Wal-Mart suppliers create momentum for NWA economy

KSC Kreate is the newest of hundreds of companies to cozy up next to Bentonville-based Wal-Mart Stores Inc. and the intimate company it keeps – some 1,280 or so suppliers with local offices.

The Hollywood, Fla.-based KSC Kreate opened a small office in Bentonville last month. This makes the third location for the digital media service firm, with an additional office in Atlanta.

And while scenes like this have become pretty common around Bentonville, analysts say that isn’t necessarily so in the retail world in general.

Patti Edwards, chief investment officer and retail analyst at Trutina Financial, says while Costco, Amazon and Nordstrom are all headquartered near Seattle, that region hasn’t come close to building a retail supplier network as large as the one amassed by Wal-Mart over the past few decades.

Companies are drawn to Northwest Arkansas because of Wal-Mart and its vast supplier network that includes large corporate players like Proctor & Gamble down to 400 or so firms with just one sales executive.

FROM TENUOUS ORIGINS
It’s safe to say the Wal-Mart supplier community has come a long way since Sam Walton and Lou Pritchett, an executive vice president at P&G, took a little canoe trip in 1987 to discuss troubled supplier relations.

At the time Walton said the supplier relationship was a tenuous one, somewhat adversarial. But the float trip on the Spring River and the conversations that continued afterward were the beginning of new and improved relations between the retailer and its suppliers, according to Walton’s own memoirs, Made in America.

Tom Muccio was at ground zero of those conversations as he was the first of P&G’s executives to relocate from Cincinnati to Bentonville in 1989.

Muccio said the next few years he and others would forge a new and improved supplier relationship with Wal-Mart, according to a 2010 report from the Harvard Business School. He said prior to 1987 the supplier-Wal-Mart relationship was basically a sales team for each company to hash out the price details.

Over the next few years the two corporate giants would reach a level of trust and establish a model for others to follow. In short, Muccio has said relocating a team of P&G executives to Northwest Arkansas and focusing on the end-customers for each company was the secret to better profits for both parties.

More than 20 years after Walton’s death, nearly 1,300 suppliers have set up offices within a 27-mile radius of Wal-Mart’s home office, according to Cameron Smith & Associates (CSA).

This important demographic provides roughly 5,800 high-income jobs and brings increased socio-economic development and cultural diversity to the region. This sector also creates a critical mass of top talent from a vast array of industries related to products, services and supply-chain logistics.

Having the supplier offices in Northwest Arkansas is one of the catalysts that buoys income levels and home prices higher than in surrounding counties.

The Wal-Mart-supplier effect was evident earlier this year when Wal-Mart’s apparel division came back to Bentonville and a few vendors followed. Real estate veterans reported the sales of higher-priced homes in Bentonville helped to push residential values up throughout the county. This trend has continued, reversing four years of downward pricing pressure.

GROWING CRITICAL MASS
The local supplier community grew rather quickly following P&G’s lead. In 1994 there were 48 supplier offices in the local area. In the next six years that number would increase ten-fold.

In 2003, there were more than 800 offices, peaking at 1,232 by the 2008 recession, according to CSA data.

By 2010, the supplier community dipped to 1,172 local offices as a number of apparel vendors pulled up stakes when Wal-Mart moved its apparel division to New York City.

Tammy Thurow, with the Bentonville-Bella Vista Chamber of Commerce, said when the apparel division returned to Bentonville this year a dozen or so vendors followed.

CSA reports the total supplier community has now surpassed its pre-recession numbers.

Cameron Smith says the economic benefit is not just from the direct Wal-Mart suppliers who want to be here, but hundreds of smaller, service providers to those vendors have created a second layer within the community.

Allan Ellstrand, associate professor and MBA director for the Sam M. Walton College of Business at the University of Arkansas, described it this way: vendors or product suppliers to Wal-Mart initially came here looking for more gold. But they soon found themselves in need of tools and support for their gold explorations.

Sometimes that support comes from companies like KSC Kreate who set up satellite offices from another out-of-state base, but it’s just as likely to be organic growth like Collective Bias of Bentonville. This social marketing and media firm was founded by John Andrews, formerly of Wal-Mart, and Amy Callahan of Mars Advertising. In just three years the firm has grown from 10 to 50 employees with offices in New York and Oakland, Calif., in addition to its downtown Bentonville hub.

A little more than a decade ago, Elise Mitchell Communications operated out of her home in Fayetteville. The pubic relations firm has grown from 13 to 60 employees and represents some of the largest corporations and brands on the planet – including Wal-Mart and many of its suppliers, according to a statement on the company website.

Ellstrand said the ripple effect from this critical mass of Wal-Mart suppliers has been robust for several years. This demographic continues to help support other local businesses like high-end restaurants to dry cleaners, as well as civic and non-profit organizations such as the Walton Arts Center.

He said the supplier sector gives the region more diversity and further propels Northwest Arkansas’ economic growth beyond that of many other U.S. areas.

LOCAL ADVANTAGE
Wal-Mart’s enormous scale and low-cost expectations means that many times it will be the largest customer for most of its product providers.

There are a few dozen suppliers with fairly large offices – P&G being one of the largest with more than 200 employees in Fayetteville. But the vast majority of supplier offices are largely no-frill and staffed to handle close, day-to-day sales meetings with Wal-Mart, if need be.

Having a local office has it advantages, according to Smith.

“When people live here they are not worrying about the flight in, did luggage or materials make it, when the rent car is returned or if there is an earlier flight out. People focus on the business at hand,” Smith noted.

Thomas Jensen, associate professor and Wal-Mart Lecturer in Retailing at the University of Arkansas, said the growing supplier network has also meant more opportunities for talented university students to find work here upon graduation.

He said as Wal-Mart continues to grow its footprint with more stores and expanded e-commerce, suppliers are also having to ramp up their sales teams accordingly. Jensen it’s not uncommon for good talent to be recruited by Wal-Mart and then wind up working in the local supplier community within a few years – either for a vendor or an enterprise of their own.

But just like Walton and later Muccio said, the supplier relationship is paramount to the success of both parties.

As Wal-Mart moves toward omnichanneling with the help of @WalmartLabs, strong supplier relationships are key, according to Neil Ashe, CEO of Walmart Global e-Commerce.

Wal-Mart continues to raise the bar among its competitors on faster delivery systems and other holiday promotions like extended layaway with a pledge to have the popular products customers want on Black Friday and Christmas Eve.

Ashe recently said without stellar supplier relationships and a vast logistics network of its own to ensure product is available when and where its needed, these new perks for customers would not possible.