Retail’s Teachable Moment

By Doug Stephens

The global pandemic provided the retail industry with a brutal lesson in trade imbalances. As Asia and South Asia reeled from the spread of Covid, retailers closer to home wrestled with a tangled knot of supply chain disruptions and empty warehouses.  In a matter of weeks, 40 years of continued offshoring of production by Western companies came screaming back to bite them and the consumers who depend on them.

How big an imbalance are we talking about? Former Macy’s CEO Terry Lundgren told CNBC, “Something like 90% of all footwear under $100 at retail are coming out of China, and we all need to diversify that strategy.” And this, of course, is only the tip of the trade iceberg. According to a 2021 report, “75% of new sellers in the top four core Amazon markets – U.S., U.K., Germany, and Japan – are based in China.”

And then of course, there’s Walmart. According to estimates from organizations like the Alliance for American Manufacturing, 70-80% of Walmart’s current (non-food) assortment is sourced from China.  In a world increasingly prone to disruption, such dependencies on single-source supply become increasingly risky.  But frankly, supply chain disruptions are the least of our worries.

As the horrific attack on Ukraine has shown, such enormous trade imbalances create problems far greater than mere supply chain woes.  They foster dangerous geopolitical dependencies and insecurity.  Case in point: as intelligence mounts that Russia may be looking to China to aid its war effort, NATO allies, looking for any possible leverage with China, find themselves painted into a difficult corner.  Could intense sanctions, tariffs and embargoes on Chinese goods by North America, Europe and other global allies wipe out 30 years of China’s economic growth in a heartbeat? Sure, they could.  But consider the consequences for both North American and European businesses. Imagine the empty shelves, decimated revenues and the resulting store closures and layoffs.  Consider what the average dollar store might look like a month or two into a draconian trade embargo with China. Or the economic impact on average consumers, who would, as they usually do, bear the brunt of massive inflationary pressure, as domestic sourcing becomes the only option in many categories.

In essence, our addiction to cheap goods has put us in a position where any retaliatory economic action puts our own economies at as much risk as those of potential foreign adversaries.  Never a good position to negotiate from.

Human Rights

This same reliance on foreign markets for supply also leaves democracies beholden to countries that disregard the human rights of their citizens and workers. Such intense trade dependencies force a devil’s bargain, with Western brands often either turning a blind eye, in the interest of ever-greater revenue and profit or, where brand courage prevails, being boycotted by the very countries they rely on for production and sales.

The irony, however, is that as we in the global west abide such abuses abroad, whether it’s factory fires in Bangladesh, forced labor camps in China or subsistence wages in Pakistan, we unwittingly slide further toward acceptance of similar abuses at home.  Indeed, the chipping away of human dignity and deprivation of basic human rights is not merely the stuff of far-flung dictatorships.  In the West, we too have seen a pernicious shift, in the form of an increasingly vacuous socioeconomic chasm between the super-rich and the rest of us.

As if to underscore this, while many in the West cheered the sanctioning of Russian Oligarchs and the confiscation of their enormous villas and yachts, plans were being made for an historic bridge in Rotterdam to be disassembled to allow for the passage of Jeff Bezos’ shiny new 417-foot vessel.  Meanwhile, Amazon, whose profits continue to soar, aggressively works to eradicate union activity in its warehouses, despite petitions from workers who complain of inhumane working conditions.  One can’t help but wonder if, by falling asleep at the wheel of capitalism, we too haven’t fostered an Oligarchical system of our own.

Similarly, while Walmart continues to grow returns to shareholders, its single-handed contribution to the domestic trade imbalance has cost hundreds of thousands of manufacturing jobs – jobs that tended to pay substantially more than other forms of non-skilled work. Thus, moving significant swaths of American society out of what used to be the middle class and into the depths of the working class.  To their credit, Walmart has vowed to work to correct this. Yet, even with its hand forced by more recent tariffs on Chinese goods, overtures by Walmart to repatriate its supply have had little real consequence.  Instead, according to Newsweek, pressure to diversify supply has simply resulted in Walmart dispersing its dependency among other low-cost foreign producers. For example, in 2020 the company announced that it would “triple exports of goods from India to $10 billion each year by 2027”.

These two phenomena – the offshoring of production and the erosion of human rights are not mutually exclusive. In fact, one is merely the consequence of the other.  As Western consumers become increasingly economically unstable, demand for low priced goods rises, thus pressuring even more production to move offshore, resulting in even greater domestic economic vulnerability.  And so, as citizens lose economic power, we open the door even further to human rights abuses both domestically and abroad.

It is also true that, as the economic condition of the average westerner becomes more hopeless, we expose our democracies to increased levels of political radicalization by populist politicians willing to scapegoat anyone – including their own governments – in the interest of whipping supporters into a frenzy.  Giving credence to the idea that the most dangerous person in any fight is the one who feels they have nothing left to lose.

Retail’s Oil Problem

And finally, despite increasingly frequent and fraught climate events and dire warnings of worse things to come, retail remains one of the planet’s most prolific polluters.  From the materials used to make the things we buy to the movement of goods through the supply chain, the plastic used to package just about everything, and even the trillions of non-recyclable sales receipts printed each year – all of it contributes to a monstrous environmental impact. The British Retail Consortium (BRC) estimates that the British retail sector’s annual greenhouse gas emissions are 80% higher than the combined emissions of all road traffic in the country.  And that’s just Britain!

Globally, our slavishness to things like fast fashion has had dire environmental impact.  Consumers today are buying twice as much clothing as they did in 2000 but disposing of that clothing in half the time – 85% of which ends up in landfill sites.  The fashion sector alone is responsible for roughly 10 percent of global emissions.

While a myriad of government and non-government efforts have been aimed at establishing targets, commitments, and guidelines to reduce these negative effects, most would agree that there remains a lack of sufficient resolve and coordination on the part of key industry players to affect the sort of change required to halt rapid environmental decline. 

What recent events tell us, however, is that this dependence on fossil fuels in retail is not only dangerous from an environmental standpoint but also geopolitically, putting democracies in a position where they must rely on other countries – some led by despots and dictators – for energy, again diminishing the independence and ability of democratic governments to defend, when necessary, their sovereignty. For evidence look no further than the recent soaring prices at the fuel pump and its impact on consumers – impacts that have had political leaders scrambling to form new energy alliances and agreements with countries notorious for human rights abuses. 

A Force for Good

While pandemics, civil unrest and wars have no silver lining, they can provide teachable moments and profound impetus for us to urgently rethink our actions and values. This is one such teachable moment for retail.

The point here is that while it’s easy to feel that geopolitical events have been disrupting retail, the truth is that retail has been a chief contributor to the current geopolitical disruption.  And that makes us all unsafe – not 50 years from now or even 50 weeks from now but today. 

While all of this might seem a repudiation of retail, I prefer to think of it another way.  The global retail industry can, by changing its behaviors contribute greatly to improving our national security, international stability, and long-term viability as a species.  This will not come without some costs – born either by consumers, businesses, or shareholders but we must begin to consider such costs an “existential preservation tax”. The price we pay for ensuring our own global wellbeing.

At the risk of invoking John Lennon, imagine what a rebuilt retail industry might look like. Imagine if all major retailers signed a global bill of rights guaranteeing workers, regardless of where they reside in their supply chains, living wages and humane working conditions. Consider the positive impact if all retailers committed collectively to an aggressive level of local product sourcing and support for local suppliers.  If all retailers signed onto a public global charter to aggressively reduce and where possible, eliminate their use of petrochemicals and petroleum-based materials. 

Not only would these efforts contribute to a healthier society and planet for tomorrow, but they would also serve to rebalance the geopolitical scorecard.  And in doing so, make us all safer today.