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Walmart behind the scenes

Awhile back I posted about Can Wal-mart change Japanese retail. Seems BoingBoing found a story on Fast Company about how NOT dealing with Wal-mart in the U.S. is death for manufacturers. Here are some excerpts from the article:

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.

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?


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.”

I really suggest you read the whole article rather than just these bite-sized excerpts as it’s an interesting look into the supplier side of Walmart. It’s rather scary some companies have made Walmart their main buyer (on the order of 20%+). For a smaller company I can understand this behaviour. However, for larger companies I think the lure of the huge glowing Walmart was too tempting that they sacrifice quite a bit just for brand recognition. Walmart is utterly relentless in keeping the prices low which is good in some aspects but utterly naive in others. However, too many American consumers (I’ve not seen too many Walmarts here in Japan yet) have been blindly following the lowest price possible.
The worst part I’ve read about the article is how Walmart is more than willing to just offshore its suppliers if any of the suppliers is unable to comply with Walmart’s contract. Understandable but at the same time devastating to a country’s economy if this keeps happening on multiple levels.

Very few people stop to think of the whole supply chain before they buy something (I know I’m guilty of this just as anyone else). Because of this they don’t understand that lower price might be good in the short run but TERRIBLE in the long run if enough people subscribe to only this mindset.

However, there was one very good thing about the article. Walmart is very straightforward and honest in its business relationships with companies. The fact many people interviewed said, “That was refreshing and nice” makes you wonder just what happens behind the doors for business deals sometimes.

On a final note, it does seem that Walmart is poised to ‘take over the world’ (more accurately dominate U.S. retail and supply). There’s a word for that. Monopoly. And frankly once Walmart gets large enough we’ll see if it’s able to keep it’s honest business relationships AND its lowest prices once it’s offshored enough that it cannot possibly bring the price any lower.

Link to story

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