President, Global Policy Institute; Professor of Political Science and International Relations at Bay Atlantic University, both in Washington, DC
Washington, DC – January 6, 2025 – Due to the shock waves of globalization, American industry lost all or most of the labor intensive sectors. In just a few years, millions of jobs moved to Asia, China in particular, on account of the comparatively much lower labor costs. A huge number of U.S. manufacturing plants closed down and outsourced production to factories in East Asia, especially in China. The U.S. textiles and apparel industries were hit particularly hard.
The downfall of the American textile and apparel industries
This created a huge sector crisis. Until the 1970s, especially in the Southeast, there was a thriving textile and apparel industry in America. A piece in The State describes vibrant companies, particularly in South Carolina. “Major textile mills operated across the South and in the upstate and coastal areas of South Carolina.” If one looked at the entire United States, about 1.3 million people worked in textile mills nationwide in 1948.
But in recent decades the picture changed dramatically. “Cheaper labor overseas –continues the article in The State– technology and automation, international trade agreements and other conditions consistent with modernization, wages, education and economic diversification led to the demise of the textile industry in South Carolina from the 1970s through the 2000s.”
However, now there seem to be signs of a possible renaissance, due to innovation. This is not “innovation” in the conventional sense of the word, meaning new materials, new machines, new software, new technologies. This is a business model innovation.
Scaling up, with Walmart’s help
A recent piece in The Wall Street Journal, describes the unusual rise of American Giant, a rather small California apparel company that was surviving in the midst of the glut of super cheap Asian apparel imports, because it produces in America. Its appeal to patriotism gave an opportunity for customers to “Buy American.” This marketing twist allowed the company to become a small niche player.
But then came a new relationship that transformed American Giant’s business model allowing this small, apparel sector niche player to grow substantially. Walmart, the American retail supergiant, probably driven mostly by public relations and political expediency reasons, in 2021 announced that it would invest additional billions of dollars to buy made in America goods to be sold at its megastores. Walmart would certainly not stop sourcing from China and other countries in Asia, given their huge low cost advantage. However, Walmart would do something to support American industries. American Giant became one of the companies Walmart began talking to. Keep in mind that, at that time, only 4% of all apparel sold in America was produced domestically.
Innovative business model
And here is the innovative business model, made possible only by Walmart’s enormous buying power. But it was not easy to meet Walmart’s requirements. American Giant had to commit to deliver huge quantities of its T shirts. However, they had to retail (at a profit, of course) in Walmart stores for only $ 12,99. This low retail price seemed impossible for American Giant, given its high cost structure and modest production capacity. Its products retail elsewhere for $ 30 or $ 40.
However, American Giant did not give up. Relying on the leverage of enormously large Walmart orders, American Giant managed to convince all its suppliers to make costly investments in new equipment and automation that increased productivity while reducing costs. The argument was that these upfront investments would be repaid by substantially increased sales volumes. It worked. Now American Giant is an established Walmart supplier. The company benefits and so do all its vendors. An interesting success story.
Can this be repeated in other sectors?
Certainly, the ability to leverage an enormous volume of business from Walmart, the U.S. retail sector leader, allowed American Giant to convince very reluctant business partners to make investments in new machinery and automation that otherwise would not have been made.
That said, is the promise of large volume orders from a major buyer like Walmart good enough? Is any such upfront buying pledge sufficient to convince small entrepreneurs operating in different manufacturing sectors to make huge investments in new plant and equipment and automation? All in all, can the American Giant success story become the model that other companies operating in different sectors will be able to imitate? Hard to say.
Still, if anybody 10 years ago would have predicted that American Giant, a small U.S. company selling only made in America apparel, would be an established Walmart supplier, nobody would have believed it.
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