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From The Editor

$50 Billion - Walmart's 10-year Commitment

James M. Borneman

Walmart President and CEO Bill Simon's comments at the recent National Retail Federation Annual Convention and Expo were music to U.S. manufacturers' ears. Simon announced Walmart's $50 billion, 10-year commitment to U.S. manufacturing.

"Think about the global landscape today: the economics of manufacturing are changing rapidly. In previous decades, investment mainly went to Asia. Wages were low. The price of oil was low. And new factories sprung up out of the ground," said Simon.

"But today, some of those investments are nearing the end of their useful lives, and manufacturers are making decisions about where they will invest next. Meanwhile, labor costs in Asia are rising. Oil and transportation costs are high and increasingly uncertain. The equation is changing. And a few manufacturers have even told Walmart privately that they have defined the 'tipping points' at which manufacturing abroad will no longer make sense for them.

"Let's give them the nudge they need. Through our buying power, we can give manufacturers confidence to invest capital here — and play a role in revitalizing the communities we serve. These factories will have higher tech jobs than those that left, and these jobs will have ripple effects in their communities. Factories need raw materials to supply them, trucks to deliver to them, restaurants and — yes — retail to serve them. And they build up the local tax base.

"If we can help create these jobs here, it will make us proud as Americans. But this is also just good business. For example, it's crazy that 70 percent of cotton grown in the US is shipped overseas, spun into products like towels, and then often shipped right back here. We can cut out two shipments across the world and weeks on the water and cut our costs in the process. We can save our customers money by employing more of their neighbors — why wouldn't we do this?

"Our Chief Merchandising Officer has told our suppliers that Walmart is ready to meet with them on domestic manufacturing. And we're ready to make a strong commitment to move this forward.

"Today, I'm proud to announce that Walmart will buy an additional $50 billion in U.S. products over the next ten years — a timeframe that reflects the lead times for bringing facilities online. We've appointed a senior team within Walmart to lead this effort. And we've decided we will sign longer-term purchase agreements when it makes sense to give suppliers the certainty to invest here."

A long quote — but also a rare and an insightful approach that acknowledges the level of commitment necessary to invest in domestic manufacturing. Simon also referenced towels made by U.S. manufacturer 1888 Mills rolling into 600 stores in the spring and 600 more stores in the fall.

With all the talk of outsourcing through the years — lobbying for free trade and debating about the importance or lack of importance of a strong U.S. manufacturing base — are these comments real? It appears so. As Simon stated,"We can just decide to do this."

January/February 2013