Can 'The All American Store' Reverse Our Nation's Walmartization?

Made in the USA
Made in the USA

Deep in the heart of Ohio, a new store is challenging the "Walmartization" of America.

What do I mean by Walmartization? For one thing, I refer to the trend toward superstores, each one alone the size of a shopping mall. It's also the goods these stores stock -- the proverbial $1 dozen-pack of tube socks, and all the other things -- from Barbie dolls to HDTVs -- adorned with the "Made in China" label. And it's the service, or rather the lack thereof: Vast expanses of retail space with nary a minimum-wage employee in sight and 24 cash registers at the front, of which two are manned, and 12 are self-checkout.

If you scan through the nearly 700 comments that DailyFinance readers posted in response to my column last month on the rise and fall of Sears Holdings (SHLD), you'll find numerous references to such issues: There were more than a few complaints about lousy customer service, unattractive storefronts, and the impossibility of locating, much less purchasing, anything labeled "Made in America."

More generally, though, Walmart's (WMT) conquest of of America embodies a decades-long drive toward the lowest common denominator. It's a trend by companies to cut costs and maximize profits, and they often end up reducing quality in the process. But is it a trend we can reverse?

We Make It and We Sell It

Folks in Brookville, Ohio, think so. That's where, two years ago (several months after the Great Recession officially ended), an intrepid group of entrepreneurs pooled their capital to set up a new kind of retailer by the name of "The All American Store."

The All American Store is exactly what the name implies. It's a corner retailer. A hardware store. An echo of the old general stores that used to be the mainstay of retailing in so many small towns across the land. And AAS sells American-made goods -- much like the goods I argued that Sears should consider selling.

To those who say it's not possible for Sears to reinvent itself -- that "Made in America" is too quaint a concept to work, or that "we don't make anything in America anymore, so how could you sell it?" -- AAS has a response: Yes, we make it. Yes, we sell it. And yes, this can work.

All American Store
All American Store

Supply-Side Retailnomics

Let's start with the complaint that "Americans don't make stuff anymore." Hogwash. Sure, the manufacturing of certain low-cost, low-margin, commodity merchandise has left these shores, and probably for good. AAS tells me it's had no luck tracking down U.S. suppliers for tiny but essential items such as light switches and fuses, and maintains a small display section for such items. But according to store managing member Mike Petro, while it takes some doing, AAS has found plenty of suppliers for the goods it wants to sell.

Indeed, 98% of the products for sale at AAS are made (or at least assembled) in America. Whether it's boots or blue jeans, kitchen tables or power tools you're after, AAS stocks them in spades.

How Much Is That Shovel in the Window?

"But what about the cost?" you ask. "Isn't the whole reason American manufacturing fled to China, because it's cheaper to make stuff there?"

Again, there's an acorn of truth here, but don't go mistaking it for a full-grown forest. While "Made in the U.S.A." goods can cost more than "Made in China," the price differential is often smaller than you'd think.

On average, Petro says a U.S.-made product might cost 50% to 100% more than a Chinese analog. Some products cost less -- a U.S.-made wrench set, for example, might cost as little as 15% more than a Chinese knockoff.

Petro pulls out a shovel as an example. It costs $22 at AAS. You can buy a similar spade at Lowe's (LOW) or Home Depot (HD) for $8 or $9. Is the American shovel worth the premium? Perhaps. With wages on the rise in China, manufacturers are hard-pressed to keep prices low enough to satisfy their U.S. distributors. Often, this requires cutting corners on quality. They'll frequently use lower-quality steel, for example. Or they'll skimp on quality assembly.

This creates a very profitable business model for Walmart and its discount cousins. Selling low-quality goods at low prices, a big-box retailer can assume products it sells will break with some regularity. Perversely, this creates repeat business, as consumers file back into the store to buy replacements. Lather, rinse, and repeat!

Or not. Last quarter, Sears' sales were down 1% year over year. And the All American Store? Up 15%.

Motley Fool contributor Rich Smith does not own shares of any company mentioned above. The Motley Fool owns shares of Walmart Stores. Motley Fool newsletter services have recommended buying shares of Walmart Stores, Lowe's Companies, and The Home Depot. Motley Fool newsletter services have recommended creating a diagonal call position in Walmart Stores. Motley Fool newsletter services have recommended writing covered calls in Lowe's Cos.


Get info on stocks mentioned in this article: