As tariffs take effect, more brands weigh the value of tapping U.S. manufacturers
As retail companies navigate the tariff-filled landscape, some are weighing the value in bringing manufacturing stateside.
When brands bring their supply chain to the U.S., upfront costs get higher, including labor, warehousing and fulfillment. What domestic production has in its favor, however, is that logistics costs are reduced and delivery speed improves. According to U.S. co-manufacturers, in some cases, communication with co-manufacturers, lead times and quality control can also improve when a brand’s supply chain is brought closer to home. All these upsides come at a cost, and it’s up to each brand to decide whether the investment is worth it.
Ultimately, brands cannot shift their manufacturing overnight. In turn, while some U.S. manufacturing executives say they have recently seen an uptick in interest from brands, it may take a while for this to translate into more brands turning to American companies to produce their products and packaging.
Opportunity to invest in stateside manufacturing
Oisin Hanrahan is the founder and CEO of Keychain, an AI-powered CPG manufacturing software platform. Keychain lets U.S. brands and retailers find manufacturers, primarily in categories like food and beverage and supplements.
“We track the number of unique users filtering for U.S.-based manufacturers, and that’s seen a 70% increase from December to January,” Hanrahan told Modern Retail. When it comes to people using Keychain’s U.S.-only filters, that’s jumped by about 84% over the same period and continues to see an uptick. “Brands and retailers are certainly out there looking for manufacturers,” Hanrahan said. “And more than ever, they’re saying, ‘We need this to be a domestic-only operation.”
Currently, the tariff environment is one of the drivers of this trend. “The other reasons are just general uncertainty of supply, other trade restrictions and speed to market,” he said.
“People are more and more of the view: ‘I want my supply chain closer to me so I can make changes faster,’” Hanrahan said. He added that the need to adapt quickly to regulations like dyes and additives is also a factor.
Californian-based Yebo Group is a packaging manufacturer that works with a number of large and startup CPG brands including Revlon, LaCroix, Liquid Death and Old Spice, among others. The company specializes in various packaging, including subscription boxes, influencer gifting boxes and store displays.
Yebo’s marketing manager, Tyler Garland, told Modern Retail that since the impending tariffs began discussions over the last few months, “We’re seeing a major boom in U.S. retail brands searching for a potential supplemental manufacturer to help relieve these tariff pains that come with purchasing through China.” Additionally, some of Yebo’s existing customers are tapping the manufacturer for other services that have been done in China until now. For example, one brand that uses Yebo for manufacturing boxes is moving over the production of its paper bags.
“It’s stirring up a lot more conversations now,” Garland said, primarily with big companies that import large amounts of packaging, whose margins can be drastically impacted by tariff costs. On the other hand, Garland explained that many smaller brands are considering either eating the costs or onshoring packaging with a manufacturer like Yebo, which can cost much more than an Asian counterpart.
But there are upsides to investing in homegrown manufacturing, Garland said. “Where the U.S. will always beat China is in speed and quality,” he added. “When working with an American manufacturer, you’re going to have more direct service and avoid dealing with the time difference.” There can also be a lack of communication that impacts quality control. “The fact that inventory takes so much longer to get to the U.S. adds to the delays,” Garland said.
As inbound inquiries increase, Yebo is ramping up its production capacity. “We’re running more shifts, we’re hiring new employees,” he said. The company recently hired to grow its fulfillment services as more brands move packaging production stateside.
Considering the costs and capacity
Not all retail brands can onshore manufacturing, even if they want to. Much of the strategy depends on the product category and cash flow a brand can put up.
Manish Kapoor, founder and CEO of Growth Catalyst Group of Companies, said the tariff conversation has been fluid, which has caused confusion among retailers and brands on how to plan.
But now brands have to move forward one way or another, and start to plan for any supply chain shakeups. Certain companies have been quickly stockpiling inventory before tariffs took effect, Kapoor said, which is an expensive and short-term option. “We’ve seen some brands question whether they should bring manufacturing to the U.S.,” he said.
Kapoor added that it’s not always possible to quickly set up new manufacturing, at least without major capital. Typically businesses would lean to investors or banks to do that, but the interest rates are making that difficult. If it’s a low lift to set up machinery, some well-funded companies can take that bigger risk. “On the other hand, with something like apparel, it’s nearly impossible to move manufacturing to the U.S. overnight,” Kapoor explained.
The beauty category is having a similar dilemma. Atelier, an AI-driven platform that helps beauty brands source manufacturers, is currently working with client brands to navigate these new supply chain challenges.
“The reality is it’s going to be very messy,” Atelier founder Nick Benson said. “U.S. brands will be competing for the same limited capacity, and some won’t find a [domestic] home. This will result in some consolidation in the market.” In beauty and personal care specifically, only about 7% of mass-market products are manufactured in the U.S. Benson said it would take years to build out new investments.
“The reality is stateside manufacturing for CPG and beauty will always have a place. We need to acknowledge what that means,” Benson said. For now, he is advising brands to stock a healthy supply; they will likely have to absorb the tariffs as a near-term measure, given that moving manufacturing takes time. But, they should be ready to move quickly.
Then, there is still the question of sourcing raw materials. “If you’re still relying on raw materials that are coming from outside the U.S., you’re not fully solving the issue,” Kapoor said.
Ultimately, Kapoor said it may not be worth it for companies to upend an entire supply chain to save money. “In most cases, we’re saying, ‘Hang tight and watch,’” he said. “It’s not a straightforward equation in every case.”
Benson said that ultimately, “Brands need to prioritize the development of a dynamic, flexible supply chain organization that can respond to the changing geopolitical landscape rapidly.”
But for American manufacturers, all the new business is much-appreciated. “There are major growing pains that come with the growing demand from brands, but they’re always welcome,” Garland said. “We like to see more brands switch over to U.S. manufacturing.”