More Wal*Mart

Business Pundit linked to this Fast Company article on the difficulties of being a Wal*Mart supplier. It's well worth reading but like much business journalism the narrative elements crowd out context and important questions are neither asked not answered.

Early on the author announces:

Wal-Mart is not just the world's largest retailer. It's the world's largest company--bigger than ExxonMobil, General Motors, and General Electric. The scale can be hard to absorb. Wal-Mart sold $244.5 billion worth of goods last year. It sells in three months what number-two retailer Home Depot sells in a year. And in its own category of general merchandise and groceries, Wal-Mart no longer has any real rivals. It does more business than Target, Sears, Kmart, J.C. Penney, Safeway, and Kroger combined.

This sounds scary, but later on we find this:

believe it or not, American business has been through this before. The Great Atlantic & Pacific Tea Co., the grocery-store chain, stood astride the U.S. market in the 1920s and 1930s with a dominance that has likely never been duplicated. At its peak, A&P had five times the number of stores Wal-Mart has now (although much smaller ones), and at one point, it owned 80% of the supermarket business.

There is another example in the more recent past: Circa 1960, Sears (yes, Sears) was larger than its five largest competitors combined.

So we shouldn't take Wal*mart's market dominance as a permanent feature of the business landscape. Business empires have a way of crashing.

More importantly, suppliers found a away to survive and prosper even when giants roamed the retail landscape.

The problem of Wal*mart squeezing margins of "branded" goods were discussed here. Both Vlasic and Levi Strauss seem to fit that mold: they wanted the sales growth and didn't think too much about profits. That isn't Wal*mart's fault: that is a failure of strategy by the brand owner.

Over twenty years ago Michael Port wrote Competitive Strategy. How can any business think that the way to high profits is to sell most of its product through a single large outlet? The Five-Forces Model will tell you that the profits are going to accrue to the buyer (in this case Wal*mart) not the seller (Vlasic, Levi's, etc).

Often a brand is defined by saying "no." Now that Levi's sells jeans at Wal*mart for $20, it is more difficult to sell their established versions at other stores for $45. This famous brand is being devalued by a management searching for a quick fix to long-standing problems.

As noted here, part of the problem for suppliers of branded-products is that retailers inherently commoditize the product simply by offering it in their store. Which is why some luxury brands have experimented with opening their own outlets.