Shinola: “Where American is made.TM”
Shinola, whose watches have been rising in popularity (Bill Clinton has reportedly purchased more than a dozen [2]) is attempting to build its brand on the city in which it is made: Detroit.
Detroit (or ‘the D’) was once known almost exclusively for the manufacture of automobiles. Then the auto industry, and the D as a whole, fell on hard times. Now new companies are stepping in to take advantage of an excess of both available labor and real estate capacity [3]. One such company is Shinola, and they’ve been quite successful so far.
Business Model
Shinola’s primary value proposition is that they manufacture high-quality products that are built in America (the D, to be precise). The products themselves are an eclectic array including watches, bikes, shoe shine (a tribute to their name*), and a variety of leather goods. The watches are the feature product; they are assembled in Detroit by workers whose training was facilitated by a Swiss-based component manufacturer. The watches are made from all Swiss movement components [3], and each watch reads “Built in Detroit” [1]. The result is an American-made, Swiss-quality watch that Shinola considers to be an incredible value, and they hope their customers will too [3].
Shinola believes that their customers value products made in America, but also that they value the work Shinola is doing to rebuild Detroit [3], a social mission side to the business. Before choosing the D as the manufacturing location, Shinola’s founder reportedly “commissioned a study of pens in which subjects were asked if they prefer pens made in China, the USA or Detroit at price points of $5, $10 and $15 respectively.” [4] The result was that people picked the Chinese pen over the USA pen due to the cheaper price, but were willing to pay the higher price point when it came to the Detroit pen. This is the customer sentiment that Shinola aims to capitalize on.
Operating Model
Location, location, location…
As you are now well aware, Shinola assembles products in Detroit. In addition to playing a huge role in terms of their value proposition, this also means:
- American manufacturing in a location with very low real estate costs
- Abundance of available labor
- Keep shipping costs low for primary customer base (Americans)
It’s all about the training…
Shinola spared no expense on the training of their watch assemblers (see below for a video clip), in part to support the high quality value proposition. Another advantage: their up-front investment in training has created a competitive advantage for them in the form of highly skilled workers. Their highly-skilled work force is a barrier to entry that other companies will face should they seek to compete at manufacturing watches of similar quality in the USA.
The value of partnerships…
From the beginning Shinola has made a point of developing valuable partnerships. Ronda, LTD of Switzerland is the watch movement manufacturer that Shinola partnered with to train their employees. Shinola also partners with the College of Creative Studies in Detroit, in whose building the Shinola watch factory is housed. Shinola leads student design workshops, and in return has access to a wealth of up-and-coming design talent. [5]
Shinola has also pursued partnerships with other select watch brands. The intent is that when their production volumes are below factory capacity, they can use that excess capacity to assemble watches for their partner brands. This arrangement means Shinola can keep fixed costs per unit as low as possible even when their own watch volumes are below factory capacity. They also left themselves room to grow; the factory capacity started off at 500,000 pieces, with room for expansion to up to 1.2 million pieces. [3]
What’s next?
Shinola’s business is not without its critics, some of whom suggest that they are simply telling a really good brand story that takes advantage of “do-gooder impulses,” while not really manufacturing much but rather just assembling foreign components [6]. On the flip side, others suggest that Shinola is doing it right: slowly building up the right capabilities, in the right way, to move toward manufacture their own components in the future [7]. Time will tell if Shinola will indeed bring more of its component manufacturing to the US, and if the power of “Built in Detroit” will continue to prosper, but for now they’re doing just fine.
*if you’re interested more on that here: http://fortune.com/2013/07/09/think-you-know-shinola-think-again/, see 4th paragraph
Sources:
[3] http://www.forbes.com/sites/arieladams/2013/05/16/the-story-behind-built-in-detroit-shinola-watches/
[4] http://www.crainsdetroit.com/article/20120527/FREE/305279963/fossil-founder-digs-the-d
[5] http://www.shinola.com/our-partners
[6] http://www.nytimes.com/2013/08/22/fashion/the-next-branding-of-detroit.html?_r=0
[7] http://www.ablogtowatch.com/made-in-detroit-a-visit-to-shinola-watches/2/
Featured Image Credit: http://www.shinola.com/
Training Video Credit: https://vimeo.com/54969003
Very interesting company Betsy! I was wondering if you know what the typical price point for a Shinola watch is relative to other manufacturers in the industry. Are they looking to push the “American-made” story to the extreme high end (e.g. Rolex), or more to the middle where Japanese quartz watch companies are more prevalent?
In my mind, they would likely be more successful marketing to the middle segment of the market, where brand loyalty and association is not as strong as with the high end. However, I’m not sure whether they can manufacture the high quality mechanical movements at a cost where this is feasible. Do you know what they strategy is?
Thanks!
They are currently competing more in the middle ($500-$1000) with a few higher price tag limited edition models (>$2000). Right now they assemble in Detroit but purchase their movement components from a Swiss company, and they are quartz watches. I think there is definitely an opportunity for them to manufacture more of their own components as they grow, but not sure if they will venture into the high-end mechanical space.
Great post Betsy!
I think it’s really interesting that Shinola doesn’t only manufacture watches, but also manufactures bikes, shoe shine, and a variety of leather goods. I’m wondering what is there hedge in these other businesses and I’m struggling to find the common thread between all of these industries. Is it just that the “made in Detroit” is really popular right now or that they are able to leverage the low real estate costs and abundance of available labour in Detroit? Are they using a similar operating model all of their products and are they as successful in their other businesses as they are with the watches? And, if so, have they found the secret recipe to bring back the “Made in America” ?
Really enjoyed the post, Betsy! I’ve actually had the opportunity to visit the Shinola store in NYC. It was definitely an experience – being located in an affluent neighborhood (TriBeCa), having its own coffee shop at the entrance, and the store space being high-ceilinged with exposed brick and bicycles hanging on the walls and their watches and leather goods showcased in glass boxes.
I think it’s fascinating not only that they’re re-invigorating the meaning of “Made in Detroit” (and potentially, as Andy suggests above, to “Made in America”/”Made in the USA”) but also that they’ve completely redesigned and rebranded a name that used to be associated with shoe polishing. The retail/luxury market (specifically the watch industry) is so saturated with European brands that it’s refreshing to see an American brand such as Shinola come to prominence because there is so much uncaptured value in the “Made in the USA” tagline that very few brands have been able to tap within this space.
In response to the criticisms of Shinola just being an assembler of foreign parts, would you think it would make sense for them to start building their own components rather than procuring them from Swiss vendors? It would be a significant endeavor but I wonder if the value-add brought on by doing so would outweigh the investment.
Thanks Gabo! I definitely think Shinola should at least be considering/investigating building their own components, but without knowing more granular detail about their cost structure it’s hard to say if the added value would indeed merit the investment. Also, since they have established a close partnership with their Swiss movement component supplier (Ronda LTD, who facilitated their employee training) it’s possible that they may be locked into a purchasing agreement with them for some amount of time.
Very cool post… will have to check it out as I am currently looking for a watch, after abandoning my relatively lame Apple Watch!! Here is a truly mechanical company that is doing great…
Neat choice. I know this company well and met the founder (also the co-founder of Fossil) – awesome guy and fascinating story. My view is that the authenticity of any company’s story is key, and there is no doubt the Shinola story is an authentic one. Regardless of where the components come from, building the units in the U.S. is unique and they don’t try to hide the sourcing partnership at all. I think they have put together a great marketing story, and it will be interesting to see how/if they can become profitable – my guess is they are investing huge amounts into marketing and opening flagship retail locations and have yet to recoup any initial investments. Worth noting too that they also acquired Filson, which is an iconic made in America outdoor brand. Their vision for owning a portfolio of US iconic brands could be pretty lucrative if they pick the right assets…