Watch stocks you care about
The single, easiest way to keep track of all the stocks that matter...
Your own personalized stock watchlist!
It's a 100% FREE Motley Fool service...
Like the sole of a shoe that's had a hole worn in it from walking too many miles, two U.S. senators from Maine are wearing out their shoe leather pushing a mandate to have the military purchase only American-made sneakers with an argument that is equally threadbare.
There's only one major sneaker maker left in the U.S. that actually manufactures its sneakers here, and it's no small coincidence that its factories are located in Maine (and Massachusetts). Privately held New Balance employs 5,000 people in the U.S. and truly remains the last man standing when it comes to making footwear in the states, so the Senate effort is really meant to just benefit them.
While it sounds patriotic enough to call for a "Buy American!" campaign, it's really a hollow, well-trod path of transferring wealth from consumers to the company's union employees.
It's true Nike (NYSE: NKE ) manufactures virtually all of its footwear in factories outside the U.S. -- Vietnam, China, and Indonesia account for 98% of its production -- and Skechers (NYSE: SKX ) also sources its shoes primarily from overseas, but it's also true that three-quarters of New Balance's footwear comes from outside the U.S as well. So what we're talking about is saving some well-paid union jobs at the expense of other American jobs held by workers at the competition.
Nike employs 44,000 workers worldwide, but there are some 7,000 working in its Beaverton, Ore., headquarters and thousands more who work in its retail stores. California-based Skechers says most of its 5,600 or so employees are employed at its retail locations, 85% of which are based in the United States. Perhaps we ought to ask the senators why one American job is better than another.
The military is already required to buy its uniforms, shoes, and boots from American companies, but personnel are given a cash allowance to buy their own casual footwear. The two senators from Maine are worried that like much of the rest of the buying public, servicemen and women also like sneakers made by Nike, Skechers, and K-Swiss (UNKNOWN: KSWS.DL ) , a third of whose workers are also in the United States.
So there is a significant base of shoe companies that are indeed American; they're just not making union-made sneakers like New Balance. And that's the root of the problem at the company and why there is no footwear manufacturing base left in the country: labor costs. Because shoemaking is a labor-intensive business, the sneaker maker says that all else being equal, it still costs 25% to 30% more to make its footwear in the U.S. than elsewhere.
I have no animus against New Balance shoes, regardless of where they're produced or who they're made by, and have heard they offer comparable or better quality than what its rivals offer. But New Balance shoes aren't cheap -- they can give Jordans a run for their money at upwards of $275 a pair -- so requiring our military personnel to purchase a certain brand of sneaker to benefit a highly paid worker at the expense of some other employee simply runs over common sense.
What macro trend was Warren Buffett referring to when he said "this is the tapeworm that's eating at American competitiveness"? Find out in our free report: "What's Really Eating at America's Competitiveness." You'll also discover an idea to profit as companies work to eradicate this efficiency-sucking tapeworm. Just click here for free, immediate access.