Wal-Mart Stores Inc., the nation’s largest merchandise importer, this year will launch a “Made-in-America”-buying campaign designed to increase purchases of goods from domestic suppliers, Bill Simon, the retailer’s president and chief executive officer of U.S. operations, announced last week at the National Retail Federation’s annual convention.
Simon said Walmart and Sam’s Club will buy an additional $50 billion in U.S. products during the next 10 years. The company plans to increase purchases of products it already sources domestically – sporting goods, apparel basics, storage products, games and paper products – as well as redirect some foreign orders for textiles, furniture and higher-end appliances to U.S.-based plants, giving manufacturers an incentive to onshore production.
Walmart U.S. claims that two-thirds of its inventory spending is for items – many grocery products – that are made, sourced or grown in the United States.
The company has created a senior team to lead the “Buy America” effort and will sign longer term purchase agreements to give suppliers more certainty. This summer, it will convene a manufacturing summit for stakeholders to collaborate on implementing the buying strategy, according to a news release and fact sheet.
In addition to making longer-term product commitments, Walmart said it is prepared to give long-range demand forecasts to suppliers and help connect them with resources to make decisions about capital investments. It also will facilitate meetings with local and state governments to identify incentive programs, including rebates and training, available to attract U.S. manufacturing.
Supporting domestic manufacturing was touted, along with a commitment to hire 100,000 veterans over five years and help more part-time workers transition to full-time employees, as the company’s contribution to helping jump start the U.S. economy without waiting for the federal government to solve the budget crisis.
U.S. corporations on the whole have strong balance sheets and are flush with cash, but most have been reluctant to hire because of ongoing uncertainty about budget and regulatory outcomes in Washington, and tepid economic growth.
In his remarks, Simon suggested retailers can help lower the nation’s jobless numbers by hiring and influence further hiring through their purchasing decisions.
Walmart’s decision to increase buying from domestic suppliers is the latest sign of a small, but burgeoning renaissance in American manufacturing that began about five years ago. Faced with higher shipping costs due to the price of oil, rising wage rates in low-cost countries, concerns about compliance with customs and safety regulations, and challenges with quality control, many companies have begun to move some of their production in Asia and elsewhere back to the United States, or to Mexico, the Caribbean and Central America. Their decisions also reflect a desire for quicker time to market and ability to customize products based on local demand. Manufacturers also are attracted by lower prices for energy to run their plants and use as feed stocks as domestic production of oil and gas takes off.
Last month, Apple CEO Timothy Cook announced the company would move production for one its Mac computer lines to the United States. Critics said the move amounts to a tiny fraction of the iconic company’s total production and is a publicity stunt designed to deflect attention from scrutiny of about treatment of workers by its contract manufacturers in China.
Walmart’s reshoring initiative is also small in comparison to the companies overall market size. Walmart U.S. has annual revenue of $264 billion, but the purchasing program represents $5 billion per year in spending. Walmart has come under recent fire for alleged bribery of officials in Mexico and for its relationship with a contract manufacture in Bangladesh after a deadly fire at one of its plants.
“The equation is changing. And a few manufacturers have even told Walmart privately that they have defined the ‘tipping points’ at which manufacturing abroad will no longer make sense for them,” Simon said, according to a copy of his prepared remarks.
“Let’s give them the nudge they need. Through our buying power, we can give manufacturers confidence to invest capital here – and play a role in revitalizing the communities we serve. These factories will have higher tech jobs than those that left, and these jobs will have ripple effects in their communities. Factories need raw materials to supply them, trucks to deliver to them, restaurants and – yes – retail to serve them. And they build up the local tax base.
“But this is also just good business. For example, it’s crazy that 70 percent of cotton grown in the U.S. is shipped overseas, spun into products like towels, and then often shipped right back here. We can cut out two shipments across the world and weeks on the water and cut our costs in the process. We can save our customers money by employing more of their neighbors – why wouldn’t we do this?”
The 10-year time frame for increasing its domestic sourcing reflects the necessary lead time for suppliers to set up new facilities, Simon said.
He encouraged the retail industry to set a goal of purchasing $500 million of American-made products in the next decade.
Walmart has already launched a test case for boosting domestic merchandise purchases with 1888 Mills. A total-landed cost comparison demonstrated that the towel maker could make products as economically as a foreign producer by upgrading an underutilized plant in Griffin, Ga., changing a few processes and securing long-term order commitments from Walmart, Simon said.
1888 Mills towels will be in 600 Walmart stores this spring and another 600 stores in the fall, he said.
Coleman, the company known for its coolers and camping gear, has also benefited from the new Walmart buying strategy, according to a testimonial from Dave Allen, the company’s senior vice president of sales and marketing, posted on Walmart’s Website. He said Coleman has been able to relocate production of hard coolers and personal flotation devices in the United States, resulting in 160 new manufacturing jobs and the eventual sale of 1.8 million units.
“We’ve demonstrated that we can make this transition and remain competitive on price by increasing the utilization of our factories and reducing our lead times and transportation costs… “We will continue to monitor our input costs and keep some facilities open with capacity available to see if we can bring additional manufacturing back to the U.S.,” he said.
Walmart’s decision to buy local also offers the possibility of supply chain savings for it and its suppliers because the shorter distance to market likely will reduce freight transportation costs, lead times and warehousing requirements. – Eric Kulisch