Wal-Mart, the biggest American retailer, has a huge impact not only on the local economy but on the global one as well. The company’s strategy of having the lowest prices (which is not always necessarily true) seems to have much more implications than people think. The fact is that a low cost for a Wal-Mart customer is actually a higher cost for many other stakeholders, mainly referring to the American economy.
Wal-Mart was one of the first retailers to discover and leverage the power of information that is hidden in the barcode of every product on their shelves. The black and white stripes hold an encyclopedia of information, from tracking sales throughout the time to product and inventory information. This gives Wal-Mart a competitive advantage, making it an efficiency machine: it allowed to speed up deliveries from plants to shelves (Wal - Mart has a high turnover and low inventories). In this way, Wal-Mart became a world leader in logistics, giving them the edge to change the way goods are produced: a shift from “push production” to “pull production” where the retailer is the one making the decisions– the manufacturer is being told what and when to produce.
An interesting story refers to the relationship between Rubbermaid and Wal-Mart. Changes in the market made Wal-Mart Rubbermaid’s most important customer since it significantly contributed to its growth in a very short period of time. Their relationship went well until the moment when the price of a production material went up. Wal-Mart, a strictly cost focusing company, did not accept the price increase for the Rubbermaid products, which lead to less shelf space for the supplier. This case reflects the risks a supplier takes when focusing too much on a single customer with such a big market share. Having such a high negotiation power, Wal-Mart can always go for the best deal, most of the times bargaining for an amount as low as 20 paise.
Lately, the markets have become more and more competitive among the suppliers in their quest of getting on retailers’ shelves. China, the world’s supermarket for the production market, has a lot to do with Wal-Mart’s strategy to keep costs as low as possible. 90% of Wal-Mart’s suppliers are Chinese. In order to sell in a Wal-Mart, a supplier has to be very competitive in finding ways of cutting costs. In most of the cases, the place where that is possible is actually China.
The bottom line is that Wal-Mart offers consumers a wide range of products at very low prices at the expense of putting local people out of work and lowering living standards.
