When it comes to amusing (albeit predictable) twists of fate, Wal-Mart has been the gift that keeps on giving this year.
In the wake of the giant retailer’s move to hike wages for its lowest-paid employees, the entire world has received a lesson in undergrad economics as $1.5 billion in extra labor costs has led directly to i) pressure on the supply chain, ii) reduced shifts and hours, and iii) layoffs in Bentonville.
Put simply, when you can’t pass higher labor costs on to customers because your corporate religion revolves around the idea of “everyday low prices”, someone has to make up the difference in order to keep margins from crumbling and that simple fact is costing managers their jobs and vendors their livelihoods.
When WalMart wasn’t in the news for “plumbing” and/or strongarming the supply chain over the summer it was making headlines for its stance on confederate flag merchandise in the wake of the tragic shooting at a church in downtown Charleston that left 9 African American worshippers dead. In the wake of the racially-motivated massacre, WalMart moved to remove all confederate flag merchandise from the shelves, on the way to insisting that the company “never wants to offend anyone with the products [it] offers."
That controversial decision riled some observers who view the flag not as a symbol of hate, but rather as a symbol of America’s southern heritage.
On Wednesday we learn that WalMart is once again at the center of controversy surrounding the “American heritage” of its products.
Here’s FT [6]:
Walmart has withdrawn claims that some products it was selling were made in America after being pushed into an embarrassing climbdown by a US regulator.
The Federal Trade Commission said on Tuesday that Walmart had taken voluntary steps “to prevent consumer deception” related to “Made in USA” logos that appeared on its products and website.
In the face of persistent criticism over its business practices, Walmart has made a commitment to buy an extra $50bn of US-made products over 10 years a central part of efforts to improve its reputation.
It even enlisted the support of the Obama administration and won praise from Penny Pritzker, the US commerce secretary, for its commitment to US-made products.
However, the FTC began investigating Walmart’s product labelling after it was alerted in June to problematic descriptions of approximately 200 items by a consumer watchdog called Truth in Advertising.
The watchdog said some labelling was false because it did not correctly describe the products’ origins or contained caveats that were “not prominent, clear, and understandable”.
As examples of products that were not made entirely in the US — contrary to their billing — it highlighted a sandwich bag that was produced in Thailand and a toy car that was assembled in the US with some imported parts, including a Chinese steering wheel.
That’s right. An American “toy car with a Chinese steering wheel.” Kind of like the FOMC.
In a letter sent to Walmart on Tuesday, the FTC acknowledged that the retailer had taken several remedial steps.
They included removing “Made in USA” logos from all product listings on its website; removing US-origin claims that appeared in website product descriptions; and introducing a procedure to remove new US-origin claims from advertising material submitted by suppliers.
The hilarious thing about this story is that given what we know about WalMart's push to convince suppliers to pass along savings from the yuan devaluation, it seems entirely possible that the company was squeezing vendors on Chinese-made products in an effort to extract every last penny of savings that may or may not have accrued to the supply chain in the wake of Beijing's transition to a new FX regime only to turn around and slap a "Made in America" sticker on those very same products.
Here's what then-senior vice president of the home category at WalMart US Michelle Gloeckler had to say about the Made in America initiative in 2013:
The $50 billion we’ve committed over 10 years is additional growth on top of the two-thirds we’re already spending to buy products that are made, sourced or grown in the United States. That growth will include dollars that we aren’t currently spending on products that we’re not offering today, as well as growth in existing products and shifting existing items to U.S. production. As an industry, with other retailers’ participation we could set our sights higher to drive $500 billion in new purchases over the next 10 years. That’s what an American renewal looks like.
No Michelle, this is what an "American renewal" looks like...
[7]
... and with that chart in mind, we'll close with one more quote from Ms. Gloeckler, again, ca. 2013:
The economics of manufacturing are changing rapidly. In previous decades, investment mainly went to Asia, where wages were low. The price of oil was low. And new factories sprung up out of the ground. Today, some of those investments are nearing the end of their useful lives. Meanwhile, labor costs are rising outside the United States. Oil and transportation costs are high and increasingly uncertain. The equation is changing. A few manufacturers have told Walmart privately that they have defined the “tipping points” at which manufacturing abroad will no longer make sense for them. Through our buying power, we can give manufacturers confidence to invest capital here. We can collaborate with manufacturers, make longer-term product commitments on basic goods and help connect them with the best resources so they can make the most informed decisions about capital investments. Instead of buying to a long-range forecast, we can buy to sales trends — maximizing sales. Our modeling suggests the United States can offer very competitive manufacturing options, especially given rising cost variables overseas. Based on historical facts and future predictions of other markets, we feel like the support of U.S. manufacturing from many constituencies is very positive — from other retailers, suppliers, the government and consumers.
