December 18, 2012--Rubbermaid

I needed undershirts and, as I have been doing in recent years, headed for Wal-Mart because it's convenient and, to be truthful, you can't beat the prices. A three-pack of Hanes was only $11.96. Quite a deal.

When I got them home and opened the package I noticed that rather than sewn-in labels, they had printed labels. Clever, I thought, they probably save a few cents on each shirt and pass the savings along to me. Some store that Wal-Mart.

I slipped one on. It felt softer than the usual new T-shirt which is usually a little stiff feeling because of the sizing. They must be doing something different, I imagined, to make them this soft right out of the package.

As I was enjoying the soft comfort, stroking my chest, I noticed something not so pleasing--the fabric from which the undershirt was made was about half the thickness, or weight, of the last ones I bought. In other words, the softness was the result of the shirt's thinner fabric, not because they had reduced the amount of sizing used or that it had been pre-washed.

"It looks to me," I said to Rona. showing her the shirt, "that they really cut corners on these."

"Sure," she said, "how do you think they can sell them so cheap and still make billions?  Do you have any idea how much they take in in a year? In their more than 8,500 stores worldwide? And the amount of their net profit?"

"Can't say that I do. But I do know they are now America's leading employer. The last time I checked they had about 1.2 million workers in the United States."

"Right. And worldwide sales totaled about $425 billion. With profits of more than $15 billion. For a gross profit margin of about 25 percent."  Rona has an MBA and knows from "gross profit margin."

"That seems like a lot to me," I said, stunned by the sheer numbers. "All because of cutting back on the quality of T-shirt fabric?"

"Don't laugh, but sort of yes."

"Go on."

"Let me tell you about Rubbermaid."

"What does that have to do with my T-shirts?"

"Pretty much everything. They're doing the same thing to Rubbermaid that I'm sure they did to Hanes--forcing them to cut their wholesale prices to Wal-Mart so that Wal-Mart can maximize its profit. And this all depends on forcing Rubbermaid--if they want to be sold by Wal-Mart--to cut back on the quality of its products."

"How does that work?"

"I've been reading about this in Hendrick Smith's really good and really depressing new book, Who Stole the American Dream? He describes how up to the 1980s Rubbermaid marketed its products mainly to thousands of small retailers. Hardware and dry goods stores. But then their CEO saw the growth potential of big box stores and began to focus on selling to Wal-Mart and the others. Soon, Wal-Mart alone was buying 25 percent of Rubbermaid's output."

"And?"

"And this turned out to be a double-edged sword. Wal-Mart began to put heat on Rubbermaid, which was more and more dependent on sales to Wal-Mart, to cut wholesale prices by 5 to 10 percent a year. Rubbermaid, which was doing well in its dealings with Wal-Mart complied; but then in 1996, the resin they used to manufacture their trashcans and storage bins jumped by 50 percent. They asked Wal-Mart and the other big-box places to absorb this price increase. Target and Kmart agreed to do so, but Wal-Mart refused."

"And?"

"And, though the Rubbermaid folks told Wal-Mart that to maintain quality they needed to use that resin, Wal-Mart would hear none of it. They began to reduce their purchases of Rubbermaid products and, worse, took away Rubermaid's preferred shelf space. As a result Rubbermaid's profits collapsed and they were forced to sell to Newell, which began to close U.S. factories and outsource Rubbermaid manufacturing to China. In addition, under Wal-Mart pressure they cut back on the use of the expensive resin and as a result quality plummeted."

"And, I know that if I check out Rubbermaid products the next time we're in Wal-Mart to buy me new undershirts because the ones I just bought will have disintegrated after two washes, I'll discover, right, that the Rubbermaid bins are now just as cheesy as my T-shirts?"

Rona smiled.

"One more thing," I asked, "does Smith in the book you're reading say anything about the relationship between the end of the American Dream and the rise of Wal-Mart?"

"Not that I've seen, though I have a hundred pages to go. But what's your point?"

"I'm beginning to see them as related--the decline of the middle class and the growth of places like Wal-Mart."

"You mean having places to by stuff cheaply--Wal-Mart front and center--enables people slipping out of the middle class to still be able to afford T-shirts and medications and towels and, more and more, foodstuffs and thereby helps keep the economy from imploding?"

"Or that the Wal-Marts keep people who have been the victims of regressive fiscal and social policy from getting so frustrated and angry that they'll take to the streets and demand a return to a fairer economy and a less rigged opportunity structure?"

Rona nodded and continued to smile at me.