Walmart's Made-In-USA Push Driven By Rising Offshore Costs

Walmart's (NYSE:WMT) recent "Made in America" campaign to buy an additional $50 billion in U.S.-made goods over the next 10 years may not be a made-at-Walmart idea. In fact, the world's largest retailer may be piggybacking on a "reshoring" phenomenon that was already underway, Reuters reported on Wednesday (Sept. 25).

In many cases, the chain's suppliers had already decided to produce in the U.S. as rising wages in China and increased U.S. labor productivity made offshore production less attractive. One example: Hardware manufacturer Hampton Products said it has seen the cost of making one particular in China rise from $1.77 to $2.20 over the past six years because of increased labor costs and the higher value of Chinese currency. After transport and tariffs, the delivered cost is $2.53.

Making the part in the company's Wisconsin factory costs $2.16, with the added benefits that quality control is better and the company can respond more quickly to customers, the manufacturer said.

Walmart's push is aimed at product categories that were hard to produce at a cost advantage in the U.S., including light bulbs (now made in Ohio and Illinois) and televisions (assembled in South Carolina). The shift also counters a longstanding criticism of Walmart: that the chain not only displaces smaller merchants but that it also favors overseas manufacturing in the name of cost.

While the made-in-USA commitment for Walmart is very modest, the fact that it's driven by hard costs rather than simply a PR campaign may actually be an advantage to other retailers who have had to watch as Walmart's overseas manufacturing demolished their margins. Competing retailers will still face margin challenges, but if prices of overseas products keep rising, they won't have to deal with the problem of sourcing products from the other side of the globe.

For more:

- See this Reuters story

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