandemic, has caused problems across industries. In promo, it’s most notably led to issues like inventory shortages, higher product prices and longer production/order fulfillment times. That’s driven increased calls among some distributors and other industry stakeholders to bring manufacturing back to the U.S.
A glance at recent headlines could perhaps fuel the belief that onshoring (or reshoring) – the practice of returning manufacturing that had been transferred overseas back to the U.S. – could be a realistic prospect for promo, given developments in other industries.
Just last month, for example, Intel announced its intention to build what it described as the “largest silicon manufacturing location on the planet” on a 1,000-acre plot of land in New Albany, OH. The initial investment is said to top $20 billion.
The move followed other announcements of new domestic manufacturing initiatives. In December, it was reported that General Motors was contemplating investing nearly $4 billion to expand electric vehicle and battery production in Michigan. Shortly thereafter, Toyota said it’s planning a $1.3 billion battery plant in North Carolina that will employ 1,750 people.
Before those announcements, Samsung declared in November that it’s going to construct a $17 billion semiconductor plant in Texas, marking the South Korea-based technology giant’s largest investment in the U.S.
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The list of examples could go on, including potential legislative help for manufacturing at the federal level. They suggest that there’s not just growing interest in ramping up U.S.-based production, but tangible action to make it a reality. (One implication of that for the promo products industry is that increased sales opportunities may lie ahead in the manufacturing field.)
Still, manufacturing isn’t a one-size-fits-all sector; the inputs and considerations for making a car are different than making a T-shirt. And, as such, the news is less positive when it comes to the foundational question regarding promo’s potential to shift supply chain stateside – at least from the perspective of those who’d like to see large-scale onshoring of the industry’s production networks.
The vast majority of promotional products sold domestically are produced overseas, particularly in China. At its most basic, the reason for that is because over the last several decades it’s become much cheaper to produce abroad many of the items promo sells and then import them, including apparel, the industry’s top-selling category. That dynamic (plus other related ones) remains very much in play, despite cost increases seen during the pandemic.
“When I graduated from West Point in 1993, more than 50% of the apparel in the U.S. was made in the U.S.,” says Dean Wegner, founder and CEO of Authentically American, a veteran-owned business that specializes in U.S.-made apparel production within promo and other industries. “Today it’s tragically less than 3%. Apparel production moved overseas to chase cheap labor and higher profits.”
Wegner doesn’t expect that to change anytime soon, either for apparel or many other products in the promo industry.
Going forward, he believes Made-in-America items will account for a greater percentage of sales in promo, but viewed at scale it will be “a nominal increase in the short term. There’s not enough production capacity in the U.S. to support a significant increase.”
US Still a Major Manufacturing Nation
“Is anything made in America anymore?” Well, the answer surprisingly is yes. The U.S. is actually second behind China for the largest percentage of global manufacturing output. Specifically to the promo industry, about 1 in 10 products available in ESP are American made. ESP is ASI’s database of products from across the promo industry.
Percentage of global manufacturing output that comes from the U.S., second behind China (29%).
Percentage of products in ESP that are Made in the USA.
Chicago-based Lion Circle (asi/67620) is a Made-in-the-USA manufacturer too, producing items like magnets domestically. Still, company President Rich Carollo is skeptical of a major renaissance in U.S.-based production for promo.
“Distributors will always be influenced by price and availability,” Carollo points out. “For the short term, we U.S.-based manufacturers should reap the benefit from those who cannot source goods or who had to increase their price to account for the import cargo container increases. But for the future, I’m assuming things will level out and we’ll see the same percentages of industry business that we had before.”
Also worth noting: even American-made manufacturers sometimes rely on inputs from overseas, such as raw materials and components, and those too have been impacted by rising costs, shipping delays and other global supply chain problems.
Sourcing experts and supplier executives generally feel similar to Wegner and Carollo, saying that a surge in U.S. production probably won’t manifest.
“It’s expensive and would take forever to set up the infrastructure,” says Trevor Gnesin, a member of Counselor’s Power 50 list of promo’s most influential people and CEO of Tustin, CA-based Top 40 supplier Logomark (asi/67866). “The labor prices and shortages will make it near impossible.”
Clearwater, FL-based Top 40 supplier Koozie Group (asi/40480) has what executive Pierre Montaubin describes as the largest assortment of promo products made, printed or assembled in the United States, but he doesn’t believe U.S. production for the industry will grow exponentially in the immediate years ahead.
“It would be impossible to build an alternative supply chain overnight,” says Montaubin, senior vice president for product management and sourcing at Koozie Group. “There are so many steps in the process, from qualifying the factories to navigating transportation, and that doesn’t even consider the sheer cost. We believe we will continue to rely heavily on Asia for the foreseeable future, but we wouldn’t be surprised if a small portion of the supply chain comes back to the U.S. and Central/Latin America.”
“There’s a strong interest and drive for domestic manufacturing to increase … but there are structural constraints that will limit the scale of this move.” Jose Gomez, Edwards Garment
Gomez, of Edwards Garment, elaborates on the roadblocks to reshoring. “On soft goods, the labor-intensive nature of manufacturing makes it hard to grow in the U.S., where unemployment is already back to low levels and there’s high competition for labor,” he says. “On hard goods, the sources of materials and the manufacturing know-how are part of vertical production clusters that are hard to replicate in the U.S.”
Jing Rong, vice president of supply chain and compliance at Braintree, MA-headquartered Top 40 firm HPG (asi/61966), picks up a similar theme, explaining that often products require supplemental service/work that no longer exists in the U.S. or for which the United States lacks sufficient capacity for significant-sized manufacturing.
“The likely next step for sourcing beyond China might be moving some supply chain to other Southeast Asian countries,” Rong says.
As for alternative sourcing destinations, Gomez, like Montaubin, sees Central/Latin America increasing in relevance.
“We already have a strong presence in Latin/Central America that has allowed us to react much faster to our customers’ needs under the current market conditions,” Gomez explains. “It’s likely that promo will grow in the region, but on a limited scale. On the apparel side, our read is that this region’s industry will grow and be healthy three to five years from now, with growth coming both from the promo/uniform market and the retail industries. This gives companies other sourcing options.”
Some promo executives note that evolving technology and environmental concerns could eventually lead to a bigger, more noticeable increase in U.S. manufacturing (or at least closer to the U.S.) to support the branded merchandise market. But there’s uncertainty over how that will play out.
Gomez cites multiple things that could help push near-shoring. For one, high tech and on-demand manufacturing – “like 3-D printing, design-it-yourself products, etc.” he says. Another is the continued push toward sustainability, especially if buyers start to account for the environmental impact of shipping items across large swaths of the globe. “Still,” Gomez adds, “the impact from this is not yet fully known.”
While it appears widespread repatriation of promo’s supply chain is doubtful, certain industry executives see opportunity to drive sales with U.S.-based product lines and are taking proactive steps to capitalize.
Lance Stier, CEO of Hicksville, NY-based Top 40 supplier NC Custom (asi/44900), believes promo will see more demand for Made-in-the-USA offerings in categories like edible items, certain bag constructions, packaging, and health/beauty/wellness products, such as lip balm, candles and sanitizer.
Based on such beliefs, NC Custom has been bolstering its U.S. manufacturing capabilities. In January, the firm announced that it’s expanding its Lanco brand’s U.S.-made production through a robust investment in the domestic filling, manufacturing and labeling of products in the health, beauty and wellness category. The upshot is that production time will shorten, capacity will expand by more than 50%, and there will be greater factory efficiencies.
“We have added branded domestic partners like Mrs. Fields and M&M’s, and also have invested significantly in domestic decoration techniques across apparel, soft goods, hard goods and more,” shares Stier, a member of Counselor’s Power 50.
Percentage of suppliers in ESP that offer at least one Made-in-the-USA product.
While ASI’s 2021 State of the Industry report showed that Made-in-America interest among distributors rose toward the beginning of the pandemic only to wane as time went on, there are suppliers who are experiencing significant growth with U.S.-based manufacturing models.
Hauppauge, NY-based Royal Apparel (asi/83731) is a supplier that specializes in making garments in America. As importing issues led to inventory shortages on certain apparel items amid supply chain challenges last year, Royal Apparel marketed how it was a viable option in garment categories where its stock was deep, a positioning created through a rapid increase in inventory (courtesy of its domestic production) to meet demand.
“This contributed to very strong sweatshirt and T-shirt sales at the end of 2021,” says Sales Director Glen Brumer. “We saw sales levels at the highest in the last three years. It’s continued in 2022. This January was one of the best in our history.”
Brumer expects the momentum to continue. “We’re projecting growth to be approximately 15% this year,” he says.
“Our business is forecasted to double in 2022. We believe that will continue for the next 5-plus years.” Dean Wegner, Authentically American
The forecast is also positive at Chicago-based Pacesetter Awards (asi/75640), which has offerings that include hard-good awards, gifts and acrylic barriers. “We’re on track for double-digit growth for custom awards and our stock product manufactured in Chicago,” shares Kamil Dys, vice president of sales.
Over the last two years, Pacesetter has made what Dys describes as large investments in employees and machinery, such as digital printers, computer numerical control (CNC) machines and laser cutters.
“We started these investments early on during the pandemic because our sales of acrylic barriers skyrocketed in the summer of 2020,” Dys details. “These same laser cutters and CNC machines have been vital in the production of large recognition product orders we’ve won over the last 12 months. Our 2022 full-line catalog has over 100 new USA-made acrylic designs. Our product line, a third of which is produced out of acrylic, is something we can easily pivot and manufacture here.”
Wegner’s Authentically American has strategically carved out a niche as a veteran-owned stateside producer of apparel. The quality products, domestic manufacturing and business’ patriotic brand has attracted a growing number of clients and garnered attention from national media outlets. “Our business is forecasted to double in 2022,” says Wegner. “We believe that will continue for the next 5-plus years.”
Bottom-line: U.S. producers are out there. Some are thriving. Still, most products sold in the North American promo market will continue to be made outside these shores.