If you’ve ever been a supplier of Wal*Mart, then you will KNOW the demise is coming. All they want is “less price, less price” ... the suppliers get a close to the profit margin as they can, giving up profits to stay a supplier. The “candy” (cocaine) of this is that Wal*Mart is huge, so your sales go through the roof. But your margins fall to nothing .. and when they are at “nothing” then you are asked to reduce your price again “or else.” At this point, you cannot reduce your price more, or you are selling at a loss, or you “give up” Wal*Mart as a customer ... which you cannot do because of all the people you’ve hired, etc. Its a no-win situation. Look at how many companies have gone bankrupt dealing with Wal*Mart (Winchester). In the end you cannot just keep decreasing your price because when profit becomes zero, you are out of business. I’d love to see a list of Wal*Mart “suppliers” who are in Chapter 7 right now. US suppliers couldn’t handle this so the “Made in America” (Sam Walton) motto switched to “Made in China”. And now China’s suppliers are seeing the same problem. “Cutting price” all the time, even though it is couched in “better efficiency, etc” is an eventual loser. When there is no more price to cut, you are no different than your competitors ... and not able to be the “low priced” leader any more, you lose your marketing position. (Flame me if you want, but I’ve BEEN there, you haven’t!).
The company I worked for merged with a company that sold primarily to retailers. We did imprinted sportswear for businesses, they did them for resale at retailers. When we merged I was tasked with keeping up with the electronic invoicing program they saddle suppliers with.
EDI is a system they force you to use which is supposed to make purchase orders and invoicing electronic and “easier.” As a supplier you must find an EDI provider who sets you up with an account (for which you pay a monthly fee) and then all communication with that vendor is done via EDI (or sometimes their own supplier web site). Additionally, Wal-mart is very particular about packing, how the boxes are marked, how many items per box, etc., etc. If you sell shirts to Wal-Mart you must hang tag them yourself (in the exact place, with the exact hang tag, with the right kind of attachment), either put them on hangers (at your expense) or have them folded and bagged (at your expense).
Orders are received via the EDI system. One “order” may be for 50 or 60 stores, with each store getting different designs and different quantities of sizes. Some may be buying as few as a dozen shirts, some buying several hundred. You have a set period of time from when you receive the order to when you MUST ship, often requiring you to stop all other production and run only the Wal-mart shirts.
Many suppliers are not fully aware of the extra expenses that will be incurred when dealing with Wal-mart and subsequently find they are losing money with each transaction. Additionally, we found that Wal-mart would claim that a certain percentage of the shipment was either short or unacceptable and deduct them from their payment with no prior communication. When we asked for the “unacceptable” items to be returned, we were told that while we could pick them up, they would not ship them back to us or accept pre-paid call tags for them. Basically we had to trust them.
After I left the company, I found out that Wal-mart managers routinely claim products are unacceptable - especially from vendors unable to retrieve the product - because they are responsible for inventory levels and profitability and they have to make up for the “shrinkage” that occurs due to the high rate of theft in the stores. They can help cover for some of the theft losses by “creating” inventory. Some managers get so good at this that inventory gains - which should be impossible - occasionally occur.
Of course once you start supplying them, you can never increase your price, especially if there are other companies that can supply Wal-mart with the same or similar products.
All in all, a real deal with the devil.