The giant S.S. Wal-Mart is finally steaming home. After decades of sourcing goods from foreign ports, Wal-Mart is turning its cargo ships around, and discovering America -- once again.
In a nearly 3,700 word speech before the National Retail Federation in New York City, Wal-Mart U.S. CEO Bill Simon described his company's "American renewal" with the fervor of a born-again retailer.
"I know," Simon admitted, "according to urban legend Wal-Mart's shelves are filled with foreign products. But the truth may surprise you."
Here is Bill Simon's surprise: "According to data from our suppliers, items that are made here, sourced here, or grown here account for about two-thirds of what we spend to buy products at Walmart U.S." The finger on the scale here is Wal-Mart's food sourcing. "Don't forget, we run a pretty large grocery business," Simon explained. Once you take out food, one would expect Wal-Mart's domestic sourcing to plummet.
Alas, the truth is no surprise. According to a 2007 brief by the Economic Policy Institute, the total U.S. trade deficit with China reached $235 billion in 2006:
Between 2001 and 2006, this growing deficit eliminated 1.8 million U.S. jobs...The world's biggest retailer, U.S.-based Wal-Mart was responsible for $27 billion in U.S. imports from China in 2006 and 11% of the growth of the total U.S. trade deficit with China between 2001 and 2006. Wal-Mart's trade deficit with China alone eliminated nearly 200,000 U.S. jobs in this period.
As early as 2004, the China Business Weekly estimated that 70 percent of the textile merchandise inside Wal-Mart was from China. The Weekly reported that if Wal-Mart were an individual economy, it would rank as China's eighth-biggest trading partner, ahead of Russia, Australia and Canada. More than 5,000 Chinese enterprises had established supply contracts with Wal-Mart.
Before his death, Sam Walton admitted in his autobiography, ironically titled Made in America, that Wal-Mart was "a huge purchaser of imported merchandise from overseas." He said Wal-Mart had no choice, because "a lot of America-made goods simply aren't competitive, either in price, or quality, or both." That was in 1992. Walton rejected the idea of "buying American at any cost," which he described as a "blind patriotic idea": "We, like any other retailer, will only buy American if those goods can be produced efficiently enough to offer good value. We're not interested in charity here."
Walton sent an open letter to his suppliers, inviting them to work with him to increase American sourcing. "It turned out that if Wal-Mart committed to high volume purchases well in advance of shipping deadlines," Walton wrote, "a lot of American manufacturers could save enough on the purchase of materials, personnel scheduling, and inventory costs to realize significant efficiency gains." At the same time, Walton said his company "took a close look at our overseas buying practices and discovered a number of hidden costs." Wal-Mart "developed a formula which enabled us to make a true apples-to-apples cost comparison of buying something overseas versus buying it at home."
Walton even promised that if an American manufacturer could get within 5 percent of a foreign producer, he would "go with the American product." But even before Walton died, Wal-Mart embarked on a China binge that has lasted more than 20 years -- much to the detriment of the American economy.
Now, according to Bill Simon, the shine is rubbing off of the Chinese apple. "In previous decades, investment mainly went to Asia," Simon told the NRF.
Wages were low. The price of oil was low. And new factories sprung up out of the ground. But today, some of those investments are nearing the end of their useful lives.... Labor costs in Asia are rising. Oil and transportation costs are high and increasingly uncertain. The equation is changing.
America is starting to look better to Wal-Mart. Again.
Simon told the story of a factory in Georgia owned by a company called 1888 Mills. Simon said Wal-Mart went over the financials line by line, and "with a little capital" from the supplier, Wal-Mart decided the numbers "looked pretty good," and by this spring, towels from this Georgia factory will be sold in 600 Wal-Mart stores. The textile industry in the U.S. has been ravaged by Asian suppliers -- but one factory in Georgia is hiring back workers!
Such anecdotes will never mask the enormous job migration caused by what Sam Walton called "a pattern of knee-jerk import buying." Wal-Mart today is rightfully concerned about its inefficient global supply chain, the unpredictability of the value of the yuan, and the inevitable rise in foreign labor costs.
We can be sure of one thing: Wal-Mart has promised before that it would Buy American -- and it didn't.
It will take one or two decades at least to undo the damage to American manufacturing caused by Wal-Mart's knee-jerk import buying. Like Sam Walton's promises 20 years ago, Bill Simon's rediscovery of American manufacturing in 2013 isn't worth the paper his press release was printed on.