Lessons From Tariffs, Import Quotas and Walmart

Let the trade wars begin.

In an effort to resuscitate American industry, Donald Trump launched the first salvo Thursday in what may become a global trade war by imposing a 25% tariff on imported steel alongside a 10% tariff on imported aluminum. How the world will react, and if Trump has a counter-counterattack, remains unclear at this time.

It is not the first time America has sought to level off its unbalanced trade, particularly with China and other countries that flood—some would say, dump—cheaper alternatives to domestic U.S. production. In a global economy, manufacturers seek out the least expensive raw materials, labor and finished products. Too often, that means consumers at home and abroad think American made goods are overpriced. 

Heck, relocating supply lines has long been practiced by American industry. Textile companies fled the North to establish plants down South where non unionized workers earned less than their northern counterparts. But even lower southern wages could not compete with foreign laborers in Latin America and Asia. Executives fluent in global sourcing minutia shifted manufacturing from country to country to stay below import quotas established by the American government.

Trump champions America First, so it is not surprising he would favor steel and aluminum tariffs, particularly since underutilized plants are mostly located in Rust Belt states Trump won in 2016 and needs to win in 2020—Ohio, Pennsylvania, West Virginia, Michigan, Wisconsin. It seemingly does not bother Trump that prices of many goods that include steel and aluminum components will rise and could cost more jobs in related industries than would be created by the metal makers.

Trump, who spoke out against Chinese dumping practices years before his presidential run, was not the first business titan to see the danger of a depleted American manufacturing base. Back in 1985, Sam Walton positioned Walmart as an advocate of “Buy America.” 

I went to the source—my bound copies of Chain Store Age—to review how the retail industry and I reacted to import quotas and to Mr. Sam’s defensive ploy to combat a growing criticism of his company, at $6.5 billion, the seventh largest general merchandise chain, a little less than a third the size of $21.7 billion Sears, Roebuck and Co. and Kmart’s $21.1 billion. (Today, Walmart is the largest retailer in the world with sales of $485.9 billion in the recently concluded fiscal year. Sears and its now-sister company Kmart have a combined volume of less than $17 billion). 

Not surprisingly, retailers, who normally supported Reagan administration policies, railed against quotas. Under the headline, “Protectionism: Policies leave chains vulnerable,” CSA reported in September 1984 that tighter import quotas fueled dramatic price increases in many merchandise categories. Kmart, for example, estimated the cost of goods from China increased 25%. 

Fast forward to Trump’s imposition of tariffs and the reaction is no less muted. Thursday, National Retail Federation president and CEO Matthew Shay said, “A tariff is a tax, plain and simple. In this case, it’s an unnecessary tax on every American family and a self-inflicted wound on the nation’s economy. Consumers are just beginning to see more money in their paychecks following tax reform, but those gains will soon be offset by higher prices for products ranging from canned goods to cars to electronics.

“The retail industry is extremely concerned by the administration’s apparent desire to ignite a trade war, where the net losers will be the very people the president wants to help. On top of steel and aluminum tariffs, retailers are troubled by the direction of the ongoing NAFTA negotiations and the threat of additional tariffs on consumer goods from China. The true greatness of America cannot be realized when we build walls blocking the free flow of commerce in today’s global economy.”

Importing helped catapult the Bentonville, Ark.-based company into a global powerhouse. To be sure, few if any of Walmart’s competitors disdained importing. But Walmart’s heralded logistical and technological efficiencies accelerated its growth.

When Sam Walton started speaking publicly about imported goods in August 1984, his company was a burgeoning juggernaut but still not near the size of Sears and Kmart. He framed the challenge as dual pronged—reduce the trade deficit by buying American made products, but if that is not possible, develop products and jobs in Mexico, Central America and South America to “improve the standard of living for the average citizen in Central and South America.” 

Within a year Walton launched a “Buy America” program. Skeptics abounded. The program persisted, but in December 1992, five months after Walton died, NBC Dateline confronted company CEO David Glass with allegations products marketed as Made in America really were imported from Bangladesh. The adverse publicity led to the program’s demise.

Several years ago, Walmart started a Made in America program. It proudly touts a claim that “two-thirds of what Walmart spends on products sold in U.S. stores is made, sourced, assembled or grown within the USA.” That is “according to our suppliers,” Walmart acknowledges.

That provides a wide definition of American made. (Sales last year in domestic Walmart stores and Sam’s Clubs totaled $365.2 billion.) It cannot be argued that Walmart’s expansion and buying practices did not gut many a small town of local retailing and small malls, as well as contribute to the closing of many domestic manufacturing plants supplanted by foreign suppliers. 

But it is equally indisputable that shopping at Walmart has stretched consumer dollars and helped keep inflation in check.

It’s too soon to say what lasting impact Trump’s tariffs will have on sales, on inflation, on employment. But it’s safe to say they will not markedly change our balance of trade with the rest of the world.

Finding the Truth Behind the Numbers

The news Friday that Dow Chemical and DuPont are seeking approval to merge brought back memories of my first meeting with Leo J. Shapiro, whose expertise in social science research was instrumental in enhancing my journalism career and in making Chain Store Age unique, informative, must reading for retailers in the last two decades of the 20th century and the first 10 years of the 21st. Leo passed away in Tucson last month. He was 94.

The first time I met Leo, in 1979, in his firm’s then offices on the 37th floor of Lake Point Tower on the edge of Lake Michigan in Chicago, he observed that companies often choose a branding message in conflict with their everyday functions. 

Dow Chemical’s slogan back then was “Common Sense - Uncommon Chemistry.” DuPont’s was “Better Things for Better Living … Through Chemistry.” Yet both companies produced napalm and Agent Orange, the notorious herbicide used by the American military to defoliate much of Vietnam and consequently, tragically, causing “serious health issues—including tumors, birth defects, rashes, psychological symptoms and cancer—among returning U.S. servicemen and their families as well as among the Vietnamese population.”

In 1979 I had recently taken over as editor of Chain Store Age, inheriting a tradition of publishing a full-issue study in December on what we called a Great Retail Institution. The retailer we profiled always cooperated. For 1979 it was the F.W. Woolworth Corporation. 

Cooperation would not be the case for our 1980 profile—Kmart, at the time the second largest general merchandise retailer in the world with $14.8 billion in sales, behind Sears’ $16.9 billion (by comparison, Wal-Mart was a minuscule though growing chain with sales of only $1.6 billion. For 2014, Wal-Mart’s sales exceeded $473 billion; for the now combined Sears/Kmart, sales reached just $31.2 billion, of which $12.1 billion came from Kmart). 

Without Kmart’s cooperation we had to devise an alternative plan to secure information about the strengths and weaknesses of the chain. Publication director Paul Reuter spotted Leo’s name in an article in Advertising Age. It said his research firm, Leo J. Shapiro & Associates, had been following Kmart for many years. 

During that first meeting Leo explained that retailers, as do many companies, persist in doing things the same old way instead of moving on to the next wave of innovation. Sears, he opined, should have started a discount chain à la Kmart. Kmart, in turn, should have evolved into the more upscale Target or the more rural Wal-Mart. 

With Leo’s help Chain Store Age produced a publishing home run—more advertising than ever before and an editorial product recognized for its clarity and insight not only within the retail industry but also by our publishing brethren. The Kmart full-issue study was one of five finalists for a National Magazine Award, a rare achievement for a trade publication. 

Success in 1980 meant 1981’s December issue would be more challenging. Rather than profile a retailer we opted to work with Leo to produce the retail industry’s “1st Consumer Buying Intentions Study: Who, What, Where & Why They’ll Buy.” The study did not, as we expected, sell as well as the Kmart issue. 

But I almost fell off my chair when Stewart Orton, then chairman and CEO of Foley’s Department Store in Houston, in his speech accepting the Gold Medal Award of the National Retail Federation at its January 1982 annual luncheon, exhorted the thousands in attendance to read Chain Store Age’s December buying intentions study issue. 

Over the 30 years I worked with Leo and his partner, George Rosenbaum, Chain Store Age expanded the role of trade publishing. We innovated and published monthly and annual buying intentions studies as well as surveys on technology, credit trends, payment systems, loss prevention, store atmospherics, logistics and other topics never before distributed by a publication for the retail industry. Moreover, by including topical questions in their omnibus monthly national polls, Leo and George provided Chain Store Age with up to the moment insights on consumers.

“Garbage in, garbage out” is a widely held adage for anyone doing research. I always thought I knew what I wanted to study, but it was only after talking with Leo or George that I discovered what was truly worth researching. 

AN NRF Convention Memory Worth Noting

Today is the Tuesday of the annual get-together of the National Retail Federation in New York City, an event I attended for 30 years until I retired four years ago. Twenty-four years ago this morning I pulled a rabbit out of thin air and transformed the way my magazine, Chain Store Age, conducted business. Indeed, my spur-of-the-moment idea became a template for other retail business publications, as well.

Some background: In 1990, we were fortunate if our advertisers spent $30,000 net a year. For that princely sum they would receive four full-page, four-color ads. My idea catapulted select accounts into a $100,000 net program, details of which I will explain later.

The NRF convention is mostly about technology, a subject that causes my eyes to glaze over. Normally, I would shun meetings with technology companies, assigning the chore to a more well-informed staff editor. For an early breakfast meeting with NCR at the New York Hilton, only I was there representing the editorial side. With me were the magazine’s publisher, John, and our top salesman, Chris. 

There we were, sitting in a round booth in the basement level of the Hilton, listening to Marshall Fey of NCR lament that the world’s largest maker of electronic point of sale (POS) systems had a problem: Whenever NCR pitched for business, low-level techies chose it over rivals like IBM or Digital. But when the multi-million contract made its way up the corporate ladder, the CEO invariably would ask, “We’re buying IBM registers, right?” Clearly, NCR had an image problem that haunted most of its sales efforts.

NCR had not advertised with us for years. If we could help resolve its dilemma, maybe we'd get a few ad pages. An idea popped into my head. “If your problem is CEOs don't know who you are,” I said, “the solution goes beyond informing them about your name. You must educate them about technology. Would NCR be interested in sponsoring a special multi-page report titled, ‘Retail Technology: What the Non-MIS Executive Needs to Know’? It would be 20 pages dedicated to educating non-techies about the merging importance of technology to retail operations. It would be objective reporting. It will be chock-full of cutting edge features on the power technology can bring to retailers. Most importantly, to convey authenticity and objectivity, none of the articles would mention NCR. NCR could include regular ads inside the freestanding report, but the report itself would be free of any reference to NCR.”

I sweetened the proposal with seven ads, a direct mail campaign of the report to 2,000 executives, and distribution of the report at several technology shows as part of an overall print run of 50,000 copies (our normal print run was 35,000).

When Marshall asked the price, I said $100,000 net. 

He didn’t blink. He said he'd bring the idea back to headquarters in Dayton, Ohio.

Back in our Park Avenue offices later that day John and Chris were excited, but wanted to know how I arrived at the $100,000 net price tag. I stuck my index finger in my mouth and raised it to feel which way the proverbial wind was blowing. It just sounded right, I said. A bold idea (made up on the spot) demanded bold pricing.

Marshall called a few days later. Could we come to Dayton for a presentation? A few weeks later we trekked out to Dayton, made our pitch with story boards just like you see them do on Mad Men, closed the sale. The NCR-sponsored report appeared in October 1990.

Special Reports became one of the most successful programs ever produced by Chain Store Age or any trade publication. Over the next 18 years we produced hundreds of special reports, some in conjunction with major consulting/accounting firms, another format I innovated on the spot during a meeting with Ernst & Young a few months later (if I’m industrious, perhaps I’ll write about that story next time). Competitors copied both ideas. Competition forced us to lower the price. But the Special Report program remained a mainstay of our market share leadership and profitability for the next two decades. 

Wanted: Honest Customers

Whose customers are more honest, Wal-Mart’s or REI’s? Based on recent announcements from the companies, one might conclude shoppers at the discount store giant are more trustworthy than those of the outdoor gear retailer.

Already the nation’s largest seller of fresh fruit and vegetables, Wal-Mart wants more market share, so it has initiated new sourcing, quality control and employee training strategies for its produce section. The lynchpin of the program is a 100% money-back guarantee. What’s more, customers do not have to bring the offending produce back to the store to claim a refund. Their word will be their bond, or as Wal-Mart explained in its release, “If customers are not completely satisfied with Walmart's produce, they can bring back their receipt for a full refund. No questions asked and no need to bring back the produce.” 

No doubt Wal-Mart will keep tabs on customers to make sure the same ones are not abusing the privilege. Easy enough to do if the customer paid with a credit card. But many of the retailer’s patrons pay in cash, so it might be hard to track all who make returns, especially if there are multiple Wal-Marts in the local market. Still, it’s nice to see corporate America extending trust to the average citizen.

Seattle-based REI, on the other hand, has shelved its long-standing policy of accepting returns till the end of time. Because of a few bad apples taking advantage of the never-ending return policy, REI has put a one year limit on the practice, unless products prove to be defective. Outlet merchandise bought on REI.com will be returnable for just 30 days. 

In explaining the policy change to The Seattle Times, Senior Vice President of Retail Tim Spangler said, “What we found is that (a) small group of folks who are probably extending the policy beyond its intent, is getting bigger. And It’s not a sustainable thing long-term if we want to maintain this fantastic policy.” 

The Times also reported, “To reduce dubious returns, REI also has stopped accepting returns without question and is more insistent that there be proof of purchase. Some REI stores had been known to give store credit, if not money-back refunds, to customers without a receipt.” 

The newspaper noted that REI, which officially stands for Recreational Equipment Inc., had earned two dubious nicknames for its liberal return policy: “Rental Equipment Inc” and “Return Everything Inc.”

REI has reason to be more cautious. According to a report in The Wall Street Journal, the National Retail Federation “noted a newer trend of stolen goods being returned to stores without receipts for store credit in the form of a gift card. That gift card is then sold online or elsewhere for cash. The NRF's (ninth annual organized retail crime) survey reported that 77.8% of respondents had experienced some form of this gift card scheme.”

Accepting returns without making customers feel like criminals is a delicate balancing act. Reputations are burnished or tarnished at the customer service desk. Stories, some no doubt apocryphal, abound about retailers taking back suspect goods including some they didn’t even sell. Nordstrom has always been held up as the gold standard. It reputedly took back a set of four tires even though it never sold tires. Another of its legendary returns was of a wedding dress said by the mother of the bride never to have been worn by her jilted-at-the-altar daughter. Yet when the store staff took the dress out of the box after the customer left grains of rice came out as well. And then there was the story of the widow who returned a suit bought by her recently deceased husband. Store staff noticed the suit had an unusual odor. Turned out to be from embalming fluid. 

One of my favorite retailers is Costco because of its liberal return policy. But even Costco had to make accommodations because some customers were taking advantage. They would return consumer electronics items when newer models came out. So Costco, as did many other retailers, imposed a 90-day window for returns of electronics. Some, like Best Buy, even put a restocking fee in place.

One of my favorite examples of a rigid return policy gone wrong happened before my very eyes in a Child World toy store some 30 years ago. A distraught father was trying to return a plastic kiddy pool, only to be repeatedly told the store did not carry that brand. The customer screamed and screamed, insisting he bought the pool there, that he’d never shop there again if he didn’t get satisfaction. The store manager stuck to his guns. It was embarrassing to all who witnessed the extended exchange. 

No doubt the customer had conflated Child World with the Toys “R” Us barely a mile away. When I related the incident to Charles Lazarus, the founder and CEO of Toys “R” Us, he said his company’s policy was to take back any toy, even if it was not stocked by his chain. The overall customer experience was most important. The value of a customer telling his or her friends and relatives about a good experience, even one where they snookered the retailer, provided more long-term positive results than the negative publicity that same customer would generate if he or she went away angry. 

A few years later, Child World, the second largest toy store retail chain, closed down. Toys “R” Us is still in business.

A Mix of Messages

Today is Martin Luther King, Jr. Day. For most of my professional life I worked this day. It was not included in the 10 authorized holidays my employer observed. It did not share the status of Memorial Day, or the Fourth of July, or even the day after Thanksgiving.

Until, that is, a new vice president of human resources joined our company from Time Warner. She revised the holiday schedule to include MLK Day (unfortunately, the National Retail Federation annual convention usually fell on that day so I had to work, anyhow). As soon as she left the company, MLK Day reverted to its prior status as an official day of work.

Who says one person can’t make a difference? If you haven’t figured it out by now, the VP HR was Afro-American.


Revised Opinion: One month ago I labeled the Boston Red Sox as the team to beat in the American League East. That was even if the NY Yankees could sign Cliff Lee. Of course, they didn’t, so the outlook appeared even bleaker for the boys in pinstripes.

But I’m revising my sense of doom and gloom in light of the Yankees signing of Rafael Soriano, the relief pitching specialist. There’ve been reports he could cause some locker room problems, but his former pitching coach with the Tampa Bay Rays discounts them (http://www.nydailynews.com/sports/baseball/yankees/2011/01/16/2011-01-16_rafael_soriano_was_a_good_signing_by_the_yankees_says_tampa_bay_rays_pitching_co.html ). I’m also hoping that under the soothing influence of Mariano Rivera, Soriano will find a kindred soul (both are very religious) and contribute mightily to making the Yankee bullpen the best in the business.

Last year, Soriano recorded 45 saves in 48 attempts. The Yankees plan to pitch him in the eighth inning and leave the ninth to Rivera. Rivera had 33 saves in 38 opportunities last season. In effect, the tandem make a typical nine inning game into a seven inning contest, assuming the Yankees are ahead. Last year the Bronx Bombers led the major leagues in runs scored, so there’s every confidence they can place many a game in the capable hands of the bullpen masters to protect a lead and win.

Naysayers may point to the Achilles Heel of the ball club, the starting pitching. To get to Soriano-Rivera, the starters and middle relievers will have to limit scoring by the opposition. I’m hopeful they’ll be able to do that.

What else am I going to say?


Nature or Nurture: 14-month-old Finley’s been taking advantage of his mobility on two legs, enjoying walking around children’s museums, especially those with a play kitchen set-up. His mom has told us to keep a sharp eye out for kiddie stoves. As a tag sale devotee, I couldn’t wait for Spring.

Lo and behold, while replacing batteries in the smoke detectors in the attic this morning, I found a Care Bears stove/top burner/sink with lots of dishes and utensils. After more than 20 years of accumulated dust from the last time Ellie played with it is cleaned off, the toy kitchen will be ready for Finley. Of course, there are some who might cringe at this less than manly interest by the young fellow, Iron Chefs notwithstanding. But it made Gilda recall a lesson she learned about what’s more dominant in raising a child, nature vs. nurture.

Not wanting to typecast our daughter with just girlie interests, Gilda decided Ellie would play with generic toys as a toddler. Blocks. Legos. Balls. Cars and trucks. Stuffed animals. Nothing feminine. No dolls.

Ellie was a contented child, but not very enthusiastic. Finally, for Ellie’s third birthday, Gilda’s friends could take it no more. They gave Ellie several dolls and other “gender appropriate” gifts, including a baby doll stroller and the aforementioned Care Bears kitchen set. She immediately radiated excitement, took the presents to her room and played with them for hours.

So much for trying to control development. No one who knows Ellie today would suggest she is anything but feminine. She’s not into organized sports, though she enjoys camping, hiking, mountain climbing, canoeing and other “manly” activities. For Ellie, nature most assuredly won out.

Shopping Right

(Editor's Note: Industry leaders are meeting this week at the National Retail Federation annual convention in New York City, a conference I attended for more than 30 years. Though predominantly a department store and specialty store group of executives, attendees also come from supermarkets, drug stores, home centers and non store retailers such as mail order and Internet companies. For old times' sake, here’s an abridged example of what I used to do for 32 years, an analysis of the entry of a new store, in this case a supermarket, to a market.)

The opening of a new 78,000 sq. ft. ShopRite in downtown White Plains last week provides a textbook example of the dilemma supermarket operators have faced—who, exactly, is their competition? Is it merely other dedicated food stores, or do Wal-Mart and Target qualify as more than just nuisances poaching sales from periphery customers?

Across the country, Wal-Mart and Target superstores (units that combine full-line grocery stores with full-line discount stores) are competition, for sure. But here in White Plains, Wal-Mart and Target have limited food departments. Yet, to ignore them—as both ShopRite and the older Stop & Shop have seemingly done—means the supermarkets are losing sales opportunities they can ill-afford to give away.

Grocery retailing is a business of pennies. The average supermarket, according to the Food Marketing Institute, the industry association, turned a profit of just 1.22 cents for every dollar of sales in 2009. The business model is built on volume, achieved by bringing the customer back as often as possible to fill up shopping carts as high as possible. In 2009, The FMI says the average customer visited a supermarket 2.1 times per week, spending an average $29.24 per transaction.

Over the last 30 years Wal-Mart grew faster and bigger than any other store because it geared its prices and assortments to the type of staple merchandise consumers needed and bought every day—paper goods, health and beauty aids, candy, stationery, and consumables. The result—shoppers visited Wal-Mart as often as they frequented supermarkets. Good news for Wal-Mart. Bad news for supermarkets, because sales of the items grocers lost to Wal-Mart came from products that generally had higher margins than regular foodstuffs.

To attract customers, ShopRite and Stop & Shop have vastly more product lines in packaged food areas than either of the discounters. Plus, they have specialty departments such as deli, bakery, prepared foods and extensive produce, meat, frozen and refrigerated selections. But Wal-Mart and Target are sizing up their everyday food assortments, at sharper prices. A market basket of 21 national brands stocked by all four stores revealed the following: Wal-Mart and Target came in virtually the same, $72.35 for Wal-Mart, $73.13 for Target. Stop & Shop priced out at $87.17, while the new kid on the block, ShopRite, checked out at $89.80 (all prices included in the January 6 survey were regular prices, not sales prices).

A penny here, a penny there doesn’t sound like much, but $14 to $16 is a big difference. A ShopRite executive said the company used its Westchester zone to set prices. But White Plains is different than most other locations. For one, there’s the cost of parking at the City Center (which Target customers also have to pay; Wal-Mart issues parking vouchers at its garage. Stop & Shop parking is free). Second, unlike most ShopRite locations, competitors are cheek to jowl in White Plains—Target is two floors below, Wal-Mart across the street, Stop & Shop a few blocks away.

It is apparent ShopRite set its prices against other supermarkets, giving little thought to non-traditional competitors.

If Wal-Mart or Target siphons off any store visits and purchases from ShopRite it will find it harder to turn a profit. And that would be unfortunate for White Plains residents. Just a few years ago, despite being a mecca of retailing in the county, the city had no supermarkets. Now it has the two traditional grocers, a specialty format (Whole Foods Market), along with Wal-Mart and Target. To maintain those shopping options, ShopRite and Stop & Shop must sharpen their pencils on brand name goods, while fattening their margins on private label products and specialty food departments where Wal-Mart and Target cannot compete.


Regular Price Comparisons January 6, 2011
Product Wal-Mart Target ShopRite Stop & Shop
Jif Creamy PB 18 oz. $2.22 $2.24 $2.99 $2.99
Coca-Cola 2 liter 1.64 1.79 1.79 1.89
Tropicana OJ w/Calcium 59 oz. 3.18 3.19 3.99 3.79
Edy’s Ice Cream 1.5 qt. 3.98 3.54 4.49 4.99
Original Cheerios 18 oz. 3.50 3.54 4.99 4.69
Cambell’s Healthy Request Tomato Soup 1.32 1.27 1.89 1.50
Fiber 1 bars 10-pack 4.50 3.99 5.99 4.99
Thomas’ Orignal English Muffins 6-pack 2.07 2.54 3.69 3.69
Tide 150 oz. 19.97 19.99 23.99 19.99
Goya Black Beans 15.05 oz. 0.92 1.09 0.99 0.89
Ziploc Sandwich Bags, 120 count 2.67 2.69 3.49 3.99
Classic Lays Potato Chips, 11 oz. 3.78 3.59 3.99 3.99
Domino Sugar, 5 lbs. 3.64 3.64 3.99 3.99
Select Harvest Italian Wedding Soup 1.50 1.52 2.50 2.50
Special K, 12 oz. 2.92 2.94 2.77 3 .99
Entemann’s Pound Cake 3.32 3.29 4.29 4.39
Cool Whip, 8 oz. 1.48 0.99 2.29 2.19
Gatorade, 32 oz. 1.00 1.02 1.00 1.25
Lean Cuisine Cheese Ravioli 1.98 1.99 2.00 3.49
Folgers Classic Roast, 11.3 oz. 3.98 5.49 4.29 3.99
Cheez-It, 13.7 oz. 2.78 2.79 4.39 3.99
TOTAL 21 Items 1/6/11 $72.35 $73.13 $89.80 $87.17