Wal-Mart's Manufacturing Pledge Met With Hope, Skepticism

by Mark Friedman  on Monday, Feb. 24, 2014 12:00 am  

Burt Hanna, CEO of Hanna’s Candle, said Wal-Mart’s orders increased from $4 million in 2012 to $30 million in 2013. By 2017, Wal-Mart is expected to buy $45 million worth of merchandise from his company that manufactures scented candles in Fayetteville. (Photo by Brooke McNeely Galligan)

Wal-Mart Stores Inc.’s announcement in January 2013 that it would help resuscitate the U.S. manufacturing industry by buying an additional $50 billion worth of American-made items during the next decade has been met with skepticism and cheers.

“This effort, it’s hard to see exactly how the economics will make itself sustaining,” said Charles Fishman, author the 2005 bestseller “The Wal-Mart Effect.”

The bottom line, he said, is consumers want to buy a quality product at the lowest price. “There’s no history of Americans buying American-made products because they’re American-made,” Fishman said.

And $50 billion over 10 years, which works out to be about $5 billion annually, is a small amount to Wal-Mart, which generates that much revenue in about three days, he said.

But others think the Bentonville retailer’s plan can work because it will encourage its suppliers to scrutinize their supply chain and search for ways to slash expenses, said Kathy Deck, director of the Center for Business & Economic Research at the University of Arkansas.

When a company looks at all the costs involved in manufacturing overseas — including, transportation, labor, the delay in receiving items and compliance costs — there will be examples where it makes sense for companies to manufacture in the United States.

“As the world’s largest retailer, Wal-Mart has … such scale that any decision that it makes just ripples through the entire economy,” Deck said. “Retailers always want to encourage their manufacturers to provide them with the lowest cost. And so I wouldn’t be surprised if there are some examples of this at other retailers.”

Some Arkansas companies are already benefiting from Wal-Mart’s initiative. Hanna’s Candle Co. of Fayetteville said its orders from Wal-Mart skyrocketed from about $4 million in 2012 to $30 million last year. By 2017, Wal-Mart said, it plans to order $45 million worth of merchandise from Hanna’s.

And Wal-Mart’s commitment also helped Redman & Associates of Rogers. In October, it announced it was investing $6.5 million in a 270,000-SF plant in Rogers to build six-volt battery-powered riding toys, which previously had been manufactured in China, said Redman President and CEO Mel Redman.

Redman said he has six employees working at the plant now and will have 19 when manufacturing starts in April. Redman & Associates expects to make 100,000 of the cars this year, 300,000 in 2015 and 600,000 in 2016, and by then expects to have 70 workers. The average pay is $18 an hour, Redman said. The cars will sell for $59.87 at Wal-Mart.

The manufacturing initiative won’t make or break Wal-Mart, said Howard Davidowitz, chairman of Davidowitz & Associates Inc., a retail consulting and investment banking firm in New York. But the campaign might add jobs to the U.S. economy, which Wal-Mart hopes will mean people will have more money to spend at its stores, he said.

Wal-Mart’s same-store sales numbers have been slipping. On Thursday, the retailer reported its fourth consecutive quarter of declining sales at stores that have been open at least a year. Same-store sales are a key indicator of a retailer’s health because the metric compares sales to stores that have been open at least a year.

 

 

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