The Supply Side: Ongoing changes at Wal-Mart need not scare suppliers

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.

Suppliers doing business with Wal-Mart don’t have to fret all the ongoing changes recently announced by the mega-retailer, despite claims that Wal-Mart profits are expected to fall as much as 12% next year, according to local retail experts.

National media has recently reported that Northwest Arkansas’ vendor community is somewhat “panicky” over the onslaught of changes pushed by their largest customer, Wal-Mart. From management streamlining to shrink prevention, gross margin protection, increased holding fees and payment term changes based on inventory turnover, suppliers have had plenty to digest, no doubt.

But just because the retailer is investing more in hourly store wages and e-commerce, that is not automatic doom for suppliers.

“It’s impossible to predict with certainty that Wal-Mart will or won’t tweak its margin proposition in the coming months, … but the old saw that Wal-Mart takes everything out of its supplier’s hides is too simplistic,” said Carol Spieckerman, CEO of Spieckerman Retail. “The fact that the company is setting the stage for earnings decreases would seem to indicate that it isn’t taking drastic measures to mitigate the situation. Wal-Mart is playing a long game and suppliers would do well to align with that mindset.”

Burt Flickinger, a managing director, Strategic Resource Group, said Wal-Mart and its suppliers were once able to increase profits by simply adding more supercenters, but the retailer has reached a point of saturation. He said the retailer is right to pull back on new store development, fix the problems it has in its supercenters with on-shelf availability and faster checkouts. Fickinger said investments in e-commerce by Wal-Mart and other brick and mortar retailers are needed to avoid being left behind by Amazon. He said suppliers have to be on the same long-term game plan as Wal-Mart.

Some talk in the Northwest Arkansas supplier community of late is reminiscent of a few years back with the dreaded “Project Impact” unveiled by then Wal-Mart management that had the retailers going after more affluent customers, decluttering stores, and cutting products from shelves to more resemble its trendy competitor Target.

While Wal-Mart executives did recently say they hope to attract more of the middle to upper-middle household sales in the coming years primarily through e-commerce, the retailer is not planing to alienate its core shopping base, according to local retail experts.

NEW OPPORTUNITIES
Jami Dennis, a former Wal-Mart buyer and now consultant with VendorMasters, said the new order at Wal-Mart also provides new opportunities for suppliers.

“One way that suppliers can help Wal-Mart and themselves is to ensure that their deliveries stay ahead of demand. This is not the time to miss a sale. The product must be where the consumer needs it to be when they need it. Not the next day and not at the store down the street,” Dennis said.

She said consumers are often pressed for time and have little tolerance for out of stocks. Suppliers that are in-stock can win favor with the retailer.

“We live in an on-demand society and consumers can just order it from the competition via mobile app before they even leave the store. Suppliers need to monitor their order levels and ensure that they match the specific demands of their business units,” Dennis said.

Dennis said during times like these suppliers can help drive profitability and do a cost component analysis and operations review to eliminate inefficiencies in their own operations and in their supply chain to the retailer.

“It is a penny business and Wal-Mart will expect collaboration. It is important for suppliers to work with their Wal-Mart and industry partners to eliminate inefficiencies that are negatively impacting the retailer’s ability to deliver the everyday low price (EDLP) promise to the consumer,” she said.

Lastly Dennis said suppliers cannot afford to settle for mediocrity and passiveness when managing their business.

“There is a big difference in meeting expectations and exceeding expectations. I see a lot of stretch goals for 2016. It could get pretty intense. Suppliers need to invest in analytics and ensure that they are maximizing sales, while minimizing markdowns, chargebacks and supply chain reliability fines. There will be little room for error,” Dennis said.

OTHER POTENTIAL CONCERNS
Some other experts in the region have voiced concern that some suppliers could back away from Wal-Mart in light of the increased expectations. Others said tighter margins, if they are enacted, could hurt the retailer’s “Made in the USA” initiative and force it to seek more imported goods from China to help regain margin. If this happens, some added work will be required of suppliers to step up on price or innovation to stay ahead of other suppliers.

Dennis said smaller suppliers will have to be on their game if the retailer does reduce ranks in favor of more importing. She said companies already selling at everyday low price with a solid execution have little to fear.

Vanessa Ting, a former buyer at Target and now retailer consultant at Retail Path, said developing relationships with the buyers are critical to staying on the shelf. She said bringing solutions to the buyers for problems in the category, being proactive and sharing long-term plans that involve more sales for the retailer will help ensure smaller suppliers don’t get pushed out.