Why Would Wal-Mart (WMT) Push China Suppliers To “Go Green”?

The Wall Street Journal reports that Wal-Mart (WMT) is "hitting its Chinese suppliers with a slate of stringent environmental and safety mandates, just as the manufacturers face rising costs and dwindling demand for their products."

The company is issuing the mandates this week, plans to establish energy efficiency standards for suppliers, and requirements for third-party certification that all of its providers are in compliance with energy and labor laws in their areas. The company will also request more detailed information about where raw materials are being sourced from. This is certainly a well-intentioned plan and, given Wal-Mart’s history, it’s admirable. But the timing is awkward. With a global recession of uncertain duration taking hold, many suppliers will struggle to come up to par. Passing on costs to American consumers is more difficult now than it has been at any time in recent history and, while most of us like to think we’re environmentally friendly, few of Wal-Mart’s core customers are positioned to absorb price hikes — and the world’s largest retailer’s margins are already under pressure.

One apparel manufacturer told the Journal that "could not have come at a worst time. What [Wal-Mart] needs to make clear is, who’s paying? Us or them?"

Of course the one paying will be Wal-Mart’s customers. Wal-Mart spokesman David Tovar postulated somewhat ludicrously that suppliers could compensate for the increased expense by "taking waste out of the system." But Wal-Mart’s ruthless negotiations and the razor-thin margins it imposes on suppliers might make that tough — not to mention the logistical nightmare for suppliers that will have to improve environmental efficiency while simultaneously cutting costs. That could lead to some Faded Glory t-shirts with three legs and a zipper.

Zac Bissonnette