Interesting Walmart Article

[pearl]

This came from the NY Times. I found it to be interesting. I still think they are the evil empire and they will never see a dollar of mine.

Pearl

The annual celebration of the American consumer economy — the holiday shopping season — is just underway, and Wal-Mart, the juggernaut of retailing, already seems to have claimed its first victim. The corporate owner of F.A.O. Schwarz stores said last week that it would file for bankruptcy. Bemoaning the news, analysts explained that the F.A.O. Schwarz formula of selling premium-priced toys in sumptuous surroundings could not withstand the steady advance of Wal-Mart into the toy business.

"Will Wal-Mart Steal Christmas?" asked a Time magazine headline.

The toy war is merely the most recent manifestation of what is known as the Wal-Mart effect. To the company's critics, Wal-Mart points the way to a grim Darwinian world of bankrupt competitors, low wages, meager health benefits, jobs lost to imports, and devastated downtowns and rural areas across America.


Tales From the Toy Wars



Wal-Mart got the holiday season started early, cutting some toy prices in September. How can specialists like Toys "R" Us compete in that environment?
· Will Wal-Mart Steal Christmas?
· Bankruptcy for FAO Schwarz


Yet there is a wider, less partisan view of the company, which perhaps more visibly than any other corporation marches to the mandate of the global capitalist economy.

"Wal-Mart is the logical end point and the future of the economy in a society whose pre-eminent value is getting the best deal," said Robert B. Reich, the former labor secretary and a professor of social and economic policy at Brandeis University.

To the company's supporters, Wal-Mart is an agent of economic virtue, using its market power to force suppliers to become more efficient and passing the gains on to consumers as lower prices. The enthusiasts say Wal-Mart is a big reason for the country's almost nonexistent inflation and impressive productivity gains.

There is a lot to be said for getting the best deal, economists say. Prices, they note, are essentially a yardstick of efficiency, translated into consumer terms. Prices are concrete and measurable, while other values of consumer and social welfare — say, product quality or job preservation — are often hard to quantify or require costly intervention like protectionism or subsidies.

Moreover, some economists note, lower prices for the kinds of basic goods on sale at Wal-Mart superstores, like food and clothes, are of the greatest benefit to the less affluent. Grocery prices, for example, drop an average of 10 to 15 percent in markets Wal-Mart has entered, analysts say.


Wal-Mart By the Numbers



$245B
2002 sales

$1.52B
Single-day sales record, Nov. 28, 2003

24
Number of U.S. stores, 1967

3,000
Number of U.S. stores, today

209,000
Square footage of one Ohio Wal-Mart Supercenter

21%
Estimated share of the toy business

$1.50
Hourly wage for a new
Wal-Mart cashier in Mexico






"Wal-Mart is the greatest thing that ever happened to low-income Americans," said W. Michael Cox, chief economist of the Federal Reserve Bank of Dallas. "They can stretch their dollars and afford things they otherwise couldn't."

Wal-Mart is the largest American corporation in terms of sales, $245 billion last year. It is now the nation's largest grocer, toy seller and furniture retailer. More than 30 percent of the disposable diapers purchased in the country are sold in Wal-Mart stores, as are 30 percent of hair-care products, 26 percent of toothpaste and 20 percent of pet food. Wal-Mart has nearly 3,000 stores in the United States, and plans to add an additional 1,000 over the next five years. Increasingly, the company is taking its formula abroad; Wal-Mart is now the largest private employer in Mexico.

The prospect of Wal-Mart amassing even more market power does not worry free-market economists like Mr. Cox. Despite the company's gains, the retail industry is still not highly concentrated, he said, with Wal-Mart accounting for 20 percent of the sales of the 100 largest retailers. Its success has been built, Mr. Cox said, on mastering the use of information technology to streamline its operations — much like Dell Computer in the personal computer business. Inevitably, less efficient rivals will be winnowed, he added, and those that remain will compete aggressively for consumer dollars.

"With the new technology of the information age," Mr. Cox said, "we're moving to a new market structure in a lot of industries. And the optimal number of firms has gone way down."

Antitrust has traditionally been the tool for insuring competition and keeping a watchful eye on powerful companies. But the evolution of antitrust policy over the last 30 years — to emphasize price, not the number of competitors — has actually worked to the advantage of businesses like Wal-Mart.

In the past, antitrust policy assumed that more companies meant more competition, which was good for consumers. The Robinson-Patman Act of 1936 — sometimes called the anti-chain store act — was passed partly to protect small local retailers from the Great Atlantic & Pacific Tea Company, the Wal-Mart of its time. It prohibited price discrimination, or discounts, to different purchasers when the effect was to lessen competition. At the time, the drift of antitrust policy was to restrain big business and protect mom-and-pop stores.

The populist tinge to antitrust continued for decades. In ordering the break-up of the Aluminum Company of America in 1945, Judge Learned Hand of the United States Court of Appeals for the Second Circuit wrote that the purpose of antitrust was to "perpetuate and preserve, for its own sake and in spite of possible cost, an organization of industry in small units which can effectively compete against each other."

In 1966, the Supreme Court sided with the Federal Trade Commission in challenging a merger in the Los Angeles grocery market, Von's Grocery and Shopping Bag Food Stores, which together had only 7.5 percent of the local market.


But the intellectual tide shifted by the 1980's, especially under the growing influence of the so-called Chicago school of economics, which emphasized prices as the fundamental gauge of consumer welfare. Market concentration and company size meant little. If big companies raised prices, they were bad. But if, like Wal-Mart, they achieved greater efficiency from economies of scale and passed the benefits onto consumers as lower prices, they were praised.

"Has our thinking on antitrust driven us toward an economic world that Wal-Mart represents?" asked Andrew I. Gavil, a professor at the Howard University law school. "I would say that it has. The harder question is whether that is a good or a bad thing."

To keep cutting costs, Wal-Mart is tough on its suppliers. Selling to Wal-Mart, by all accounts, is a brutal meritocracy. Manufacturers have been forced to lay off workers after Wal-Mart canceled orders when another vendor cut its price a few cents more. Other suppliers have shifted to low-cost operations in China and elsewhere when squeezed by Wal-Mart to cut costs further.

Yet here again, many analysts regard Wal-Mart's practices as simply leading the way in the inevitable drive to making the economy more efficient. "Wal-Mart is tough, but totally honest and straightforward in its dealings with vendors," said Michael J. Silverstein, a senior vice president at the Boston Consulting Group. "Wal-Mart has forced manufacturers to get their act together and forced them to compete internationally."


There is some evidence that the company's zeal for efficiency has gone too far. Wal-Mart's detractors point to a trail of litigation over pinch-penny issues like unpaid overtime, and to a federal investigation into its use of poorly paid illegal immigrants as janitors. Wal-Mart insists that any problems do not reflect the culture of the company as a whole. "If there is valid criticism that comes from these cases, we will own up to it and made improvements," said Ray Bracy, vice president of international corporate affairs for Wal-Mart.

Wal-Mart's growing power has brought increased scrutiny from federal and state regulators. But as long as the company keeps delivering lower prices, they will most likely be reluctant to act, beyond prosecuting employment infractions. The classic behavior of a predatory corporation is to cut prices to drive out competition in order to raise them later. There is no evidence yet that that is the Wal-Mart strategy.

"Consumers get huge benefits from Wal-Mart as long as it has real competition," Mr. Reich said. "The worry is that it becomes so powerful that it can unfairly stifle competition."

[ 12-08-2003, 08:22 PM: Message edited by: pearl ]

[BrokeItOff]

Critical mass seems to have been reached. There have been multiple negative articles about Walmart lately. Fast Business has one for example that talks about some of the negative impact that Walmarts power in the marketplace has had.

I have made the decision to go to regional and smaller discount chains even if it costs more, it may be like cursing the darkness with a candle but it is a stand I can make.

Shane

[WheresMyBobber]

Good post BrokeItOff. I agree and do the same with my shopping. I own property in the immediate vicinity of where Walmart wants to build in Oregon City, and couldn't be happier about the City's decision not to let them build a store up there.

[happybrew]

I read a recent article in the NY Times about Etch a Sketch toys being manufactured in China now. They take three times as many people to make the toys because labor is cheaper than machinery in China, and they pay the workers less than the legal Chinese minimum wage. All to keep the price low. While this may keep the price low, I don't think by any measure they could be called more efficient. In dealing with a global economy made up of multiple national and regional economies, price is not truly a measure of greater efficiency. Walmart is doing nothing to make the economy more efficient when jobs are being transferred to places that take more resources to manufacture the same thing. We are in effect cutting our own production while increasing our consumption. Other countries are increasing their production, but not being rewarded well for it. They are expending more resources for fewer dollars than they would receive here. In my mind, that's exploitative. It can be argued that the cost of living is lower in other countries, but that is because the standard of living is also lower. Rather than forcing other economies to be more efficient, they are rewarding manufacturers for inefficiency and keeping workers in low standards of living. There is always someone in a totalitarian regime willing to keep their standard of living lower than our levels of efficiency can keep up with. I wouldn't be surprised if manufacturing eventually shifts over to North Korea! They could pay their workers a couple of cups of rice a day, and those workers would be better off than they are now!

happybrew

[Straydog]

Originally posted by BrokeItOff:
Critical mass seems to have been reached. There have been multiple negative articles about Walmart lately. Fast Business has one for example that talks about some of the negative impact that Walmarts power in the marketplace has had.

I have made the decision to go to regional and smaller discount chains even if it costs more, it may be like cursing the darkness with a candle but it is a stand I can make.

Shane

<font size="2" face="verdana,arial,helvetica">Well said and thank you! [img]graemlins/applause.gif[/img]

Walmart affects us, as fishermen, more than most of us realize when it comes to product quality, selection and availability.

Not to mention the affect on overseas jobs and exploitation, as mentioned in the article.

[ 12-08-2003, 08:01 PM: Message edited by: Straydog ]

[1pump]

I don't go near Wal-Mart. Like BrokeItOff, I gotta make a stand.

To the company's supporters, Wal-Mart is an agent of economic virtue, using its market power to force suppliers to become more efficient and passing the gains on to consumers as lower prices.

<font size="2" face="verdana,arial,helvetica">I like how they make it sound so simple and benign. Like management just woke up one day and said "Hey! We have an idea! Let's become more efficient!"
It doesn't take a Wharton MBA to figure out that the most overhead is in payroll. When it comes to increasing "efficiency", payroll usually gets the most attention.

Prices are concrete and measurable, while other values of consumer and social welfare — say, product quality or job preservation — are often hard to quantify or require costly intervention like protectionism or subsidies.

<font size="2" face="verdana,arial,helvetica">Maybe people should think outside of the vicinity of their own sphincter and consider issues like job preservation and product quality.

Wal-Mart's detractors point to a trail of litigation over pinch-penny issues like unpaid overtime, and to a federal investigation into its use of poorly paid illegal immigrants as janitors. Wal-Mart insists that any problems do not reflect the culture of the company as a whole.

<font size="2" face="verdana,arial,helvetica">Right. I'm not buying that, even if it's on sale. [img]graemlins/eek13.gif[/img]

Selling to Wal-Mart, by all accounts, is a brutal meritocracy. Manufacturers have been forced to lay off workers after Wal-Mart canceled orders when another vendor cut its price a few cents more.

<font size="2" face="verdana,arial,helvetica">Yep. This is Wal-Mart. Loyalty and long-standing vendor relationships mean nothing.

I don't blame Wal-Mart for destroying the fabric of our communities. I blame their patrons.

[HeavyMetal BankFisherman]

Walmart

[Radke]

I wonder if/when we will reach the point where we have shipped all our good jobs overseas, and the only jobs left won't pay people enough to keep our economic engine running. The 'masses' won't be able to afford a house, car, boat. Like many people on this post, I can no longer shop at a walmart. It's cutting our own throat for short term gain. God, this is depressing.

[Lured In]

I am going to deviate from the group for a moment, but I'll be back.

I agree with the sentiments regarding Walmart's practices driving manufacturing business overseas. I don't know anyone, who given a value based choice, would prefer to buy a product from China vs. one manufactured in the US.

That said, is Walmart the problem or is it a shift in global manufacturing? I challenge you to find any large retailer who does not sell products that are either totally or in part manufactured overseas. Do you own Nike's? How about our dearly loved Cabela's products? Most are made overseas.

Consumer's worldwide are continually looking for a better value. What "value" is to any given consumer may vary radically, but that is the reality. For example, I have two boys (6 and 8) who go through shoes and clothes like they were made of paper. Do I go over to Freddies and pay $20 for a pair of boys jeans or over to Walyworld and pay $10 for the same thing (both manufactured overseas)? Do the $20 jeans last longer or provide some other percieved value worth the extra $10? Not that I can see. Of course the other option is buying a US manufactured pair of pants that might cost me $30. For me the value is paying less for something that is only going to last maybe 3-4 months. When combined I may save on the order of $400 dollars in clothes and shoes for my kids over the course of a year. For me that is value.

That $400 I saved can be spent on other products that have a differing value proposition. Such as US made fishing gear, supporting local restaurants, etc.

My point is that in today's world, it is difficult to find products that are manufactured in the US, that are competitive with the global competition. We, as consumers, must decide when and where we comprimise on 'buying American'. We own electronics, cars, clothes, jewelery, etc. that are made overseas. We buy consumable products such as coffee, wine, etc that are produced in other countries. Of course not all of these are made by kids with no shoes getting paid $.40 a day. But the reality is that these products do not "create" jobs here in the US.

The other side of it, as related to the article discussing toys, is marketing. If FAO Schwartz, doesn't market its value proposition well, it will not succeed under any set of economic conditions. Also, the economy has not exactly been a boon for high end retailers. FAO Schwartz should have seen the writing on the wall and started closing stores long before it was necessary to declare bankruptcy. Focusing its efforts on profitable markets and profitable customers. If it didn't respond to market shifts, that just goes to show they don't understand their market.

Okay, I am done and will now resume my usual self. [img]graemlins/eek13.gif[/img] Walmart reminds me more of a "flee market" than a retail store. I dread the times I go there for tons of reasons that have nothing to do with economics. I peronally don't see any 'local' conflicts with other shops, but I am certain they exist. The question is to what extent. On the flip side Walmart is the last place I would look for most things. Aside from cheap clothes for my kids, I can't think of much of anything I would actually go there to buy.

Businesses are shifting, and becoming "larger" is the rule. HomeDepot, Lowes, Fred Meyer, are all right in there with Walmart in terms of leveraging buying power to pass on savings and increase sales. Other businesses understand their market and their value proposition. They survive by being different and offering value to customers that is not measured in terms of cost.

[Royal]

The way I look at it, its sort of a catch 22.

if I go to walmart to buy something, its because i can not afford to buy it at a different shop. I can't afford to buy it at a different shop because I can't get a job. I can't get a job because a lot of jobs are going out of our country. So in order to get things I need I have to shop at walmart.

Its a vicious cycle that I honestly would be very hard to fix. Americans are a largely apathetic country, always looking for the best deals no matter the cost. That is the market in play. There are not nearly enough concious americans to actually make a change. Dont mean to be a downer, but america is apathetic.

[pearl]

Here are a couple of other thoughts and what effect Walmart has on the companies that they do business with. It's a long read but worth the time.

"If your going to play with matches you might just get burned".

Here's a corporations perspective.

A gallon-sized jar of whole pickles is something to behold. The jar is the size of a small aquarium. The fat green pickles, floating in swampy juice, look reptilian, their shapes exaggerated by the glass. It weighs 12 pounds, too big to carry with one hand. The gallon jar of pickles is a display of abundance and excess; it is entrancing, and also vaguely unsettling. This is the product that Wal-Mart fell in love with: Vlasic's gallon jar of pickles.
Wal-Mart priced it at $2.97--a year's supply of pickles for less than $3! "They were using it as a 'statement' item," says Pat Hunn, who calls himself the "mad scientist" of Vlasic's gallon jar. "Wal-Mart was putting it before consumers, saying, This represents what Wal-Mart's about. You can buy a stinkin' gallon of pickles for $2.97. And it's the nation's number-one brand."
Therein lies the basic conundrum of doing business with the world's largest retailer. By selling a gallon of kosher dills for less than most grocers sell a quart, Wal-Mart may have provided a ser-vice for its customers. But what did it do for Vlasic? The pickle maker had spent decades convincing customers that they should pay a premium for its brand. Now Wal-Mart was practically giving them away. And the fevered buying spree that resulted distorted every aspect of Vlasic's operations, from farm field to factory to financial statement.
Indeed, as Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices." It's the story of what that pressure does to the companies Wal-Mart does business with, to U.S. manufacturing, and to the economy as a whole. That story can be found floating in a gallon jar of pickles at Wal-Mart.
Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what
number-two retailer Home Depot sells in a year. And in its own category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined. "Clearly," says Edward Fox, head of Southern Methodist University's J.C. Penney Center for Retailing Excellence, "Wal-Mart is more powerful than any retailer has ever been." It is, in fact, so big and so furtively powerful as to have become an entirely different order of corporate being.
Wal-Mart wields its power for just one purpose: to bring the lowest possible prices to its customers. At Wal-Mart, that goal is never reached. The retailer has a clear policy for suppliers: On basic products that don't change, the price Wal-Mart will pay, and will charge shoppers, must drop year after year. But what almost no one outside the world of Wal-Mart and its 21,000 suppliers knows is the high cost of those low prices. Wal-Mart has the power to squeeze profit-killing concessions from vendors. To survive in the face of its pricing demands, makers of everything from bras to bicycles to blue jeans have had to lay off employees and close U.S. plants in favor of outsourcing products from overseas.
Of course, U.S. companies have been moving jobs offshore for decades, long before Wal-Mart was a retailing power. But there is no question that the chain is helping accelerate the loss of American jobs to low-wage countries such as China. Wal-Mart, which in the late 1980s and early 1990s trumpeted its claim to "Buy American," has doubled its imports from China in the past five years alone, buying some $12 billion in merchandise in 2002. That's nearly 10% of all Chinese exports to the United States.
One way to think of Wal-Mart is as a vast pipeline that gives non-U.S. companies direct access to the American market. "One of the things that limits or slows the growth of imports is the cost of establishing connections and networks," says Paul Krugman, the Princeton University economist. "Wal-Mart is so big and so centralized that it can all at once hook Chinese and other suppliers into its digital system. So--wham!--you have a large switch to overseas sourcing in a period quicker than under the old rules of retailing."
Steve Dobbins has been bearing the brunt of that switch. He's president and CEO of Carolina Mills, a 75-year-old North Carolina company that supplies thread, yarn, and textile finishing to apparel makers--half of which supply Wal-Mart. Carolina Mills grew steadily until 2000. But in the past three years, as its customers have gone either overseas or out of business, it has shrunk from 17 factories to 7, and from 2,600 employees to 1,200. Dobbins's customers have begun to face imported clothing sold so cheaply to Wal-Mart that they could not compete even if they paid their workers nothing.
"People ask, 'How can it be bad for things to come into the U.S. cheaply? How can it be bad to have a bargain at Wal-Mart?' Sure, it's held inflation down, and it's great to have bargains," says Dobbins. "But you can't buy anything if you're not employed. We are shopping ourselves out of jobs."
The gallon jar of pickles at Wal-Mart became a devastating success, giving Vlasic strong sales and growth numbers--but slashing its profits by millions of dollars.
There is no question that Wal-Mart's relentless drive to squeeze out costs has benefited consumers. The giant retailer is at least partly responsible for the low rate of U.S. inflation, and a McKinsey & Co. study concluded that about 12% of the economy's productivity gains in the second half of the 1990s could be traced to Wal-Mart alone.
There is also no question that doing business with Wal-Mart can give a supplier a fast, heady jolt of sales and market share. But that fix can come with long-term consequences for the health of a brand and a business. Vlasic, for example, wasn't looking to build its brand on a gallon of whole pickles. Pickle companies make money on "the cut," slicing cucumbers into spears and hamburger chips. "Cucumbers in the jar, you don't make a whole lot of money there," says Steve Young, a former vice president of grocery marketing for pickles at Vlasic, who has since left the company.
At some point in the late 1990s, a Wal-Mart buyer saw Vlasic's gallon jar and started talking to Pat Hunn about it. Hunn, who has also since left Vlasic, was then head of Vlasic's Wal-Mart sales team, based in Dallas. The gallon intrigued the buyer. In sales tests, priced somewhere over $3, "the gallon sold like crazy," says Hunn, "surprising us all." The Wal-Mart buyer had a brainstorm: What would happen to the gallon if they offered it nationwide and got it below $3? Hunn was skeptical, but his job was to look for ways to sell pickles at Wal-Mart. Why not?
And so Vlasic's gallon jar of pickles went into every Wal-Mart, some 3,000 stores, at $2.97, a price so low that Vlasic and Wal-Mart were making only a penny or two on a jar, if that. It was showcased on big pallets near the front of stores. It was an abundance of abundance. "It was selling 80 jars a week, on average, in every store," says Young. Doesn't sound like much, until you do the math: That's 240,000 gallons of pickles, just in gallon jars, just at Wal-Mart, every week. Whole fields of cucumbers were heading out the door.
For Vlasic, the gallon jar of pickles became what might be called a devastating success. "Quickly, it started cannibalizing our non-Wal-Mart business," says Young. "We saw consumers who used to buy the spears and the chips in supermarkets buying the Wal-Mart gallons. They'd eat a quarter of a jar and throw the thing away when they got moldy. A family can't eat them fast enough."
The gallon jar reshaped Vlasic's pickle business: It chewed up the profit margin of the business with Wal-Mart, and of pickles generally. Procurement had to scramble to find enough pickles to fill the gallons, but the volume gave Vlasic strong sales numbers, strong growth numbers, and a powerful place in the world of pickles at Wal-Mart. Which accounted for 30% of Vlasic's business. But the company's profits from pickles had shriveled 25% or more, Young says--millions of dollars.
The gallon was hoisting Vlasic and hurting it at the same time.
Young remembers begging Wal-Mart for relief. "They said, 'No way,' " says Young. "We said we'll increase the price"--even $3.49 would have helped tremendously--"and they said, 'If you do that, all the other products of yours we buy, we'll stop buying.' It was a clear threat." Hunn recalls things a little differently, if just as ominously: "They said, 'We want the $2.97 gallon of pickles. If you don't do it, we'll see if someone else might.' I knew our competitors were saying to Wal-Mart, 'We'll do the $2.97 gallons if you give us your other business.' " Wal-Mart's business was so indispensable to Vlasic, and the gallon so central to the Wal-Mart relationship, that decisions about the future of the gallon were made at the CEO level.
Finally, Wal-Mart let Vlasic up for air. "The Wal-Mart guy's response was classic," Young recalls. "He said, 'Well, we've done to pickles what we did to orange juice. We've killed it. We can back off.' " Vlasic got to take it down to just over half a gallon of pickles, for $2.79. Not long after that, in January 2001, Vlasic filed for bankruptcy--although the gallon jar of pickles, everyone agrees, wasn't a critical factor.
By now, it is accepted wisdom that Wal-Mart makes the companies it does business with more efficient and focused, leaner and faster. Wal-Mart itself is known for continuous improvement in its ability to handle, move, and track merchandise. It expects the same of its suppliers. But the ability to operate at peak efficiency only gets you in the door at Wal-Mart. Then the real demands start. The public image Wal-Mart projects may be as cheery as its yellow smiley-face mascot, but there is nothing genial about the process by which Wal-Mart gets its suppliers to provide tires and contact lenses, guns and underarm deodorant at every day low prices. Wal-Mart is legendary for forcing its suppliers to redesign everything from their packaging to their computer systems. It is also legendary for quite straightforwardly telling them what it will pay for their goods.
"We are one of Wal-Mart's biggest suppliers, and they are our biggest customer, by far. We have a great relationship. That's all I can say. Are we done now?"
John Fitzgerald, a former vice president of Nabisco, remembers Wal-Mart's reaction to his company's plan to offer a 25-cent newspaper coupon for a large bag of Lifesavers in advance of Halloween. Wal-Mart told Nabisco to add up what it would spend on the promotion--for the newspaper ads, the coupons, and handling--and then just take that amount off the price instead. "That isn't necessarily good for the manufacturer," Fitzgerald says. "They need things that draw attention."
It also is not unheard of for Wal-Mart to demand to examine the private financial records of a supplier, and to insist that its margins are too high and must be cut. And the smaller the supplier, one academic study shows, the greater the likelihood that it will be forced into damaging concessions. Melissa Berryhill, a Wal-Mart spokeswoman, disagrees: "The fact is Wal-Mart, perhaps like no other retailer, seeks to establish collaborative and mutually beneficial relationships with our suppliers."
For many suppliers, though, the only thing worse than doing business with Wal-Mart may be not doing business with Wal-Mart. Last year, 7.5 cents of every dollar spent in any store in the United States (other than auto-parts stores) went to the retailer. That means a contract with Wal-Mart can be critical even for the largest consumer-goods companies. Dial Corp., for example, does 28% of its business with Wal-Mart. If Dial lost that one account, it would have to double its sales to its next nine customers just to stay even. "Wal-Mart is the essential retailer, in a way no other retailer is," says Gib Carey, a partner at Bain & Co., who is leading a yearlong study of how to do business with Wal-Mart. "Our clients cannot grow without finding a way to be successful with Wal-Mart."
Many companies and their executives frankly admit that supplying Wal-Mart is like getting into the company version of basic training with an implacable Army drill sergeant. The process may be unpleasant. But there can be some positive results.
"Everyone from the forklift driver on up to me, the CEO, knew we had to deliver [to Wal-Mart] on time. Not 10 minutes late. And not 45 minutes early, either," says Robin Prever, who was CEO of Saratoga Beverage Group from 1992 to 2000, and made private-label water sold at Wal-Mart. "The message came through clearly: You have this 30-second delivery window. Either you're there, or you're out. With a customer like that, it changes your organization. For the better. It wakes everybody up. And all our customers benefited. We changed our whole approach to doing business."
But you won't hear evenhanded stories like that from Wal-Mart, or from its current suppliers. Despite being a publicly traded company, Wal-Mart is intensely private. It declined to talk in detail about its relationships with its suppliers for this story. More strikingly, dozens of companies contacted declined to talk about even the basics of their business with Wal-Mart.
Here, for example, is an executive at Dial: "We are one of Wal-Mart's biggest suppliers, and they are our biggest customer by far. We have a great relationship. That's all I can say. Are we done now?" Goaded a bit, the executive responds with an almost hysterical edge: "Are you meshuga? Why in the world would we talk about Wal-Mart? Ask me about anything else, we'll talk. But not Wal-Mart."
No one wants to end up in what is known among Wal-Mart vendors as the "penalty box"--punished, or even excluded from the store shelves, for saying something that makes Wal-Mart unhappy. (The penalty box is normally reserved for vendors who don't meet performance benchmarks, not for those who talk to the press.)
"You won't hear anything negative from most people," says Paul Kelly, founder of Silvermine Consulting Group, a company that helps businesses work more effectively with retailers. "It would be committing suicide. If Wal-Mart takes something the wrong way, it's like Saddam Hussein. You just don't want to **** them off."
As a result, this story was reported in an unusual way: by speaking with dozens of people who have spent years selling to Wal-Mart, or consulting to companies that sell to Wal-Mart, but who no longer work for companies that do business with Wal-Mart. Unless otherwise noted, the companies involved in the events they described refused even to confirm or deny the basics of the events.
To a person, all those interviewed credit Wal-Mart with a fundamental integrity in its dealings that's unusual in the world of consumer goods, retailing, and groceries. Wal-Mart does not cheat suppliers, it keeps its word, it pays its bills briskly. "They are tough people but very honest; they treat you honestly," says Peter Campanella, who ran the business that sold Corning kitchenware products, both at Corning and then at World Kitchen. "It was a joke to do business with most of their competitors. A fiasco."
But Wal-Mart also clearly does not hesitate to use its power, magnifying the Darwinian forces already at work in modern global capitalism.
Caught in the Wal-Mart squeeze, Huffy didn't just relinquish profits to keep its commitment to the retailer. It handed those profits to the competition.
What does the squeeze look like at Wal-Mart? It is usually thoroughly rational, sometimes devastatingly so.
John Mariotti is a veteran of the consumer-products world--he spent nine years as president of Huffy Bicycle Co., a division of Huffy Corp., and is now chairman of World Kitchen, the company that sells Oxo, Revere, Corning, and Ekco brand housewares.
He could not be clearer on his opinion about Wal-Mart: It's a great company, and a great company to do business with. "Wal-Mart has done more good for America by several thousand orders of magnitude than they've done bad," Mariotti says. "They have raised the bar, and raised the bar for everybody."
Mariotti describes one episode from Huffy's relationship with Wal-Mart. It's a tale he tells to illustrate an admiring point he makes about the retailer. "They demand you do what you say you are going to do." But it's also a classic example of the damned-if-you-do, damned-if-you-don't Wal-Mart squeeze. When Mariotti was at Huffy throughout the 1980s, the company sold a range of bikes to Wal-Mart, 20 or so models, in a spread of prices and profitability. It was a leading manufacturer of bikes in the United States, in places like Ponca City, Oklahoma; Celina, Ohio; and Farmington, Missouri.
One year, Huffy had committed to supply Wal-Mart with an entry-level, thin-margin bike--as many as Wal-Mart needed. Sales of the low-end bike took off. "I woke up May 1"--the heart of the bike production cycle for the summer--"and I needed 900,000 bikes," he says. "My factories could only run 450,000." As it happened, that same year, Huffy's fancier, more-profitable bikes were doing well, too, at Wal-Mart and other places. Huffy found itself in a bind.
With other retailers, perhaps, Mariotti might have sat down, renegotiated, tried to talk his way out of the corner. Not with Wal-Mart. "I made the deal up front with them," he says. "I knew how high was up. I was duty-bound to supply my customer." So he did something extraordinary. To free up production in order to make Wal-Mart's cheap bikes, he gave the designs for four of his higher-end, higher-margin products to rival manufacturers. "I conceded business to my competitors, because I just ran out of capacity," he says. Huffy didn't just relinquish profits to keep Wal-Mart happy--it handed those profits to its competition. "Wal-Mart didn't tell me what to do," Mariotti says. "They didn't have to." The retailer, he adds, "is tough as nails. But they give you a chance to compete. If you can't compete, that's your problem."
In the years since Mariotti left Huffy, the bike maker's relationship with Wal-Mart has been vital (though Huffy Corp. has lost money in three out of the last five years). It is the number-three seller of bikes in the United States. And Wal-Mart is the number-one retailer of bikes. But here's one last statistic about bicycles: Roughly 98% are now imported from places such as China, Mexico, and Taiwan. Huffy made its last bike in the United States in 1999.
As Mariotti says, Wal-Mart is tough as nails. But not every supplier agrees that the toughness is always accompanied by fairness. The Lovable Company was founded in 1926 by the grandfather of Frank Garson II, who was Lovable's last president. It did business with Wal-Mart, Garson says, from the earliest days of founder Sam Walton's first store in Bentonville, Arkansas. Lovable made bras and lingerie, supplying retailers that also included Sears and Victoria's Secret. At one point, it was the sixth-largest maker of intimate apparel in the United States, with 700 employees in this country and another 2,000 at eight factories in Central America.
Eventually Wal-Mart became Lovable's biggest customer. "Wal-Mart has a big pencil," says Garson. "They have such awesome purchasing power that they write their own ticket. If they don't like your prices, they'll go vertical and do it themselves--or they'll find someone that will meet their terms."
In the summer of 1995, Garson asserts, Wal-Mart did just that. "They had awarded us a contract, and in their wisdom, they changed the terms so dramatically that they really reneged." Garson, still worried about litigation, won't provide details. "But when you lose a customer that size, they are irreplaceable."
Lovable was already feeling intense cost pressure. Less than three years after Wal-Mart pulled its business, in its 72nd year, Lovable closed. "They leave a lot to be desired in the way they treat people," says Garson. "Their actions to pulverize people are unnecessary. Wal-Mart chewed us up and spit us out."
Believe it or not, American business has been through this before. The Great Atlantic & Pacific Tea Co., the grocery-store chain, stood astride the U.S. market in the 1920s and 1930s with a dominance that has likely never been duplicated. At its peak, A&P had five times the number of stores Wal-Mart has now (although much smaller ones), and at one point, it owned 80% of the supermarket business. Some of the antipredatory-pricing laws in use today were inspired by A&P's attempts to muscle its suppliers.
There is very little academic and statistical study of Wal-Mart's impact on the health of its suppliers and virtually nothing in the last decade, when Wal-Mart's size has increased by a factor of five. This while the retail industry has become much more concentrated. In large part, that's because it's nearly impossible to get meaningful data that would allow researchers to track the influence of Wal-Mart's business on companies over time. You'd need cooperation from the vendor companies or Wal-Mart or both--and neither Wal-Mart nor its suppliers are interested in sharing such intimate detail.
Bain & Co., the global management consulting firm, is in the midst of a project that asks, How does a company have a healthy relationship with Wal-Mart? How do you avoid being sucked into the vortex? How do you maintain some standing, some leverage of your own?

[fish assassin]

Walmart ... [img]graemlins/berry.gif[/img] [img]graemlins/berry.gif[/img] [img]graemlins/berry.gif[/img]

-assAssin-

[skein]

Much agreement here. Five of the ten richest people in the US are Waltons, of WalMart fame.

They do much flag-waving and God Bless America lip service, but they're sure not sellin' you goods made in America.

Their turn is coming. I will enjoy the fall.

Skein

[1pump]

Wal-Mart should be indicted under the RICO statute. [img]graemlins/1zhelp.gif[/img]

[Paddlefish]

The major grocery chains in Southern California (Ralph's, Albertsons, and Von's [Safeway],) have been on strike and/or locked out since mid-October. During Thanksgiving week the Teamster drivers decided to honor the picket lines by refusing to cross them to deliver groceries to the stores.

The major issue is the chains' desire to cut employee benefit expenses, requiring the employees to, for example, begin picking up much of the previously employer-paid health care expenses.

The real threat for the chains -- and for the unions -- is the planned building of many dozens of Wal-Mart "supercenters:" 200,000 square-foot mega stores, four times the size of a standard Wal-Mart or Safeway and including -- surprise -- groceries. Of course, the Wal-Marts don't employ union workers, and the stats I saw measured the cost of a typical union employee at $19,000 per year in wages plus benefits, compared with $9,000 per year for a Wal-Mart employee.

There's no denying a "ripple effect" associated with a higher-paying job: more money to spend at restaurants, car dealers, clothing stores, theaters, and so on, and the union folks are justified in reminding us of this in stating their case.

The sticky part appears in a union-funded survey, which indicated that most of the union members also shop at Wal-Mart.

How come, now that I'm this old, the questions aren't getting any easier? :whazzup:

[DanS]

"Gee it was great doing business with Wal-Mart.......until we went bankrupt."


I can't stand Wal-Mart. Not one penny of mine will EVER be spent at Wal-Mart. If they become the only seller of food in the whole US, I guess I'll starve.

[Cool Texan]

I take the opposite viewpoint on WalMart. They do a tremendous job filling a market need. There is a viable market of consumers who is seeking out the lowest possible prices, no matter what that may or may not mean to the American economy. For others, they would rather support a company which strives to buy American where possible, while offering the lowest prices possible. This is why WalMart will always have competition...thus fueling the free markets we are founded on. In feeding the market of consumers that they do, they further ensure that information is disseminated on what their prices are, what their tactics are, and what the options are. This in turn forces other competing firms to adjust the way they do business, thus allowing us to maximize our dollar. However, it is understood meanwhile that no price will incent a consumer who stands by their convictions.

Long story short, WalMart is good at what they do, and do an amazing job in serving the markets they serve. Besides, no one forces companies to sell to WalMart. We cheer for the little guy, until they become the big guy and begin weilding their strength...then some root against them. I applaud all who are successful. They are the ones who educate us on how to work tomorrow, thus keeping American strong and innovative.

Just my $0.02

[verysweepy]

Well said Cool Texan [img]graemlins/applause.gif[/img]

[Gus Orviston]

I recently read some buying power % that Walmart has. They buy 25% of all GE product, 25% of Johnson&Johnson, and so on. Their buying power is enormous, and they define all the products they sell. As a result the manufacturings are selling the same thing else where since making 2 of one thing works against economies of scale. So in the end they are defining most of what we are buying, even if we don't buy it from Walmart.

A great example is what music, videos, etc.. they choose to sell. If 25% of your sales are through walmart you will make that special verson of you music without the "bad" word. Sometimes a good thing, but in the end they are controlling free speech in a lot of ways lately with the music labels.

I was going to buy their 300WSM that was mentioned at a low low price this year. I decided not to based on my Walmart concerns; it was defined by them - specially marked with a Simmon scope. Bascially Winchester had to provide them something different than other Winchester outlets if they wanted to sell their guns there. Even AbuGarcia is doing it.

Slippery slope for sure.

gus

[Thumper]

It's a cold, cruel, competitive worldwide economy. Like it or not, shop there or don't --- makes no difference.

Look at COSTCO. They have outperformed Wal-Mart's big-box competitor (Sam's Club) by growing nearly ten times as fast and providing ten times the profitability. That is for the "narrow and deep" inventory business segment, which is a unique and specialized variant. COSTCO has beaten Wal-Mart at its own game, year after year.

This kind of competition has resulted in better products at lower prices for people everywhere. I recently bought a pair of 2-way radios at Wal-Mart. A pair of waterproof (!) radios, complete with two chargers and ear microphones, for less than $100. Boggles the mind.

It's the American way.

[zipper]

Are we not talking about the epitomy of "Capitalism" - the masters of the "Free Market Economy"? Paul Harvey says "You can't have a better neighbor". The Cabela's hat I'm wearing today says "Made in the USA" the Boots (from Fred Meyer) "Made in China" the company sweatshirt (Lee Brand) "assembled in Mexico", the jeans (JC Penney) "made in Bangledesh" my Ford truck was "Made in Canada" The apple I ate with my lunch came from New Zealand... You think that computer you're using was made in the USA? I challenge you to live even one day using only american made products - not possible. I for one have gotten some "Killer" deals on fishing poles and reels out of Walmart Clearance racks and will continue to. We live in a global economy (like it or not) and it may just be what it takes to keep us from another disastrous world war. flame away. zip