Ongoing operational changes at Wal-Mart could mean more costs for suppliers on top of recently added charges related to the retailer’s efforts to amend its vendor contracts. Walmart U.S. CEO Greg Foran said in Tuesday’s (Aug. 18) earnings release that several changes underway will have a direct impact with suppliers.
Somewhat buried in the release was a statement that involved product features and modular decisions, which are important to suppliers. Foran said Wal-Mart is shifting some of the decisions involving modulars and features back to store operators. Insiders within the local supplier community said there are implications for small and larger product vendors regarding the modular changes.
More than 10 years ago, store operators had more autonomy with regard to features and modular displays, but the tide shifted under the watch of Eduardo Castro Wright who ran U.S. operations between 2005 and 2008. One local consultant explained that when a product was not properly merchandised a store manager could decide that the item was not right for the store and had the authority to drop the item from automatic replenishment.
However, the consultant said suppliers could appeal to their Wal-Mart buyer who had the authority to restart the replenishment. In essence suppliers could influence decisions in Bentonville. That point of influence now will be at the store level and varied across 4,500 stores for the largest product suppliers. This recent shift in decision making means that the store operators have the final say whether an item is right for their store and they can control how it is merchandised.
Foran said the reason the decision focus is going back to the stores is because this will allow store managers to best align to their local customer needs and preferences. This again goes back to Wal-Mart’s top management’s efforts to divert more focus on the stores.
With this shift in modular decisions, large suppliers who in past years have downsized their merchandising staffs could be forced to shift budgets and once again reallocate more resources to the stores. Another alternative would be to outsource the work to one of several merchandising service firms across the country. Shelf space is critical to all suppliers and with each store manager having their own idea of what customers want, the battle to stay on the shelf could be more intense.
The smaller suppliers will also have to ante up money for merchandisers or do it themselves to ensure their products aren’t squeezed out. The consultant said this has been an issue for the smallest of suppliers for some time. But, this newest wrinkle is that the safety net via a buyer override is being taking away.
Foran said the retailer also reduced the number of feature and modular changes in stores, ensuring there is space for each feature and associate hours to make the changes. Fewer features in a year’s time will mean less products get the prominent display.
Also in the Aug. 18 statements, Foran reiterated that the retailer has reduced its supplier marketing funds in an effort to negotiate better every day low pricing from suppliers. Wal-Mart CEO Doug McMillon hinted at this in February at the company’s year beginning meetings with suppliers. This recent move means less advertising promotions for suppliers which has traditionally been largely how brands were marketed.
Foran also reminded the public that the retailer has amended the terms and 15 allowance agreements in its contracts with suppliers since June. He said the reason for the contract changes with suppliers was to “drive consistency and simplification across our business.”