How Tom Kartsotis Is Banking on America

NEW YORK, United States — On March 6, 2016, Democratic party US presidential hopefuls Hillary Clinton and Bernie Sanders debated in Flint, Michigan, the Midwestern town bruised by the decline of the American automobile industry and, more recently, a water contamination crisis that has exposed thousands of children to drinking water with high levels of lead.

At the debate, one woman, who was raised in the area, asked the candidates about American manufacturing jobs. “A lot of members work in the auto industry here in Flint. That's ultimately what I wanted to do when I got out of school,” she said. “Unfortunately, I was unable to get any one of the big three [auto companies] and that's why I now [work] at Shinola. If you are elected president, what are you going to do to [keep jobs] in the United States instead of sending them overseas to other countries?”

The woman's current employer is Tom Kartsotis, the man who famously built the multi-billion-dollar watch company Fossil Group out of his garage in the early 1980s. As the founder of the Plano, Texas-based Bedrock Manufacturing — which owns Shinola and Filson and is a minority investor in several other labels — Kartsotis believes the made-in-America factor, more than design, is the single most important thing that distinguishes his brands from competitors.

"When you visit [Shinola and Filson], you walk in and you see that what is important to us is the manufacturing," says Kartsotis, sitting in his office atop the Shinola store in a building on Franklin Street in New York City’s Tribeca, for which Bedrock paid $14.5 million in 2011. Indeed, for Kartsotis, creating American jobs is integral to the success of his second act, which is ironic, of course, because he became a multi-millionaire with Fossil by manufacturing products at low cost in Asia.

Founded in 2003, a few years after Kartsotis stepped down as chief executive of Fossil, Bedrock, which is named after the hometown of “The Flintstones,” existed for nearly a decade before it became what it is today: a stable of American-born, almost always American-made brands that share a certain belief in integrity. They reek — sometimes sincerely, sometimes not — of expertly-realised heritage.

Consider the Filson flagship store, which sits on a post-industrial strip near Seattle's waterside. The neatly laid brick building has black-framed windows that offer a view of its manufacturing facilities. Here, employees sit at sewing machines, stitching up and assembling the popular bags, made from a densely woven waxed canvas called tin cloth, a standard for the 119-year-old Filson, which Bedrock added to its portfolio in 2012 for an undisclosed sum. The towering front door, decorated with hand-forged knobs shaped like wolf heads, opens up to a lobby, which houses old photographs and vintage objects meant to conjure the outdoor lifestyle embraced in the Pacific Northwest for generations. Fishing, hunting, dog sledding — these activities are as ingrained in Filson's fibres as running is in Nike's.

Filson factory | Source: Courtesy

Take a hike one flight up the stairs and you’ll find a 6,500-square-foot retail space, still shiny and new from its November 2015 opening. But at a brand like Filson, shiny has its limits: beyond the wood fixtures and warmly lit vignettes of product — $450 field coats and $125 flannels are mixed in with $750 watches, $270 blankets and a $12,000 three-piece knife kit from local brand Graycloud — there are hundreds of well-loved tchotchkes on the balcony that runs around the wooden A-frame. Vintage blankets, old sacks stamped with "Nome Alaska” and paintings of grizzly bears are arranged oh-so-specifically at the request of the brand's creative director, Alex Carleton. In the centre of the room stands a state-of-the-art fireplace, a sort of centrepiece of the waxed raincoats and dog collars hanging on nearby racks. While the majority of the wares are geared toward men, there is a significant section dedicated to the brand’s growing women’s business, featuring $395 wool vests (hand-knit by the members of the Cowichan tribe in British Columbia) and $145 tailored moleskin shirting.

There's a sense of glory to the space, which is meant to serve as the best reflection of the Filson brand. According to the company, a "large percent" of Filson's goods are made in the United States — many of them right in Seattle. (Filson used to say "about 90 percent," but will no longer give an exact figure.) And, for a certain set, American-made items are a new kind of luxury which offers a legitimate reason to buy one product over another. (In fact, nearly eight in 10 American consumers say they would prefer to purchase a US-made product over an imported one, while more than 60 percent say they would pay 10 percent more for something made in the US, according to a Consumer Reports survey.) This is Filson's target.

Upstairs in the same building are Filson's corporate offices, where a high-profile team of fashion and retail insiders has been working for the past two years on the company's careful transformation. There is Carleton, a well-regarded veteran with a CV that includes stints at Ralph Lauren, Abercrombie & Fitch and most recently, L.L. Bean. (He also had his own line, called Rogues Gallery, for a spell.) Aude Tabet, the company's head of product design and development, spent 15 years at Marc Jacobs before joining the team, while the company's president, Gray Madden, spent a decade at Neiman Marcus before moving on to Cole Haan and managing Burberry watches for Fossil. (Fossil designs, manufactures, distributes and markets watches under license for Adidas, Burberry, Diesel, DKNY, Karl Lagerfeld, Marc By Marc Jacobs, Tory Burch and others.)

And then there is Steve Bock. Bock is the president of Bedrock Manufacturing, which, before acquiring Filson, also made minority investments in Steven Alan, Clare Vivier, Mollusk Surf Shop and Marissa Webb, all small-to-medium-sized American labels with a connection to Alan, who introduced Kartsotis to the others. (A team in Plano manages those relationships.)

The unexpected crown jewel in Bedrock’s portfolio, however, is Shinola, the Detroit-based purveyor of Swiss-inspired watches. The company, which also deals in $2,950 bicycles, leather goods and plenty of other all-American paraphernalia, employs more than 500 people — including roughly 230 who manufacture goods in Detroit — and has 14 directly-owned stores and dozens more wholesale stockists. According to information supplied by Bedrock, Shinola generated “close to $100 million” in sales in 2015, up from a reported $60 million in 2014.

The Shinola store in Tribeca is similar to Filson's Seattle space, although no manufacturing takes place there. Instead, at the entryway there is the Smile cafe — Carlos Quirarte, co-owner of the popular chainlet of eateries, is the brand’s “director of culture” — and a small store in the back, slicker in feel than Filson but still warm. Just as in Seattle, there is memorabilia decorating the space, this time referencing Detroit.

At one point, Alan ran his business out of the Franklin Street building that houses the Shinola store. But the designer — who also owns a multi-brand showroom and several stores across the US — has moved one block over. The building’s occupants now include Shinola leather goods designers Richard Lambertson and John Truex, who joined the company in 2014 and shuttle between New York and Detroit. “We’ve brought in world-class people to help us,” Kartsotis says of the high-profile hires. “The people that are gravitating toward these two brands just have a really strong attraction to what we’re doing. They are people who could really work anywhere.”

What Kartsotis doesn’t want is to be high profile himself. Both he and his older brother, Fossil’s current chairman and chief executive, Kosta, are intensely private and their general disdain for attention is well documented. The eldest’s elusive manner continues to fascinate the business press; Kosta doesn’t grant interviews and image searches of his likeness are unfruitful. Tom, however, has let up a bit. Though he has consistently declined to be photographed, in January 2016, The New York Times scored a candid shot of him for a story on Shinola and he has been compelled to discuss his new ventures with multiple media outlets.

Shinola factory | Source: Courtesy

Privately, Tom Kartsotis continues to rail against too much attention, despite the fact that Shinola has received a slew of meaty press clippings — both favourable and unfavourable — over the past five years. In person, he is charming and cool with a mild Texas drawl. At a lanky 6’7” with wavy grey hair, his portrait could be an asset to Bedrock. In some ways, the strategy — whether a media tactic or a sincere desire for privacy — has backfired, making some question whether he might have something to hide.

What is more clear is that Kartsotis is set on building Bedrock and its holdings around a new kind of luxury rooted in made-in-America crafts and manufacturing. At Seattle-based Filson, the company has added 335 full-time employees since July 2012, for a total of 520. While Shinola does much of its manufacturing in Detroit, there are plans to open an eyewear factory on the South Side of Chicago and Kartsotis is currently scouting locations in the Bronx, New York, and Wooster, Massachusetts, to house a leather-sewing factory for Lambertson and Truex. Go to where the jobs are needed, Kartsotis believes.

According to the executive, Bedrock’s pricing strategy will allow companies like Shinola to continue to scale in the US. “At the entry-point of luxury is the only place we can compete,” he says. “If we tried to compete at the very top of the market, then we wouldn’t have enough volume to build the infrastructure out and train the people. It’s a magic place that we have to be, where we know we can do enough sales to justify the investment.”

But Shinola has had its fair share of bad press, with naysayers questioning the validity of its mission. While the watches are hand-assembled in Detroit, many of the parts are made overseas. Others have questioned the company’s positioning as a modern heritage brand, labelling it an oxymoron, despite evidence that Millennial consumers want just that. “Millennials are accustomed to the speed of the market and expect brands to move just as quickly. However, they also value brands that can forge long-term relationships and stay true to their heritage,” states a 2015 report by brand consulting and design firm Landor. “Millennials want brands to evolve with the times, but in ways that feel authentic and foster trust.” To be sure, Kartsotis and his team will need to work hard to ensure their efforts read as “authentic.” (Interestingly, Fossil’s former logo featured this particular word.)

Right now, Bedrock’s focus is on polishing Filson, which was deprioritised when Shinola gained unexpected traction. “With the excitement of Shinola, Filson was left alone,” Bock admits. (Originally, Shinola was meant to serve as a factory for other accessible luxury brands to be able to produce watches Stateside, but the company says that demand for the small run of watches was so great that the plan evolved.) “Shinola kind of took us by surprise and Filson, quite frankly, became the red-headed stepchild for a couple of years while we tried to get our hands around what Shinola was,” Kartsotis says. “But Filson had a really clean brand. It hadn’t been trashed in over 100 years.”

About two years ago, Kartsotis hired Madden and Carleton — with an assist from Bock — to prop up Filson, which had a solid range of products with a loyal, if specific, following. The label had benefitted somewhat from the heritage-brand boom, but was mostly a passive participant in the trend. "Filson had always been one of those brands that I loved and respected and it was a company that always felt, to some degree, underdeveloped or underexposed," Carleton says. "But it was also something that struck me as an incredible opportunity."

Carleton’s first move was to home in on Filson’s connection to the Pacific Northwest, hiring outdoorsmen instead of models to fill the pages of its catalogue. He and Tabet made a concerted effort to move Filson’s offerings beyond the hefty-if-well-loved originals, adding lightweight shirting and other warm-weather appropriate gear to the line-up. “When I got here in July 2014, I went to the store and had a really hard time trying to find things to buy,” he says, referring to the woolly blankets and heavy coats that lined the racks. “I knew we had to develop product assortment that had meaning outside of the fourth quarter.”

Thus far, Filson says the efforts of its team are starting to pay off. In 2015, sales were $50 million and Bock projects a 30 percent year-over-year increase in 2016. The goal is to open four to five new stores this year — which will help boost the top line, but will also require investment — and to expand the brand’s international footprint. “In many ways, [Filson] has been a hobby,” Bock says of the history of the company. “Now, it’s a professional business.”

But driving long-term growth won’t be simple. While rapid-fire store openings can help boost sales — especially given Bedrock’s destination retail strategy — maintaining momentum year-over-year is a greater challenge. What’s more, training employees to manufacture the goods is no easy feat. Even getting them to show up to work on time is difficult, says Kartsotis.

Indeed, Kartsotis may be genuine in his desire to reshore manufacturing jobs — a reversal of a trend he profited from all those years ago by making Fossil watches in Asia — but he also wants to win. Will the strategy work? Take, for instance, the headphones, turntables and Bluetooth speakers he’s developing for Shinola. His plan: sell $1,000-quality headphones for something like $400 and manufacture them out of an old creamery he bought in Detroit.

“It started when I read that Beats sold to Apple for $3 billion,” he deadpans. “The entrepreneur in me is, like, ‘Okay. What license, what authenticity do we have to make headphones?’” His bet, of course, is that there is profit in integrity.