If an investor were presented with the challenge of opening a factory in a city whose manufacturing industry has long since collapsed, should they take it?
This is exactly the endeavour billionaire Tom Kartsotis embarked upon in 2011 when he chose Detroit, Michigan for the site of his company Shinola, a watch and leather goods manufacturer. The initial 2800-square-metre facility, built on the premises of Detroit’s College of Creative Studies, began with nine employees. With training from Swiss watchmaker Ronda and robust public sector support, Shinola has expanded its operations from watchmaking to producing bicycles, leather goods and audio equipment such as turntables.
Since opening its first store in 2013, demand has been such that Shinola’s employee count has grown to more than 625 on three continents and its factory space has trebled. Yet for CEO Tom Lewand, former president of NFL team the Detroit Lions, profits and bottom lines are secondary to a greater core mission.
“Our goal is to put as much of the manufacturing process of watches, as well as bicycles, leather goods, audio equipment and other products, back into the hands of the American worker,” he says. This means partnering with community-based training organisations and equipping local workers with assembly and technical skills that the city has not seen on a large scale in several decades.
A time of decline
Nicknamed 'the Motor City', Detroit was the beating heart of the US auto industry for more than half of the 20th century. Millions of residents built families and lives on the back of the auto boom, where companies such as Ford and General Motors churned out cars and machinery for the world.
When manufacturing began moving to countries with cheaper labour and global competition saw Japanese and other foreign automakers enter the market, Detroit’s auto industry collapsed, and factory closures left unemployment, poverty and crime in their wake. What many described as the apocalyptic demise of the former powerhouse is captured even in pop culture, its streets the backdrop of songs by well-known rap artists such as Eminem and Big Sean. In the depths of the recession in 2009, unemployment in Detroit was treble the US average at 28%. Improved job creation has brought that figure down to about 9%.
Locating in Detroit, then, is not for the faint-hearted. “While it has been a great ride so far, the challenges really lie in re-establishing those manufacturing processes that have largely left US shores,” says Mr Lewand. “It’s looking at how we train workers, how we manage the supply chain, and particularly for the new categories we are entering, learning about the industry itself and establishing credibility and authenticity in each of those spaces.”
The company certainly could have chosen other destinations: Mr Kartsotis, who also founded watch company Fossil Inc in 1984, is from Dallas, Texas. But for Mr Lewand, a Detroit native, the impetus behind the move lay in providing much-needed opportunities for ordinary people and tapping into a legacy of making things.
Pool of talent
Of the nine original factory employees, many are now leading training for Shinola’s current workers, while skill sets have expanded into new areas of operation, from watch and bicycle assembly to programming and design for leather and audio production.
“We have now established the expertise here locally,” says Mr Lewand. “We are seeing a rapid advancement of skills, which leads us to the conclusion that it was less a lack of skill in the area and more a lack of opportunity. Once the opportunity was there, there was no shortage of aptitude for people to acclimate to the necessary skill required in the watch factory or the leather factory, which are distinctly different skill sets.”
The average hourly wage for the roughly 400 workers based in Detroit is double the federal minimum wage, which the company aims to increase once profitable. “Where our scale is currently in terms of volume, we can safely afford to invest in our workers. Our investment is in people and that is where we want to keep our focus,” says Mr Lewand. This means partnering with local development organisations such as Downtown Detroit Partners and community colleges to identify jobseekers, provide preparatory training and offer support services such as transportation assistance and coaching, enabling workers and the unemployed to gain the necessary traction for job success.
At the same time, the CEO is candid about the work that lies ahead. “For us, there is still a great deal of work to be done and a great deal of jobs to be created,” he says. “We are creating hundreds of jobs, not thousands. We are not Ford Motor Company. Yet there is still an opportunity to do meaningful job creation within the parameters that we have established for ourselves in watches, jewellery and audio.
“As we look at rolling out new product categories, we measure not only the margins on the product itself, but also how many jobs it helps us to create. I think that is a governing principle of ours that may or may not match up with what other companies look at.”
So what makes Detroit special? The investment is emotional as well as financial, Mr Lewand explains. “We all have a common commitment to our community, whether that’s folks from other parts of the country, or folks like me who were born and raised here and have been through tough times with the city and now are seeing some growth and good things happening after quite some time,” he says. “It’s about trying to embrace that and leverage it, so that those opportunities extend beyond just a few city blocks in the downtown area and into our neighbourhoods and really create a wide-ranging rebirth of the city.”
“The Detroit of 2017 and 2020 isn’t going to be the Detroit of the 1950s or the 1960s,” he continues. “It will be something new and different with energy of its own. I think that’s an incredibly powerful motivator for everybody who is a part of Shinola.”
Shinola currently runs 23 stores as far afield as Toronto and London, and aims to have more than 30 open by the end of 2017, less than four years after the launch of its first store. It has also partnered with Detroit billionaire Dan Gilbert in a major hospitality investment: the eight-floor Shinola Hotel, due to open in central Detroit in late 2018.
“The optimism that our workers display and the incredible reception the Detroit community has given us has inspired us to invest more time and resources than we ever imagined,” says Mr Lewand. “It really does drive us in ways that are as significant – or in some ways, more significant – than just the bottom line.”