Wal-Mart says it wants to bring jobs back to
the U.S. This time, it might mean it.
Back in 1984, then-Arkansas governor Bill Clinton and Wal-Mart founder Sam Walton came to an agreement.
A garment manufacturer in the state was about to declare bankruptcy. Seeking to preserve as much of his industrial base as possible, the young governor sat Walton down with the garment executive and a dozen others and asked him a favor: Would you buy from this company, rather than one overseas, to keep those jobs alive?
According to a 1992 report in The Washington Post, Walton agreed, and not just for that one manufacturer. The luncheon was the genesis of a broader “buy America” campaign, which was supposed to stem the tide of factory jobs going overseas. The initiative dragged into the early 1990s, and Wal-Mart said it had brought 100,000 jobs back to the United States from foreign suppliers.
It didn’t take long, though, for the media to find that some of the retailers’ goods had been falsely labeled “made in the U.S.A.” and that some factories had closed. Wal-Mart responded by asking its U.S. suppliers to run ads supporting the program, but the campaign petered out; it was just too cheap to produce goods outside the United States.
Two decades later, the idea has cropped up again. Earlier this year, Wal-Mart announced that it would commit to spending an additional $50 billion over 10 years on sourcing goods in the United States as part of an overall drive toward “American renewal.” It’s easy to dismiss such pronouncements as purely P.R., especially when that dollar amount is a small fraction of Wal-Mart’s U.S. sales. But month after month, the company has made new announcements about suppliers expanding or opening new facilities here at home, most recently at this week’s SelectUSA conference in Washington, where chief executive Bill Simon talked the talk about making this a long-term trend.
“There can be a lot of issues that change the equation, but these equations are very, very long in cycle,” Simon said. “They’re generational. The equation that led to the migration out was a 30-year cycle. So I think there can be changes in legislation or changes in macroeconomic conditions that could impact it, but we believe that we’re on the front end of a very long cycle.”
Is Wal-Mart for real this time? There are a few reasons to think that it might be.
All the factors that Simon identified as motivating the insourcing trend -- America’s natural gas boom, rising labor costs in China, the risk of global supply chains -- are real. According to a Boston Consulting Group analysis, those combined factors have brought cost of production in the United States down almost to China’s level:
Is America a bargain? (Boston Consulting Group)
That’s the reason Wal-Mart is getting its suppliers to reevaluate where they make their goods. Jeff Clapper, of the Bentonville, Ark.-based consultancy 8th and Walton, has been advising companies that sell to Wal-Mart for seven years. “The suppliers we work with are taking it seriously,” Clapper says. “Some of it is because Wal-Mart has asked them to. But also the math of it is making more sense.”
Wal-Mart has done this kind of thing before. A few years ago, it embarked on a big environmental push. Energy efficiency made all the financial sense in the world, and the company was able to use its massive scale to secure deals on green products that lowered the cost premium for everyone. But by burnishing its image with measures that save money, Wal-Mart has also bought some cover for less savory business practices that would cost it money to change, such as paying low wages and busting unions.
Bringing some manufacturing back the United States could be a similar move on the retailer’s part. And this time, having made a huge public deal out of the effort, it would be difficult for Wal-Mart to back out. In one sign that it’s serious about its plan, the company is starting to sign more long-term contracts with suppliers that invest in U.S. production, to provide them with some security for taking the risk.
“If my costs have gone up, and they’re not supported by Wal-Mart in the near future, it might’ve done more harm than good,” Clapper says. “I think for that reason, it’s important that they stick with it.”
Wal-Mart is actually selling more in the markets where it has long been manufacturing products. Chinese consumers are buying lots of Wal-Mart products that are made in China; Mexicans are buying things made in Mexico, etc. Wal-Mart can shorten those lead times by keeping production close to the buyer on both ends, in America and around the world.
As competitive as Wal-Mart’s price are, when consumers don’t have much money -- very much the case in recent years -- they can’t fill their shopping carts as high. To the extent that Wal-Mart must pay somebody to make the stuff it sells, those workers might as well be people who wouldn’t otherwise have an income so that they can now buy things from the company that supplies their paycheck.
Whether or not you’re a Wal-Mart fan, in the interest of American prosperity it makes sense to hope this initiative is a serious one. When the world’s biggest retailer asks its suppliers to move back to the United States, those suppliers are suddenly able to make products for other U.S. clients, as well.
Then the challenge is to make sure that those new jobs are the kinds of good jobs that Wal-Mart has otherwise had a reputation for destroying, not creating, in the past.