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Welcome to the 18th installment of The Wal-Mart Weekly, a weekly column dedicated to bringing you insight, wit, facts, results, opinions and just a bit of everything else when it comes down to a very hot topic these days: Wal-Mart.
Last week I discussed how Wal-Mart Stores (NYSE: WMT) seems to have quite a bit of stock in its clothes and shoes departments, but does not seem to have the selection one would expect for departments that take up a lot of floor space. Filling a niche need at Wal-Mart in these two areas is not happening, but it sure has plenty of stock for boring clothes and shoes!
So, from the lack of innovative merchandising in those two areas last week, I'll move on to something completely unrelated this week: the sourcing of so much retail inventory from China. There is a reason for "Always Low Prices" these days at Wal-Mart, and it's due to one country alone. Take a wild guess on which country. Let's dig in.
The prime reason for growth
Wal-Mart's torrid growth in the last 15 years has coincided with much sourcing from mainland China throughout almost all its product categories. One thing that Sam Walton trumpeted loudly for as long as he was heading Wal-Mart was the phrase "Buy American." Walton passed away in 1992 and shortly thereafter, the retailer began expanding store counts like crazy as well as converting regular stores into Supercenters and building new Supercenters. Sam's Clubs began expanding too, and before you knew it, Wal-Mart was poised to become the largest retailer in the world right before the new century began.
What caused all this growth? What did Wal-Mart do right to attain such a huge amount of sales that kept on growing year after year? Many pundits point the finger right at the retailer's strategy to procure as much as possible from China while wringing out as much cost as possible from other suppliers, many of whom were based in the U.S. Every manufacturer had a choice: give Wal-Mart a decent portion (or a huge one) of your business and watch your company roll in cash -- which turned out to be a 'temporary high' for many -- or don't sell to Wal-Mart and see your competitors take sales just due to store exposure. This became the decision of the day for years as Wal-Mart grew in its retailing power.
Consumers choose Wal-Mart, not the other way around
What kept Wal-Mart buying from many Chinese suppliers when it came to auto parts to shoes to clothes to leafblowers was the lower price the retailer could get as opposed to American suppliers. Of course, Wal-Mart passed those cost savings on to customers, who took notice and bought more and more goods every year as the retailer grew. Did anything make all those American consumers choose Wal-Mart? Low, low prices. And every year, they seemed to get lower. As expected, American consumers -- many of whom want everything as cheaply as possible -- just kept on buying.
What happened? All that consumer enthusiasm and pocket change fueled an unstoppable Wal-Mart expansion that continues to this day. As more and more customers kept on buying Chinese-made goods, Wal-Mart kept building stores to service that need until it was that country's sixth-largest trading partner. And, as far as I know, Wal-Mart is not an individual country just yet, although its trade volume with China makes it look like one on paper.
Is the end of Chinese trade coming for Wal-Mart?
After a good dozen years of consumers buying more and more stuff for their homes, apartments, cars and kids (and themselves), millions of consumers started seeing American jobs get shipped oversea. The American companies that still sourced to Wal-Mart shipped everything they could to China in terms of production instead of letting companies from that country get all the retailer's business. End result: a large majority of Wal-Mart's goods now are made in China and sold to the retailer by Chinese suppliers themselves (with different levels of quality and brand names) or by American suppliers who have been forced to compete on cost by sending manufacturing of their goods to China as well.
Will Wal-Mart try to get back to buying from a more varied supplier base soon, which most likely would mean higher prices? I doubt this will happen without more consumer backlash. Buying from other countries would most likely mean higher prices than Wal-Mart currently offers, which can be a death knell in the retailing industry. Hint: Target also sources quite a bit of product from China, but merchandises it in such a way that consumers are responding more to Target than to Wal-Mart.
So there it is -- consumer wishes for every-low prices cause Wal-Mart to source more and more from China and the American retailing economy ends up in an odd circle. That circle is the American need for constant bargains (at the expense of a neighbor's job, perhaps) along with Wal-Mart's need to grow like crazy and become the largest retail company the world has ever know. Is there any going back? I sincerely doubt it.
If Wal-Mart ever changed its slogan from "Always Low Prices" to one like "Always the Best" (read: quality), then we would all know something was up.
See you the same time and same place next week for another installment of The Wal-Mart Weekly. Until then, have a great weekend.
Wal-Mart's torrid growth in the last 15 years has coincided with much sourcing from mainland China throughout almost all its product categories. One thing that Sam Walton trumpeted loudly for as long as he was heading Wal-Mart was the phrase "Buy American." Walton passed away in 1992 and shortly thereafter, the retailer began expanding store counts like crazy as well as converting regular stores into Supercenters and building new Supercenters. Sam's Clubs began expanding too, and before you knew it, Wal-Mart was poised to become the largest retailer in the world right before the new century began.
What caused all this growth? What did Wal-Mart do right to attain such a huge amount of sales that kept on growing year after year? Many pundits point the finger right at the retailer's strategy to procure as much as possible from China while wringing out as much cost as possible from other suppliers, many of whom were based in the U.S. Every manufacturer had a choice: give Wal-Mart a decent portion (or a huge one) of your business and watch your company roll in cash -- which turned out to be a 'temporary high' for many -- or don't sell to Wal-Mart and see your competitors take sales just due to store exposure. This became the decision of the day for years as Wal-Mart grew in its retailing power.
Consumers choose Wal-Mart, not the other way around
What kept Wal-Mart buying from many Chinese suppliers when it came to auto parts to shoes to clothes to leafblowers was the lower price the retailer could get as opposed to American suppliers. Of course, Wal-Mart passed those cost savings on to customers, who took notice and bought more and more goods every year as the retailer grew. Did anything make all those American consumers choose Wal-Mart? Low, low prices. And every year, they seemed to get lower. As expected, American consumers -- many of whom want everything as cheaply as possible -- just kept on buying.
What happened? All that consumer enthusiasm and pocket change fueled an unstoppable Wal-Mart expansion that continues to this day. As more and more customers kept on buying Chinese-made goods, Wal-Mart kept building stores to service that need until it was that country's sixth-largest trading partner. And, as far as I know, Wal-Mart is not an individual country just yet, although its trade volume with China makes it look like one on paper.
Is the end of Chinese trade coming for Wal-Mart?
After a good dozen years of consumers buying more and more stuff for their homes, apartments, cars and kids (and themselves), millions of consumers started seeing American jobs get shipped oversea. The American companies that still sourced to Wal-Mart shipped everything they could to China in terms of production instead of letting companies from that country get all the retailer's business. End result: a large majority of Wal-Mart's goods now are made in China and sold to the retailer by Chinese suppliers themselves (with different levels of quality and brand names) or by American suppliers who have been forced to compete on cost by sending manufacturing of their goods to China as well.
Will Wal-Mart try to get back to buying from a more varied supplier base soon, which most likely would mean higher prices? I doubt this will happen without more consumer backlash. Buying from other countries would most likely mean higher prices than Wal-Mart currently offers, which can be a death knell in the retailing industry. Hint: Target also sources quite a bit of product from China, but merchandises it in such a way that consumers are responding more to Target than to Wal-Mart.
So there it is -- consumer wishes for every-low prices cause Wal-Mart to source more and more from China and the American retailing economy ends up in an odd circle. That circle is the American need for constant bargains (at the expense of a neighbor's job, perhaps) along with Wal-Mart's need to grow like crazy and become the largest retail company the world has ever know. Is there any going back? I sincerely doubt it.
If Wal-Mart ever changed its slogan from "Always Low Prices" to one like "Always the Best" (read: quality), then we would all know something was up.
See you the same time and same place next week for another installment of The Wal-Mart Weekly. Until then, have a great weekend.
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