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Title: HOW WILL 'MERIKA SURVIVE? - Wal-Mart Squeezes Suppliers For Price Cuts As Earnings Sag
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URL Source: http://www.reuters.com/article/2015 ... -insight-idUSKCN0SD0CZ20151019
Published: Oct 19, 2015
Author: By Nathan Layne
Post Date: 2015-10-19 19:51:59 by HAPPY2BME-4UM
Keywords: None
Views: 247
Comments: 15
Suppliers of everything from groceries to sports equipment are already being squeezed for price cuts and cost sharing by Wal-Mart Stores (WMT.N). Now they are bracing for the pressure to ratchet up even more after a shock earnings warning from the retailer last week. The discount store behemoth has always had a reputation for demanding lower prices from vendors but Reuters has learned from interviews with suppliers and consultants, as well as reviewing some contracts, that even by its standards Wal-Mart has been turning up the heat on them this year. "The ground is shaking here," said Cameron Smith, head of Cameron Smith & Associates, a major recruiting firm for suppliers located close to Wal-Mart's headquarters in Bentonville, Arkansas. "Suppliers are going to have to help Wal-Mart get back on track." For the vendors, dealing with Wal-Mart has always been tough because of its size – despite recent troubles it still generates more than $340 billion of annual sales in the U.S. That accounts for more than 10 percent of the American retail market, excluding auto and restaurant sales, and the company increasingly sells a lot overseas too. To risk having brands kicked off Wal-Mart’s shelves because of a dispute over pricing can badly hurt a supplier. On Wednesday, Wal-Mart stunned Wall Street by forecasting that its earnings would decline by as much as 12 percent in its next fiscal year to January 2017 as it struggles to offset rising costs from increases in the wages of its hourly-paid staff, improvements in its stores, and investments to grow online sales. This at a time when it faces relentless price competition from Amazon.com Inc (AMZN.O), dollar stores and regional supermarket chains. Keeping the prices it pays suppliers as low as it can is essential if it is to start to claw back some of this cost hit to its margins. Helped by investments to spruce up stores and boost worker pay, Wal-Mart believes it can grow sales by 3 to 4 percent a year over the next three years, or by as much as $60 billion, offering suppliers new opportunities to boost their own revenues. QUESTIONS NOT ALLOWED The squeeze on suppliers was clear to those selling to Wal-Mart’s Sam’s Club warehouse clubs around April this year. Sam’s Club’s buyers summoned major vendors to meetings and told them a "cost gap analysis" showed they should be delivering at a lower price, and demanded millions of dollars in discounts on future purchases, according to emails reviewed by Reuters and interviews with suppliers and consultants involved in the talks. Unlike in prior talks, which featured give and take, vendors were told they could not ask questions at the meetings, with queries to be handled later via email, according to suppliers and consultants involved in or briefed on the meetings. One food supplier, for example, eventually agreed to cut costs by a few percent, after being asked for a much larger reduction, people familiar with those talks said. Sam's Club said it is continually talking with suppliers in an effort to save costs and lower prices. Spokesman Bill Durling said the company, whose merchant teams are separate from those at the Walmart chain, had recently changed its structure so that one account head now manages the relationship across various products, with the ability to see across the work of multiple buyers. This was done with the aim of improving merchandise and wringing out efficiencies, he said. "There might be unpleasant conversations but ultimately we want to do right by our suppliers because we want to create strategic relationships," Durling said. "We want them to be along with us for the ride as we continue to grow.” NEW FEES SOUGHT In June, vendors to Walmart stores got word of sweeping changes to supplier agreements that seek to extend payment terms in some cases and introduced new fees to warehouse goods and place product in new stores. Then, in recent weeks, Wal-Mart told suppliers producing in China they should share any benefit gained from the decline in the value of the Chinese yuan. Wal-Mart spokeswoman Deisha Barnett stressed that it sees its relationships with suppliers as critical to the company's success. "We will work with every supplier to ensure that terms and agreements are mutually agreed upon," she said. Wal-Mart has told suppliers the new terms are aimed at helping it keep prices low, applying fees more consistently across vendors and bringing its practices in line with industry norms. The charges to store goods in distribution centers and for delivery to new stores are common at other retailers but had not normally been the case at Wal-Mart. The moves followed February’s announcement that Wal-Mart would hike the minimum pay rate for its workers to $9 an hour by April, and to $10 by February 2016. The first move is costing $1.2 billion this year and the second an additional $1.5 billion next year, including other labor costs, such as placing more department managers in stores. The additional expense for its workers is accounting for 75 percent of the projected earnings decline in fiscal 2017. Chief Executive Doug McMillon, who became CEO 18 months ago, and other executives said they are seeing a payoff in the form of improved customer service. Greg Foran, head of the U.S. business, said on Wednesday the company has assessed that two-thirds of its 4,500-plus stores now have a "passing grade" in problem areas - cleanliness, checkout speed, and other factors affecting customer satisfaction. That is up from just 16 percent in February. With its stores in better shape, Wal-Mart now is redoubling its focus on beating competitors on price. Over the next three years, the company said it would spend several billion dollars on keeping prices low. Foran said vendors will benefit. "We lower the cost of goods, which in turn generates savings and we invest that in price. Lower prices see an increase in traffic and basket, which in turn grows sales and gains share," Foran said. Late last year Wal-Mart broke a stretch of six straight quarters without growth in same-store U.S. sales, and logged a 1.5 percent gain in its second quarter ending in July. But that falls short of Target Inc’s (TGT.N) 2.4 percent growth, and Kroger’s (KR.N) 5.3 percent increase, excluding results from sales of gasoline. SLIPPERY SLOPE Wednesday's announcement sent ripples through the supplier community in the Bentonville area, where more than 1,000 have offices to stay close to Wal-Mart. "Now we know why they have been pushing so hard," said an executive at a major consumer goods supplier to both Walmart and Sam's Club, adding that his team was shocked by the projected decline in profits. "Maybe they were banking on more suppliers rolling over on the terms." Wal-Mart's success in boosting profits could hinge in large part on the willingness of suppliers to sign on to its new terms and agree to its price demands. Despite signs of resistance, one consumer goods supplier reckons most will eventually give in to Wal-Mart’s market power, though not without a fight. He pushed back after the retailer asked him for new terms that cut 2 percent off his annual sales. They settled on 1 percent, but he fears further demands down the road. “I just worry that this is a slippery slope of them going in this direction," he said. 
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#3. To: HAPPY2BME-4UM (#0)
Only question is, how long will it be before the collapse?
#5. To: Cynicom (#3)
Nobody knows. War solves a lot of problems. World war solves everything. Historically, global money depressions immediately precede global war.
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