Big-Box Swindle: Part 1

Big-Box Swindle: The True Cost of Mega-Retailers and the Fight forAmerica's Independent BusinessesBig-Box Swindle: The True Cost of Mega-Retailers and the Fight for America’s Independent Businesses by Stacy Mitchell

Article by William Petrocelli
Those of us who have raised the alarm about Big Box stores have usually focused on the savage affect on local communities and locally-owned retailers. But this excerpt from Stacy Mitchell’s book shows that there is another important dimension to the problem: i.e. Big box retailers have been a major contributing factor to the loss of good manufacturing jobs in the U.S.

In the spring of 2005, the power-tool manufacturer Black & Decker announced the closing of yet another factory This time, 675 workers in Fayetteville, North Carolina, lost their jobs, forfeiting wages of about $15 dollars an hour, plus health insurance and other benefits. They are unlikely to find work that pays as well. According to the state’s Employment Security Commission, most of the new jobs in the region pay considerably less. The layoff continue a restructuring process that Black & Decker began in 2002. Pressured by Home Depot and Lowe’s, which account for about one-third of the toolmaker’s sales, Black & Decker has shuttered factories across the United States, laying off some four thousand people and shifting production to the Czech Republic, China, and Mexico, where wages are lower. The only alternative was to relinquish shelf space at the two megachains, both of which were turning more and more to lower-priced brands-including their own. Home Depot and Lowe’s are no only top customers, but major competitors, both having contracted with foreign factories to make their own lines of power tools that compete directly with Black & Decker’s.

With mega-retailers combing the globe for factories that have the lowest wages, U.S. manufacturers have two options: they can either make their products in those factories or give up shelf space and market share to companies who will. In 1990 Levi Strauss made 90 percent of its jeans in the United States. But plummeting sales in the late 1990s convinced the company that it had to start producing jeans cheap enough to sell to Wal Mart and Target. Levi’s unveiled its bargain Signature line and shuttered all of its U.S. factories, laying off more than twenty-five thousand people. Today, the 150-year-old American icon does not even make jeans; it’s purely a marketing and distribution company, contracting virtually all of its production work to factories in Asia and Latin America. Companies that produce everything from toys to toasters have done the same thing. Determined to stay on Wal Mart’s shelves by keeping its retail price under ten dollars, Etch A Sketch closed its Ohio plant in 2000 and contracted with a factory in Shenzhen, China, where workers earn twenty-four cents an hour. Maytag, maneuvering to meet the demands of major appliance sellers like Best Buy and Lowe’s, recently fired sixteen hundred workers in Galesburg, Indiana, and moved their jobs to Mexico. Big retailers hold all of the cards in these relationships: not only can they opt to carry competing brands, but they can also choose to make the product themselves, by contracting directly with Asian factories. Many of the largest chains now have major sourcing offices in China. Best Buy opened one in Shanghai, from which it oversees factories producing its Insignia line of television sets and DVD players. Lowe’s has a buying office in Shanghai as well, and is working directly with factories to produce a growing share of its merchandise. Home Depot sources flooring, lighting, and other products through two offices in China. The Gap and Target have major procurement offices there as well. Wal Mart not only has its global sourcing headquarters in the fast-growing Chinese city of Shenzhen – from which the chain negotiates with factories to produce its own lines of clothing, consumer electronics and other products – but in 2004 it convened its annual board meeting there.

As challenging as these circumstances are for large manufacturers, they at least have the option of severing their domestic ties and becoming, as Levi’s has done, nothing more than a brand name that sources from wherever the product ca be made cheaply. But hundreds of small and midsize companies that used to produce parts for bigger manufacturers lack this mobility. They are being stranded as their customers flee to low-wage countries. Pa-Te Springs Co. of Bristol, Connecticut, which engineers springs that are used in a variety of appliances like irons and blenders, has had to close down one of its plants and cut its workforce at two others as its customer have moved their operations to China (where they buy springs locally). As a small family-owned company, following appliance makers to the other side of the globe is not an option. But Pa- Ted Spring’s prospects look grim. “The major retailers and big manufacturers are doing us in,” said owner Fred Tedesco.

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