There is a big Walmart distribution center not far from where I live in rural Illinois. You can see it here. You can also see that all around it are corn fields, except for evey few years when the local farmers, ever mindful of the need for crop rotation, plant soybeans. The other buildings you see are a big horse farm and a place that services trucks and farm equipment – nothing to do with Walmart.
If you have ever been to an auto assembly plant the picture is a bit different. Rather than corn fields the plant is more likely to be surrounded by supplier plants. Granted a lot of those suppliers are more assemblers of components they sourced in China, but manufacturers nonetheless.
As dysfunctional as some of the auto companies may seem from time to time, they do understand that they are the final link in a supply chain, and it behooves them to tend to that supply chain – some very wisely and some heavy-handedly, but they spend a lot of time thinking about the economics of it.
The big retailers have long been like the Walmart DC all alone in the middle of nowhere. I'm pretty sure that when Peter Drucker wrote of manufacturing as a "wide spot in the supply chain" no one at Walmart or JC Penney read it. After all, it was in an article titled "The Emerging Theory of Manufacturing" and in their world, manufacturing has nothing to do with them.
The business model of the big retailers has been to sit in their buying offices in Bentonville, Arkansas or Plano, Texas like so many Grand Poobah's while the sales folks from manufacturing companies groveled and begged for a few scraps from their tables. Where those manufacturers were located, the issues they faced and how they did business was their problem – not of concern to the retailers.
Turns out, however, that who, where and how of manufacturing is something they should pay attention to. The problem is that they are run by the folks who went to the same business school the big brand manufacturing folks attended – the schools that said purchase price is all that matters and strategy consists of a combination of spending as little as possible on the product and as much as you can on advertising. In other words, the schools of thought in which the word 'value' had no meaning, and the old adage that 'time is money' was just that – an old adage with no relevance to business.
But time is money and it really is all about value, and as their world is spinning into chaos with China costs spiraling and their customers very clear on what the term 'value' means, there is a lot of head-scratching going on in the big retail world. Most have just scratched themselves bald and haven't come up with any answers, but the light bulbs are clicking on at JC Penney.
They made two big moves recently that are likely to have a profound effect on the retail landscape. According to the Wall Street Journal, "American department stores were caught off guard by the onslaught of fast fashion rivals that own local factories, enabling them react quickly to changes in demand. They have trained their customers to expect scarcity, leading to higher margins and more store visits. Department stores, by contrast, source most of their products from faraway vendors up to a year in advance. The sourcing model keeps production costs down, but can lead to fashion miscalculations and aggressive discounting that kills profits." So JC Penney, "unveiled an unconventional collaboration with Mango MNG Holding SL, the closely-held Barcelona chain known for whipping up cutting edge looks that go from design studio to store shelves in as little as four weeks."
"Unconventional"? – to say the least. Even more unconventional is the move they made with Liz Claiborne. The Keystone Comedy that has passed for management at Claiborne has just about ruined that once proud brand. Penney's arch-rival Macy's responded the way retailers have always done in the past – they kicked them out and found other sources for women's clothes. Penney's, on the other hand, bought the brand name – not the company, mind you, or their designs or the manufacturing - just the name. According to another WSJ article, "Under a new licensing agreement, the brand will only be sold at J.C. Penney and will be manufactured and marketed by the retailer." They didn't pressure Claiborne with a private label or store brand – they turned Claiborne into a store brand. … and they want to control the manufacturing.
The days of retailers operating in an imperial vacuum are rapidly coming to an end. I think the corn fields around Walmart DC's might just be a good real estate investment. The day is not long off when the Grand Poobahs from Bentonville figure out that surrounding the DC's with regional manufacturers in the JC Penney 'fast fashion' mode, and having serious partnerships with those manufacturers if not outright owning them in the JC Penney Claiborne mode, makes a lot more sense than worshiping at the alter of the 'China Price. They are starting to figure out that time is, in fact, money.