As Star Trac moves its manufacturing from Irvine, CA, to mainland China, the spotlight has shown even brighter on that country as a location for fitness equipment manufacturing. China’s low labor costs have meant a slight advantage for companies that have manufacturing plants or partners there, some suppliers say, but as China’s labor costs continue to rise, that advantage may be dwindling. Does that mean that the U.S. manufacturing market will see growth?
Doug Johns, global marketing director at Precor, Woodinville, WA, says it could.
“In manufacturing in general, the trend is going to be that America will have a more competitive position than we have had,” he says.
However, rising Chinese labor costs were just one factor in the decision by Med-Fit Systems, Fallbrook, CA, to move its Nautilus manufacturing from Taiwan and China to its Independence, VA, facility earlier this year, says Dean Sbragia, CEO of Med-Fit Systems. Med-Fit bought that plant for $2.1 million from Nautilus after its purchase of Nautilus’ commercial business last year.
“It’s kind of the perfect storm right now—weak dollar, rising Chinese prices, rising energy prices,” Sbragia says. “To have control over our development, design, engineering, manufacturing and distribution all under one roof and absorbing that overhead increases our margins and allows us to be more competitive. The more volume we do through our factory, the more manufacturing variances we absorb, the more competitive we can be in this market. It all makes sense to us to utilize that facility to its fullest capacity.”
By the end of the year, all Nautilus products will be manufactured at its Virginia plant, Sbragia says. An analysis showed that by doing so, the company could make its products less expensively than (or at least be competitive with) Asian-made products. In addition, the move would help the company improve product quality and control inventory better without price increases for Nautilus’ domestic customers, Sbragia says.
For larger manufacturers, the cost advantages of manufacturing low-end cardio and strength equipment in Asia are lost at the high end, says Jim McIntyre, vice president of sales and marketing for Paramount Fitness, which is based in Los Angeles and manufactures most of its equipment there.
“Cardio and strength products designed for long-term performance in heavy use facilities require high-quality components and materials, which are costly regardless of manufacturing origin,” McIntyre says. “In addition, import costs for these high-end commercial products, as well as fluctuations in foreign currency exchange rates and material costs, can easily offset other cost advantages of manufacturing overseas.”
Despite the benefits that Nautilus and Paramount Fitness see in manufacturing in America, not every manufacturer can do so. For smaller companies without deep pockets, partnering with plants in Asia can be a great way to operate, says Scott Eyler, owner of SKE Consulting, St. Louis, a company that connects U.S. manufacturers with manufacturing facilities in Asia. Two up-and-coming Asian markets are Vietnam and Thailand, both of which still have low labor costs and are growing markets for apparel manufacturing. Like China and Taiwan, Vietnam and Thailand could take those skills and eventually translate them to equipment manufacturing—but only after they develop their infrastructure to support the transportation and shipment of commercial fitness equipment.
NEXT PAGE: OWNERSHIP'S INFLUENCE
The fitness business’s global nature means many manufacturers are owned by companies outside the United States. Ownership often dictates the location of manufacturing.
SportsArt Fitness, Woodinville, WA, is owned by a Taiwanese company, so it was only natural to manufacture its products in Taiwan, says Bob Baumgartner, product manager at SportsArt. SportsArt was one of the first fitness equipment manufacturers to produce equipment in Taiwan, often hailed as one of the premier countries in Asia to manufacture equipment, he says.
Johnson Health Tech, which makes Matrix equipment among others, also is owned by a Taiwanese company and manufactures its cardio equipment in Taiwan, says Peter Sell, director of product-commercial and specialty for Johnson Health Tech North America, Cottage Grove, WI. Its strength equipment is manufactured in China but is assembled in Madison, WI.
Technogym, which is headquartered in Gambettola, Italy, manufactures its equipment in a three-year-old green manufacturing facility in Cesena, Italy.
“Things that are made in Italy are known for innovation, quality and design,” says Kim Donohue, marketing manager at Technogym. “As a company that is based in Italy, it’s where our heart and soul are. It’s where our heritage is. We are able to put all of those things into our products to be manufactured by people who take a lot of pride in the ‘made in Italy’ brand, which is comparable to how Americans feel about equipment made in the USA.”
Donohue says that manufacturing in Europe is more expensive than in the United States and Asia, but it ensures better quality.
“In Europe, we only work with fulltime contract and fully trained people,” she says. “They cost more, but they ensure a better expertise.”
However, U.S. manufacturers tend to have a more consistent workforce than in Asian countries, according to Cybex, Life Fitness and Precor. Each of these three companies has a large number of long-term employees, some of whom have been with their respective companies for 35 years or longer.
Chris Clawson, CEO of Life Fitness, Schiller Park, IL, says that products made in America still garner respect worldwide because the United States is home to many of the first well-known club brands and many fitness icons. However, as proud as Clawson is that Life Fitness is made here, it is not the company’s unique selling position, he says.
“We actually see ourselves as being the most global of the companies,” Clawson says. Life Fitness has three plants in the United States, one in Hungary and two partnerships in Asia. Fifty-five percent of its sales are outside the United States.
Johns of Precor says that American customers appreciate Precor’s U.S.-based manufacturing mostly because of its effect on delivery, flexibility, service and quality.
Indeed, patriotism does not drive most purchasing decisions in the United States. Matt Brzycki, assistant director of campus recreation and fitness at Princeton University, says that price, reputation of the manufacturer, tried-and-tested history of the equipment and reliability are the top factors in his equipment purchasing decisions. The same can be said for the Cincinnati Sports Club.
“The major thing is the company behind it, the functionality and the features. Then, we get into costs,” says Phil Norton, operations manager of Cincinnati Sports Club.
Eyler says that where a product is made is not as important as the manufacturer’s reliability.
“Savvy business people are not going to continue to do business with anyone who is not going to stand behind and support their products,” he says.
The “knock” on American-made fitness equipment has been that higher U.S. labor costs increase the price. However, labor is just one of three components in pricing—and Asia does not enjoy lower costs in the other two areas (materials and transportation), Johns says. Besides, several manufacturers with plants in the United States say that labor costs make up 10 percent to 15 percent of the total cost of products, and savings from cheaper fuel, lean manufacturing facilities and lower inventory costs can
offset those higher labor costs.
Manufacturing in the United States does make it more expensive to sell products outside the country, Clawson says, because companies must deal with shipping, freight, fuel and container costs.
Manufacturers who maintain facilities in the United States also must have the resources to maintain and keep those plants current and in compliance, says Art Hicks, COO at Cybex International, Medway, MA, which has two manufacturing plants in the United States. The payoff is worth it for Cybex, he says.
“You are offsetting the high fixed cost of manufacturing with what you hope are better controls over quality and inventory and shorter times to develop new products since your network is much closer on that chain,” Hicks says.
Although numbers are not available to show how many U.S. manufacturers have moved production overseas, Eyler estimates that the figure is large enough to validate it as a good business decision for many manufacturers. Star Trac’s move to China and production by Land America may help solidify that notion.
Star Trac, Irvine, CA, was purchased last year by Michael Bruno, who also owns StairMaster and Land America, the manufacturing company in China that Star Trac had used for some of its production prior to the Bruno purchase and will now use for almost all its production.
“It makes a lot of sense for us to consolidate and get the benefit of the capital equipment and capabilities that Land America has,” says Kevin Corbalis, executive vice president of marketing and product development at Star Trac. “They are a very capitalized factory. The Star Trac facility was not as capitalized and was more of an assembly quality assurance checkpoint. We did do some manufacturing content, but it was fairly light. We are able to get far more content manufactured through Land America and then also have them do the assembly consolidation at one facility. It helps logistics, and it helps quality control. They have a lot of capability there that we are able to leverage.”
Where equipment is manufactured now or in the future is not as important as whether the manufacturer will deliver on its promise, support its products and deliver on time, Eyler says.
“The best business people will always win,” he says, “whether their equipment is made in the U.S. or in Asia.”