Shinola’s rapid rise to pop culture stardom demonstrates the effective alignment of its business and operating models. In particular, the company’s business model capitalizes on its brand motto “Where American is made” by using its operating processes to create physical products as well as yield significant returns in brand value.
Shinola is an American brand launched in 2012. The brand manufactures and sells watches, journals, leather goods, bicycles, and apparel through retail, online and wholesale channels.
Shinola sources from a daisy chain of American producers (with a scant few international suppliers in the mix) to source inputs and assembles its final products in Detroit. By emphasizing the American-made nature of its goods the company competes at mid-tier luxury price points, and by sourcing its labor and manufacturing from underutilized sources maintains solid, if not luxury level, gross margins. But let’s dig a bit deeper into the assets utilized to create value.
Asset: Diverse Supplier Network
On the production side of the business, the company utilizes a diverse supplier network to create product that is all branded under the company’s most important asset, the Shinola brand name. While at first blush it may seem that Shinola exists as a single Detroit based manufacturer, the company’s website and press on the company both make a key point of emphasizing how Shinola sources watch straps from Florida, leather from Chicago, and (gasp) a few watch components from Switzerland. By working with a diverse supplier base, Shinola has been able to scale quickly without significant capital.
Asset: Skilled Labor Force
Shinola’s production also hinges on a labor force that was trained and hired after being put out of work in the collapse of the Detroit auto industry. The company has discussed how it brought Swiss watchmakers over to Shinola’s Detroit factory to train its team; capitalizing on the high potential of a motivated group with limited alternatives.
Asset: The Supply Chain and Supply Chain Location as the Key Brand Asset
Shinola’s biggest coup comes from its ability to leverage its tangible assets into the creation of its intangible brand asset. The company’s website is filled with artistic films and earthy photographs that bring to life the hardscrabble craftsman who make beautiful, yet simple, luxury products. In addition, management has readily acknowledged the importance of Detroit to the company’s success. In fact, before Detroit was selected as the manufacturing city, management commissioned a focus group and asked participants whether they preferred a $5 pen from China, a $10 pen made in the USA or a $15 pen made in Detroit. People preferred the cheaper Chinese pen, but were willing to pay the higher premium for one made in Detroit. With confirmation that Detroit added enhanced value, the team set up production in Detroit.
Asset: Word of Mouth and Stores and Production Facilities as Brand Shrines
The company’s story thus becomes perfect for post-recession America, where many consumers yearn for simpler times while continuing with conspicuous consumption. Playing on emotional sensibilities leads to a strong social media presence. Coupled with a retail base of 16 stores, the company is able to save on traditional marketing as foot-traffic and press translates to word of mouth sales. Furthermore, final assembly in Detroit has become part of the brand mythos, as evidenced by tourists who visit the factory to see production in action.
Asset: A Founder who knows the space and stays out of the way
Finally, an overlooked asset for the operating process has been the founder of the company, Tom Kartsotis, who previously founded Fossil. His expertise in watchmaking, wholesale relationships, and keen eye for branding (even being smart enough to keep himself out of the limelight and let the product shine through) have certainly explained much of Shinola’s success.
The alignment has enabled the rapid growth of Shinola, which hit $80M in gross sales in its first 18 months after launch and has continued its success story.
Shinola’s success has spurred harvesting of the brand, with SKUs proliferating from notebooks to dog collars. Yet, perhaps no item signals the brand’s arrival so much as its relaunch of Shinola shoe polish, that of the old-timer phrase, “he wouldn’t no $h!t from Shinola” – the polish sells at a premium today.