Wal-Mart comes out swinging
June 18, 2001-- Home Textiles Today,
The word coming out of the Wal-Mart vendor conference last week was intense, to put it mildly.
That's "intense" as in Wal-Mart is intensifying its long-standing policy to drive costs out of the merchandising and supply chain. The message to vendors was reportedly as forthright as it was simple: Times are tough. We need your help. Cut your costs.
To what extent Wal-Mart's mandate is a reaction to Kmart's price roll-back initiative and improved merchandising flair cannot be determined. One assumes Kmart's moves can only exacerbate the notoriously competitive Wal-Mart's determination to stake the sharpest position. And clearly, Wal-Mart is redoubling its efforts to do so.
Witness the message delivered to the Credit Suisse First Boston retail conference later in the week by Wal-Mart Stores division president Tom Coughlin.
"It's the basics that make Wal-Mart tick, and they are more important today with the tough economy," Coughlin said.
Better foot traffic is not what's driving comp growth, according to Jay Fitzsimmons, senior vp of finance and treasurer, also at the conference. The heavy lifting on the comp end is being done by the increase of the average transaction size — which now accounts for two-thirds of comp-store growth.
Wal-Mart believes its shifting emphasis to more and more visibly placed opening-price-point merchandise is helping to make that engine go. Wal-Mart has been tracking its customers' buying habits as they shift along the good/better/best formula line, Coughlin said, and the company has no doubt in which direction they're traveling.
Wal-Mart is so dead-set on lowering costs that it is even beginning to look for a way to roll out self-checkout systems — even though Coughlin acknowledged that customers have proven "resistant" to the technology. Now in 30 stores, the systems have been provided by a number of vendors, whom the company has set in competition against one another. That's classic Wal-Mart. So, too, is a point of view that seems to view the customer as part of the store's SG&A.
In the product arena, Wal-Mart believes vendors can do more to drive down opening price points — and where they can't, Coughlin said, Wal-Mart will step in with its own private label programs. That's particularly ominous news in the home textiles department, where private label programs have already been given a great deal of play.
As Wal-Mart demands more from vendors, what remains questionable is how much vendors have left to give. When the retail industry hit troubled times in the early to mid 1990s, Wal-Mart could and did legitimately demand that vendors find a way to wring the fat from their relatively corpulent operations.
Those organizations are much leaner now, having learned the lessons of efficiency that Wal-Mart and other retailers either taught them or flogged into them.
Wal-Mart ceased doing business with ungainly vendors long ago because it could afford to. The question now is to what extent can vendors cut into the bone to satisfy Wal-Mart now.