WASHINGTON — Wal-Mart Stores Inc. upped the ante on Thursday in its drive to revive American manufacturing, revealing the creation of a new manufacturing fund — and apparel and textiles are one of the prime targets.
This story first appeared in the January 24, 2014 issue of WWD. Subscribe Today.
Bill Simon, chief executive officer and president of Wal-Mart U.S., told a gathering of more than 280 mayors attending the U.S. Conference of Mayors here that the “time is right for a resurgence” in American manufacturing and said the company is creating a $10 million fund to support it.
Wal-Mart Stores and the Wal-Mart Foundation will fund the five-year program, which will launch in March. The fund will provide grants to “innovators’” in the manufacturing sector and comes on the heels of Wal-Mart’s commitment last year to buy an additional $50 billion in American products over 10 years.
“Overseas, the middle class is growing. It is driving demand for products that are made in those countries and that increases labor costs abroad and makes the U.S. more competitive,” Simon said. “Meanwhile, energy costs in the U.S. are relatively less expensive than all around the world. Higher transportation costs in general are increasingly making it necessary and efficient to build things closer to the point of consumption — Asian production for Asian demand, American production for American demand.”
There remain significant hurdles to bringing back large-scale apparel production to the U.S., however. In a separate press briefing following his speech, Simon said some technological innovation is required to do that.
“That is one of the reasons we launched this fund,” the ceo said. “Why can’t we make a pair of blue jeans in the U.S. that costs less than $10 that we can get to market for $14 or $15? The cotton is grown here. Capital is agnostic to geography. If you buy a piece of equipment, it is pretty much the same cost whether it is located in Indiana or Asia. Transportation costs are favorable. Energy costs are favorable.…
“Wages are rising outside of the U.S. Do the math,” he added. “We retailers have carrying costs. We don’t have to take production earlier as we do for imports. So there is an economic benefit for us and flexibility in our supply chains. It is a big math puzzle and the math suggests that it is tilting in our favor.”
Simon said 72 percent of Wal-Mart’s suppliers have said U.S. manufacturing will be “cost favorable” to them within four years, adding that 40 different departments at Wal-Mart are in active discussions with suppliers to manufacture in the U.S.
To fuel the Made in USA initiative, Wal-Mart will use the $10 million fund to provide grants to universities and think tanks in an effort to develop new processes to help expand American manufacturing, he said. The retail giant will also launch an advertising and social media campaign next month to support the effort, Simon said, giving the audience a preview of one of the TV ads set to bow. In it, a man’s voice speaks against the backdrop of an empty factory, outlining the rise and demise of American factories and the determination to rise again. The ad was shot in an actual factory with people whose lives have been impacted by the demise and resurgence in U.S. manufacturing, Simon said.
The executive said Wal-Mart will host its second U.S. manufacturing summit in Denver in August. He said a key area of focus for the summit will be connecting manufacturers in need of component parts with factories with excess capacity in cities and towns around the country.
“I think we have made some pretty good progress in the first year of this initiative, but we have to be ready to meet challenges on the horizon and there are substantial and significant challenges,” he said. “For example, our suppliers tell us that some categories such as textiles and apparel are more difficult to bring back to the U.S. for a lot of reasons and we need some innovation in that space. Also, they tell us there are crucial components that are just not made in the U.S. anymore and we have to solve that problem.”
While Wal-Mart continues to push for more American production, a larger debate in the country over increasing the minimum wage is also part of the cost equation. Simon said in his speech that he supports the debate in Washington over increasing the minimum wage, but he warned that it will not “solve the whole problem.”
He told reporters later there might be some “wage compression” if the federal rate is raised, but said the discussions are in the formative stage. He also noted that Wal-Mart is not primarily a “minimum wage payer,” noting that less than 1 percent of its workforce is paid at the minimum wage level.
“The reason why minimum wage is on the table as a national discussion is that we have had no wage increase in six or seven years because…the economy is not growing at the rate we would like it to be,” Simon added. “We have got to have growth in this country. If we do, wages will follow and if the government wants to set the minimum wage at a rate it thinks is fair and acceptable, we as businesses will adapt to that and move forward, but it has got to come with growth.”