Shinola: Crafting Luxury Watches and Revitalizing Detroit

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Welcome back to E Commerce on Tap brought to you by Sourceify and Isba. I'm your host Nathan Resnick, joined by my co host, Aaron Alpiter. Aaron, today we've got a pretty amazing episode. We're covering Shinolo watches. I mean, this is just one of my favorite watch brands. It's got a really unique history. The founders just got a lot of experience in the industry. But before we dive in to Shinola, do you want to give a quick kind of overview of what E commerce on tap is for those joining us for the first time?

Yeah. First off, thank you so much for joining. Do all the things where you subscribe and rate us. Although not on TikTok, because maybe TikTok will be gone by the time this episode's released. But with E Commerce on Tap, every week we are profiling a well known, usually D2C based company. We tell their founding story, reverse engineer their supply chain, and then talk about their acts of potential. Potential. And this, this season we're focusing in on on jewelry. And we did a massive deep dive on the jewelry industry in general last episode. So if you ever wondered why the supply chain is the way it is and the history of it, I encourage you to check that one out.

Yeah, yeah, that one's a lot of fun and really interesting tidbits there. But before we dive in here, I know there was a few different tidbits that caught your eye. On my, you know, agenda, I saw Spindrift, which is, you know, one of my favorite kind of sparkling water brands that launched in 2010, officially sold a majority stake to Gryphon Investors, which is a PE firm based in San Francisco. We've got a lot of experience kind of in this CPG category. They used to own Desert holdings, was sold to Bain Capital, eight o' Clock Coffee, as well as Flagstone Food. So they've done a lot of work in this industry. I think it's going to, you know, have a great outcome in the future for Spindrift too. And I mean, in my opinion, it's a pretty competitive category, so yeah, we'll see how this plays out.

Yeah, that's great. I mean, I think you seem to have an affection or an affinity for water companies. I mean, we've only gone a couple minutes and here I am, I'm the one bringing up liquid death. But Spindrift, also a really good one. What do you think of that exit?

I mean, I think in general it was great for the team and the investors in Spindrift. I mean, I think we'll see from this PE firm if they're able to, you know, really kind of grow it into an even bigger company. I think they've already got strong distribution through Costco and other major big bond retailers. So, you know, we'll just have to see how this plays out for them.

Yeah, it's interesting because they're, I don't necessarily subscribe to this point of view, but there are some folks that if you're building a brand, selling to private equity is kind of not necessarily like success like you exited. So like they're successful from that perspective. But if you are building a beverage company, you want to sell to Coke, you want to sell to Pepsi, because that just sounds so much better. And so there's, there's a perception among some that you took it as far as you can and now bring in some professional management who are going to grow it to a point where it can exit to one of those big strategics. But you know, again, I think that this is a great outcome. Not every acquisition has to be for $1 billion. So you know, 650 million buck valuation is getting pretty close. And so congratulations. That team.

Totally, totally. It's a great outcome, I think and we'll see how it plays out in the future. I know you saw news about Andrew this past week, is that right?

Yeah. So I know some folks over there, I've been to their office. Really interesting company. So they are a defense startup that was started by the guy who started Oculus. Right. Sold Facebook and they make drones among an AI and all these sorts of things that were kind of, you know, not in vogue five or six years ago when they got started. And now they're really in vogue and they're doing phenomenally. So their revenue they just announced grew to $1 billion in 2024, up 100% from 2023. And they're expecting to 2 or 3x the revenue again this year and through the Trump administration. So they, they have just an enormous piece here. Defense is obviously a big, a big industry. And we look at the total spend of the US Department of Defense, $1 billion is like one, literally 1 900th of the total spending. So they have a long room to grow and, and they're doing well there. But they're, they announced this, this revenue milestone because they're planning 100 million dollar tender for their employees to get some liquidity. And so they're gonna allow some folks to, to sell their shares. So they need to release some more information so people know what they're buying into. But I, I'd be interested. I think this would be one that looks like a good investment. They're, they're hitting in all cylinders and they're, they're doing things in a, in a much different way.

Yeah, I mean, I think it's interesting just to see the overall sentiment of these kind of defense tech companies. This industry has grown a lot, and we're seeing more and more startups, you know, plug into the DoD budget. And, you know, it's a, it's a huge budget, as you mentioned, but we'll see how it plays out. I mean, I think in general, it's never good to have, you know, one customer, but in the American government, that's kind of how it goes. And I saw you launched another podcast, right?

I did, I did. So this is something that I had been kind of doing on the side for about a year and a half, and we decided to make it more formal. It's called Build a Business Worth Buying. And basically what I'm doing is interviewing people who have exited, investors, acquirers or just ecosystem subject matter experts. It's not meant to be an entry level podcast. It's meant to be really deep expertise on the nuts and bolts of how to get your company ready to sell and what a car is looking for. And I have you to thank for it. I mean, you gave me the confidence with doing this with you for last year, and we launched it last week and it's been doing really well and just grateful for, for that opportunity.

Yeah, it's been a lot of fun. And so for those that are just, you know, kind of tuning in here on this season. This season, we're focused on jewelry. The first episode, we did a deep dive on the category at large. And today and going forward for the next few episodes, we're focused on specific companies within the jewelry category. So for those that don't know Shinola, I think what's interesting to start with is that they kind of, you know, if you look at the history of Shinola, touch on shoe polish bicycles and running a hotel. And so, Aaron, to kind of kickstart us here, I'm curious, what do these three things have to do with making watches?

I had no idea. Like, this is like the most random thing. It almost felt like Whose Line is It Anyway? Or something where people give you three random things. It's like, oh, we have a narrative here. But as you'll see here in the next couple of minutes, it actually does make sense. So we're going to go back to 1877, and Shinola was the name of an American shoe polish company. So that's where the shoe polish comes in. And they. They were very popular in the. In the mid 20th century. And it was so well known that the GIs that came back from the war would say, hey, you know, you don't know crap from Chinola. And the thought was like, you know, it's. It's this dark thing, and you're putting it on your shoes. Is it poop or is it actually shoe polish? And so it was mainstream. It was something that was so ubiquitous, it'd be like the equivalent of Kleenex today. Like, we just. We just know what this brand is. Well, people stop polishing their shoes as much as they used to. And in the 1950s, they tried to remarket a little bit, and it was called Chenola Leather and Saddle Soap. Again, not a whole lot of saddles. And ironically, it was owned by Best Foods, which became part of Unilever, which I worked at. So I can say that I have a tangential connection here. But in 1960, this company went out of business and the brand ceased to be produced. And it was just something that was there as kind of traditional Americana. And so if you look on online, you can see old Chinola ads, and. And they're exactly what you would expect from the 1920s, 1930s. They're actually kind of beautiful. Very interesting. But that was the. The equity that was left behind. And it basically sat dormant for 50 years until the name was purchased by Tom Cartsortis in 2011. And Tom had an interesting vision here. He. He was kind of similar to what Warren Buffet had done, where he bought this. This textile mill called Berkshire Hathaway and turned it into something very, very different. And he had this thought of buying this shoe polish brand that had an interesting name and doing something very, very different with this wall. And as we'll get to here in a moment, the. Really, the only thing that Tom could think to do was watches in his.

His founder background is really fit to produce watches, right? So he is best known for founding fossil group in 1984. And, you know, Fossil Group became this huge watch and lifestyle brand. I mean, I think they're still publicly traded today, but, I mean, Aaron, I think you had a Fossil watch growing up, Is that right?

I did. And this was like my prized possession. I think, like eighth or ninth grade. It was the first watch I ever purchased. And I called it my James Bond watch because I think this is when, you know, Pierce Brosnan was James Bond and he came out and he had a Fossil watch. And you know, that was good product placement. It worked on a 13 year old kid. But I thought it was great and to me it was something that was very, very nice and know where it is now, it's probably gone somewhere else. But I thought it was a great watch.

Yeah. And I mean the unique insight for Fossil originally was basically just importing cheap fashion watches from the far east, which was kind of new at the time. And you know, only 10 years later in 1993, the company IPO'd on the NASDAQ under the ticker FOSL. It's still publicly traded. If you want to, you know, check out the ticker, the watch or the brand was worth as much as $139 per share in 2012. Today it's worth less than $2. So it hasn't performed super well in today's market. But I mean it is just an incredible story. Tom, you know, has not been actively involved in management since the early 2000s. He, you know, was still registered as chairman in 2010. But you know, it's interesting because in 2003 Tom then goes on to found a PE and brand management firm, Bedrock Manufacturing Company. And this name, this name derives from his hometown cartoon character from Fred Flintstone. So I love it. You know, that's where it kind of stems from. And you know, it's known for its low profile. The Texas based company has built up a portfolio of consumer brands, you know, particularly aligned with American products. And so they really try to lean into this kind of American born ethos and American branding. And so, you know, now the company owns Shinola Filson, which is like an outdoor clothing brand among others. And you know, I think, did you.

See their website by the way? Yeah, yeah, like you guys gotta check this out. But basically think of going into Canva and saying I need to make a graphic. It's not clickable at all. There's no other pages that just says here's our logo, here's a phone number, here's an email, that's it. Like it is the most bare bones thing. And I guess when you're independently wealthy and you aren't looking to raise money and you're, you're owning stuff, it's like, yeah, why not?

Yeah, why not, right? But you know, I think after leaving Fossil, Tom wasn't quite sure what he wanted to do next in his career. And you know, I think together with his family he decided to focus on creating, you know, and generating jobs for Americans. And that was kind of really the initial goal and insight behind Shinola is, you know, how do we start Shinola as a social endeavor to create at least 100 jobs in economically distressed cities. And so at the time when Chinola was really founded, it was, you know, Detroit, which was one of the most distressed cities in America.

And Detroit was bad. Detroit was bad. I mean, you look at all these things that are there. Obviously everybody knows Detroit from, like, the huge manufacturing base and that had just been gutted over the last couple of decades. And I think their only real export over the last 30 years was Eminem. And memes about how bad the Lions were. And, you know, they were just completely messed up because there have been so many people that had left the area. The government couldn't support everything. I mean, you've got these roads and these sewers that whether or not you've got a thousand people living in that area or one person, you kind of have to still have the sewer work and take care of that stuff. And so Detroit declared bankruptcy shortly after the launch of Shinola. And. And this is also a place where entire city blocks are abandoned. And, I don't know, do you ever see these things where you could buy a house, like $5,000 in Detroit and like, news? Yeah. You're just like, oh, let me go buy 30 houses for not that much money. And it's just ironic that in the same country where there are homeless camps in LA and San Francisco, that we. That Detroit was paying to destroy houses because it was cheaper than trying to have these. These eyesores on there. So very, very interesting.

Yeah, yeah. And so, you know, Tom really started this kind of as a social endeavor for Detroit. And, you know, he kind of had this thought of, can we create some manufacturing capacity in America for, you know, themselves as well as other large brands? And to win that business, they needed to prove that they could make watches. So they bought 2,500 units worth of parts to assemble. And in order to sell those parts, they did, you know, initial test in a just newspaper ad, you know, quote unquote. The great legacy of Detroit watchmaking starts now and asks customers to Prepare to prepay $550 for a watch that nobody had seen. And what was pretty remarkable about this is they sold out almost instantly. I mean, I kind of remember this being on the news and through social media because it was this kind of watch brand trying to, you know, inspire this next generation of watchmaking. And at the time, I followed a lot of the kind of, you know, Hypebeast fashion oriented media outlets. And they definitely mentioned Shinola at the time. And so, you know, I think people had really never seen anything like this. And you know, they decided to, you know, not go that co manufacturing route and instead, you know, pursuing its own idea of making Chinola an icon of the American industry in Detroit. And I mean, it's just pretty remarkable because Shinola now makes watches, they've done bikes, they've kind of turned into this whole lifestyle brand, right?

Yeah, they have. And I think that's the interesting part is they went from hey, we're going to be a factory, we're going to sell other people's brands to we're going to be a watch factory to now we want to be this icon. And as you mentioned, in order to become an icon you've got to have lots of other products. And so let me just read off this list of things that they design and manufacture and sell. So they do luxury products, right? So we'll start with watches, they'll do leather goods, they do jewelry. Then they get into audio equipment, headphones, bicycles, home goods, and they actually operate a hotel in Detroit as well. And so it's just like this, this wide gamut of things that don't really seem like they come together but, but they've got an interesting narrative behind that. But I think, you know, Nathan, this is a pretty diverse assortment of ideas. What do you think is the filter that they have to determine if it's something they do or don't do?

Yeah, I mean, I think it really focuses on, quote unquote, American made. Right. And so they want to strongly resonate with the US public. I mean, I think Tom believes that this is a huge factor, even more than the design of being American made. And you know, I think journalists in the past have kind of highlighted the irony that he became a multimillionaire with Fossil by manufacturing products at a low cost in Asia and importing them into America. But you know, now he's kind of flipped that script and focused on how do we, you know, produce and make these products in America. And you know, in a, in a survey that was conducted in 2015, nearly 8 in 10American consumers said they would prefer to purchase US made product over an imported one, while more than 60% say they would pay 10% more for something US made. And so, you know, I think that really aligns with what he's done with Shinola. And you know, before he really started scaling, they had commissioned a focus group and asked participants whether they preferred a $5 pen from China, a $10 pen made in the US or a $15 pen made in Detroit. And though people preferred the cheaper Chinese pen, they were willing to pay a higher premium for one made in Detroit. And so that kind of gave him the confidence to really, you know, go forward with this made in Detroit type of ethos. And, you know, I think American made was unique because very few brands were doing this at the time, making this the core of their brand. And I mean, it's interesting to see if this can become. And, you know, if you think, Aaron, does this become a strategic advantage that, you know, has become more common?

You know, it's interesting because there is a huge push toward reshoring. Right. This was, this was an interesting thing in 2010 because it was, of course you would, you know, you're, you're going to make a watch, you're going to go to Asia, you're going to go to China. And like, that's just how things were done. And this would be the equivalent today of saying, hey, I want to start a manufacturing business in Nigeria. And people like Nigeria, that's odd. But probably 10, 15 years from now, that's going to look like it's a really good idea. And this kind of reminds me of seventh generation, the, the eco conscious laundry company that Unilever required. Basically, they started out saying, look, we are going to come up with things that are better for you, better for the environment. That was our niche. And that's what people flock to. But what happened is as that became more mainstream, everybody else started to do those things as well. And so what made them special was, was not special anymore. Right. In some, in one case, they had won because this change that they wanted to make in the world was becoming more mainstream. In one hand, they kind of lost a little bit because their competitive advantage had eroded. And so I think that in this scenario, I think, you know, there's going to have to be more than just we made it in America. And I think they're doing the right thing by actually going in and doing these hotels, these bikes, these things that are premium experiences because they're making this shoe polish brand mean, really nice watches and mean, you know, luxury leather goods and all these other sorts of things. And so I think they're thinking about the right way where this, this American made piece is probably a temporary competitive advantage, but it's not going to be a sustaining competitive advantage. It's really that building that brand and those things that they're doing, which is interesting.

Yeah. And I mean in 2016, they were kind of caught up in controversy, right? The FTC basically came after them and as a, you know, step to kind of, quote, unquote, protect the public from deceptive or unfair business practices, suggested that they change their advertising to describe, you know, to kind of change their description of Built in America. And I mean, in my opinion, I think this was just inaccurate by the ftc, because if you look at actual products that are made in America, most of the time, just like Shinola, they're importing their actual raw materials from other places. And that's basically what Chinola was doing, right? They were importing their. Their watch movement from Switzerland. They were importing, you know, some of their watch faces and watch hands from other countries as well. And, you know, their main hub in Detroit really served as the assembly side of the business. And that's true of pretty much any company if you look at it. If you actually dive into the raw materials and their bill of materials, most those materials are coming from other places. And so I think the FTC in this case was a bit misaligned in terms of what, know, Shola was actually doing. And Tom, you know, replied to the FTC in an open letter that was shared by a lot of different news outlets that, you know, really highlighted their mission in marketing, implies that they're more of a job creation vehicle and not a, quote, unquote, Made in America play. I mean, if you tried to make a watch from the ground up in America, I. I think it would be near impossible because I don't know of any, you know, kind of watch movements that are necessarily American made at the scale that Chinola was going for. And I think that's really kind of the key here in terms of how Tom responded to the FTC. And even, you know, kind of a famous YouTuber had pointed out in the watch base that after marketing was saying Swiss, Swiss, Swiss, and half their marketing was saying Detroit, Detroit, Detroit. And so I think there was this kind of, you know, I guess, unclear bias in terms of how they're presenting their watches to the American public. And I think this kind of helped hone in on what the reason for Built in Detroit was and what that actually meant. Right?

Yeah, you know, it's kind of like this Apple designed in California sort of thing. And, you know, it's interesting because it really comes to this question of what should Made America actually mean? Does it mean that every raw material, you know, was. Was taken out of a mine in Arizona and refined a smelter in Oregon and then Shipped to a steel mill in Detroit. I don't know. Right. And so it's also one of these things where they should get credit for the fact that they are doing assembly here. Nobody else is doing that. And so that should count for something. But I guess, like, what do you think? I mean, how much should. How do you. How should you qualify for being able to say made in America?

Yeah, I mean, in my opinion, if everything is assembled and produced here, then it should count as, you know, made in America. Because at the end of the day, it's very rare that you're able to get all the raw materials from just the States. And even if you, you know, are buying those raw materials from someone else in the States, you know, they might have imported that from somewhere else, and. And they're acting as a wholesaler or middleman. Right. So I think. I think there's always going to be parts of a supply chain that stem from other parts of the world, and that's just how global trade works. Right. I think people that are outside of supply chain don't necessarily understand that, but especially when you look at the intricacies of producing and manufacturing a watch, as we'll touch on, you know, here in a little bit, it really. There's a lot of components that go into producing just a single watch.

You bring up a really interesting point because it, you know, is McDonald's made in America, Right. The hamburger that you make is that made in America. The wheat, the beef, the cheese could come from elsewhere. I mean, there's a famous graphic online that showed, I think it was Saudi Arabia. Like, you know, they had 47 countries in their global supply chain for how they made a Big Mac. And, you know, we wouldn't think of a Big Mac as not being American or not being made in America because you're there. So for me, I think the threshold has to be, are you doing something that's inherently different or harder than you. You had to. Right. And I think that that's a big part where if. If every hamburger joint is making their hamburgers in America, it's just weird to use that as a marketing claim that, hey, you know, come to Wendy's. They're. They're made in America. You're like, well, what the heck? Like, of course they should be. But if something different and they're doing something that is truly unique, that isn't common, then I think they should. And it's a subjective benchmark, but that's, to me, kind of how I think the FTC should look at this?

Yeah. I mean, I think a lot of consumers just aren't aware of how a supply chain works and how global trade, you know, plays a vital role in how you get products and what you buy and eat every day. I mean, I remember just like the other month, I think it was late last year, I learned that Chomps, the kind of meat stick brand that's been super popular and growing like crazy. They get some of their meat from, like, Madagascar and, like, all these kind of random places. And I was like, wait, what? This is not American beef. And, you know, it kind of made me look at these beef sticks in a different way, to be honest. Not that I think that the beef there is lower quality, but just that I didn't even realize that they have this global supply chain that, you know, because their demand is so high, they have to look in other places to produce their product.

Yeah. It's just weird that that is still cheaper to have something move it across the world and, you know, that that's how things are built, but so be it. You know, at the end of the day, Made in America is a marketing play, and it seems to be working. Right. A lot of politicians really like shinola, if anything, because of what it represents and not necessarily because it's. I wouldn't say it's not making it, but it is making an impact for those people in those jobs. But, you know, this is something that, you know, Bill Clinton wears one. Former Republican Rick Schneider, the governor of Michigan, wears one. And so a lot of these folks are looking at this and saying, hey, I want to show that I support American workers. You know, if I'm going to spend $3,000 on the watch, let me do it for somebody that made something in Detroit versus, you know, somebody from Switzerland.

Yeah, yeah. And I mean, I think that reflects quite a bit in their financial growth. I mean, so there's been different reports here that the company has struggled to generate profit. Profit. But the revenue growth, you know, is really impressive. So they were founded in 2011, took about two years to build the factory and pivot to becoming a brand versus a contract manufacturer. 2013, their revenue was about $20 million. Steve Bach became their first formal CEO. And Tom, you know, really was the visionary behind the brand, but never took that official CEO title. 2014, about 60 million in revenue. 2015, 100. 2016, 124. This is when Tom Lewand becomes CEO. 2017, the company was expected to turn a profit, but did not. 2019, they employ 610 people. This year, the company did announce a 5% layoff. And it wasn't the first time. The company reduced its staff members. And Shannon Washburn becomes CEO 2022. They have about 400 employees. Shannon leaves her position as CEO 2014. Steve Katzman took over as CEO in June. And so, I mean, I think it's pretty remarkable to see the size and scale of this brand. I do want to touch on that a lot of their employees are kind of more of the manufacturing type. You know, they're. They're in the factory producing these watches, which is, you know, a really hard thing to do in America. But it's not like 400 team members are all in marketing and sales and design. Right. So just want to touch on that, because I think for a watch brand of their size, having, you know, 600 employees or 400 employees, you know, is a ton of people. Then you realize, okay, a large portion of those employees are actually, you know, doing the manufacturing.

Yeah. And they went out and did what they said they want to do. Right. Which was creating manufacturing jobs in the U.S. you know, one of the things that I think is really interesting that show that we've come back to is the fact that they own their own manufacturing and that they did so in the US I know you've got a lot of experience in watch manufacturing. You've been to a lot of factories. How hard is it to actually make a watch?

Yeah, I mean, I've been to so many different watch factories through China. You know, I think as everyone in supply chain realizes, there's different hubs for different types of products. And the reason being is because the supply chain of those products stem within that area. So for watches, you know, a lot of times they're outside of Guangzhou and Shenzhen area. You know, watches are so intricate. Right. For a single watch, there could be almost 100 different pieces. You know, you think about all the hands, the movement, the face, the strap, the case. Like, all of those little pieces need to be put together. And typically when you're importing watches, you're dealing with the main assembly factory, who is actually handling that part of the supply chain. In Chenola's case, you know, there could be 100 plus parts that go into one of their watches, and they're dealing with their own supply chain in house. So that's partly why they probably have a big supply chain planning team to try to forecast and understand, okay, how many hands do we need for this model and how many movements do we need and how many straps? Because you've got to understand, okay, you Know, what does consumer demand going to look like for each of these pieces and products? And you've got to work backwards from that. And so it's really intricate. I mean, I think when people wear a watch, they don't realize how many pieces and parts go into it and how complex it can be. But even within a watch movement, you know, there could be, I don't know, upwards, over 100 tiny parts just within the movement itself, which, you know, a movement is then placed in a watch to make the hands, you know, move. And so it's really intricate. You know, obviously, Swiss manufacturing is kind of the luxury side of the manufacturing industry, but I think the majority of watches are made within China. And, you know, you can correct me if I'm wrong, but I'm pretty, pretty sure that's the case. And I mean, I think, Aaron, you actually have some family history in watchmaking, is that right?

I do. So my. My grandfather was trained as a watch repairman. That's one of his first jobs that he had when. When he got back and was. Was working and he worked at a shop in New Philadelphia, Ohio. And that skill set of being able to work with all of these really tight movements and, and getting anything to work together, that actually led him into his career where he worked on the Minuteman nuclear missile. And so he went from. He wasn't, you know, trained to work on. On nukes necessarily, but the fact that the precision and all of the, know, how that came into repairing watches, understanding how it worked, putting them back together, that was the training that the military or the government was looking for in order to have people who could work on the guidance systems and the other pieces there. So that's kind of my connection. And I was thinking about my grandpa as we were preparing for this one.

Yeah, that's remarkable. I mean, that's really incredible. And if you think about kind of how Shinola's decision to do this in America complicated things, I mean, as we touched on, the company now has more than 500 employees. The original goal was just 100. And so I think it's something about, you know, built in Detroit that is in their ethos that really kind of makes this just so remarkable to me. I mean, if you think about their original goal of social impact with this, I think they've exceeded that in a lot of ways. You know, I think the company quickly learned the complexity of finding skilled labor and training new hires was a lot harder than they had thought. Just because most people in America, they don't have much experience manufacturing Watches. And I think, you know, in Detroit in particular, it, on one hand, made it harder for workers to leave because, you know, there's not as many, you know, options in that, that, you know, workforce in Detroit. But, you know, it also was hard to train and build retention and just create a great culture there. I think on the other hand as.

Well, you know, you think about, they, they went through an enormous amount of work to train and qualify these people to assemble these watches, to do all these movements. And so that is a premium skill. But there is only one watch assembly company in Detroit. And so if you're unhappy about something, you think you can go get money elsewhere. You can't just go down the road to the other guy. Right?

You.

You're like, all right, I guess I'm moving to Asia, right. Switzerland. It's interesting how that worked to their advantage, where what was a disadvantage of there not being labor has now become an advantage of. There's no. There's no competition for that labor. And so they've got a really good way to keep that talent in house and to build on that tribal knowledge that they're creating.

Yeah, yeah. And I think if we look at their supply chain, you know, it really kind of touches on what we had said in terms of, you know, though the company tries to produce as much as possible in America, and they're constantly working to vertically integrate themselves. You know, they are mostly just assembling these watches in America. You know, one of the major watch blogs, Hodinki, which also sells watches, now wrote a piece on how the company brought in dial manufacturing to the US So they got Bat, Bat, which was their experienced Taiwanese dial supplier, to actually come in and train their staff to make their own dials in the US which is a huge step to verticalization and I think really, you know, hadn't necessarily been done before. And so for watch movements in particular, Shinola works with Ronda and Siletta, which are two well known white labeled suppliers with movements from Switzerland. And they also have, you know, references of the company sourcing watch straps from Florida as well as leather from Chicago. And so, you know, what's interesting though, is that about 85% of all imports by the company are from Asia, with a strong focus on China and certain shipments coming from Vietnam and Taiwan, and about 15% coming from Europe, like Italy and the U.K. so it's interesting because, you know, to actually verticalize watches, it's really hard to do in America. You know, you need to have this global supply chain for your movements and other Pieces of a watch.

Yeah, it is, it is interesting because as we talked about earlier, they are so Detroit full forward in their branding and messaging and things like that, but their supply chain invariably runs through Asia and there's just no, no way to get around that. And you know, I guess my question to you would be, as they think about just resiliency and, and having optionality, is there a risk to doing your assembly in the US and, and still having your supply chain for the most part in Asia?

Yeah, I mean, it's a good question. Right. I think it still makes you at risk to a global supply chain. Right. Different issues that come up with importing raw material, you know, and different assembly issues with your workforce. You know, they're having to deal with a lot more than say if they were to just produce their watches in Asia and import them, you know, as if they were manufactured in Asia, but that really wouldn't align with their brand ethos and really I think would, you know, kind of destroy their brand, if you ask me. When I think of Shinola, I really think of built in Detroit now. And I think they've tried to take a lot of steps to hone in on this ethos. Right. So in 2014, the company announced its own leather goods production facility which was about almost 14,000 square feet made by or, you know, done with machinery brought in from Italy. And that was actually a joint venture with, for Aloba, which is a Swiss operated business that's been in the leather industry for two generations. And so those, you know, leather workers from, you know, Switzerland have come in and helped train Chinola's team to ensure no quality is sacrifice. And then in 2017, they actually saved Roma Industries, which was a tannery in Florida that, you know, really I think helped reinforce its commitment to American manufacturing. And so, you know, they've done a lot, I think, for their own supply chain in terms of verticalization and try to invest in this verticalization. So I really, I really believe in the built in Detroit ethos and what Chenola has done. But you know, Aaron, if you were, if you were to start a watch brand today, I mean, what kind of challenges could we expect? What would you do?

Yeah, so I mean, first thing is we just got to understand this market a little bit more. And it is a pretty broad market there. There isn't. This isn't like eyewear where you've got one company that controls 95% of everything. It's pretty spread out. High end watches are pretty niche. And so you might be able to get distribution through specialized outlets. But, you know, there are only so many people who are, who are interested in $100,000 watch. And so like, that's a, that's a limited subset of people. There's a lot of brands going after that. And so it's pretty fierce competition. And you know, in general, the trends are really such that, you know, you're building a fashion item, right? It's a piece of jewelry that could go in or out of style. And people may think that, hey, this is, this is really great and this brand stands for something. I mean, look at Fossil. They were at the top of the world, you know, in the late 90s, early 2000s, and now they're trading below what their stock was when they, when they ipoed. And you got to have to know that and know what you're getting into. And this is a market that can change very quickly. And, and you got to know which side you're going to play with from a manufacturing point of view. Like you said, it's very hard to make watches, and specifically luxury watches which have more parts. There's, there's a concept of just, you know, the accuracy and, and just the craftsmanship. How will it hold up over time? And unless you're a really big player in this space and it's going to be difficult to get economies of scale with these watch suppliers. And so you're going to get the list price, the wholesale price, and so you're not going to have a cost advantage that the large incumbents are going to have. At the same time, you know, these bigger guys are benefiting on the other end as well because they have such buying power. They can make so many units, and if they undercut their prices by 5%, they can put you out of business and just maybe have a bad quarter. And so it's a really challenging thing this way. You know, again, there's limited suppliers. I think this is why Tom said, hey, we're going to have to make our own assembly house. We're going to have to manufacture. So, you know, for me, if I were thinking about different categories, I would get into, I personally would not get into watches. Not because I don't think the category is great, but just my own expertise. I think you've got to be someone like a Tom who has all of this cachet, already, has the connections, or you have to be someone who has lots of capital that can go build those connections, build that brand in order to get it to look like.

Yeah, in general, I agree. I mean, I think the Only angle that I see with watches is if you take a creator led approach. I think, you know, these kind of creator led brands have been done so well across so many different categories. I haven't seen a creator led watch brand come to play. But even then I worry about the repeat purchase rate. I worry about kind of the LTV of a customer here. So I wonder if that's actually a good industry for a creator. But you know, as I think about Shinola, I think about, you know, their exit potential. What comes to mind for you on that end, Aaron?

Yeah, so I think it's important to say that they first off haven't given any indication that they are looking to exit. If anything, they're looking to double down and build this bedrock manufacturing unit that owns Shinola. And so I do think that if you look at a computer movement, MVMT was acquired in 2018 for about $300 million by Movado and they were doing about $90 million in revenue. And so you think about just multiples. And we talked about how they're probably north of 100 ish million dollars revenue, so their exit valuation would probably be between 350 and 500 million in revenue. So they're kind of at that point where there's only a certain number of companies that can write those size checks. And so there's a piece here where if they were looking to exit, they're probably on the tail end of their exit window where they're just going to be too big to buy necessarily. If they want to go that route, they are, like I said, doubling down and saying we want to go alone. And so they've made a lot of leadership changes, bringing in CEOs, CMOs to try to make sure that we run this thing as well as it could be. And they've talked about trying to transform Chinola into kind of a new version of lvmh. Right. So this collection of brands, and maybe they're the Americana version of lvmh, would be amazing business if they could do it. I don't know. Well, it's yet to be seen to see if they can create luxury brands and other categories beyond just watches, because that's really what this is. And so if they did that, they'd have to probably pare down some of their other investments to really focus on the luxury piece. But if you're, if they're trying to go that route, then their natural exit as a group would be lvmh. And in that case, you could be looking for check sizes in the billions of dollars. But for me, as I think about some of the hurdles that are there, again, what makes them special also makes them difficult to scale. And that's the fact that they have this really core ethos of Made in America. And so they're going to have a higher cost structure, they're going to have a slower ramp up just by needing to train new workers and things like that. And so I don't think it's a great acquisition piece necessarily. And then the fact that they are kind of not profitable or it hasn't been announced that they're profitable, although I'm sure they're pretty close to break even now, that's kind of a tough thing because again, revenue is vanity, profit is reality. And if you're making $100 million in revenue, but you're only banking 50k in profit, that's not a great business that someone's interested in buying. So a bit of a mixed bag here. If they. So to sum up, I think if they were looking to sell the Watch brand, they are probably on the outside of their. Just on the outside of their exit window. If they're looking to build this into an lvmh, they've got a lot of work to do. But that could be an interesting exit in five to ten years from now.

Yeah, I think you hit the nail on the head there. I mean, I really like the kind of American LVMH angle. I mean, we'll see if their leadership is set out to accomplish that. And you know, their challenge is they can't really turn their supply chain on a dime. Right. Because they've got to invest so much in infrastructure, in their workforce, in just so many aspects of their supply chain. So I think it's a lot harder to do. You know, when I think about Shinola and kind of what I learned from this episode, I think about, you know, number one, how investing in brand in the long term really builds a strong ethos. You know, I, I'm always going to think of Built in Detroit now. I think that's just a really great takeaway. I think about, you know, how hard it is to verticalize the supply chain. Right. I mean, we talked about just the, the conflicts and challenges that they face to go vertical with that. And I think about, you know, just their future in terms of, you know, exit window. You know, what is this kind of, you know, what's going to happen to them in the future because it's going to be hard for them to be acquired by a company that outsources their supply chain, that outsources their manufacturing and if they were to be acquired by a company like that and that company, you know, disbands their verticalization, is that going to really damage the ethos of the brand and damage the reputation? Right. So I mean, this was really a fascinating episode that I really, really enjoyed.

Yeah, I would agree. I think, you know, if, if your acquirer is going to run a playbook that is antithetical to your brand and that's how they're going to justify the transaction, that makes it to be a really difficult place to start from. I think for me, the takeaway that I have is that even if you're starting from a position of trying to do social good versus, hey, let's see how we can make much money, the rules of running a profitable business still apply. Like the only reason that they are able to continue to provide these jobs into, invest in these communities and have this impact on the world they're having is because they are running a business that has a path toward profitability. Right. And, and if they are continuing a money losing business that employs people, that's no longer a business, that's a charity. And you can get on the, the fundraising circuit either for VCs or just donations and say, hey, look at this great thing that we're doing. But it is so much better than when you can solve a social need with a profitable business because there's nothing like it to be able to develop people, to motivate people, to reinvest in it. And so that's kind of the big lesson I take away from Shalom.

I agree, I agree. Well, I appreciate everyone and we appreciate everyone tuning in to this episode of E Commerce on Tap brought to you by Sourcefi and Isba. Please leave us a review. Let Aaron and I know what you think of this episode on LinkedIn or Twitter. We always actively post there and share with a friend. We're always excited for new listeners. And thank you again for tuning into this episode of Ecommerce on Tap brought to you by sourceify and Isaac.