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Wal-Mart Snags Good Karma With Made-in-U.S.A. Commitment

Wal-Mart is jumping on the Made in America bandwagon, vowing to source $50 billion worth of products from the U.S. over the next 10 years.

The commitment by the world’s largest retailer amounts to approximately 1% of its total sales, but has generated a storm of positive news articles. Those articles have largely eclipsed the highly critical pieces that followed the Tazreen Fashions fire. Wal-Mart was found to have been making clothes in the Bangladeshi factory that burned killing 112 workers.

More brands and firms are making Made-in-USA part of their marketing strategy. Unfortunately, the underlying economics of overseas manufacturing make it impossible to profitably manufacture mass market labor intensive goods in the United States, so domestically made apparel is generally made in small batches, or the goods made have sufficient value-add to justify the exponentially higher cost of labor.

Made-in-USA will probably never challenge China, Bangladesh, Pakistan, or Vietnam in clothing manufacturing. In Dhaka, for example, a garment worker makes $37 a month. In North Carolina, a worker has made that much by lunchtime. Just 2% of clothing bought in the USA is made here. That’s down from 95% in 1960, and, despite PR moves by firms such as Wal-Mart, the number keeps falling.

Still, according to a survey released in November by Boston Consulting Group, American consumers are willing to pay more for domestically manufactured goods. They’re willing to pay 60% more for wooden baby toys, 30% more for mobile phones, and 19% more for gas ranges. However, the survey press release did not include data on how much consumers will pay for apparel, and sales trends indicate that they are unwilling to switch to more expensive items made domestically.

Red Wing Boots, the Minnesota based footwear company, relies heavily on this national loyalty. Sales at Red Wing have grown strongly over the past five years, despite the impact of the recession. Much of this growth has been attributed to a higher profile of Made in U.S. products.

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Larger retailer and manufacturer American Apparel has struggled in recent years, with sales growth slowing and profit margins falling on uncertainty in materials markets and labor costs. American Apparel manufactures all of its clothing in its factory in downtown Los Angeles, employing over 6000 workers at livable wages with healthcare benefits and childcare.

The company relies on a two-pronged marketing strategy of fast fashion and Made-in-USA. American Apparel clothing is unique and desirable, and consumers are willing to pay more to get it first off the rack, so they have less discounting. This underwrites the second, Made-in-USA prong of the strategy that allows the company to appear to be a responsible corporate citizen.

Wal-Mart originally tried to sell only goods made in the USA, but shifted its strategy when it began an intense period of growth in the early 1990s. Now, the decline of U.S. consumer apparel manufacturing means most of the clothes in Wal-Mart will be coming from outside the U.S. for the foreseeable future.

American manufacturing has been growing in recent years, and is regarded as a pillar of the economic recovery. However, it is only growing in sectors that involve high value add and are heavily automated, such as appliance and automobile manufacturing. Apparel has continued to decline.