Shinola: Operating Model as Brand Asset

Made in Detroit helps Restore Shine to Shinola

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.

Business Model:

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.

Operating Model:

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 Shoepolish. The old brand and the new incarnation.
The old brand and the new incarnation.

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.







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Student comments on Shinola: Operating Model as Brand Asset

  1. Being from Michigan, I was a huge fan of the Shinola story when it first was launched. I’m very concerned that their business model is not sustainable because the operating model focuses too much on a story about a brand, which will change over time and a non-proprietary supplier network which will disperse with popularity.

    The brand’s ethos of made in Detroit, relies on the cultural perception of a city going through a renaissance. Launching that brand 10 years ago would have been sure failure, and I think keeping it going for 10 more years will be difficult too. Either Detroit stays cool and the brand become very mainstream (therefore losing some of the price premium for uniqueness) or Detroit falls out of favor and the brand fails entirely. The artificially low labor costs will also be a short term artifact rather than a long term attribute of the city.

    Sourcing components has been great for scaling quickly, again however this strategy favors short term success over long term sustainability. Any large success for a given product will cause that product’s supplier to have a strong secondary market for their raw materials or own product lines. Hopefully Shinola has strong agreements in place to protect them from their own success.

  2. In line with the above comment, could the diverse supplier base actually pose challenges as the company grows? Presumably, Shinola needs all its suppliers to supply the same quantity of their respective input to meet growing demand, but what happens if one supplier reaches capacity before another. Also, Shinola was founded and has taken off as Detroit too hit rock bottom and is rebuilding itself. As the economy in the city picks back up, is there a risk of labor costs increasing and turnover increasing? Shinola’s association with Detroit is also a large asset in the company’s operating model, but it is not one that the founder or anyone else can control – what happens if Detroit slips back into a recession or becomes so gentrified that it loses its “cool” appeal? What will happen to the brand equity and therefore the business?

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