News / Economy

Walmart 'Made in America' Drive Follows Suppliers' Lead

FILE - U.S.-manufactured apparel is featured on a shelf at a Walmart store in Rogers, Arkansas, June 6, 2013.
FILE - U.S.-manufactured apparel is featured on a shelf at a Walmart store in Rogers, Arkansas, June 6, 2013.
Reuters
Walmart Stores Inc., whose focus on low-cost sourcing helped to fuel the offshoring of U.S. manufacturing, has been promoting a patriotic new image in recent months.
 
The Bentonville, Arkansas-based company says it is “leading an American renewal in manufacturing” and “bringing jobs back to the U.S.” with its pledge made in January to buy an additional $50 billion in U.S.-made goods over the next 10 years.
 
But an examination of the company's “Made in America” campaign suggests Walmart's caught on to a reshoring phenomenon that was already underway.
 
In many cases, Walmart's suppliers had already decided to produce in the United States, as rising wages in China and other emerging economies, along with increased labor productivity and flexibility back home, eroded the allure of offshore production.

Move driven by business sense

Though wrapped in the stars and stripes, the world's largest retailer's push to bring jobs back to the United States also makes business sense both for suppliers and retailers.
 
Some manufacturers are finding they can profitably produce certain goods at home that they once made offshore. And retailers like Walmart benefit from being able to buy those goods closer to distribution centers and stores with lower shipping costs, while gaining goodwill by selling more U.S.-made products.
 
“This is not a public relations effort. This is an economic, financial, mathematical-driven effort. The economics are substantially different than they were in the 80s and 90s,” Bill Simon, chief executive of the Walmart U.S. chain, told the Reuters Global Consumer and Retail Summit earlier this month.
 
The initiative is modest for now. For a company with $466.1 billion in annual sales, an additional $50 billion of spending over a decade will barely register. Also, the main Walmart U.S. unit sells mostly groceries and already procures two-thirds of its goods - including a lot of food - from U.S. sources.
 
Walmart's high-profile commitment is, though, an important symbolic shift. A retailer that for decades has prompted hundreds of U.S. companies to move production overseas, thanks to its relentless insistence on cost-cutting, now is urging at least some production back. It will even offer longer-term purchasing guidance to some companies to encourage them.

US companies took lead

Hampton Products International did not need Walmart to tell it about the changing cost structure of global commerce. Hampton, which supplies locks and door hardware to retailers including Walmart, began “resurrecting manufacturing” at its Wisconsin plant back in 2008, said CEO H. Kim Kelley.
 
Wal-Mart's push this year served mainly to speed its business decision, Kelley said. “We moved much more quickly and aggressively to ramp manufacturing to meet Walmart's timetable,” he said.
 
But ultimately, Hampton's decision to manufacture some products back in the United States was driven by simple but compelling math, Kelley said. Take the example of a door hardware part that Kelley declined - citing competitive issues - to define more precisely than that. Over the past six years, the price of producing the part in China has risen 24 percent to $2.20 from $1.77, because of the Chinese currency's appreciation and increased labor costs. Throw in transport costs and U.S. tariffs, and that product, delivered to the United States today, would cost about $2.53, Kelley said.
 
By moving production back to the United States, Hampton can make the part today for just $2.16, a nearly 15 percent savings even including the amortized investment in its new U.S. plant. In addition, Hampton has reduced inventory sitting idle on a ship or in finished goods in its distribution centers.

Benefits of domestic prodution

Relocating production to the United States also yields a number of soft but important benefits, Kelley said. These include better control of the manufacturing process, an ability to respond swiftly to customers, and a much smaller impact on the environment as the U.S. plant uses less energy than its Chinese counterpart, and is 7,500 miles closer to where the product is sold.
 
“The benefits are obvious,” said Kelley. “We cut our costs, improve our sustainability, reduce the cost of finished goods inventory and create U.S. jobs.”
 
Walmart's push is aimed at product categories that have been difficult to produce at a cost advantage in the United States for some time. The retailer plans to sell everything from General Electric Co light bulbs made in Ohio and Illinois to Element Electronics Corp televisions that will be assembled in South Carolina.
 
The latest company to sign on is Korona S.A., a Polish candlemaker that will produce Walmart U.S.'s Mainstays tea light candles in Virginia, a move that Walmart said took more than a year to put together.

Banking on Walmart

WalMart still declines to sign long-term contracts with suppliers, but its market power is so immense that companies will sometimes make investments based on expected demand from the retailer. Also, Wal-Mart has helped some suppliers make contact with state economic development officials who can offer tax breaks or other incentives.
 
Renfro Corp began ramping up U.S. sock production two years ago, said CEO Bud Kilby, sinking more than $10 million into two factories in Tennessee and Alabama and hiring nearly 250 new workers. It is ready to do more now that Walmart has asked Renfro to further expand its U.S. capacity.
 
Walmart has not given Renfro firm orders associated with the request, but the sock maker is set to invest at least another $10 million and create another 195 jobs, Kilby said.
 
“We trust them,” Kilby said. “They asked us to do it and they made a commitment to support it and to buy product. But there is no contractual agreement - no purchase orders or anything like that.”
 
Walmart's U.S. manufacturing summit in Orlando, Florida, in August featured speakers such as Commerce Secretary Penny Pritzker and General Electric CEO Jeff Immelt. The meeting gave hundreds of suppliers the chance to meet with governors or economic development officials from 34 states, as well as two banks and one private equity firm.
 
“We can provide the certainty to the people who invest capital, to make it worthwhile,” said Simon, the Walmart U.S. CEO.

‘Multi-year commitments’

WalMart sometimes makes what it calls “multi-year commitments” based on financial data suppliers share.
 
“It really depends on what they need and how much of their capital expense and their strategic plan they're willing to share,” said Michelle Gloeckler, senior vice president of Walmart U.S.'s home business and a leading executive on the retailer's Made-in-America commitment.
 
When 1888 Mills LLC came to Wal-Mart in 2012, it projected that the cost of making towels in the United States was coming closer to the cost of overseas production. The textiles company felt it could order new machinery to help it reduce the cost differential, but only if it had a multi-year commitment from Wal-Mart, Gloeckler recalled.
 
Wal-Mart crunched the numbers and agreed to carry 1888 Mills' “Made Here” towels for an undisclosed number of years. It also agreed to stock 600 stores at first and then add more as production increased, a staged rollout unusual for the chain.
 
The “Made Here” towels are selling 30 percent better than those they replaced on the shelf that were made outside the United States by another supplier, Gloeckler said.

Number crunching began years ago

Management consultants began highlighting the benefits of U.S. manufacturing years ago.
 
With wages rising elsewhere and U.S. energy costs on the decline, the United States can be a competitive manufacturing hub again, says Hal Sirkin, a senior partner of the Boston Consulting Group and co-author of the book “Globality: Competing with Everyone from Everywhere for Everything” who spoke at Walmart's summit.
 
“We are seeing a lot of products now that have already reached the point where it is already cheaper to manufacture it and deliver it in the United States than to have it made in China and have it shipped across and pay tariffs and duties,” he said.
 
It costs slightly more to make a vacuum cleaner in China than in the United States when you add up the cost of labor, buying components and raw materials, overhead, energy costs, shipping and “soft costs” such as managing inventory, he said.
 
Labor costs are typically about 20 to 25 percent of the total cost of a product. For categories like clothing, that require more manual work, production is likely to stay in countries with lower wages, Sirkin said.
 
Manufacturing experts largely welcome Wal-Mart's commitment to purchase U.S. goods, though the size of its pledge has not impressed them.
 
“It's not an aggressive target,” said Thomas Duesterberg, executive director of the Manufacturing and Society in the 21st Century project at the Aspen Institute.
 
Wal-Mart says that $50 billion is just a starting point.
 
The retailer's effort matters regardless of the size, said Suzanne Berger, a professor and manufacturing expert at the Massachusetts Institute of Technology. “A Wal-Mart decision, however minimal or cosmetic, is a powerful signal,” she said.

You May Like

Tired of Waiting, South Africans Demand Change ‘Now’

With chronic poverty and lack of basic services largely fueling recent xenophobic attacks, many in Rainbow Nation say it’s time for government to act More

Challenges Ahead for China's Development Plans in Pakistan

Planned $46 billion in energy and infrastructure investments in Pakistan are aimed at transforming the country into a regional hub for trade and investment More

'Forbidden City' Revisits Little Known Era of Asian-American Entertainment

Little-known chapter of entertainment history captured in 80s documentary is revisited in new digitally remastered format and book More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Cinema That Crosses Borders Showcased at Tribeca Film Festivali
X
April 24, 2015 4:09 AM
Among the nearly 100 feature length films being shown at this year’s Tribeca Film Festival in New York City are more than 20 documentaries and features with international appeal, from a film about a Congolese businessman in China, to documentaries shot in Pakistan and diaspora communities in the U.S., to a poetic look at disaffected South African youth. VOA’s Carolyn Weaver has more.
Video

Video Cinema That Crosses Borders Showcased at Tribeca Film Festival

Among the nearly 100 feature length films being shown at this year’s Tribeca Film Festival in New York City are more than 20 documentaries and features with international appeal, from a film about a Congolese businessman in China, to documentaries shot in Pakistan and diaspora communities in the U.S., to a poetic look at disaffected South African youth. VOA’s Carolyn Weaver has more.
Video

Video UN Confronts Threat of Young Radicals

The radicalization and recruitment of young people into Islamist extremist groups has become a growing challenge for governments worldwide. On Thursday, the U.N. Security Council heard from experts on the issue, which has become a potent threat to international peace and security. VOA’s Margaret Besheer reports.
Video

Video Growing Numbers of Turks Discover Armenian Ancestry

In a climate of improved tolerance, growing numbers of people in Turkey are discovering their grandmothers were Armenian. Hundreds of thousands of Armenians escaped the mass deportations and slaughter of the early 1900's by forced conversion to Islam. Or, Armenian children were taken in by Turkish families and assimilated. Now their stories are increasingly being heard. Dorian Jones reports from Istanbul that the revelations are viewed as an important step.
Video

Video Migrants Trek Through Western Balkans to Reach EU

Migrants from Africa and other places are finding different routes into the European Union in search of a better life. The Associated Press followed one clandestine group to document their trek through the western Balkans to Hungary. Zlatica Hoke reports that the migrants started using that route about four years ago. Since then, it has become the second-most popular path into Western Europe, after the option of sailing from North Africa to Italy.
Video

Video TIME Magazine Honors Activists, Pioneers Seen as Influential

TIME Magazine has released its list of celebrities, leaders and activists, whom it deems the world’s “most influential” in 2015. VOA's Ramon Taylor reports from New York.
Video

Video US Businesses See Cuba as New Frontier

The Obama administration's opening toward Cuba is giving U.S. companies hope they'll be able to do business in Cuba despite the continuation of the U.S. economic embargo against the communist nation. Some American companies have been able to export some products to Cuba, but the recent lifting of Cuba's terrorism designation could relax other restrictions. As VOA's Daniela Schrier reports, corporate heavy hitters are lining up to head across the Florida Straits - though experts urge caution.
Video

Video Kenya Launches Police Recruitment Drive After Terror Attacks

Kenya launched a major police recruitment drive this week as part of a large-scale effort to boost security following a recent spate of terror attacks. VOA’s Gabe Joselow reports that allegations of corruption in the process are raising old concerns about the integrity of Kenya’s security forces.
Video

Video Japan, China in Race for Asia High-Speed Rail Projects

A lucrative competition is underway in Asia for billions of dollars in high-speed rail projects. Cambodia, India, Indonesia, Malaysia Thailand and Vietnam are among the countries planning to move onto the fast track. They are negotiating with Japan and the upstart Chinese who are locked in a duel to revolutionize transportation across Asia. VOA Correspondent Steve Herman in Bangkok has details.
Video

Video Scientists: Mosquitoes Attracted By Our Genes

Some people always seem to get bitten by mosquitoes more than others. Now, scientists have proved that is really the case - and they say it’s all because of genes. It’s hoped the research might lead to new preventative treatments for diseases like malaria, as Henry Ridgwell reports from London.
Video

Video Bible Museum Coming to Washington DC

Washington is the center of American political power and also home to some of the nation’s most visited museums. A new one that will showcase the Bible has skeptics questioning the motives of its conservative Christian funders. VOA religion correspondent Jerome Socolovsky reports.
Video

Video Armenia and Politics of Word 'Genocide'

A century ago this April, hundreds of thousands of Armenians of the Turkish Ottoman empire were deported and massacred, and their culture erased from their traditional lands. While broadly accepted by the U.N. and at least 20 countries as “genocide”, the United States and Turkey have resisted using that word to describe the atrocities that stretched from 1915 to 1923. But Armenians have never forgotten.
Video

Video Afghan First Lady Pledges No Roll Back on Women's Rights

Afghan First Lady Rula Ghani, named one of Time's 100 Most Influential, says women should take part in talks with Taliban. VOA's Rokhsar Azamee has more from Kabul.
Video

Video Keeping Washington Airspace Safe Is Tall Order

Being the home of all three branches of the U.S. federal government makes Washington, D.C. the prime target for those who want to make their messages and ideas heard. Unfortunately, many of them choose to deliver them in unorthodox ways, including from the air, as a recent incident clearly showed involving a gyrocopter landing on the Capitol’s West Lawn. VOA's George Putic has more.
Video

Video New Brain Mapping Techniques Could Ease Chronic Pain

From Boulder, Colorado, Shelley Schlender reports that new methods for mapping pain in the brain are providing validation for chronic pain and might someday guide better treatment.
Video

Video Hope, Prayer Enter Fight Against S. Africa Xenophobia

South Africa has been swept by disturbing attacks on foreign nationals. Some blame the attacks on a legacy of colonialism, while others say the economy is to blame. Whatever the cause, ordinary South Africans - and South African residents from around the world - say they're praying for the siege of violence to end. Anita Powell reports from Johannesburg.

VOA Blogs

World Currencies

EUR
USD
0.9238
JPY
USD
119.51
GBP
USD
0.6614
CAD
USD
1.2119
INR
USD
63.562

Rates may not be current.