As we discussed last time the Wal-Mart model has these big box retailers telling manufacturers what they are willing to pay for a product. It is then up to the manufacturers to meet these requirements or lose their contract with the big box retailer in question.
Manufacturers say this pressure is what has led them to shutting down plants in the United States and moving these jobs overseas. In fact some manufacturers say that they have been told specifically by Wal-Mart to make this move in order to help keep their manufacturing costs down.
These manufacturers argue that the Wal-Mart method and the fact that there are very limited restrictions on what is being imported is why so many manufacturing jobs are leaving the United States and in essence hurting the middle class blue collar core that has been the heart of the U.S. economy for so long. They would then argue that the Wal-Mart market system is bad for the United States because these jobs are important to the United States.
This market system has also put a lot of U.S. manufacturers at risk. When they are unable to keep their costs down and lose contracts with the big box retailers. One example is Rubbermaid who got bought out a few years back after their manufacturing costs shot up, due to raw material costs, and they lost contracts with Wal-Mart.
The manufacturers argue that being bullied by a few large retailers to keep their prices down is an unrealistic model for maintaining a solid market system. They believe in the older model which is one where the manufacturers in essence push the price of the products being sold on the market.
In the next installment we will look at how all of this plays out in reality and who is affected by it. All we've seen so far is how this model has helped to make the big box retailers more money and how the manufacturers have made adjustments, according to them, to keep up with the big box retailers demands. I hope that by doing a case study we can better determine how this is playing out.
