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

Made in the USADeep 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

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.

Six Brands That Have Come Back from the Dead
See Gallery
Can 'The All American Store' Reverse Our Nation's Walmartization?

The LEGO Group has been around since 1932. For decades, the company was a leading toy manufacturer, but Lego’s sales dropped 40% in the two years since 2002 — due in part to the growing popularity of electronic toys. In 2004, the company had debts of almost $1 billion and was near bankruptcy. Then, spurred by the recession and the low cost of its toys, sales of Lego products began to pick back up, and have been increasing since. The company cut its workforce by 1,000 and reduced the amount of pieces it produces from 13,000 to 6,000, discontinuing its unpopular toys. For the first half of 2011, net sales have been up 25% over the first half of 2010. Today, it is the world’s fourth largest toy manufacturer.

Marvel is one of the most recognizable brands in the comic book industry, owing its fortunes to popular characters like Spider-Man, X-Men and The Hulk. But Marvel’s current success follows a serious slump. In late 1996, after declining sales of comics and trading cards, the company filed for bankruptcy. In 2000, the company released the movie X-Men — a huge success, which grossed almost $300 million worldwide. Two years later, Spider-Man was released, becoming the top grossing movie of the year. In 2009, Marvel Entertainment was purchased by Disney for $4 billion. This summer the company released X-Men: First Class, which has already grossed over $353 million worldwide in theaters.

Old Spice, a classic American brand that has been around since 1938, attained huge popularity by the 1970s. By 1990, however, the brand had become tired, associated more with its aging customer base than anything else. In 2000, the company, now owned by Procter & Gamble, came out with Old Spice Red Zone and revamped its advertising campaigns, focusing on the younger generation. Popular online ads featuring the Old Spice Man went viral, propelling Old Spice to the lead in the body wash market. In June 2010, sales increased a whopping 107%.

With its Macintosh line, Apple was a premiere personal computer manufacturer in the late 1980s. In 1985, Steve Jobs left his position after being marginalized by the board and new CEO, John Scully. The company did well through the end of the decade, but performed poorly in the mid 1990s. Jobs returned in 1997 and, after 18 months of losses, the company received a $150 million investment from Microsoft. In 1998, the company released the iMac, followed by the iPod in 2001. These products marked Apple’s return and spurred its rise as a competitive consumer electronics company. Since then, its top position has been cemented by the wildly popular iPhone and iPad. Apple is now one of the world’s most loved and followed brands.

In the late 1980s through the 1990s, Japanese game company Nintendo dominated the market with its Gameboy, Nintento Entertainment System, and Super Nintendo. In mid-90s, the company introduced the Nintendo 64 to combat the next generation of consoles that incorporated 3D graphics for the first time. While the N64 sold well, Sony had entered the market and its PlayStation sold more than double that of the N64. Nintendo would continue to struggle against its rivals. The Nintendo GameCube sold less than Microsoft’s Xbox and was blown out of the water by the PlayStation 2. In 2006, Nintendo finally recovered when it released the Wii, blowing out both the Xbox 360 and the PlayStation 3. The biggest reason for the Wii’s success was its new interactive design and ease of use. The Wii was successfully marketed to families with children, rather than just to video game players. To date the Wii has sold more than 86 million units.

Volkswagen was relatively unknown in the U.S. during the 1960s, even though its products were first sold here in 1949. By 1970, the company controlled 7% of the market. It was also the first foreign automobile company to open an assembly plant in the country since the 1920s. Despite their initial success, a number of missteps, including the release of the unpopular Rabbit, caused sales to plummet. According to a Wall Street Journal article, “By 1992, U.S. annual sales had hit a low of 49,000 cars, and VW contemplated pulling out of the U.S. altogether.” Just six years later, following the launch of the new Beetle, the company began its comeback. In 2000, the car company reported its best U.S. sales month in 26 years. In 2010, Volkswagen sold more than 250,000 cars in the U.S. — its best year since 2003.


Read Full Story