The Gear Biz

 

The West has become the nation's playground, but is there a future here for the folks who make our outdoor toys?

CORTEZ, COLORADO — A blue-and-white “For Sale” sign marks the Osprey Packs factory, a low metal building that sits beside a sand-and-gravel operation on the outskirts of this Four Corners city.

Osprey Packs is a success story built on the popularity of outdoor recreation: The company makes some of the finest backpacks in the world. But it doesn’t make them here anymore.

Back in 1990, Osprey founders Mike Pfotenhauer and his wife, Diane Wren, moved their small, home-grown firm from Santa Cruz, Calif., to southwestern Colorado. They came because they loved the place, and because they had heard there were good, affordable workers on the nearby Navajo Reservation.

Some Navajo employees commuted two hours each way to their jobs in what grew to become a 30,000-square-foot factory. The jobs paid $7 to $12 per hour — better, Pfotenhauer says, than most other jobs in the area. By 2001, 92 people were working here, 78 of them manufacturing packs.

Then, in May 2002, Osprey became the final large U.S. backpack maker to shift its manufacturing overseas, joining the diaspora of companies such as Arc’Teryx, Gregory, Lowe, Mountainsmith, REI, Eastern Mountain Sports and Dana Designs.

Today, only 14 people work in the huge building, most of them in sales, marketing and administration. In August, Mike Pfotenhauer, who remains the company’s principal designer, moved with his family to Ho Chi Minh City, Vietnam, in order to be close to the factory that now produces all of Osprey’s 42 different backpack models.

“When the American consumer begins to understand all the hidden costs that underlay cheap goods, maybe they will find it truly more economical to buy their goods locally made — but this is the sort of change that would require generations of time,” Pfotenhauer said by e-mail from Vietnam.

Osprey’s story is a cautionary tale about how even in the much-touted recreation economy of the New West, distant economic forces exert profound influences on the region.

Conventional wisdom holds that low-paying service jobs are replacing high-paying resource extraction jobs around the West. The traditional place-based jobs that were built around the West’s timber, livestock and minerals have spiraled downward in recent decades. At the same time, sports that did not exist a generation ago, such as mountain biking and snowboarding, have shot up in popularity. Recreation — especially the kind of recreation that depends upon public lands — is seen by some as the region’s salvation.

But can recreation spawn more than minimum-wage jobs in restaurants, hotels, rafting companies, ski areas and fly-fishing shops? As recreationists snatch up bikes, kayaks, climbing equipment and clothing, can the companies that make these toys set root in the rural West and create new and potentially well-paying manufacturing jobs?

Well, yes — but apparently only up to a point. From children’s fleece clothing to expensive fishing poles, recreational gear of all types is made today in the West. The region has become an incubator for recreation-equipment manufacturing jobs. But in the borderless world of global trade, few of the West’s home-grown recreational equipment companies seem to keep their production jobs in the region for long. Only those companies that are small, specialized, or too innovative to copy, still bear the Made In USA label. In that reality lie hard lessons for the communities and entrepreneurs of the West.



Cortez is an archetype of the West’s amenity-rich towns, the sort of place that was “discovered” during the 1990s by lifestyle immigrants who wanted to live where they played. The city is centered in the broad, shallow valley of McElmo Creek, on the edge of the Colorado Plateau, where the alpine forests to the east give way to sagebrush, piñon pine and juniper. At 6,000 feet above sea level, the valley is rimmed by the snow-capped La Plata Mountains to the northeast, the flat tableland of Mesa Verde National Park to the southeast, and the Ute Mountain Indian Reservation’s Sleeping Ute Mountain to the southwest. From here, the desert begins its long roll down through New Mexico, Arizona and Baja California to the Pacific Ocean.

Settled in 1882, Cortez was founded by a group of investors who hoped to attract Easterners suffering from tuberculosis and craving clean, dry air. It soon evolved into a typical farm-and-ranch supply town, supplying ranchers who grazed livestock in the mesas and valleys to the east and south, and farmers who found rich soil to the north. Today, Cortez is home to about 9,000 people. Chain hotels and a Wal-Mart define its eastern edge. Half a dozen stoplights march down the main drag of U.S. Highway 160. Retired pinto bean and alfalfa farmers live in low, small homes on quiet, cottonwood-shaded side streets.

So do the remaining employees of Osprey Packs, people drawn by the proximity of the mountains, canyons and rivers of the Four Corners area, the mountain biking and rock climbing.

Pfotenhauer and Wren came to southwest Colorado from California in 1990. Pfotenhauer had sewn custom packs in Santa Cruz since 1974, and by 1986 had begun selling to a few gear shops. He and Wren heard through the grapevine about the talented Navajo stitchers, and in Dolores, Colo. — 10 miles north of Cortez — found a textile manufacturing company that was closing its doors. They took it over and got to work. “The primary goal was to find a community that could support the growth of our business by supplying it with skilled sewing labor, not necessarily cheap, but able to maintain our quality standards,” says Pfotenhauer. “And, of course, we needed to live in a place that we could grow to love.”

Nearly all of the company’s 42 sewers were Navajo, who were “more affordable and more reliable,” recalls Gareth Martins, Osprey’s director of marketing. In fact, locating near the Navajo Reservation gave Osprey some of the advantages of going to a low-wage manufacturing nation. The Navajo Nation provides all its members with health care, freeing Osprey from the responsibility of paying for health insurance, for example.

Osprey’s backpacks feature innovative suspension systems, three-dimensional molding for better fit, laminated foam and plastic shoulder harnesses and “spacer meshes” to protect a wearer’s skin. Some models retail for more than $500. The company grew throughout the 1990s, and in 1995 moved to a 15,000-square-foot facility on the present site in Cortez. In 1999, Osprey doubled the size of the building. Business was booming, but there were changes on the horizon.

While U.S. manufacturing had been hemorrhaging jobs for some time, the 1994 North American Free Trade Agreement (NAFTA) and the 1995 creation of the World Trade Organization (WTO), turned a trickle into a flood. American manufacturers lost many of the traditional protections that insulated U.S. jobs from overseas competition. Quotas and tariffs on imported products were lowered or eliminated. American companies faced increased competition from foreign manufacturers, which often have much lower labor costs and fewer expensive regulations. For thousands of U.S. firms in every industry, cutting costs seemed to be the only way to compete — and the easiest way to do that was to move production overseas.

By the end of the 1990s, all of Osprey’s competitors had already moved abroad. In Vietnam, labor costs (which accounted for about 65 percent of the production cost of a pack Osprey made in the United States) were 90 percent lower than in Cortez. Sales were sluggish throughout the industry, and pack makers were dropping their prices.

“We had to lower our cost of production,” says Tom Barney, Osprey’s CEO. Otherwise, he says, Pfotenhauer and Wren would have been forced to sell the company. Barney, a former executive with the Royal Robbins clothing company, brought experience in international sales, offshore production, management and business discipline that Pfotenhauer admits didn’t exist during Osprey’s “laid-back” days.

U.S. textile manufacturing was one of the industries most affected by NAFTA and the WTO, and in 1999, that industry’s relocation to Asia began to cause Osprey additional problems. The outdoor retail business revolves around a rigid schedule. Manufacturers take their wares to the twice-annual Outdoor Retailer trade show in Salt Lake City, Utah (HCN, 6/9/03: How much is wilderness worth?). Retailers peruse the merchandise and place orders for the upcoming season, orders that must be filled on a tight schedule. But Osprey was having trouble getting raw materials from its U.S. suppliers, some of whom were on the brink of bankruptcy.

“The supply chain started seizing, going through spasms,” recalls Nathan Kuder, Osprey’s production manager. The company was late getting its packs onto store shelves, missing out on sales and frustrating dealers.Nevertheless, demand for Osprey packs continued to grow. By the time it hit about $3.5 million in annual sales, Osprey was having trouble getting enough qualified employees to meet demand. “The simple reality is that our sewing workforce was growing old, and because this is hard work, they were becoming tired,” Pfotenhauer says. “We were asking them for more and more to fight the battle, and we couldn’t offer them more and more as incentive. It was a shattering experience to learn that working harder and longer was not going to compete with offshore production.”

In late 2001, Pfotenhauer and Barney contracted with a Korean firm to make half the company’s 2002 production run. By May 2002, all production had been shifted to Asia, and the last Osprey backpack had been sewn in Cortez. After the U.S. normalized trade relations with Vietnam in December 2001, production shifted to Ho Chi Minh City, where costs were even lower than in Korea.

Osprey retained one Navajo stitcher in Cortez to do warranty repairs. The rest of the cutting, sewing and assembly staff were laid off. Although they clearly regret having to fire so many workers, Osprey’s managers were relieved. “We had learned to dislike (making) sales,” Pfotenhauer says. “Sales were a problem for us, because when we made a big sale, we shuddered — ‘How are we going to produce all this in time?’ ”

Osprey was able to cut its retail prices by 15 percent and simultaneously increase its discounts to retailers and retailer profits. “On top of that,” Barney says, “we don’t have the distraction of running a factory.” Barney pays Osprey’s Asian partners a contract rate for the packs he gets, and he doesn’t pry too hard into their operations. “Workmen’s compensation? I don’t even know if they offer that kind of insurance,” he says. But, he adds, “You have to be very careful about comparing Western standards to any other country. For the standard and expectation in those countries, sewing jobs are very attractive jobs.”

Pfotenhauer, on the ground in Ho Chi Minh City, agrees. Workers in the Korean-owned factories with which Osprey subcontracts are paid $80 a month. “This seems a pittance — and it is by our standards,” Pfotenhauer says. “But I understand the national wage is about $35-$40 a month.” The factories have 48 hour workweeks, he says, and pay time-and-a-half for overtime and double-time for holidays.

“I often witness the way the employees are treated, and it seems to me the relationship is good and fair relative to my experiences in U.S. factories,” Pfotenhauer says. “However, this is very complicated to judge.” “I think, for virtually every product in the outdoor industry, ‘Made In The USA’ has gone away,” Barney concludes. “I guess it’s the WTO in play. In the capitalistic world economy, the lowest cost of production wins. In a pure sense, why would we manufacture here?”



One hundred and forty miles northeast of Cortez, in a different factory, that question produces a different answer. Like Osprey, the 30-year-old Scott Fly Rod Company in Montrose makes a very high-end product; its carbon-fiber fishing rods retail for $180 to $725. Unlike Osprey, all of Scott’s fly rods are made in western Colorado, and company managers don’t expect that to change.

In the $45 million-a-year U.S. wholesale fly rod business, Scott is one of the bigger players, racking up sales of $3 million to $5 million annually — about as much as Osprey. Like Osprey, Scott moved from California to Colorado (first to Telluride in 1994, then to Montrose in 1995, where there is a more stable workforce). Unlike Osprey, Scott has stayed put.

Osprey packs made in Vietnam are as good as packs that were sewn in the United States, Osprey managers say, because Asian firms have made an enormous investment in manufacturing “soft goods” such as packs, jackets and clothing. In contrast, while overseas competitors are making inroads into the fly-rod business, they have not been able to match the high-end products that have made Scott’s reputation.

“No one can make, not even in this country, the high-performance rods that we make,” boasts Jim Bartschi, Scott’s president and designer. “Certainly, if we were ever to try to compete in price points lower than we are, we would be forced to go offshore.”

The company’s connection to the sport (many of Scott’s staff are anglers) and its tight relationship with scores of small fly shops allow Scott to innovate continually, and thus to claim much of the high-end market. The company sells 120 models of fly rod, each designed for a certain species and set of circumstances, says Bartschi.

There is, for instance, the 11-foot-6-inch “Spey” rod, used for two-handed casting for steelhead and salmon on big rivers. It’s a monster, but much smaller than the 15-foot rods that were standard in the past. Then there’s the 8-foot-4-inch backpacking rod, which breaks down into five sections. And Scott has established its 9-foot rod as the trout fisherman’s standard — a foot longer than what tradition dictated.

The 20 employees in Scott’s 14,000-square-foot factory are not assembly-line workers. Their work is a combination of precision engineering and a surprising amount of touch and eyeballing — that is, hand craftsmanship.

“You have to have a touch,” says Brian Russell, a tall, former cabinetmaker who is setting ferrules (the internal connections that join the pieces of a fly rod together) by hand into a carbon-fiber rod body. Russell checks them repeatedly, filing small cylinders of carbon fiber with a rasp. “It’s not for everybody.”

All Scott rod builders are cross-trained in multiple jobs, part of an efficiency program that production manager Eric VanNooten undertook two years ago. Today, the company makes as many fly rods as it did in 2001, but uses only half as many production workers. Some employees are able to build an entire rod on the dozen-plus workstations, from raw carbon fiber to the final coat of lacquer on the guide threads.

Scott decided in 2001 to abandon the fight for mass-market share and the strategy of growing ever larger. Instead, it has used constant innovation, workplace efficiency and top-notch design and quality to stay one step ahead of its foreign competitors.

Scott, in other words, has found its niche and appears able to defend it. In today’s free trade world, such a strategy may be the only one that provides stable recreational equipment manufacturing jobs in the West.

“If what you do is bang things together, you’ll find that other communities in India and China will bang them together quite well,” says Fariborz Ghadar, director of The Center for Global Business Studies at Pennsylvania State University. Where competitors once may have needed years to copy a product, he says, now they will do so in weeks if they can. “So the trick is to use your knowledge and capabilities to better serve the customer. Unless you update your thing, revise it, make it fancier, make it more attuned to what the customer wants, you’re going to get copied very quickly.”



Mark Paigen knows about being copied. Paigen is the owner and president of Chaco Inc., a sandal company that he started in a spare room in his house in Paonia, Colo., 60 miles northeast of Montrose. From those humble beginnings, Chaco has grown to dominate nylon sport sandal sales in “specialty outdoor retail” — mostly small, privately owned gear shops. The company, which will see $11 to $15 million in sales in 2003, currently manufactures all of its sandals outside of this small town, which is built on agriculture, coal mining — and, increasingly, retirees and entrepreneurs drawn here by the laid-back lifestyle.

The sandal giant Teva has recently stacked U.S. store shelves with a Chaco knock-off called the “Grecko,” which looks almost exactly like a Chaco. Made in Asia, Greckos sell for roughly half the price of Chacos. Paigen is determined not to “stoop to their level” and drop the price of his sandals. “I’d rather push the quality of our sandal up to the next level,” he says.

While there are few economic benefits to basing a manufacturing plant here, Chaco has been able to stay put because its products are high-priced and require relatively little labor. Nonetheless, Paigen understands the stark realities of the global marketplace. Sandal “assemblers” at Chaco earn from $7.75 to $13 an hour, with “leads,” or supervisors, making up to $16. All full-time employees receive health coverage, while long-term staffers can partake in profit-sharing and stock ownership.

The costs add up. Rather than hiring more full-time production staff as demand rises, the company is turning more to temporary workers, who are called in for three to six months and do not receive benefits. And Chaco’s latest line of sandals, called the Z-rivative, will be manufactured in China.

Paigen says part of the reason he decided to produce the Z-rivative overseas was because the Chinese already have the expertise and machinery to put them together — things that would have been expensive to bring to Colorado. “To make movies, you go to Hollywood. All of the set designers are there. All of the lighting designers are there,” he says. The Hollywood of shoe manufacturing is China.

While Chaco will continue to manufacture its classic sandals in Colorado, Paigen is skeptical of people who insist on keeping all their manufacturing in the United States. “You’re going to be waving that flag all the way into Chapter 11,” he says. “That’s not how business works. It’s a global economy.”

Still, there are gear manufacturers who are determined to keep manufacturing close to home. Sixty-five miles northwest of Paonia, in Grand Junction, Jen Rieke-Taylor started Mountain Sprouts, which makes polar fleece suits and jackets for children, in 2001. This year, she hopes for $105,000 in sales. For now, she says, she intends to keep her production in the West, because she can keep an eye on quality and adjust quickly to market demands — unlike companies that order from overseas factories and may need months of lead time for production runs.

“Every trade show that we’ve attended so far, we’ve had an Asian manufacturer approach us,” says Rieke-Taylor, who presently hires the Provo, Utah, sewing company Authentic Concepts to sew her products. “To me, we’re paying for a certain degree for peace of mind to know that everything’s within reach.

“We’re like the little rabbit that’s running around the huge manufacturing turtle’s foot,” she says. “As long as that remains an advantage, I can’t see why we would go overseas, other than the costs. We’re going to stay here in the United States as long as we can.”

But if Mountain Sprouts grows, the company’s products may very likely be sewn somewhere else. That’s the reality Derek Stokes has learned to face. He and his brother, Lane Stokes, own Authentic Concepts and sew products for about 30 clients, including Mountain Sprouts and several other Grand Junction outdoor clothing businesses.

“About 15 years ago, there were approximately 35 companies in Utah alone doing contract (sewing) work,” Stokes said. “Now I know of two. We’re one of them.” His firm has shrunk from three factories and 350 employees to one, with 50 workers. Its main business is from start-ups such as Mountain Sprouts, which don’t produce enough volume to make overseas manufacturing economically viable. Once his clients hit a certain size, says Stokes, they move production overseas, leaving him to find the next start-up.The West’s amenity communities have benefited from the growing “footloose-ness” of Americans, says Larry Swanson, an economist and associate director of the Center for the Rocky Mountain West at the University of Montana in Missoula. Increasingly, middle- and upper-middle-class people can live and work where they want, which means entrepreneurs come to places like western Colorado. But the manufacturing jobs these entrepreneurs create are footloose, too. They come, and they go.

What is happening to manufacturing jobs in the West is not unique to the region, nor to the recreation industry. Job mobility may be harder for some Westerners to adjust to because for so long, many Western jobs — in resource-extraction industries like logging and cattle, and in recreation industries like skiing and rafting — have depended upon the place itself. They didn’t seem to be the sorts of jobs that could be exported, and so towns rose up around them.

In fact, resource jobs are exactly the sort of jobs that tend to disappear for good, in the classic Western “bust.” Much mining and logging is now done abroad, in countries that do not have labor unions and protective environmental laws. Ranching has suffered from globalization, too; the lamb or beef on your dinner table may well have come from New Zealand or Brazil, rather than Utah or Nevada. Only about 3 percent of the beef sold in the United States is grazed on the West’s public rangelands. The entrepreneurs of the New West are unlikely to create the massive blue-collar, high-wage employment that once typified mining towns like Bisbee, Ariz., or logging towns like Eureka, Calif.

“These kind of companies are not anchored in the way that we expected old companies to be anchored,” says Michael Kinsley, principal in Communities Practice at Rocky Mountain Institute, a Snowmass, Colo., think tank. A few years ago, one huge outdoor equipment manufacturer, The North Face, moved its headquarters to Carbondale, Colo. The company moved away almost immediately for financial reasons, but the significance of the story, says Kinsley, is this: The North Face didn’t want to locate its production facilities in Carbondale, only its offices; the company’s president thought it would be a nice place to live.

Perhaps the future of the West’s small amenity towns lies less in factories that export things than in brains that export thoughts. This is precisely what has happened in Arcata, Calif., a small seaside city set beneath the Coast Range and beside the Mad River, not far from Redwood National Park. In 1996, the Yakima Rack company, which makes rooftop car racks for carrying bikes, skis, kayaks and gear pods, moved its 62 production jobs to Mexico. “It was devastating at the time,” recalls Kathy Moxon, a program director with the Humboldt Area Foundation.

Thirty-four people lost their jobs; the balance found other positions at Yakima, which continued to employ about 110 people in Arcata. The manufacturing jobs moved; sales, design and engineering stayed. In 2001, Watermark, a conglomerate of several smaller outdoor gear manufacturers (principally kayak makers) bought Yakima and moved its own corporate headquarters to Arcata. The expanded company now employs 155 in Arcata, people who run facilities not only in Mexico, but also in Southern California, Idaho and South Carolina.

Like many places in the West founded on a resource base (in this case, timber), Humboldt County is hobbled by poor air-and-road access. It’s not a great place to try to build and ship things. Consequently, Moxon says, the county’s economic development strategy doesn’t depend on keeping manufacturing jobs; rather, it depends on keeping the entrepreneurs who think up things, start companies, sell them — and move on to something else.

“What we’re learning is, if we can concentrate on that entrepreneurial supply and development stage,” Moxon says, “we can generate and spawn those kinds of businesses. We just need to figure out how to keep the pipeline going.”

This type of innovation is a necessity in a global economy, says Ghadar of the Center for Global Business Studies. The West doesn’t have a comparative advantage against Asian, Latin American and Caribbean firms that can assemble products at a fraction of the cost of doing so in the United States — here in the West, or anywhere else. It does have the advantage of being a place that attracts people who can think of, design, innovate and market things. As companies break into pieces, the pieces likely to stay in the amenity communities of the West are the pieces that, like Paul Newman’s brainy character in Butch Cassidy and The Sundance Kid, “do the thinkin’.”

For the West, at least, this is the bright side of the rise of the recreational equipment industry. If present trends continue, the region will be able to develop an industry of ideas rather than of manufacturing. That may be as “sustainable” and low-impact a business as many Western towns are likely to find.

Hal Clifford, a longtime contributor to High Country News, recently moved from Colorado to Massachusetts, where he is executive editor of Orion Magazine.

Contact:
Osprey Packs 970-564-5900, www.ospreypacks.com

Scott Fly Rods 970-249-3180, www.scottflyrod.com

Mountain Sprouts 970-241-2971, www.mountainsprouts.com

Center for the Rocky Mountain West 406-243-7700, www.crmw.org

Humboldt Area Community Foundation 707-442-2993

Center for Global Business Studies http://www.smeal.psu.edu/cgbs/

Rocky Mountain Institute 970-927-3851, www.rmi.org.
West is the Best
merle obrien
merle obrien
Jun 01, 2010 11:22 AM
I loved this article, not only since it points out how many of us, me included have started a business out west, but that some of us have really worked very hard to keep our business in the west! I started an eco friendly bag company a few years ago- and make all my bags in Louisville Colorado, I help keep home sew men and women doing what they do best- sew! When a lot of the other companies moved off shore, these homw sew people were left with no work, I feel so good to be helping! I have also used up new items other companies did not need and created my really cool bags! Thank you for writing about these companies and maybe one day you can write about OlovesM!! Since I am in based in Colorado:)

thank you- merle
www.olovesm.com
Thanks
John Wren
John Wren
Jun 01, 2010 03:37 PM
Thanks for a great article. I worked for Outdoor Sports Industries, during the period of the stock going from $2 to $27/ share with a small conglomerate of these kinds of small manufactures, before the company got eaten by a bigger fish.

Each Friday for over 10 years I've held a free startup workshop in Denver called the Denver IDEA Cafe.

Small really is beautiful. Or at least more beautiful.

John
www.JohnWren.com
Life's short, start now!
(303)861-1447