October 31, 2014

Manufacturing

Made in Florida

Florida's manufacturers toil in the shadow of the rest of the state's economy but still employ more workers than 37 other states, including factory-rich Missouri, Connecticut and Massachusetts.

Mike Vogel | 9/1/2004
Shoemaker Howard Shaffer apologizes for the condition of his factory offices in Pompano Beach. "This has been chaos," he says.

Scores of fashionable men's shoes lie by the stairs as if a hundred senior executives had dropped in for a sock hop. Shoes are everywhere, along with leather samples and plastic lasts. Shelves in Shaffer's office hold still more shoes, of the finest American and Italian brands, some chopped in half to see how they were made.

Shaffer worked until midnight the night before and 3 a.m. the night before that to finish shoes for a menswear trade show in New York. As he speaks, his son, Ryan, and daughter, Sabrina, are somewhere near Washington, D.C., in the truck carrying Shaffer's wares to the show. Shaffer and his wife, Jennifer, will follow by air.

Shaffer, 55, has spent the past eight years and $12 million getting to this point -- the national rollout of the custom-fitted, high fashion shoes manufactured by his own company, Otabo. He hopes revenue and profitability will follow in the year to come. "It hasn't been easy," Shaffer says. "It's so hard to get from the starting point to the point we are today."

In trying to profitably manufacture shoes in the U.S., Shaffer is swimming against the tide. From 1995 to 2002, 81 shoe factories closed in the U.S. as imports grew from 1.4 million to 1.9 million. In Florida, the number of footwear manufacturing employees since 1997 dropped 42% to 899 in 2001.

Shaffer's approach, situation, scale -- and the challenges he faces -- are emblematic of manufacturing in Florida, a state better known for tourists than tool-and-die makers.

Manufacturing has a rich, if limited, history here. Boat-making has been a staple. Cigar-making in Key West and Ybor City were big in the 19th century. In the 1950s and 1960s, Florida was one of the fastest-growing industrial states in the South, buoyed by frozen-juice concentrate making, apparel production in places such as Hialeah and, following Cape Canaveral's development as a space launch center, electronics manufacturing.

But manufacturing peaked as a percentage of the gross state product in 1984 at 11.5%. It's been downhill since. Today, manufacturing contributes just 5.9% to Florida's gross state product, compared to 26% for services. Only five out of 100 Florida workers earn their wages at a manufacturer, compared to 11 of 100 nationally.

Florida leads only such anemic manufacturing states as Alaska, Hawaii, Montana, Nevada, New Mexico and Wyoming in the percentage of its workforce in manufacturing, according to the U.S. Bureau of Labor Statistics.

Most Florida factories are tiny, often family affairs. Indeed, 95% of Florida manufacturers, such as Shaffer's 30-employee Otabo, employ fewer than 100.

But even though manufacturing is obscured by the rest of the state's economy and by the absence of large, Florida-based manufacturers, its slice of Florida's economic pie belies its heft. Florida manufacturers in late 2003 employed 383,951, more than 37 other states, including factory-rich Missouri, Connecticut and Massachusetts.

It's a tough time for manufacturers. The number of manufacturing businesses in Florida fell by 1,371 since 2000 to 18,253, according to the Florida Manufacturers Register. Production worker jobs in Florida -- and nationally -- fell nearly 7% from 1997 to 2001, according to the Census Bureau. A few manufacturing sectors have done comparatively well. Medical equipment and supplies manufacturing, for instance, saw employment in that span increase 23% to 21,177.

Others suffered dramatically, however. Apparel manufacturing employment dropped 36% to just under 12,000. The state's metropolitan areas cumulatively shed 4,800 manufacturing jobs in the last year. Tampa and Orlando had the most losses, shedding 3,100 jobs. Daytona lost 4.8% of its manufacturing jobs, the biggest percentage decline in the state.

Pressure from China
The recession hurt, but lasting damage came from imports, with China the particular object of fear.

Shaffer knows China well. The New York native first learned Chinese while in the Air Force. He got his bachelor's in business from a University of Maryland program in Taiwan and opened Nike's Beijing office in 1981, contracting with Chinese government factories as suppliers.

In 1985, just after China shifted its emphasis from heavy industry to light, he opened one of the first joint ventures -- a collaboration between China and foreign-invested capital. "We were the first really successful one," Shaffer says. His operations turned out 800,000 pairs of shoes a month for Timberland, Hush Puppies, Nike, Adidas and others.

In 1996, he returned to his nominal home in Florida, where his parents had lived since he went to college, so that his children could attend high school in the States. He built the most automated shoe factory he could in Pompano, but "in the end, we couldn't compete against our own factories" in China, he says. Labor here: $10 per hour. Labor there: 30 cents per hour.

There were other considerations. "You don't have to worry about carpal tunnel syndrome in China. You absolutely have to worry about it in the States," Shaffer says. Manufacturing groups say U.S. regulatory compliance adds 22% to their cost of production against Chinese goods.

Manufacturing in Florida is a niche business, and Shaffer hit upon a niche solution to become viable. Because he couldn't compete on volume, he elected to compete on customization. He sold his interests in China to management there and set out to cater to the loads of people who want a high-end shoe but have one foot a size bigger than the other or a low instep, narrow heel or other trait that makes it difficult to find a pair of shoes that fit.

A standard shoe style comes in 45 different shapes -- 15 sizes, each offered in narrow, medium and wide. Shaffer's Otabo shoes can be customized into 960 variations, with more sizes than a standard shoe and several widths and options for narrow heels and the like. He's working on making it 1,800. He offers them relatively cheap. Custom men's dress shoes can run $3,500 a pair. Shaffer, building on the automation foundation from his failed attempt to compete against China on volume, charges $400 to $450 a pair.

Shopping list
The specter of China formed the backdrop in Orlando in June as a group of industry lobbyists and manufacturers met to encourage each other and to outline a strategy for reducing their costs by winning tax breaks from the state.

A draft strategic plan for the Manufacturing Advisory Council of Enterprise Florida, the state's economic development unit, calls for a push to end the sales tax on production and R&D equipment. The tax dissuades manufacturers from modernizing, council members say, and leads to the loss of high-paying jobs. Florida's average manufacturing wage is $39,000, 20% above the state's average wage, according to the Agency for Workforce Innovation.

"Time after time we're left standing at the altar. We need to be bigger than tourism. We need to be bigger than agriculture -- maybe not in dollars and cents but in perception," says lobbyist Nancy Stephens, executive director of the Florida Minerals and Chemistry Council.

The shopping list for the Enterprise Florida manufacturers group also includes cutting health insurance and workers' comp premiums and reducing liability, power rates and regulatory burdens. To that end, manufacturers were exhorted to meet with local newspaper editorial boards, build a stack of press clips, volunteer to speak on manufacturing's importance at civic clubs, donate to and volunteer on political campaigns and bus workers to a Tallahassee rally.

At the Orlando meeting, manufacturers received some good news. The state this year is devoting more federal money to a workplace training program whose primary users are manufacturers. The state set aside $1.5 million specifically to train manufacturing employees, in addition to $3 million for its Incumbent Worker Training program, which has trained 23,000 manufacturing workers in the last three years. Shaffer cites finding qualified workers as his paramount problem in Florida.

As he readied to leave for New York, Shaffer had high hopes the show would lead to his shoes being carried by some of the 700 high-end menswear retailers who would attend. His shoes now are in four "test" stores in Oregon, Texas and Florida. Customers have their feet scanned; a computer back in Pompano matches them to the right shoe, which is then made to order.

Shaffer needs more retailers and expects to broaden Otabo's line to casual wear and women's shoes. "We intend to grow to be very substantial," he says.

Eventually, Shaffer plans to employ more than 1,000. "It's custom fit. No one offers that at the prices we are," he adds. "I know it will be successful."

Tags: North Central

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