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Lowering the flag?

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It’s hard to imagine a clothing designer that seems more quintessentially American than Ralph Lauren (RL). After all, there’s that famous flag sweater that is still pretty popular, judging by a quick search. Which is why it was pretty surprising to find this little tidbit in the 10-K that the company filed yesterday: "In fiscal 2006, less than 1% by dollar volume, of our products were produced in the United States." Less than 1%? That’s practically zero!

A quick skim of previous Ks going all the way back to 1998 — the first time the company disclosed details on its sourcing — shows just how far, and how quickly — things have changed. Back in 1998, 42% of the clothing (by dollar volume) was produced in the U.S. And while it’s been dropping steadily — and sharply — ever since, 2006 was the first year that the number fell below 1%. It wasn’t until 2003 that the numbers fell into the single digits.

Judging by this chart, this move away from U.S. manufacturers has clearly been good for investors. Profit margins are up — 53.8% this year, compared to around 48% in 1998. But the real question now is with U.S. production already lower than 1%, how much greater can cost-efficiencies really get?