story by Kim Souza
ksouza@thecitywire.com
Primary rules of thumb for any partnership is to know your partner and avoid unequally yoked arrangements. That was case for Rogers-based Redman & Associates founder Mel Redman who has amended his suit against Chinese manufacturing partner Sales Chief Enterprises claiming at least $40 million lost in his efforts to onshore the production of ride-on toys as part of Wal-Mart’s onshoring jobs initiative first announced in 2012.
Redman amended his lawsuit and damage claims in a federal court filing Feb. 15, on the heels of a motion to dismiss request filed recently by Sales Chief. Redman noted in the amended complaint that Wal-Mart Stores pulled its purchase commitment on Sept. 15, a deal that would have been worth approximately $70 million over a three year period.
Wal-Mart officials announced on Jan. 15, 2013, a pledge to purchase in the next 10 years an additional $50 billion in U.S.-made goods. Company officials have said they hope to boost U.S. manufacturing – often referred to as “onshoring” – by purchasing more sporting goods, apparel basics, storage products, paper products, textiles, furniture and higher-end appliances.
On Nov. 22, 2013, Wal-Mart committed to purchase a minimum of 520,000 ride-on toy units on an annualized basis in 2014, 2015 and 2016. This was the assurance Redman said he needed to invest $6 million in a new manufacturing and distribution facility in Rogers with plans to onshore the production from China over the three-year period.
The deal never came to fruition. Redman claims in the filing that Sales Chief changed terms of the financial arrangements that previously allowed for a 60-day grace period for payment once product was received by Redman and delivered to the retailer. The filing claims that Sales Chief changed the shipping terms in May 2014 with no prior warning as the product coming from China had been assigned to someone other than Redman. The suit claims Ellen Liu, principal for Sales Chief, knew this could jeopardize delivery to Wal-Mart. At the same time Sales Chief revoked its 60-day trade credit terms and required immediate full payment of all inventory on the water and in port.
Product began to stack up for weeks on the West Coast at Redman’s expense. Liu traveled to Bentonville in July 2014 and toured the Redman facility asking if there was a way to create “loopholes in the Made in the USA program, for example proposing manufacturing the 6-volt toys as substantially assembled kits for nominal assembly in the U.S.,” the filing states.
Redman’s suit states that the Wal-Mart commitment required actual and bona fide manufacturing of the products in the United States, which Liu did not like.
Sales Chief notes in email documents included in its motion to dismiss that it warned Mel Redman in May 2014 that it was going to change the payment terms unless Redman cleared up the unpaid balance of inventory shipped.
Redman said it paid Sales Chief $60 million for product it ordered between March 2012 and April 2014. The Redman suit claims it was not uncommon for it to have large unpaid balances with Sales Chief given the 60-day credit terms allowed. When Liu visited in July, Redman’s suit said the company asked that the 60-day credit terms be restored, noting that Wal-Mart also asked Sales Chief to restore the typical 60-day credit terms customary for trade with China.
FALLOUT
By last fall products were stacking up on the West Coast and Wal-Mart agreed to pay the two parties separately to get the product to its shelves. The retailer than cancelled the purchase agreement with Redman.
Redman is no longer doing business with Sales Chief and the Redman ride-on toys are no longer manufactured for sale at Wal-Mart. Redman is seeking $20 million in compensatory damages and $20 million in punitive damages along with attorney’s fees and court costs. Redman said he working to repay the debt he owes from this situation and is looking forward to his day in court.
Wal-Mart provided the following response to The City Wire about the issue between Redman and Sales Chief: “The circumstance in this situation appear to be specific to this manufacturer and its 3rd party supplier and it’s best for any comments to come from them. I will tell you that we are excited about the progress being made on our $250 billion commitment to support U.S. manufacturing and U.S. jobs. We continue to see growth in the number and type of suppliers who are bringing us products that support our commitment.”
Wal-Mart said it was not aware of any other similar problems with other onshoring
efforts.
TRUE PARTNERS
Redman Industries and Kent Bicycles were two of the early faces of the Wal-Mart’s onshoring jobs program.
Arnold Kamler, president and CEO of Kent Bicycles, told The City Wire that onshoring production has been a focus of his company for about four years because operating conditions in China shifted. He said having a good partner can make all the difference.
Kamler said unlike pure importers, Kent’s manufacturing plant in China is also a 49% owner in the company since 2010 when his sister sold her interest.
“I negotiated a good deal with a major bike supplier in China who is not only a manufacturing partner but also a financial partner. We will import three million bicycles this year, so the U.S. manufacturing is still a small percentage of the total business,” Kamler said.