Written by Jillian Friesen, GEI Associate
Econintersect: On January 15th, Walmart (NYSE:WMT) announced some new policies with the aim of luring its suppliers into producing more "Made in America" products. Walmart plans to increase its stock of American-made goods over the next 10 years. $50 billion is budgeted for the increase. Roughly 2/3 of Walmart's inventory is currently either sourced or manufactured in America. Starting on Memorial Day, it plans on hiring 100,000 new discharged veterans, a strategy with the backing of First Lady Michelle Obama.
The reasons behind this change in the supply chain are obviously varied. Yet all of them correlate very well and come at a perfect time for Walmart. The news of the new incentive comes in the wake a of wave of patriotism, increased shipping costs and a rising cost of Chinese and foreign labor. There has been much research into the products Americans currently find the most appealing.
Since the beginning of the recession, the demand and allure for American-made goods has only increased. Many feel a sense of duty to promote and support products which are originated in the USA. The varying price and supply of fuel along with an increase in trade regulations has made the appeal of purchasing overseas products less appealing.
China is no longer a trade frontier of free and accessible labor. Chinese wages are going up along with the population demanding a higher standard of living. It is beginning to make less economic sense to continue sourcing from China as well as other Asian countries. More companies are beginning to compete for the best workers. Harold Sirkin from the Boston Consulting Group was recently quoted stating referring to the situation in China:
"The tilt is getting lower. We think somewhere around 2015 it'll look flat and may start to tilt in the U.S. favor at that point in time."
Sirkin added to his point in an interview with Harry Smith from NBC:
"We have to recognize one thing, the average Chinese worker is about one quarter as productive as the average U.S. worker."
Better safety standards and working conditions are also being implemented. These improvements come at a cost to larger American companies such as Apple and Intel, however the benefits of a lower turnover rate at the source factories makes it well worth the expense. The recent tragedy in a garment factory located in Dhaka, Bangladesh also added to the negative image many Americans as well as many other across the globe have towards big box stores.
Walmart and Sam's Club plan to purchase more inventory in the categories of games, paper products, towels, sporting goods and other departments which are already mostly sourced in America. Currently around 55% of its sales come from staples such as household items, health and beauty stock, pet supplies and groceries. Most of these items originate in America.
Improvements in employee treatment are also being introduced. Beginning soon, employees will have more flexibility with their schedule. Part-time workers will also have a better chance of moving onto full-time status.
Walmart's new promotion is aiding its public image. Many view it as another PR campaign. This is not the first time Walmart has instated a push to "buy American". Walmart has initiated many campaigns to better its image. Social media is also playing a key role. News and other forms of media recorded a positive up tick in Walmart's public image after Bill Simon's speech on Tuesday.
In its fiscal year of 2012, Wal Mart saw a rise in sales of 1.5%, bringing its total to $264.19 billion. Wal Mart stock rallied on Tuesday 15 Fanuary and continued to advance on Wednesday, for a two day gain of 1.3%. to end at 11.40 Wednesday evening. However Thursday it gave back some of the gain, closing down 0.5% at 68.85 for the day
Click here to see a list of interesting Walmart statistics.