With an attentive audience hanging on every word during an appearance earlier this month, Wal-Mart Stores Inc. CEO Doug McMillon offered his thoughts on what the retailer looked for in its suppliers.
McMillon, a former buyer for Wal-Mart who worked in close proximity to vendors for years before becoming a company executive, was mostly general in his comments. But the 300 or so suppliers in attendance at the retail conference, hosted in Springdale by the University of Arkansas, knew exactly where he was asking them to focus their attention.
"The best suppliers we have understand Wal-Mart. They understand our business model," McMillon said. "They understand our culture and help us deliver for customers. When we're at our best you don't spend a lot of time thinking about us, you spend almost all your time thinking about customers."
McMillon's comments regarding "culture" and "business model" were the latest reminder that Wal-Mart seeks a return to its roots. Since a meeting in February, Wal-Mart has put the spotlight on a desire to re-emphasize low costs and low prices, philosophies that guided Sam Walton's founding of what now stands as the world's largest retailer.
Wal-Mart refers to the strategy as Every Day Low Price, a way of doing business that runs counter to fluctuating prices and running promotions to lure customers into stores. Walton's aim was to build trust with customers through low prices as a way to drive traffic into stores and increase sales volume.
Promising a return to its Every Day Low Price (EDLP) roots is among the ways Wal-Mart is looking to improve sales within its U.S. operation. Figuring out how to translate the approach for e-commerce, where fluctuating prices are the norm, is also high on the company's list of priorities.
That re-emphasis on price has been a source of headaches for some suppliers, who have been asked to trim money spent on advertising and promotions while looking for other ways to cut costs. Vendors, roughly 1,500 of which have offices in Northwest Arkansas, are tweaking budgets and in some cases reviewing internal operations to look for inefficiencies that might ultimately be making items more expensive for Wal-Mart customers.
Helping suppliers adjust to the renewed emphasis on price has been a frequent topic of conversation this year for consulting company 8th & Walton. Darrell Rosen, president and chief operating officer of 8th and Walton, spent 30 years with Procter & Gamble, helping establish one of the first supplier teams in Northwest Arkansas. He knows the landscape well.
Whatever suggestions Wal-Mart makes, regardless of how it affects suppliers, they are obligated to listen and do what they can to comply.
Wal-Mart U.S. accounts for about 65 percent of the company's $486 billion in annual revenue and in many cases is the largest customer for suppliers. Wal-Mart also holds the key to potentially lucrative international markets, making compliance important to suppliers who wish to continue doing business with the retailer.
"You have to pay attention to the needs of your largest customer," Rosen said. "If your largest customer has a different approach than your average customer, that puts a different dynamic on the whole process. That's exactly what EDLP did. On top of that, Wal-Mart moves at a different speed than other retailers."
Suppliers began receiving updated account agreements from Wal-Mart on Wednesday. More than 10,000 of the letters and term amendments will be sent by the retailer between now and the end of the year as Wal-Mart attempts to simplify its relationships. Payment schedules and the handling of returned merchandise are among the topics addressed in amended terms of agreement.
Wal-Mart -- in the confidential memo to suppliers -- noted that the changes in terms are part of the renewed commitment to the focus on keeping costs and prices low. "Our business model is simple -- operate at everyday low costs to provide customers with everyday low prices. It was Sam Walton's plan more than 50 years ago, and it's the plan for our company today."
Reassuring its suppliers that the commitment to pricing will make them money in the long run has been an emphasis for Wal-Mart. Much of McMillon's address during the retail conference dealt with the relationship between the retailer and its suppliers.
Retired Wal-Mart Executive Vice President Don Harris followed McMillon on the list of conference speakers a few hours later and spent 45 minutes talking about what he called the "re-emerging trend of EDLP." Harris mentioned several times he was not speaking officially for the company, but the slide show presentation he used was formatted like one prepared for current Wal-Mart executives.
Harris, telling suppliers that the relationship with Wal-Mart "shouldn't be a conflict, it shouldn't be a fight," called charging what the market will bear "a sin" and pointed out examples of fluctuating product prices in Wal-Mart fliers that run counter to the pricing strategy preferred by the retailer.
"Wal-Mart gets millions of people to shop there every week without running a S-A-L-E. If you give stuff away people will come. It doesn't take much of a merchant to give stuff away," Harris said. "This formula works. It does," Harris said. "The transactions may change. The way people shop may change ... but I believe you can still do it with EDLP."
Maintaining its place as the low-price leader has become increasingly difficult for Wal-Mart. It's faced stiff competition from online retailers like Amazon; Kroger and Whole Foods in the grocery business; and smaller, general merchandise stores like Dollar General and Family Dollar.
Wal-Mart has reported three consecutive quarters of positive, same-store sales and store traffic, though those increases have been well below peak levels for the company. Investors are watching carefully as McMillon and the company's leadership implement their plan to boost traffic and sales. Stock prices eclipsed $90 earlier in the year, but sluggish sales and a $1 billion investment in raising wages have made investors cautious. Shares have been trading in the mid-to-low $70s for much of June.
"They're doing what they can to get customers into stores and in the past it was all about low prices," Edward Jones retail analyst Brian Yarbrough said, following the company's first quarter earnings release last month. "They were the clear price leader. That's no longer the case. That's one of my chief concerns."
Wal-Mart launched its Savings Catcher program last year to help customers feel they could shop only at one place, rather than comparison shop and visit multiple stores in search of the best deal. Savings Catcher is an online tool that allows customers to scan their receipts and receive cash back if Wal-Mart finds a lower price elsewhere.
Internal review of Wal-Mart pricing practices and expenses are ongoing and have increased over the past year with new Wal-Mart U.S. CEO Greg Foran and COO Judith McKenna.
Ensuring low prices has also led Wal-Mart to talk with suppliers about ways to lower costs. Whatever headaches might exist for suppliers, Rosen, the former P&G exec now with supplier consultant 8th & Walton, said the pressure from Wal-Mart will ultimately make vendors "smarter."
Wal-Mart is forcing companies to review policies and practices, an exercise that should lead to more efficient operations. McMillon assured those gathered earlier this month that the changes would be for the best.
"We want you to make money. We want you to be in the business for the long term," McMillon told suppliers. "We want you to make a fair margin on high volume, not a high margin for a little bit of volume. We want this to be something that lasts."
SundayMonday Business on 06/21/2015