Last year, Chaco founder, Mark Paigen made the difficult decision to shift all of his Colorado-based manufacturing to contractors in the Far East. While the company has been manufacturing all of its newer models abroad for five years, Paigen was able to maintain a small manufacturing presence domestically to produce the Z series.
“In order to be as competitive in the outdoor footwear market, we need to be as efficient as possible with our sourcing structure,” Paigen said. “All of our new products were sourced in China already. There werent any changes to tariffs or duties. We needed to do this, because our internal costs continued to rise and it made economic sense to look at our alternatives,” Paigen told The B.O.S.S. Report. “We have been sourcing product from China for about five years now, and the quantity has been steadily increasing. About a month and a half ago, we told our employees internally that the last shipment of U.S. made Chaco sandals would be sometime in the Summer of 2008.”
When this news broke in the local media, there was, understandably, a good deal of backlash, with long-time Chaco customers questioning the companys motives. Paigen chose to face this challenge and addressed even the most inflammatory accusations head-on and publicly on Chacos website.
“Chaco looks forward to having gross margins as strong as those of all our competitors. The additional income will be used in a number of areas; our highest priority is Product Development. We would like to extend the values that have drawn a loyal following to Chaco to other categories of footwear. In addition, there are many great product enhancements that we have been unable to do because the new designs would be cost prohibitive to produce in the US. Asian manufacturing allows us to make those enhancements. Funds that drop to our bottom line will increase profit sharing, a program that Chaco has had for employees since inception, and to our philanthropic efforts,” Paigen wrote on the site.
Paigen pointed to several economic advantages to sourcing Chacos footwear in China, including lower costs and easier inventory management. “We have a pretty limited base for labor in our factory, so our production capacity is limited. We used to have to make sandals all winter long and warehouse them until they shipped in the spring. Now we can bring in a few big shipments and be ready for the season,” Paigen said.
About 40 to 50 jobs will be eliminated in Chacos factory. All employees are being offered job placement help and assistance with any transition to new work. Severance packages will also be offered to key employees that helped Chaco grow into the company it is today.
On Chacos website, Paigen also wrote, “We managed to retain manufacturing in the US for 18 years. I personally helped design the production line and was instrumental in Chaco's implementation of Lean Manufacturing, a system that enhanced efficiency and productivity. I worked some very long days optimizing systems so we could continue production in the US. Shifting production to Asia was never our first choice. Most “outdoor” companies have either already made the move offshore, or have never manufactured in the U.S.”
Editors note: See Paigens entire FAQ at ChacoUSA.com
