Karen Kane Inc. is glad to be home.
The Vernon apparel manufacturer, which as recently as 2008 made half of its line of women’s clothing overseas, this year will produce virtually all of its products in the United States.
With its manufacturing largely consolidated at home, the company is preparing an expansion into new lines, signing a contract last month with a division of talent agency IMG Worldwide Inc. to help it license its brand to makers of handbags, glasses and jewelry.
The effort, said Michael Kane, the company’s marketing director and son of co-founders Karen and Lonnie Kane, will offer customers a new way to experience the brand.
“There is no rush to start everything right away,” he said. “We are excited to get the category going, but it’s about finding the right fit.”
IMG’s licensing division will identify potential partners for the apparel maker, which will oversee and approve designs. The branded goods, which the company expects to complement its core sportswear products, are expected to be in stores by fall 2014 or spring 2015. Karen Kane, the company, and IMG will share the licensing fees.
The move to expand the Karen Kane brand comes after a couple of years of strong sales for the Vernon company, coupled with a significant shift in its approach to manufacturing. This year, 92 percent of the company’s product will be produced in the United States, compared with just half in 2008.
That year, the peak of its off-shoring efforts, capped a two-decade process of chasing lower manufacturing costs overseas, particularly in China. But in the last few years, Karen Kane has been among the wave of American textile firms that have repatriated their manufacturing. While hourly wages overseas still fall far below those in the United States, changes in three areas – quality, cost and speed – have helped make domestic manufacturing a far more appealing value.
The cost to manufacture sportswear in China, Michael Kane said, was 25 percent less than in the United States five years ago, but now that gap has closed to the point that the costs are comparable.
Cost is just one factor in the calculation about where to produce goods. Karen Kane and other manufacturers have found that, since 2008, the quality of the products they receive has been decreasing.
The company at one time inspected just 10 percent of the goods it brought in from China, but as those inspections revealed a decline in quality, Karen Kane began to expand inspections. In the end, rather than inspecting a fraction of the goods produced in China, the company had to go to the expense of reviewing every order it placed for quality.
At the same time, wages in China were on the rise.
According to U.S. Bureau of Labor Statistics, the average hourly manufacturing compensation in China was $1.74 in 2009, the most recent data available. Though that’s well below California’s $8-an-hour minimum wage, it marked a steep increase from the 83 cents an hour Chinese apparel manufacturers paid workers in 2005.
Walter Wilhelm, chairman and chief executive of Walter Wilhelm Associates, an apparel and footwear consulting firm in Salt Lake City, said that the cost of manufacturing garments in China in 2005 was just one-quarter the cost of manufacturing in the United States. But that gap has closed significantly.
As wages rose in garment factories along the Chinese coast, factories moved inland. That, Wilhelm said, meant hiring less-skilled workers, causing quality to decline. But he expects that problem to improve over time.
Challenges at home
But Karen Kane didn’t have the luxury of waiting. The volume of goods that failed inspection was so large, and the time it took to fix the problems so great, the company missed a shipping date in 2010, resulting in cancellation of orders for more than 3,000 sweater pieces.
It was time, Michael Kane said, to bring as much production back to the United States as possible.
Bringing production back to the states was not without difficulties.
Kane said a wave of American apparel manufacturers bringing production home made it hard to finding domestic contractors for his 2012 summer collection.
“There were only a limited number of contractors and their facilities are filled up,” he said. “They just didn’t have the resources to fill out the orders on time.”
So Karen Kane, headquartered at a 130,000-square-foot Vernon plant, bumped up employment by 30 percent, adding 40 people to its staff of 140. In addition, it found about a dozen new contractors. Some products, like more labor-intensive silk blouses, are still made in China.
At 92 percent, Michael Kane said, the company has likely peaked as far as domestic production.
That level brings the company almost back to where it was at its formation, in 1979, when Karen Kane, its chief designer, and her husband and business partner, Lonnie Kane, its president, made all their products in the United States.
The company, which declined to disclose annual revenue, sells at department stores such as Macy’s, Bloomingdale’s, Nordstrom and Dillard’s, as well as in more than 400 smaller specialty boutiques. It has six divisions manufacturing sportswear and casual clothing for women under the Karen Kane, Karen by Karen Kane and Robert Michaels labels, among others.
With the shift back to the United States, those products are likely to get to stores much more quickly.
The turnaround time for goods manufactured in China is about six to nine months, Michael Kane said, while the turnaround time for local production ranges from one to four months, depending on the product.
Frances Harder, president of Fashion Business Inc., a non-profit organization in Los Angeles serving fashion businesses, said retailers used to place three or four orders a year. As turnaround time speeds up, they are able to respond to the market more quickly, and place between seven and nine orders a year.
Wilhelm described the current trend as “balance sourcing” instead of in-sourcing.
“What companies are looking for right now,” he said, “is how (to) balance the cost and risk in the speed, the efficiency and all different factors.”
He said China probably will still be the largest manufacturer in the world, but will really only offer value to companies with annual sales of more than $200 million.
In addition to the time and cost calculations, said Michael Kane, the company has come to appreciate the value of the “Made in USA” label.
Dillard’s put together a collection of Karen Kane products with signs that said “Made in USA” last year and trained its associates to point out the sourcing to customers, he said. Products labeled “Made in USA” posted 15 percent higher sales than nonpromoted items.
“Every department store has been really receptive to it and wanted to build upon it,” he said. “We’ve tried to do what we can with every single one of them to make sure that their sales associates know the products are made here.”