How Walmart Plans to Bring Back ‘Made in America’
By Bill SaporitoApril 12, 201321 Comments
FREDERIC J. BROWN / AFP / Getty
Images
Police man the front of a Walmart
store amid heightened Black Friday security in Paramount, Calif., on Nov. 23,
2012
Walmart doesn’t make anything. But
the giant retailer could play a part in the manufacturing rebound that is
taking place in the U.S. with its promise to buy $50 billion more U.S. made goods over the
next decade for its Walmart and Sam’s Club stores. It’s a bit
ironic, given Walmart’s vast global sourcing organization. But the same forces that are making the U.S. a more hospitable place for
manufacturing —higher shipping costs and wage rates overseas among
them—have prompted the company to reevaluate its sourcing on a variety of
products. “This is a commitment around manufacturing and more economic renewal.
We see it as a critical issue for us in the American economy,” says
Duncan Mac Naughton chief merchandising and marketing officer for Walmart U.S.
What Walmart sees is a way to lower
costs while smoothing its supply cycle by looking more broadly at its
distribution system. Although the company may be able to buy an item cheaper
from China, the price it pays per piece doesn’t always reflect what it spends
to get the product to the shelves. “When we buy from overseas, we may buy
more than we need to fill the container,” says Mac Naughton. “We’re looking at
carrying costs through the system in addition to landed costs.” (Walmart has recently been criticized for being out of
stock on items, due to a lack of store employees, but the company says its
in-stock position is at record levels and that it hasn’t cut employee hours.)
Walmart is also hitting some
unexpected supply snags as local demand increases in the developing countries
where it buys goods. Recently, it found itself short of memory foam for
mattress toppers and had to add a U.S. supplier, Sleep Studio, to augment its
foreign source. That need to increase capacity can only increase as the middle
class grows in India, China and elsewhere. The company will still likely rely
on foreign suppliers for those products, such as cut-and-sew garments, that
have a very high labor input. But given the more robust regulatory environment
in the U.S., domestic suppliers are far less likely to run shoddy plants that
endanger workers, as some of Walmart’s overseas subcontracters have been
accused of doing.
Which suppliers stand to benefit
from Walmart’s strategy? The company says that products with a “high
cube” (supply-chain speak for big and/or bulky, such as furniture) are
candidates. So are products that have more highly-automated production, meaning
lower direct labor, or products that have a less predictable sales curves and
might have to be produced quickly to meet a sharp rise in demand. The company
says items such as sporting goods, storage products, games and paper products
are likely categories.
One of the first companies to
benefit is 1888 Mills in Griffin, Georgia, which makes better-quality towels.
Walmart’s version will be labeled “Made Here.” 1888 Mills had some spare
manufacturing capacity, but since the size of Walmart’s orders can distort any
vendor’s production, 1888 Mills needed a longer-term deal to be able to make
the investment required to produce the needed quantities. “We made a commitment
that was longer term than we would normally do. There’s transparency on the
part of both parties: we worked with collaboratively with them,” says Michelle
Gloeckler, Walmart’s senior vice president of home.
Camping and outdoor goods company
Coleman is another participant. The firm, owned by Jarden Corp. is
manufacturing its hard-sided coolers and personal flotation devices in the
U.S., adding 160 jobs according to Walmart. Jarden, whose brands range
from Quickie mops to K2 skis, has been ahead of Walmart on domestic
manufacturing. Jarden has been on a reshoring kick for about two years.
Some of Walmart’s vendors will get a
chuckle out of the idea that Walmart is willing to become more transparent.
Walmart has a reputation for getting vendors into its buying rooms and beating
the hell out of them on price, essentially leaving them with little margin. But
Mac Naughton says that Walmart has to start thinking longer term, rather than
season-to-season and that this kind of collaboration will reduce costs for both
parties over time, paving the way for lower prices for consumers. For instance,
a U.S. manufacturer can bypass Walmart’s distribution centers and deliver
directly to stores, so-called “no touch” distribution.
Although $50 billion is a lot of
goods, it’s about 10% of what Walmart will sell this year at retail. The
company says the $50 billion is just a starting point, and that if other
retailers joined the party the figure could be much, much higher, perhaps $500
billion. Walmart’s U.S. president, Bill Simon, suggested in a speech to fellow
retailers that the power of their order books can help reshore U.S. production
in textiles, furniture, pet supplies, some outdoor categories, and higher end
appliances.
This isn’t Walmart’s first crack at
a Made in America program. An earlier one fizzled, amid some bad publicity,
because Walmart couldn’t get enough low-priced merchandise to sell. Americans
may love their country, but they will buy Chinese if the price differential is
too high. This time Walmart says consumers won’t have to pay up to buy
domestic. “I hope the American consumer values this and we’ll make it easy for
them,” says Mac Naughton. If not, consumers won’t make it easy for Walmart.
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