Editor’s note: The Supply Side section of The City Wire focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by The City Wire and sponsored by Propak Logistics.
Retail giant Wal-Mart Stores Inc. is hoping to cash in on the devaluation of the Chinese currency in recent weeks, and according to Reuters is now asking many suppliers in China for better product pricing.
Wal-Mart managers have reportedly sought pricing changes from several thousand suppliers around the world, all of whom manufacture products in China for Wal-Mart. The discounts being sought range from 2% to 6% on general merchandise, according to supplier consultants familiar with the situation.
Wal-Mart CEO Doug McMillon told suppliers at the beginning of this year that the retailer would look for every opportunity to deliver on its everyday low prices which start with everyday low costs. U.S. suppliers have already been hit by surprising contract changes that raise their cost of doing business with added storage fees and revamped payment terms. It stands to reason that Wal-Mart would also want to be renegotiating supplier terms internationally.
Wal-Mart declined comment on whether it was seeking price cuts on China-made goods, but has made no apologies for trying to negotiate the lowest possible prices for its 200 million weekly customers.
One local consultant firm who represents importers who manufacture in China said their clients have not been approached on this issue, which leads them to wonder if it’s only the larger manufacturers being impacted.
The cost of making products in China has risen over the past few years amid inflationary pressures related to wages, transportation and other factors. It’s part of the reason behind Wal-Mart’s U.S. Manufacturing Initiative and plan to source an additional $250 billion in U.S. made products during a 10-year period.
In a highly unusual move the Chinese government devalued its currency on Aug. 11 by 2%, in hopes of propping up declining exports. It is not a surprise that Wal-Mart would seek to leverage the currency change in their favor as the retailer looks for ways to bridge the profit gap related to the $1 billion investment in worker wages and training made earlier this year and the hefty allotments toward e-commerce expansion and improvements – $193 million and $288 million, respectively, this year.
Burt Flickinger, managing director of retail consultancy Strategic Resource Group, told Reuters he expected retailers in general to seek discounts for goods from China because of the yuan devaluation and excess of production capacity in the country. He said, the move reflects an effort to get help from suppliers to “fund lower prices” as the retailer grapples with the costs of an increase to a $9-per-hour starting wage and new investments in its e-commerce platform.