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How Walmart Plans to Bring Back ‘Made in America’
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.)

(COVER STORYMade  in the USA)

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.

(MORE: How  ‘Made in the USA’ is Making a Comeback)

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.

Time Business & Money

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