Late last year, Sam Walton, the chairman of Wal-Mart Stores Inc., gave his merchandise buyers an order: Think of a product that American manufacturers have given up on because of competition from cheaper imports.
An apparel buyer suggested inexpensive flannel shirts, virtually all of which are now made outside the United States.
Today, the 753-store discount chain has a $600,000 contract with a small Brinkley, Ark., manufacturer for 240,000 flannel shirts -- one-tenth of what the company anticipates it will sell next winter.
"We've set out to prove that American manufacturers can make merchandise we sell on a competitive basis with the same quality and value as products made overseas," said David D. Glass, president of Wal-Mart, one of the nation's fastest-growing and most successful discount chains, second to K mart Corp. in size.
"As a company, we are tremendously concerned with the trade deficit," Glass said. "We see a tremendous erosion of manufacturing jobs in this country as manufacturers accelerate the movement to go offshore to make their goods. None of us will believe what this country will be like five to 10 years from now if we continue to let this happen."
Between 1981 and 1984, an estimated 1.6 million American jobs were lost to imports, Walton recently pointed out in a letter to his suppliers. "In one year 1983 to 1984 , non-oil-related imports grew $70 billion, an increase of 33 percent. The trade deficit reached $123.3 billion, an increase of 78 percent. Something can and must be done to reverse this very serious threat to our free enterprise system and our great country," he wrote.
Now Walton wants to try to turn the tide. Last month the company officially launched a novel and ambitious Buy-American campaign to prod domestic manufacturers to produce more goods at home. Last year the company purchased about 5 percent of its goods from foreign manufacturers. This year, Walton said he hopes to reduce that to 4 percent through his campaign, with further reductions in the years ahead.
By offering unusually favorable terms -- including longer lead times and more advantageous financial agreements -- Wal-Mart hopes to prove that American manufacturers can make quality products that will match or beat the prices of imported goods.
"We are willing to work with the domestic manufacturers to a greater extent than we have done before," Glass said.
Also, Wal-Mart is willing to lower its margins to sell the goods at a competitive price, Walton said. "We are asking our manufacturers to lower their margins; in turn, we will lower ours."
However, Walton contended that profitability for the company -- which earned $240 million last year on sales of $6 billion -- should improve because it will force the company to make better buys. Perhaps even more significantly, the campaign will be promoted in Wal-Mart's stores, creating more "enthusiastic and appreciative customers," Walton noted.
The contract for flannel shirts with Farris Fashions Inc. is the first test of Wal-Mart's resolve.
To help Farris Fashions Inc. be price-competitive, Wal-Mart has helped locate and finance the flannel material it needed to meet the contract. "Without Wal-Mart's help, I would have given up on the project long ago," noted Farris' president, Farris Burroughs. "I kept beating my head to find piece goods and financing," he said, noting that he had called every textile manufacturer he knew, unsuccessfully looking for material. Ultimately, Wal-Mart called manufacturers to find goods and promised favorable financing terms for the goods to help Farris get a start.
Additionally, Wal-Mart "has agreed to pay us a little quicker than normal," Burroughs said,
"If I didn't have that work, I'd be hard pressed to keep my 100 employes busy," said Burroughs. "Without that contract, I'd be out beating the bushes. And with business now very slow in the shirt and blouse business, those bushes are almost all beat out."
Wal-Mart didn't have to make these arrangements, Burroughs said. "People are beating down Wal-Mart's doors to sell them goods," he asserted. "All Mr. Walton has to do is to say 'give me so many dozen.' He doesn't need to worry about" where his goods are being manufactured.
Yet he said Walton does have a direct interest in the import problem: A lot of the Americans who are losing jobs as a result of import competition are Wal-Mart customers.
"If his people are not working, they can't be buying anything. It's as simple as that," Burroughs noted.
Wal-Mart's campaign comes at the same time other major retailers are pressing the federal government to relax its import quotas on apparel. The retailers argue that the quotas hurt consumers by restricting the amount of lower-priced foreign-made goods, while raising the price of those goods that do reach this country.
"We're swimming upstream," Glass said.
Wal-Mart's Buy-American campaign was launched in a letter Walton sent to his major suppliers last month. To date, it has resulted in about half a dozen new contracts with American manufacturers, some of which already had been producing goods for Wal-Mart's stores. Most of the contracts are for work at plants in Wal-Mart's selling area in the South.
Julie Girl -- which has four plants in the Southeast -- has been making ladies sportswear and loungewear for Wal-Mart for the past 13 years. But under the Buy-American campaign, the company has entered into new agreements that, among other things, give Julie Girl more time to meet Wal-Mart's orders.
"Normally, big retailers go overseas and commit their orders a year in advance and then come back here and domestically place their orders closer to their needs," explained Louis Perlman, president of Julie Girl. "Wal-Mart is now making their commitments to us about the same time they make their commitments overseas. The longer lead time enables us to make better deals with domestic piece-good mills. It also gives us better production planning and allows us to become more efficient in our plants, thereby lowering our overhead and our costs."
The new Wal-Mart contracts will create about 200 more jobs for Julie Girl, Perlman said. At the same time, he added, it may have a snowball effect on Julie Girl's suppliers as they, too, are given a longer lead time in filling the manufacturer's orders.
Wal-Mart's Buy-American drive comes at a good time, noted Robert Welsh, president of Capital Mercury Shirt Corp., which has been one of Wal-Mart's longtime suppliers.
"A year ago, two years ago, even three years ago, it wouldn't be the right time because the prices overseas were very depressed," Welsh said. Today, higher labor costs and the quotas are pushing overseas prices up, "making it feasible for American manufacturers to be within striking distant," he said.
As a result of Wal-Mart's drive, Capital Mercury, which makes many of its men's shirts outside the United States, decided to bring some production back to this country and even expand some of its facilities in the hope that Wal-Mart's efforts will prod other retailers also to buy from domestic shirt makers.
"With Wal-Mart's advanced commitments as the nucleus of the Buy-American program, we believe we will now be able, on certain items, to equal or beat the offshore manufacturers -- but not for all items," Welsh said.
Wal-Mart's drive goes beyond apparel. It also has entered into contracts to buy American-made electric fans and bicycles, and it has signed a $469,000 contract with a Ft. Smith, Ark., manufactureer of casual furniture to make outdoor stacking chairs that will be sold for about $15 each. Wal-Mart had been importing the chairs from Taiwan.
"They've elected to give us the same arrangements they make overseas," said Don Flanders, chairman of Flanders Industries, a company with 100 employes and sales of $7 million a year. "They will make their commitments further ahead and they will pay us faster."
Typically, retailers agree to pay domestic manufacturers 30 days after an order is shipped, while they pay offshore producers at the time it is shipped, Flanders noted. By agreeing to pay Flanders when the chairs are shipped, Wal-Mart is enabling the company to produce the chairs "at less of a competitive disadvantage than an offshore firm." At the same time, the contract has created about 30 more jobs a year, Flanders said.
Until Wal-Mart offered to grant these favorable terms, Flanders said he would not have been able to include them in any of his contracts -- even though they are standard provisions for his foreign counterparts.
"There are too many domestic manufacturers who compete with us that are not willing to make demands so they could get the business." Flanders said. "Only if we all went together and said, 'No, we won't do this unless you agree to this,' would it work -- and that's against the law."
Not all manufacturers are enthusiastic about Wal-Mart's drive.
"One of the disappointing things is when a manufacturer says he doesn't want to participate," Glass said. "Some manufacturers who produce many of their goods offshore say 'why should I have the headaches managing people and running a plant? I'd rather contract offshore and have the goods manufactured by someone else.' "
The Buy-American drive is "more work," Glass acknowledged. "You have to work with a manufacturer -- meet with him and visit his plant to inspect it for quality control. But we do it abroad."
The campaign is also a gamble, Glass noted. "Retailers are generally reluctant to commit to longer lead times to guard against economic downturns or changes in fashion. So we are taking some risks. . . .
"It is not a quick fix. Down the road, we may get to the point where we feel we are beating our head against the wall because, by ourselves, we won't make a difference."
Yet manufacturers say Wal-Mart's drive already is beginning to have an impact.
"We're getting rumblings from other retailers," said Capital Mercury's Welsh. "They won't let Mr. Walton steal the march on them because it's going to catch them."
One of the interested retailers is Wal-Mart's midwestern rival, Venture Stores, a 60-store discount chain owned by the May Co.
"Mr. Walton is absolutely right," said Julian M. Seeherman, Venture's chief executive officer. Buy-American "is the kind of statement we've been making but not getting publicity on," he added plaintively. Nonetheless, he said, Venture is contacting some of the same manufacturers Wal-Mart is doing new business with -- and its own suppliers as well.
"We would be willing to help these people," he said. "One way would be to give them a guaranteed order before they buy the first dollar's worth of material."
In addition to retailers, some of the manufacturers also are receiving inquiries from outside investors.
"A New York financier called me to say he would like to get involved in helping me finance my purchases of raw material," said Farris' Burroughs.
So far, Wal-Mart's agreements have been relatively small, considering its annual purchases amount to $8.5 billion a year, noted Arkansas Gov. Bill Clinton, who has played an active role in Wal-Mart's campaign, partly because Wal-Mart is based in his state and partly because of the state's high unemployment rate. Among other things, Clinton was instrumental in linking Wal-Mart with Farris.
"I think this will take off. But it will have to have a slow start -- because they need successes at the beginning," Clinton said.
Glass, Wal-Mart's president, said, "We don't think we're going to make a major influence in changing the trade balance in the country, but someone has to start."