The Wal-Mart Weekly: Wal-Mart's (WMT) largest supplier country under fire

Total recall

In the past six months, there has been a staggering amount of recalls from the country of China. From industrial chemicals in pet food to toothpaste to lead paint on kids toys, the number of quality issues coming out of China right now has just about every industry under close scrutiny within that country. Are inspections just not working or or are there no quality standards at all in some plants and within some companies?

Things are so bad from a media exposure perspective that a U.S. team of food quality experts arrived in the country this week to determine "what went wrong" with imported food products and ingredients coming out of China. That's just a tip of the iceberg really. It's a big one, though, since food products directly impact human health, sometimes in large quantities. If you had a pet affected by the chemical melamine in its dog food recently, you probably also feel that pet products being thrown in with quality defects in other product categories is absurd as well.

Quality a huge issue

Outside of all the recalls from Chinese-based products recently, the overall quality of many items carried at discount retailers like Wal-Mart is strikingly subpar. I'm including Target Corp. and other retailers in this group as well, as "Made in China" is not just about Wal-Mart. Ever bought a piece of luggage that falls apart after a year of use or a new DVD recorder that comes with an instruction manual that's incomprehensible to read, let alone operate? Quality is not just about the cheapness and lack of care in the build of a product -- it's about the entire consumer experience as well.

Compare a "Durabrand" toaster from Wal-Mart ($10) with a KitchenAid toaster from Dillard's ($50). Both items perform the same tasks competently, which is toasting bread and waffles. When it comes to build quality, quality of instructions, warranty and overall fit-and-finish, the KitchenAid unit sands far above the Durabrand.

The Durabrand is made to hit a certain discount, loss-leader price point of $10 (yes, it's made in China), while the KitchenAid is made for years of use and seems designed to work intuitively. On the KitchenAid product, There's bagel markers on top which show how to insert a bagel for proper toasting, and the heat dial turns with confidence and exudes quality. The Durabrand? Nothing of the sort.

There's a reason for low prices

Although the subject of why Wal-Mart strives to have the absolute lowest price on earth for many goods it carries has been beaten to death, let's open it back up. Pundits almost completely agree that Wal-Mart, in an effort to grow like mad, began sourcing more and more goods from China well over a decade ago. Sales soared, prices dropped, and quality levels began to trend downward. Sounds like a fair set of events to me. Oddly, at the same time (or at least in the last five years), Wal-Mart shares have barely fluctuated, so all that growth in sales on a global basis has not really contributed to shareholder wealth. Well, outside the Walton family, that is.

Now, the reputation for Chinese goods have swirled in the toilet for almost all of 2007, and it's slowly going down the drain completely. It does not matter that most Chinese goods work fine for most consumers (millions of items per day). The fact that so many recalls have been issued is waking consumers up to the fact that there are multiple problems with many facets of Chinese product and process quality control. Is there a backlash brewing? Yes -- but even though negative publicity on Chinese imports is at a high right now, consumers will keep buying all those imported products as long as the sale price ends in $X.99.

To early to tell

Wal-Mart is by far the largest importer of Chinese goods in the U.S. Along with many clothing retailers and general retailers, the U.S. buys up gobs and gobs of Chinese goods every single day. The American appetite for near-free prices on anything you can imagine, of course, won't wane. They say you can always lower prices, but you can't raise them. There's elasticity of demand and other economic concepts at play here of course, but in the case of Wal-Mart, the company would most likely see mass customer irateness and other nonsense if the company raised prices and began sourcing many products from non-China countries due to quality concerns there.

It's no surprise, as many a Wal-Mart core customer is addicted to low prices like a junkie is to crystal meth. That means prices will not go back up, and that also means the country that makes those low prices possible will continue doing business with the world's largest retailer. That is, unless consumers demand better quality even if it means a small or large hike in retail prices. Hey, you never know!

Next week's Wal-Mart Weekly will be delayed until Monday, August 13th, so I'll see you back here at that time for the next installment. Until then, have a great weekend.