Wal-Mart to Squeeze More out of Supply Chain

Posted Jan 4th 2010 9:20AM by Tom Johansmeyer
Filed under: Wal-Mart (WMT)

Wal-Mart (WMT) has a New Year's resolution: to save more. Yep, it sounds like the kind of thing you'd see in a Wal-Mart commercial, "This year, I resolve to save more with everyday low prices!" But, it's actually quite real for the Bentonville, Arkansas company. The plan for 2010 is to purchase directly from manufacturers -- rather than procurement companies or suppliers -- which should reduce its supply chain costs for private label products significantly.

Currently, Wal-Mart spends around $100 billion to acquire the private label products it sells around the world, approximately 25% of its $400 billion in revenue. The discount retailer will also purchase more of these products internationally -- today, it picks up less than 20% of its private label goods on a country-by-country basis.

The company hopes to cut costs by 5% to 15%, which could lead to a savings of up to $12 billion, as it sources 80% of its private label purchases directly. To this end, Wal-Mart has kicked off four global merchandising centers for general goods and clothing around the world and is also moving to the direct purchasing of fresh fruit and vegetables globally. Over time, Wal-Mart plans to expand this effort into other areas, too, including seafood, frozen food and dry packaged groceries.

With the holiday run now in the past, retailers need to turn their attention to cost-cutting and prying margins a little wider in the year to come. The next real test will come in the spring, as consumers decide whether they like the new stuff retailers will be peddling. But, this period lacks the punch of the holiday season, making a margin play crucial.

Tags: arkansas, bentonville, featured, inthenews, locally sourced, Private label, sourcing, wal-mart, Wal-Mart Stores, Walmart, wmt

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Reader Comments (Page 1 of 1)

1-04-2010 @ 10:15AM

Rhonda Lynn said...

So, what this means is Wal Mart cuts out the middle guy, causing prices to fall and about 100,000 people to lose their jobs since they will not be wholesaling to Wal Mart anymore. So, the government puts these folks on unemployment, we have less tax base, they lose their houses and cars, they get in a huge fight, someone pulls a gun ...and all so we can save a nickel on toothpaste.

That a boy Wal Mart - that a boy !!!

1-04-2010 @ 12:35PM

Iridium said...

No these are private label products that no american other than a truck driver ever touches on its way to Walmart shelves.

Walmart was buying products from trading companies rather than dealing directly with Chinese factories. Something that is really a pain. However the trading company eats up a very small amount of margin that Walmart wants to have. How much margin? about 10%.

The issue is that this margin is on the small wholesale end and often only amounts to $.25 or less. We are talking about products Walmart buys for $1 and sells for $15. But at Walmart volume that extra $.25 is the gravy they need to have.

IF AMERICAN CONSUMERS WANT TO DO SOMETHING THEY NEED TO REFUSE TO BUY PRODUCTS THAT HAVE 10,000% MARKUP. IT IS INSANE TO PAY $15 RETAIL FOR AN ITEM THAT COST $1 TO BUY!!!

The profit margins of mass retailers are insane. Make no mistake that this is the reason for the decline in domestic manufacturing. It is impossible for manufacturers to make any profit when the retailer is demanding to pay less than $5 for a $25 retail product.

How is it fair that the retailer gets to make the vast percentage of money from the sale of a product. 70% base margin to sell a product to Walmart. Why would anyone do that? Oh yeah because there isn't anywhere else left to sell to and Walmart knows it. The other mass retailers know this as well.

Take a pair of $6 socks for example. Walmart requires a price of $1.50 for the $6 socks. They make $4.50 for each pair sold. The manufacturer has to find a way to make profit out of the $1.50 Walmart pays them. DO YOU WANT TO TRY TO FIGURE OUT HOW TO MAKE PROFIT OUT OF $1.50!!!!! Guess what it is really hard. If you do make any profit it is likely a few pennies. Walmart makes $4.50 and you make pennies.

Terrible for manufactures, great for the bottom line of publicly traded companies. Once again that is the goal. Once again that is the reason why Wall Street must be destroyed and closed forever.