Three more points on Wal-Mart furor - Taking Stock - Column

Discount Store News, Feb 1, 1993 by Arthur Markowitz

Some observations and questions about the Wal-Mart NBC-TV "Dateline" Buy America quagmire.

One: Wal-Mart, on the TV program, acknowledged that goods it directly imports account for about 5.8% of its sales. This works out to about $5 billion or about 6% of its $30.7 billion in discount store sales in 1991, the last year for which complete figures are available. But what is unknown is how many imported goods Wal-Mart obtains through importers and distributors. Some trade observers estimate that imported goods overall account for about half of its discount store volume (as may be the case at other discounters).

What also isn't known is Wal-Mart's margin on imported goods. The "Dateline" program indicated that Wal-Mart was directly buying merchandise which has labor costs of just pennies an hour. It's likely that the margin on imported goods is higher than its overall corporate gross margin of 20.8% in 1991 and the approximately 24% margin for goods sold in the Wal-Mart discount stores.

So, are the margins on imported goods high enough that they enable Wal-Mart to be very sharply priced on domestically bought merchandise and name brands? Is Wal-Mart's sterling image as the every day low priced retailer due to the extensive use of imported goods?

Two: Wal-Mart uses refined cost accounting in its buying. It breaks down the cost of the goods it buys and eschews paying for manufacturer expenses and services like reps that it doesn't use. After the "Dateline" program ran, a number of vendors took out ads backing Wal-Mart's Buy America commitment. These ads were a special service to Wal-Mart, as manufacturers don't have funds in an advertising category called "support for retailer programs attacked on TV" and available to all merchants that fall into that group.

Wal-Mart allegedly sought backing from its suppliers. If this is so, are manufacturers, as a matter of business fairness, making funds equal to their Wal-Mart ads available to other retailers?

Three: The proposed North American Free Trade Agreement and continued high unemployment have made jobs for Americans a highly charged issue. The danger is that the noble desire to buy American merchandise and its concomitant concern for the future of American workers could degenerate into xenophobia and isolationism and revive the nation's worst political traits: known-nothingism and nativism.

Some elected officials see this concern--and specifically the questions raised about Wal-Mart's Buy America program--as a way to score political points. Congress could likely look at Wal-Mart's program as part of a larger examination of the nation's free-trade policies and pending agreements with other countries.

If and when Congress probes the issue, Wal-Mart and hopefully other retailers and manufacturers will be able to fully detail their sourcing and production programs and how they help American workers and advance the nation's overall economy. Wal-Mart launched its Buy America program with the best of intentions, but if the business community, not just retailers, and the American people aren't careful, the worthwhile endeavor could become a political quagmire.