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The Industrial Clusters Theory, and the LVMH Texas plant

For Western nations, unwind global supply chains and restart domestic manufacturing, particularly for complex or high-quality goods, is incredibly difficult to achieve in the short term, and it would almost certainly lead to a massive increase in consumer prices. The recent struggles of luxury giant LVMH in Texas offer a stark, real-world example of these challenges.

In 2019, LVMH CEO Bernard Arnault, alongside then-President Donald Trump, inaugurated a new Louis Vuitton factory on a ranch in Alvarado, Texas. The facility, named "Rochambeau," was intended to produce iconic handbags, often retailing for $1,500 and upwards, bearing the coveted "Made in USA" tag. According to a recent Reuters report1 citing former employees and industry sources, the Texas plant has reportedly become one of Louis Vuitton's worst-performing facilities globally, plagued by production issues. A primary challenge lies in finding and training workers capable of meeting the brand's exacting craftsmanship standards. Sources described difficulties even producing simpler components, significant material waste (reportedly up to 40% of leather hides, double the industry norm), and pressure leading supervisors to overlook methods used to conceal defects. Consequently, poorly crafted bags deemed unfit for sale were allegedly shredded and incinerated. This highlights the fundamental difficulty of replicating a specialized, high-skill manufacturing process in a region lacking a deep-rooted ecosystem for it, even for a company with LVMH's resources. The reported starting wage of $17 per hour in 2024, while well above the Texas minimum, arguably reflects the mismatch between pay expectations and the level of artistry required for a $2,000+ handbag, further complicating recruitment and retention. Despite these issues, LVMH plans to consolidate further in Texas, aiming to close a California workshop by 2028, though convincing skilled workers to relocate has proven difficult.

The initial rationale for the Texas venture2 was strategically sound on paper. The US is a critical and growing market for LVMH. Producing domestically offered advantages like avoiding potential import tariffs and, crucially, enabling a faster, more agile response to American consumer demand, reducing lead times and logistics costs compared to shipping from European ateliers. Texas was chosen for its central location and perceived history in leatherworking, sweetened by local tax abatements. LVMH projected creating 1,000 jobs, aligning with the political narrative of revitalizing US manufacturing. The expectation was that American workers could be trained to replicate the quality honed over decades in Louis Vuitton's traditional workshops in France, Spain, and Italy. However, the gap between this expectation and the reported operational struggles underscores the complexities involved.

This challenge is explained, in part, by the concept of industrial clusters, extensively researched by Michael E. Porter3. Porter argues that despite globalization, location remains critical. Economic activity often concentrates in "clusters" – geographic areas where interconnected companies, specialized suppliers, service providers, and associated institutions (like universities or training centers) create a unique competitive environment. These clusters foster high productivity, drive innovation through shared knowledge and competition, and stimulate new business formation. The advantages stem from proximity: easier access to specialized inputs and skills, deeper relationships, faster information flow, and strong local incentives. This deep pool of specialized knowledge, skilled labor, and institutional support, often built over generations, is precisely what exists in established high-end manufacturing districts (many now in East Asia, as well as traditional European centers) and is incredibly difficult – and time-consuming – to replicate from scratch elsewhere.

Compounding the challenge of building specific skills for luxury goods is a broader, systemic issue within the United States: a persistent manufacturing skills gap. According to studies4 by Deloitte and The Manufacturing Institute (the workforce development partner of the National Association of Manufacturers, NAM), the US could face a shortfall of 2.1 million manufacturing workers by 2030, potentially costing the economy $1 trillion in that year alone. Even before the pandemic, manufacturers reported difficulty finding skilled labor. Today, despite higher unemployment compared to 2018, finding the right talent is reportedly 36% harder. Executives struggle to fill even entry-level production positions, let alone specialized roles requiring advanced skills or craftsmanship. This shortage stems from a mix of factors, including a perception gap about modern manufacturing careers and a lack of workers with the necessary technical skills.

The LVMH Texas experience serves as a microcosm of the broader challenges facing Western economies aiming to reshore manufacturing. It demonstrates that even well-funded, globally recognized brands struggle to quickly establish high-quality production in new locations lacking established industrial clusters and facing a tight skilled labor market.

Reshoring complex manufacturing is not a quick fix, and it won't come cheap. The difficulties in achieving quality and efficiency, coupled with significantly higher Western labor costs (even $17/hr is far above wages in many established Asian manufacturing centers, yet potentially insufficient for luxury-level skill in the US), inevitably point towards higher production costs. These costs, stemming from training investments, lower initial productivity, material waste, and wages, would ultimately be passed on to consumers, leading to a massive increase in prices for goods currently produced more efficiently elsewhere. While strategic reshoring for critical industries might be necessary, the idea of a wholesale reversal of globalization without significant economic pain and substantial long-term investment in skills and infrastructure remains, for now, largely wishful thinking.

Footnotes

  1. Hummerl, T. and Cunningham, W. (2025, April 10). LVMH finds making Louis Vuitton bags messy in Texas. Reuters. Retrieved from https://www.reuters.com/business/retail-consumer/lvmh-finds-making-louis-vuitton-bags-messy-texas-2025-04-10/. ↩

  2. Bain, M. (2019, October 18). Why Louis Vuitton opened a factory on a ranch in Texas. Quartz. Retrieved from https://qz.com/1730894/trump-praises-louis-vuitton-for-opening-a-factory-in-texas. ↩

  3. Porter, M. E. (2000). Location, Competition, and Economic Development: Local Clusters in a Global Economy. Economic Development Quarterly, 14(1), 15-34. https://doi.org/10.1177/089124240001400105 { target=_blank }(Original work published 2000) ↩

  4. National Association of Manufacturers (NAM) News Room (2021, May 4). 2.1 Million Manufacturing Jobs Could Go Unfilled by 2030. NAM. Retrieved from https://nam.org/2-1-million-manufacturing-jobs-could-go-unfilled-by-2030-13743/. ↩