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What Does Under Armour Mean by "Local for Local" Manufacturing?

By Motley Fool Staff – Jul 21, 2016 at 1:21PM

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CEO Kevin Plank envision "tens of thousands" of jobs returning to the U.S. thanks to advanced manufacturing capabilities.

Under Armour (UAA 0.21%) unveiled its Lighthouse project recently, along with announcements of new potential for tens of thousands of local manufacturing jobs.

In this clip from the Industry Focus: Consumer podcast, Vincent Shen and Seth McNew talk about Under Armour CEO Kevin Plank's "local for local" idea -- how much it'll cost to set up a system that works and the huge payoffs that could result.

A transcript follows the video.

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This podcast was recorded on July 12, 2016.

Vincent Shen: Another big piece that you mentioned at the beginning was around local manufacturing, and that's a big push for why they created the Lighthouse facility. Could you touch on Plank's comments there during the media event and what his thoughts are for how the business is focusing on that?

Seth McNew: Yeah. Like I said, Kevin Plank is so animated. We're listening to him during this media event, and you get the idea that someday he might run for office or run for president. He's up there and he's shaking his fist and he says, "Jobs! Jobs! Jobs! That's what's really important right now!" He has this whole idea that through these kinds of manufacturing improvements, they're going to be able to bring, he said, tens of thousands of manufacturing jobs created in the U.S. Pretty much his idea is, by having a local for local, which means U.S. products made in the U.S., products for Brazilians made in Brazil, and local for local all around the world, you're going to be able to create these manufacturing hubs in different parts around the world where you're not shipping product halfway across the globe to get to a consumer.

Shen: OK, that makes a lot of sense to me. I can definitely see the appeal of making products more local. Again, this has kind of already gained some traction in other sectors, like the restaurant industry, even, if you think about some chains, and the fact that they've been able to market and be successful with the idea of sourcing a lot of their ingredients locally. Even, I look at the presidential election, quite a few candidates, you mentioned how Plank is almost like, giving a campaign speech. But a lot of the candidates have campaigned on the promise to strengthen and reinvest in manufacturing within the U.S. 

But I couldn't really find any specific numbers for the cost of the Lighthouse project and how much they spent on it, but I can understand if some investors and listeners might be a little concerned about this expansion, at least what the return on investment will ultimately be. So, how do you think the company is looking at this in terms of the return on investment and how they're justifying the R&D there?

McNew: Right, I don't think they're breaking down their numbers on how much this costs. It's pretty much an investment for them as well. But, this is, I'm certain, a huge up-front cost. They said that some of these 3D printers could be over $100,000. You have some of the low-end ones, and you have a few of these ones that are massive. But when you think about the long-term gains, not only from decreased manufacturing and transportation costs but truly better and more innovative gear...

He talked about how right now, a shoe being made in Asia could have hundreds of people touching a single shoe. So you have, imagine, a shoe model that's going down the factory line, and each person adds one little component to it -- whereas he thinks that he can bring that down to just a couple people touching a shoe and a lot less parts. So you have a lot less room for error, you have a much better product.

And then, think about the tax implications. Every government is going to be excited that there's going to be a manufacturing hub in their city or state. This is already happening in Baltimore. And like I said, there were senior White House policy advisors there. So, there's a lot of long-term gains to be made from this kind of push.

Shen: That makes a lot of sense to me in the sense that, we actually did an episode, I think it was one or two months ago, about inventory management. You mentioned how many people had to touch the shoe, for example, at an Asian manufacturing facility, hundreds of times to get the product done. With inventory management, people have commented on the idea that each transfer, from one party to another in the supply chain, is basically added cost and added time that prevents the product from hitting the market quickly. This seems like, and it's funny that this is more of a sports apparel company, but this seems like the ultimate in terms of fast fashion, in the idea that they can do these prototypes really quickly in Lighthouse facilities. And facilities like that might be able to give Under Armour the ability to create prototypes, like you said, reduce the time that's required to do that, and then get the market out, if the testing is successful or looks promising, to do that as quickly as possible.

McNew: Right. And, imagine that they're giving themselves a one- to two-year lead on trying to make new product. You have to ship that product to the distributor six months in advance. So, it's summertime, and your shipping them winter gear, hoping that the audience still likes it in the winter -- whereas if you can get something that's out in six weeks, you're going to be a lot more in time with what the market is looking for.

Seth McNew owns shares of Under Armour (A Shares). Vincent Shen has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Under Armour (A Shares). We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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