Somewhere between the stacks of woven Chinese lawn chairs and the cooling vinyl by the chaise-lounge welding station, Gerald Shvartsman is straddling the hope and peril of South Florida’s battered manufacturing industry.
The one-time nightclub owner dived into the Miami furniture business in 2008 with a start-up focused on low-cost imports of high-end furniture. Shvartsman said he was able to undercut struggling competitors by keeping his overhead low and his margins tighter than the competition did.
“I unloaded the first container myself,” the 35-year-old founder of Source Outdoor furniture recalled. He got the idea of lower cost furniture when he was looking to fill the balcony in his new Aventura apartment. “I went to a couple of local retailers and I would see crazy prices. A sectional was $8,000. I thought something was wrong.”
With furniture so cheap from China (Shvartsman said he got a comparable sectional for about $800 bulk), Source Outdoor was able to offer prices low enough to break into the market and start supplying local furniture stores. But as Source began fulfilling more bulk orders for hotels, he found his Chinese manufacturer was churning out aluminum chairs and tables with flaws: lightweight recycled metal, mismatched fabric colors on cushions, discolored coating on metal.
So Shvartsman decided to get into the manufacturing business himself. It started with a small upholstery operation to make custom cushions. And in January, Shvartsman cleared out part of the warehouse floor dedicated to storing Chinese wicker furniture and brought in $60,000 worth of equipment: welding torches and grinders, an oven for warming vinyl and metal lathes for forming curved table legs and other custom-made parts.
It was Source Outdoor’s first stab at making furniture rather than buying it overseas. “We’re in the manufacturing business now,” he said. “We’re making in America the same stuff I was bringing in from China, but at much better quality.”
The manufacturing arm of Source now employs about 20 people, out of the overall payroll of 70 people. Shvartsman expects about $1 million of Source Outdoor’s sales this year to come from furniture made in its warehouse in the 3400 block of NW 112th Street. Last year, the company reported $7 million in sales overall.
The company’s showroom is still dominated by foreign-made goods: luxe deck chairs large enough to hold three adults and sprawling outdoor sofa sets with bright oversized cushions. Most feature black woven wicker handcrafted in China by workers earning wages low enough that Shvartsman said he could never hope to create it himself in Miami.
“It could only be made in Asia,” he said. “It is labor-intensive.”
The comment touches on one of the reasons manufacturing remains the most battered industry in South Florida, even when compared to construction. With foreign labor, particularly in China, so affordable and communication so much easier with online ordering, the smallest of companies can secure cheap products overseas and sell to local customers. The combination has helped send manufacturing into a discouraging trend both nationally and in South Florida.
In 2000, manufacturing employed 106,000 people combined in Broward and Miami-Dade counties, according to federal statistics. Now that’s down to 61,000, a 42 percent decline. By comparison, construction has dropped from 80,000 people to 65,000, a nearly 19 percent drop (though employment in the building industry is down about 50 percent from peaks hit during the construction boom).
Manufacturing’s share of the Miami-Dade’s economy hit its lowest point in at least 20 years in March, accounting for only 3.4 percent of the million-person workforce. In Broward, the same low was reached in December, with the same 3.4 percent share of that county’s 750,000-person workforce.
But four years after the official end of the 2007-09 recession, manufacturing in South Florida has shown the slightest hint of something between a bottom and a rebound.
In May 2011, Broward’s manufacturing industry ended 47 straight months of job losses and began nearly two years of adding jobs. Since then, the industry has added fewer than 2,000 jobs, but it still qualifies as one of the few industries in Broward not to lose payroll positions during that stretch of time.
Miami-Dade’s recovery hasn’t been as encouraging but still holds the fundamentals of a new trend. While manufacturers were losing between 6,000 and 7,000 jobs a year during the recession, losses flipped to small gains in 2012. They have since slipped again into the red — Miami-Dade manufacturers lost about 2,000 positions in the March jobs report — but the overall arc suggests an industry that has at least put the dark days of the downturn behind it.
Sean Snaith, an economist at the University of Central Florida, said even a small rebound in manufacturing would be significant, given the long-range challenges of competing with countries where workers earn a fraction of their U.S. counterparts.
“There’s no hope manufacturing will ever share the portion of the of the U.S. economy it did decades ago,” Snaith said. “But there are some positive things going on. China’s labor costs are rising. You’re dealing with higher shipping costs. Ports are clogged up and busy. Suddenly that cost-effectiveness from overseas [for some products] starts to melt away.”
Nationally, the manufacturing industry sees some trends working in its favor. Goods aren’t as cheap to make in China as they used to be, while advances in technology mean some domestic factories can make the same amount of goods with fewer workers. The lower costs make U.S. companies more willing to shift manufacturing back to domestic operations, said Chad Moutray, chief economist at the National Association of Manufacturers.
“Manufactures have learned to be much more lean than they were a few years ago. They need fewer workers,” Moutray said. “It’s easier to fix a quality issue when it is 100 miles away instead of 1,000 miles away.”
Shvartsman, a Toronto native who grew up following his parents to flea markets where they sold jewelry, said he saw other issues with his import model.
Not only was he facing quality issues with the aluminum furniture, but he had to buy too much of it to make the shipping costs work out. The result: a warehouse filled with inventory, eating into his profits. And by making the furniture themselves, Source Outdoor could customize orders and turn them around quickly, without the delays involved in tweaking a product made on the other end of the earth.
“You can’t find that in China,’’ Jim Levine, Source Outdoor’s chief operating officer, said during a recent tour of the narrow manufacturing floor, wedged in between the end of the 80,000-square-foot warehouse and the last stack of Chinese wicker furniture ready for sale. He was pointing to a gently bowed leg of a silver barstool made of three-inch thick metal that Levine, a former furniture executive, thinks will sell well with hotel clients.
Nearby, Ishmael Sosa, 50, was cutting metal legs for a line of chaise lounges Source Outdoor sells. The native of Cuba is in his 20th year in the furniture business, though the recession ended his 13 years at a Miami furniture maker. “They’re not around anymore,” Sosa said.
Levine said the typical manufacturing worker at Source Outdoor makes less than $15 an hour, and Shvartsman said Source Outdoor does not offer its employees healthcare coverage. He worries the new federal healthcare law will be a challenge for a business where he said sales have been growing about 50 percent a year since its founding in 2008.
Margins are a challenge, given the competition for the retail shops and showrooms still reeling from a collapsed housing market and furniture makers who liquidated inventory during the downturn.
Levine said it would be hard to make retail furniture that was cheap enough to compete with foreign imports, since they allow the kind of low prices retail consumers want. But the commercial business has been promising for Source Outdoor.
Concerned about replacement costs if furniture doesn’t last, along with the need for particularly sturdy seats for heavy customers, hotels have been willing to pay a premium for upgraded furniture that Source Outdoor makes. And when a hotel wants something unique, Source Outdoor can deliver.
“I’ll make whatever you want. Just send me a picture,” Shvartsman said. “You can’t do that in China.”