Wal-Mart: the Scourge of the Retail Industry

[emaidel]

I hate Wal-Mart. I refuse to shop there. And, I hope they go out of business, and the sooner the better.

That's pretty nasty stuff, but I have a sound basis for my seemingly narrow-minded opinion of this retail giant. Please read through the following scenario, and then realize, as I will explain at the end, that it's not as far-fetched as it seems.

Let's assume that I've done a great deal of research, and have designed a radically-new automatic coffee maker that I call, "Ed's Coffee Pot." Ed's Coffee Pot has a series of unique, patented designs that allow it, at a retail price of $99.95, to outperform all others at, or above that price point, and as such is a "value" at that price.

I print out a price sheet and the dealer cost for my coffee pot is $75. Most retailers aren't satisfied with only a $25 profit, so I structure a series of different programs and promotions, and offer prompt-payment discounts, all of which results in a bottom-line price (to the dealer who pays me on time, and takes advantage of my "specials") of $50.

Now that dealers can double their money, Ed's Coffee Pot is an attractive purchase, and it goes on to be a huge success. As I can't possibly sell my coffee pot to all the thousands of independent retailers across the country by myself, I hire a series of manufacturer's representatives (reps) to sell it for me, and pay them a 5% commission to do so. And, all of this was planned for from the start so that I could afford to have dealers pay me $50 and to pay 5% commission on top of that. I'm hugely successful with this item, and sell 15,000 of them a month, generating significant, profitable volume for me.

The success of my coffee pot doesn't go unnoticed, and Wal-Mart calls me up and "invites" me to their facitilty to discuss a "unique business opportunity." As Wal-mart's no dummy, they've done their homework, and know what dealers are paying for this coffee pot, and that I also pay rep firms a 5% commission. Wal-mart flatly refuses to do business with manufacturer's reps (this is a known fact) and wants that commission deducted from the purchase price. Ultimately, they tell me that they will pay me $35 for my coffee pot, and not a penny more.

But they save the best for last: they'll buy 15,000 of them a week. Now, I have quite a decision to make: do I walk away from the opportunity to quadruple my buiness by selling Wal-Mart, or do I say, "No."

Ultimately, I agree to Wal-Mart's proposal, and in order to meet the increased production needs, expand my manufacturing facility and staff to keep up with the demand. In the meantime, Wal-Mart sells my coffee pot for $69.95 - $30 less than anyone has sold it before. Consequently, my existing dealer base all tell me to essentially, "go take a hike," since they can't afford to match Wal-Mart's price, and I'm stuck with only one customer: Wal-Mart.

Then the worst happens: my cost of goods goes up as a result of factors entirely out of my control (rising petroleum prices, which affect the cost of plastics), and a variety of other possibilties. I have no choice but to advise Wal-Mart that I can no longer afford to sell them my coffee pot for $35, and have to raise its price to them to $45, or I'll have to go out of business. Wal-Mart flatly refuses to pay the price increase, and I'm stuck with no one to sell my coffee pot to, as my original dealer base of independent retailers has walked away from me for doing busines with "the devil," and doesn't trust me any more.

As a result, I'm forced to declare bankruptcy, shut down my manufacturing facility, and put hundreds of workers out of work. If you think this is a ridiculous scenario, think again: this is precisely what happened to an Ohio-based manufacturing plant for Rubbermaid!

Add to that the fact that Wal-Mart employees are paid poorly, forced to work overtime again and again, and given truly lousy health benefits, while the top management of the organization wallows in money, and lots of it. Then there's Wal-Mart's deliberate intention of putting competing retailers out of busines, putting the employees of those retailers out of work, and then offering employment to those people at significantly reduced wages.

What a wonderul place Wal-Mart is.

[topspeed]

Certainly, if you don't want to shop at Walmart, for whatever reason, that is your perogative. I don't shop there, not because of their business practices, but because I can't stand going in there. It's like being in the middle of a cattle stampede.

That said, you can't blame Walmart for the above scenario. Why?
1) They didn't cause the price of petrol to increase
2) They didn't say they would pay for the increase in hard costs to the manufacturer
3) Legally, they only have to pay what they contracted to pay.
4) *Most Importantly* They didn't force the manufacturer to sign that very contract!

The manufacturer has to know going in that the contract terms are going to destroy any good will he has created with his reps. He consciously made the decision to do so in favor of the larger sales potential and marketing opportunities that WalMart provides. Remember, WalMart is in the business of providing goods at the absolute lowest costs to their clientele. They are not there to ensure profitability to their suppliers. That's the supplier's job. If they can't do it, where does that become WalMart or their customer's problem?

Whereas one can easily see this as ruthless, I'm sure Walmart's customers see it in an entirely different light. After all, do you think Walmart would absorb the additional $10 or pass it on to the consumer? One man's predatory practices is another's consumer protection.

Welcome to the wonderful world of business.

[emaidel]

We are clearly on different sides of the fence on this one, but I don't buy your argument. For one thing, Wal-Mart entices a manufacturer with an amount of business unattainable with existing distribution, and that's difficult for most manufacturers to turn down. I've been on the manufacturing side of the audio industry for over 30 years, and know how hard it is to tell Circuit City, or Best Buy that I don't want their business.

Retailers and manufacturers rarely enter into "contracts" with one another, unless a proprietary product is being built exclusively for that retailer. Otherwise, an "agreement" is usually all that's done, and no manufacturer in his right mind would ever enter into such an agreement with the clause, "there will never be any price increases. Ever." Just about every company I've ever worked for in my career has had a price increase at one time or another, and despite the initial dealer balking, all eventually paid the higher price, and raised their selling prices accordingly. In fact, whenever there was a price increase for any of the companies I worked for, the "suggested retail" went up accordingly, so that the dealer margin remained the same.

In the case of Rubbermaid, there were four items sold to Wal-Mart at razor-thin margins, but in huge quantities, dwarfing the previous manufacturing requirements for the business done with Rubbermaid by independent retailers. When the cost of the resins to manufacture the rubber in these four products went up, and Rubbermaid could no longer afford to sell them to Wal-Mart at the prevailing prices, Wal-Mart just decided on its own that it simply wouldn't pay the price increase. Like everyone else, all they had to do was raise the retail price to maintain the same margin, but Wal-Mart just flatly refused to budge, expecting to just weild its power and have Rubbermaid "eat" the price increase themselves. Wal-Mart didn't replace these items with some cheaper units from someone else - they just stopped buying them from Rubbermaid, and the Rubbermaid facility, all but totally dedicated to manufacturing these items in sufficient quantity for Wal-Mart's demands, shut down completely, and thousands of workers lost their jobs.

In the example I used with "Ed's Coffee Pot," Wal-Mart simply had to raise its selling price from $69.95 to $79.95, and they would have kept the same margin, and I could have continued to build those coffee pots. By refusing to pay the increased price, they just put me out of business instead. This isn't just "the world of business." This is the world of "doing business with Wal-Mart." And it stinks.

[Feanor]

.... This isn't just "the world of business." This is the world of "doing business with Wal-Mart." And it stinks.

"Monopsony" -- definition: situatution of a single buyer with many sellers; the opposite of monopoly. Although the Wal-Mart situation isn't quite a strict monopsony, the fact is that this retailer is so relatively large that they can deal differently and more severely than other buyers. Monopoly and monopsony aren't healthy situations, and if you deal with them, you deal with the devil.

[topspeed]

We are clearly on different sides of the fence on this one, but I don't buy your argument. For one thing, Wal-Mart entices a manufacturer with an amount of business unattainable with existing distribution, and that's difficult for most manufacturers to turn down. I've been on the manufacturing side of the audio industry for over 30 years, and know how hard it is to tell Circuit City, or Best Buy that I don't want their business.It is tough, I understand that. However, no one is holding a shotgun to your head to sign on the dotted line. It's not like Walmart suddenly created the concept of Purchasing Power. :rolleyes: This has been going on forever. GM is notorious for killing their suppliers because they buy millions of parts, not thousands. Centex, the second largest home builder in the country, purchases their lumber by the trainload (instead of truckload) and is able to sell homes at lower prices than your local builder. Nothing new there.


Retailers and manufacturers rarely enter into "contracts" with one another, unless a proprietary product is being built exclusively for that retailer. Otherwise, an "agreement" is usually all that's done, and no manufacturer in his right mind would ever enter into such an agreement with the clause, "there will never be any price increases. Ever." Just about every company I've ever worked for in my career has had a price increase at one time or another, and despite the initial dealer balking, all eventually paid the higher price, and raised their selling prices accordingly. In fact, whenever there was a price increase for any of the companies I worked for, the "suggested retail" went up accordingly, so that the dealer margin remained the same.Right, they passed it on to their customer. WalMart won't do that. They have the purchasing power to not have to. Besides, you can bet there are other suppliers lined up out the door if the one ahead of them fumbles the ball. It's called competition, and our entire economic system is based on it. You can't condemn them for protecting their image and customer base.


In the case of Rubbermaid, there were four items sold to Wal-Mart at razor-thin margins, but in huge quantities, dwarfing the previous manufacturing requirements for the business done with Rubbermaid by independent retailers. When the cost of the resins to manufacture the rubber in these four products went up, and Rubbermaid could no longer afford to sell them to Wal-Mart at the prevailing prices, Wal-Mart just decided on its own that it simply wouldn't pay the price increase. Like everyone else, all they had to do was raise the retail price to maintain the same margin, but Wal-Mart just flatly refused to budge, expecting to just weild its power and have Rubbermaid "eat" the price increase themselves. Wal-Mart didn't replace these items with some cheaper units from someone else - they just stopped buying them from Rubbermaid, and the Rubbermaid facility, all but totally dedicated to manufacturing these items in sufficient quantity for Wal-Mart's demands, shut down completely, and thousands of workers lost their jobs. That's too bad. Seriously. The employees should storm the mansions of the moron CEO that signed the contract. He/She was the idiot that didn't build in enough cushion for changes in their cost structure. Blame them, don't blame WalMart.


In the example I used with "Ed's Coffee Pot," Wal-Mart simply had to raise its selling price from $69.95 to $79.95, and they would have kept the same margin, and I could have continued to build those coffee pots. By refusing to pay the increased price, they just put me out of business instead. This isn't just "the world of business." This is the world of "doing business with Wal-Mart." And it stinks.Don't do business with them. Businessmen are big boys and know what they are getting into. If they can't handle the competition, get out.

[emaidel]

[QUOTE=topspeed]

Right, they passed it on to their customer. WalMart won't do that. They have the purchasing power to not have to.

You say this as if someone (namely, the supplier) should swallow any and all price increases. Sorry, I don't now, never have, and never will agree.


Blame them, don't blame WalMart.

Oh, but I do.

I get the suspicion that you've never worked for a manufacturer. that's OK for sure, but I have, and know what it's like to deal with so-called "power retailers." Some make extraordinary demands, but accept the realities of the marketplace, such as occasional price increases. The fact that Wal-Mart doesn't is by no means a badge of honor for them. It's only a sign of their ruthlessness.

QUOTE]

[PAT.P]

Sorry guys but I shop at Wal-Mart and dont really care what anybody says.If other retailers cant compete with them and it's to hot in the kitchen ,,just get out.There many people that rely on them for employment and if on a budget a good place to save.Wal-Mart also help alot of charity.

[paul_pci]

Sorry guys but I shop at Wal-Mart and dont really care what anybody says.If other retailers cant compete with them and it's to hot in the kitchen ,,just get out.There many people that rely on them for employment and if on a budget a good place to save.Wal-Mart also help alot of charity.

Sorry, outright manipulation and predatory business behavior is not competiton. If you don't believe me consult a dictionary.

[topspeed]

You say this as if someone (namely, the supplier) should swallow any and all price increases. Sorry, I don't now, never have, and never will agree.That's fine, I'm not asking you to agree and you certainly are allowed to your opinion. Lemme ask you a question: Say the supplier figures out how to dramatically decrease his costs either through techology, new labor contracts, or whatever...is he now expected to reduce his price to Walmart so they can pass the savings along to their consumer? All other market factors being equal, how often do you think that would actually happen?


I get the suspicion that you've never worked for a manufacturer. that's OK for sure, but I have, and know what it's like to deal with so-called "power retailers." Some make extraordinary demands, but accept the realities of the marketplace, such as occasional price increases. The fact that Wal-Mart doesn't is by no means a badge of honor for them. It's only a sign of their ruthlessness. I never said they were nice guys :p. I would only question the validity of applying Mom n' Pop idealism to big business.

[EFE Speakers]

Thus the reason why I keep my business small! I can keep my cost down, offer a quality product at a competitive price and not worry about someone outside of my control dictating my production. Every company that desires to expand has had to face this problem, once they take the step to increase production, there is no turning back because of the large investment it takes. Getting in bed with the big discount retailers can be very tempting and make a manufacturer very rich very fast, but it can also make the owner of that company get gray hair before his or her time also!

Not in all fields but in audio particularly, many manufacuters who care about their reputation and product won't consider selling to big retailers, they use particularly hand picked smaller dealers and protect them by avoiding selling to the discount stores. Then there are the companies who cut out retailers all together and sell direct via the internet, they have their advantages and disadvantages. The advantage is, they can usually offer their product at a better price by cutting all the middle men out, a benefit in price to the consumer. The disadvantage of course is not having showrooms to demo, but some offer the 30 day trial to overcome that negative.

The bottom line in my opinion is, competition is getting greater and more fierce and big corporations are trying to squeeze the little independent stores out of existance. The small manufacturers have to figure out a way to compete, and I believe they can by keeping their overhead as low as possible, producing a quality product at a competitive price and giving personal attention to all their customers, something big manufacturers do not and cannot do! I believe this is how America was built in the past and it can still work if greed and the desire to get rich are put aside and replaced with good old fashion business ethics from the past - "the customer is our main concern!"

A few years ago I was offered a deal by an independent retail audio store who wanted to sell one particular model of my EFE speakers. I would have had to sign an exclusive contract with him but he guarantied to buy more speakers than I presently sell direct to customers. It would have been a big financial gain for me and him, but to the customer it would have almost doubled the price of that particular speaker. I had a choice, more money in my pocket or less money but happier customers??? Those familiar with EFE TECHNOLOGY know there are no retail stores to this day that sell my speakers and as long as I'm in business there never will be. The particular model I spoke of is my T-36 MTM tower, it sells for $1590pr. I was offered that actual price for the exclusitivity to this dealer, in turn he would have marked it up to almost $3000pr, and he felt he could sell tons of them to his clientele world wide. He probably could have, but that would have eliminated myself from selling one of my most popular speakers to customers who in no way would be able to afford them at his price point, I couldn't do that to customers and it went against my whole business philosophy that I built my company on!

Some of you may remember gas stations back in the 1960's and older? They had attendants who came out to your car, filled your tank, checked under your hood and even your tire pressure if requested. They didn't require tips and that kind of service was the norm. Oh yes, and gas was $.23 to $.29 a gallon! ) ;

What do we see today? Impersonal drive up to the pump stations, get out and pay a person usually in a bullet proof shed, fill up and then drive out. Why is this? Because it is cheaper for the gas station to operate, they can make more money and that is all they care about! The only thing the customer represents to them is the almighty dollar!

Here in Arizona there is a project under way and planned to be finished within two to three years. The entire development has a theme going back 50 years, it will consist of an old fashion gas station with service attendants once again, several old fashion car dealers with a number of historical cars and their history up to date, recreational vehicles and a complete theme park for the family. To visit this development will be like going back in time. The project has rich and famous investors from all over the country and it will take people back to what America was once like, a time and place that many have fond memories of.

I know from personal experience over the last ten years, many people still like personal attention from businesses they support. They still demand a good value, but once they receive that old fashion attention as aforementioned, the less they desire to deal with the big boys who only count them as a number. I can completely relate to the original posters feelings and understand how the business world all around us is changing. I think the oil companies are a prime example of corporations monopolizing the market and then sucking the life out of Americans! Unfortunately we don't have any choices with that product other than the five major suppliers who supply all the gas to every station in the country. They've succeeded in controlling the market and our useless government is in bed with them! Fortunately, in other fields of business we still have lots of competition and the consumer has the power to "choose" what he or she feels is still a good value and a good company to deal with, that's the American way! Sorry for rattling on so long.

EFE TECHNOLOGY Speakers
Ed Frias

[kexodusc]

There's a fine line between competitive business practices and extortion. Wal-Mart walks that line as well as anyone.

The unfortunate reality is that Wal-Mart can't be blamed for behaving as they do, protecting their margins by nickel and diming suppliers is their nature. I can't believe anyone in America, or the world for that matter, is still oblivious to how Wal-Mart operates. The manufacturers have a responsibility to themselves too. It's easy to blame Wal-mart for acting how they do, and they are ruthless, but that's the game they're in.

It's not all peaches and roses for Wal-Mart. Companies that size are absolutely dependant on profitability and sustainable growth. Wal-Mart has an added dynamic in that the business they are in is typically one of low-margins and low profitability. Being cheap and tough is the only option they have to survive. Wal-Mart isn't a charity. If they slip up, things can go sour really fast.

Funny thing is, a few decades back America was worried about K-Mart and the likes as well...As Topspeed pointed out, the world largest company, General Motors, is a notoriously ruthless partner to its suppliers. When competition gets fierce, that's always been their last stand. Aside from the lousy cars they've made the last 2 decades or so, their business model is similar to Wal-Marts in that they'll either make a lot of money or lose a lot of money. It forces them to use their size to squeeze the suppliers and the competition. Now they're on the verge of bankruptcy...it happens fast.

In the case of the small suppliers getting squeezed, well, eventually the market will wisen up, and Wal-Mart will realize nobody wants to do business with them...then they'll be forced to choose between being better partners with suppliers or lose a lot of products. I'm positive they'll have strong direct competition someday, too. No empire lasts forever.

[emaidel]

This has turned into an interesting "off-topic" thread with people on opposite sides of the fence, and no straddlers in the middle. With all that's said and done, I still refuse to shop at Wal-Mart, find their treatment of their suppliers inexcuseable, and am thoroughly disgusted at their claim for the "lowest prices" all the time, when that's just not so. Their employees are paid poorly, are often forced to work overtime and get lousy health benefits, yet the top execs are filthy rich.

One might make the argument that "no one forced anyone to work there." That may be so, but when Wal-Mart enters a market, and puts other retailers in that market out of business, and then offers those out of work due to their stores having closed a new job, but at a much lower salary, I simply can't see any good to that. Wal-Mart claims they "have" to pay their people poorly in order to keep prices low. That's absolute B.S.! Their margins are as great, or much greater, than anyone else's.

Lastly, does anyone remember how Wal-Mart used to proudly proclaim, "Buy American!" all over the place, when just about everything in the stores at the time was made in Korea? (Today, it's China.)

[GMichael]

I'm on the fence but haven't posted till now. I've just been reading.

I worked at a large company for many years and have seen how we pushed the little guys around. At times, I was embarrassed. But I have also seen how much extra crap large companies must deal with. Taking a hard line is sometimes the difference between just making it and just failing. Sometimes, business sucks.

[topspeed]

Some of you may remember gas stations back in the 1960's and older? They had attendants who came out to your car, filled your tank, checked under your hood and even your tire pressure if requested. They didn't require tips and that kind of service was the norm. Oh yes, and gas was $.23 to $.29 a gallon! ) ; I still have a full service station near my office. Gas is about .05/gal more expensive, but when your windshield is splattered with bugs...like right now...it sure is nice to have someone else scrape that crud off the screen. Ugh, I hate this time of year. Not because of the weather, but because it's impossible to keep my car clean :mad:!


I know from personal experience over the last ten years, many people still like personal attention from businesses they support. They still demand a good value, but once they receive that old fashion attention as aforementioned, the less they desire to deal with the big boys who only count them as a number.Exactly. I already mentioned I don't shop at WalMart. Whenever I can, I like to keep my money local and buy from locally owned stores. I buy relationships, not products.

[shokhead]

Ma and Pa places are a thing of the past and thats the way it is. I dont have any problems with Walmart,Target,K-Mart. Nobody is forced to shop or work at any of those places.

[emaidel]

Say the supplier figures out how to dramatically decrease his costs either through techology, new labor contracts, or whatever...is he now expected to reduce his price to Walmart so they can pass the savings along to their consumer? All other market factors being equal, how often do you think that would actually happen?

.

I doubt the supplier would pass along his savings, but then, why should he? In today's marketplace, it's the retailer, and not the manufacturer who makes the largest profit, so if a manufacturer can earn a few extra bucks (in order to pay for the increased demands of his retailers) then, more power to him.

Forgive me if I'm wrong, but your posts all seem to side very much with the retailer, and not with the manufacturer, and that any and all increases in costs should be absorbed by the manufacturer alone. If he can't do that, then that's just tough. I've said this before, but I disagree and disagree strongly.

Also, your statement that Wal-Mart is in a position to afford not to pass along a price increase to the consumer seems to imply that their intentions are altruistic. Nothing could be further from the truth: Wal-Mart's only interest is Wal-Mart, and profit for Wal-Mart.

In my hypothetical example of "Ed's Coffee Pot," and in the real-live disaster involving the Rubbermaid facility in Ohio (built exclusively to keep up with the demand created by Wal-Mart for those items they were purchasing), Wal-Mart's refusal to pay more for either product(s) was most definitely NOT in the best interests of the consumer, but rather, just Wal-Mart flexing their muscle and refusing to pay a penny more than the price originally negotiated, even if it means thousands of people losing their jobs. A $10 increase in price for "Ed's Coffee Pot," or a commensurate increase in the retail price of those four Rubbermaid items would not have rendered any of these products non-competitive.

When a manufacturer makes a product, a very involved procedure is used to come up with the cost of the product to the dealer, and for the retail price for that item. Numerous factors including shipping, warranty, advertising & promotion, commissions, overhead, etc. are factored into the cost of a product first, and then a profit margin is factored in, resulting in a dealer cost , which, after the dealer haggles and negotiates, results in a "net" cost that's usually 1/2 of the retail price for the item. ("Promotion" that was factored into the initial dealer cost is designed to cover the cost of these dealer negotiations.)

The key to this procedure is the retail price: if the product is not competitive at a price that allows the dealer to double his money, then that product rarely ever makes it to market. I've worked for numerous manufacturers who, by using this procedure after their cost of goods increased precipitously, had no choice but to discontinue the product, as the resulting retail price point would render the item non-competitive. The examples I used with Wal-Mart don't follow this at all, but only serve to illustrate that retail giant's insatiable greed.

Your turn! (This is fun!)

[paul_pci]

Sorry Kex, but extortion, predation, and egregious manipulation are categorically different than competition; of course the difference between the words should be the first clue. Wal-mart does not walk the fine line, but rather deploys further manipulation, extorion and sheer financial and political power to evade legal responsibility for deplorable practices. We can debate whether or not the demise of so-called mom and pop stores is a lamentable phenomenon; however, it seems clear that our current commerce legislation is horribly obsolete in that it does not account for the rise and behemoth-style power of these mega-corporate retailers and that is how folks like you can imagine that Wal-mart walks a fine line between healthy or aggressive competition and extralegal business practices. Perhaps they straddle the lines of the letter of the law (and we all know they don't even do that), but in no way are they even within the same time zone of the spirit of the law.

[topspeed]

I doubt the supplier would pass along his savings, but then, why should he? In today's marketplace, it's the retailer, and not the manufacturer who makes the largest profit, so if a manufacturer can earn a few extra bucks (in order to pay for the increased demands of his retailers) then, more power to him. True. Conversely, why should Walmart change their contract price? Just to maintain the manufacturer's margins? I can see both sides of this, can you?


Forgive me if I'm wrong, but your posts all seem to side very much with the retailer, and not with the manufacturer, and that any and all increases in costs should be absorbed by the manufacturer alone. If he can't do that, then that's just tough. I've said this before, but I disagree and disagree strongly. I'm for neither manufacturer nor retailer. I'm for honoring your contract...period. If you say you are going to provide a product at X price, you should do what you say you are going to do. If outside forces alter your ability to maintain margins, it shouldn't be the retailers problem and it sure as shootin' shouldn't be the retailer's customer's problem. We're talking about two separate entities, both with obligations to not only their customers but also their stockholders. They are in business to make money. Companies go out of business everyday because of mismanagement.


Also, your statement that Wal-Mart is in a position to afford not to pass along a price increase to the consumer seems to imply that their intentions are altruistic. Nothing could be further from the truth: Wal-Mart's only interest is Wal-Mart, and profit for Wal-Mart. Your point being? Pssst...I've got a secret for ya: Business' are supposed to make $. I never meant to imply Walmart's hardline price stance was altruistic. The simple fact is that they have the purchasing power to replace any supplier with a dozen others chomping at the bit for the opportunity to work with them. By doing this, not only do they maintain their margins, but the avoid the possible catastrophic affect of alienating hundreds of thousands of customers. Again, Walmart should only be accountable to Walmart. If the supplier is suddenly unable to profitably provide their product, that's their problem, not Walmart's. Two companies, not one.


In my hypothetical example of "Ed's Coffee Pot," and in the real-live disaster involving the Rubbermaid facility in Ohio (built exclusively to keep up with the demand created by Wal-Mart for those items they were purchasing), Wal-Mart's refusal to pay more for either product(s) was most definitely NOT in the best interests of the consumer, but rather, just Wal-Mart flexing their muscle and refusing to pay a penny more than the price originally negotiated, even if it means thousands of people losing their jobs. A $10 increase in price for "Ed's Coffee Pot," or a commensurate increase in the retail price of those four Rubbermaid items would not have rendered any of these products non-competitive.
Websters: Risk; The possibility of suffering harm or loss, The variability of returns from an investment

You're looking to place blame where there is none. Rubbermaid took a calculated risk and came up short. Happens everyday. That's why it's called "risk"...not "sure thing"...not "slam dunk." Did people suffer because of it? Why not ask the 80,000 employees that have been laid off by GM and Ford in the last year because these two behemoths put all their money into 14mpg trucks and SUV's right when gas hit $3.50/gal.


When a manufacturer makes a product, a very involved procedure is used to come up with the cost of the product to the dealer, and for the retail price for that item. Numerous factors including shipping, warranty, advertising & promotion, commissions, overhead, etc. are factored into the cost of a product first, and then a profit margin is factored in, resulting in a dealer cost , which, after the dealer haggles and negotiates, results in a "net" cost that's usually 1/2 of the retail price for the item. ("Promotion" that was factored into the initial dealer cost is designed to cover the cost of these dealer negotiations.) Really? And here I thought they just pulled a price out of their ass. Silly me.


The key to this procedure is the retail price: if the product is not competitive at a price that allows the dealer to double his money, then that product rarely ever makes it to market. I've worked for numerous manufacturers who, by using this procedure after their cost of goods increased precipitously, had no choice but to discontinue the product, as the resulting retail price point would render the item non-competitive. The examples I used with Wal-Mart don't follow this at all, but only serve to illustrate that retail giant's insatiable greed....and the manufacturer's utter incompetence to factor in changes to their cost structure without securing long term contracts of their own to ensure profitability. I guess I didn't realize it's Walmart's job to not only run their own business, but also every single supplier they deal with. Wow. Now there's a tough job!

[PAT.P]

Sorry, outright manipulation and predatory business behavior is not competiton. If you don't believe me consult a dictionary.So if they as as bad as you make them look why are'nt they getting spank?Oil ,Utility and Cable company and the Goverment are worst.

[paul_pci]

So if they as as bad as you make them look why are'nt they getting spank?Oil ,Utility and Cable company and the Goverment are worst.

Post #17 hints at why I think they are "getting away wtih it." As with any new cultural development/phenomenon, the law is always playing catch up, but when mega-corporations control the process of the law making, even playing catch-up doesn't quite describe what's going on.

Addendum: I would also encourage you to refresh your historical knowledge, especially the relationship between the 1929 market crash and the Securities Act of 1934.

[emaidel]

[QUOTE=topspeed] I'm for neither manufacturer nor retailer. I'm for honoring your contract...period.


...and the manufacturer's utter incompetence to factor in changes to their cost structure without securing long term contracts of their own to ensure profitability. QUOTE]

Your claim that you aren't taking sides isn't exactly so, as your postings clearly indicate a bias towards the retailer, and very much against the manufacturer. You also repeatedly use the term "contract," and imply that if and when a manufacturer increases his prices (for whatever reason), he is breaking that contract. That's just not the way it works. When a retailer and a manufacturer agree upon a price for an item, there is no contract. Instead, there is usually an "agreement" between the two, covered in writing, and requires a commitment from both parties: the manufacturer agrees to provide the product at the agreed-upon price as long as he is able, and the dealer agrees to purchase a specified amount of that product. Nowhere in that agreement is there any stipulation that the manufacturer is forbidden to raise his prices, if his own cost of goods increases. If a manufacturer is dumb enough to agree to an agreement that he won't raise his prices - ever - then he deserves whatever happens to him.

Prices go up all the time. Why is it that the manufacturer and only the manufacturer is the one who needs to swallow it? As I've stated previously, if the necessary increase in retail to accomodate the increase in cost relegates the product to being non-competitive, then that product eventually ceases to exist. Otherwise, everyone in the chain pays for it - manufacturer, retailer and consumer alike. There's nothing inherently wrong with that, nor is it the result of a manufacturer being short sighted.

I'll ask you several questions:

1.) Did you ever work retail?
2.) Were you ever a manufacturer's respresentative?
3.) Were you ever a manufacturer, or did you work in the sales department for one?
4.) Are you degreed in marketing?

I don't think your answers to these would be the same as mine.

[GMichael]

[QUOTE=topspeed] I'm for neither manufacturer nor retailer. I'm for honoring your contract...period.


...and the manufacturer's utter incompetence to factor in changes to their cost structure without securing long term contracts of their own to ensure profitability. QUOTE]

Your claim that you aren't taking sides isn't exactly so, as your postings clearly indicate a bias towards the retailer, and very much against the manufacturer. You also repeatedly use the term "contract," and imply that if and when a manufacturer increases his prices (for whatever reason), he is breaking that contract. That's just not the way it works. When a retailer and a manufacturer agree upon a price for an item, there is no contract. Instead, there is usually an "agreement" between the two, covered in writing, and requires a commitment from both parties: the manufacturer agrees to provide the product at the agreed-upon price as long as he is able, and the dealer agrees to purchase a specified amount of that product. Nowhere in that agreement is there any stipulation that the manufacturer is forbidden to raise his prices, if his own cost of goods increases. If a manufacturer is dumb enough to agree to an agreement that he won't raise his prices - ever - then he deserves whatever happens to him.

Prices go up all the time. Why is it that the manufacturer and only the manufacturer is the one who needs to swallow it? As I've stated previously, if the necessary increase in retail to accomodate the increase in cost relegates the product to being non-competitive, then that product eventually ceases to exist. Otherwise, everyone in the chain pays for it - manufacturer, retailer and consumer alike. There's nothing inherently wrong with that, nor is it the result of a manufacturer being short sighted.

I'll ask you several questions:

1.) Did you ever work retail?
2.) Were you ever a manufacturer's respresentative?
3.) Were you ever a manufacturer, or did you work in the sales department for one?
4.) Are you degreed in marketing?

I don't think your answers to these would be the same as mine.

Strange, whenever I have negotiated a contract with a supplier (something I have been doing for over 20 years with large & small companies) price is the first thing I make sure is in there. Not sure what kind of Buyer would leave that out. It sure wouldn't be anyone I would employ for long.

[emaidel]

Strange, whenever I have negotiated a contract with a supplier (something I have been doing for over 20 years with large & small companies) price is the first thing I make sure is in there. Not sure what kind of Buyer would leave that out. It sure wouldn't be anyone I would employ for long.

I didn't mean to imply that price was left out, and you're absolutely correct in stating that if a buyer left it out, he'd be out on his a** in no time flat. What I'm trying to say, and perhaps didn't say clearly, was that unforseen increases in the cost of goods for a manufacturer, that would necessitate an increase in his price to any retailer is a normal, and entirely accepted manner of doing business. And, as your posting indicates, if a contract were indeed signed, then I'd expect a timeframe to have been placed on that contract (perhaps one year) and that in that instance, the manufacturer is indeed bound to hold up his end of the bargain.

This is turning into qute a mess, isn't it?

[topspeed]

Your claim that you aren't taking sides isn't exactly so, as your postings clearly indicate a bias towards the retailer, and very much against the manufacturer. Examples? I've merely stated that retailer shouldn't be liable for the manufacturer's profitability. You apparently think differently.


You also repeatedly use the term "contract," and imply that if and when a manufacturer increases his prices (for whatever reason), he is breaking that contract. That's just not the way it works. When a retailer and a manufacturer agree upon a price for an item, there is no contract. Instead, there is usually an "agreement" between the two, covered in writing, and requires a commitment from both parties:
Websters: Contract; An agreement between two or more parties, especially one that is written and enforceable by law...in which both parties have promised to perform

Sound familiar? Call it what you want, if it's a promise for a promise...it's a contract.


the manufacturer agrees to provide the product at the agreed-upon price as long as he is able, and the dealer agrees to purchase a specified amount of that product. Nowhere in that agreement is there any stipulation that the manufacturer is forbidden to raise his prices, if his own cost of goods increases. If a manufacturer is dumb enough to agree to an agreement that he won't raise his prices - ever - then he deserves whatever happens to him. Now show me where it says the retailer must purchase the products at the increased price.

Go ahead.

I'll wait.


I'll ask you several questions:

1.) Did you ever work retail?
2.) Were you ever a manufacturer's respresentative?
3.) Were you ever a manufacturer, or did you work in the sales department for one?
4.) Are you degreed in marketing?
I don't think your answers to these would be the same as mine

1) Yep
2) Nope
3) Nope
4) Real Property Development, USC baby!

Without hesitation let me state that my viewpoint would not change. This isn't about experience nor is it about educational background. This is a philisophical difference. I believe that you are solely responsible for your destiny, good or bad. Blaming others does nothing. People need to take responsiblity for their choices and live with it. You're not going to hit one out of the park everytime, so man-up to your mistakes and failures. It's OK. (note: I'm not implying "you" as specifically you emaidel. It's a general "you.") To blame Walmart for not wanting to purchase goods that were at a price higher than the "agreed" to price (or whatever you want to call it) is akin to blaming McDonald's for serving coffee that is too hot.

[GMichael]

I didn't mean to imply that price was left out, and you're absolutely correct in stating that if a buyer left it out, he'd be out on his a** in no time flat. What I'm trying to say, and perhaps didn't say clearly, was that unforseen increases in the cost of goods for a manufacturer, that would necessitate an increase in his price to any retailer is a normal, and entirely accepted manner of doing business. And, as your posting indicates, if a contract were indeed signed, then I'd expect a timeframe to have been placed on that contract (perhaps one year) and that in that instance, the manufacturer is indeed bound to hold up his end of the bargain.

This is turning into qute a mess, isn't it?

Not so bad of a mess,

Yes, a time frame is also included. 1 year is common. 2 years with a 3rd option sometimes too. When I was with a big company, anyone who wanted to raise their price before the contract was up got laughed at. When I was with small companies we couldn't really act the same way. We could kick & complain but ultimately, we had little choice & just tried to get as much compensation as possible. It's normal for big companies to take a hard line. And the little companies get the shaft. I'm not saying that what Wal-Mart did is nice. But it's typical of big business.
I remember a meeting I was in years ago. The Buyer in charge of a supplier had told them, "if you don't stock 50,000 gallons of this chemical, we won't buy it from you." When we stopped using that chemical, the company was very upset that they were getting stuck with all of this extra crap that they had no other customer for. Our Buyer told them, "we never told you that we would take any excess inventory off your hands." There was nothing in writing and that company got a screwin'.

[kexodusc]

Sorry Kex, but extortion, predation, and egregious manipulation are categorically different than competition; of course the difference between the words should be the first clue. Wal-mart does not walk the fine line, but rather deploys further manipulation, extorion and sheer financial and political power to evade legal responsibility for deplorable practices. We can debate whether or not the demise of so-called mom and pop stores is a lamentable phenomenon; however, it seems clear that our current commerce legislation is horribly obsolete in that it does not account for the rise and behemoth-style power of these mega-corporate retailers and that is how folks like you can imagine that Wal-mart walks a fine line between healthy or aggressive competition and extralegal business practices. Perhaps they straddle the lines of the letter of the law (and we all know they don't even do that), but in no way are they even within the same time zone of the spirit of the law.

Geez, Paul, I was kinda agreeing with you.

...Wal-Mart has obviously broken laws in their day, they've been sued a zillion times and lost a bunch of them...not my point. They'll work the system to their advantage much like anyone else.

All that said, it's easy to blame the big bad rich guy. Wal-Mart's as guilty as anyone, but there's a lot of other parties that have let the consumer down along the way, let's call them third party enablers. The reason I don't hold a burning hatred for Wal-Mart deep inside my being is because I pretty much expect big corporations like Wal-Mart to use their influence for self gain. I do however, hold legislators and courts to a higher standard. Wal-Mart exists because the population (and government) has allowed it to exist. And continues to allow it to exist. Right or wrong? I don't know...honestly, I don't care....I truly believe if it wasn't them, it'd be someone else.

And while I do love the small, mom and pop companies, (and there's many that still know how to look after their customers - some of whom I've dealt with even posted in this thread :D ) there just as many crooked little businesses out there as well.

Tying all this back into the topic of this thread, Wal-Mart has the freedom to make demands of its suppliers. If things go bad for the suppliers because Wal-Mart is looking out for number one, that's unfortunate, but fair game.

Reminds me of that Sopranos episode where Tony's civilian gambler friend begged Tony to let him into the Executive Game...Tony told him the game wasn't for him, but he insisted. He knew what he was getting into, or ought to have known, and things went bad. Next thing he knows, Tony has his store, car etc...

[EFE Speakers]

I still have a full service station near my office. Gas is about .05/gal more expensive, but when your windshield is splattered with bugs...like right now...it sure is nice to have someone else scrape that crud off the screen. Ugh, I hate this time of year. Not because of the weather, but because it's impossible to keep my car clean :mad:!

Exactly. I already mentioned I don't shop at WalMart. Whenever I can, I like to keep my money local and buy from locally owned stores. I buy relationships, not products.

Hey Topspeed,
I thought convertible BMW's had self cleaning windows and headlights? :cornut:

Just for you, I now offer some new EFE bug blaster car speakers! Install and turn them up to 120 decibels for 20 seconds and every type of debris and bug that hits your windshield will miraculously loosen up and fall off, no need to ever scrap or clean again! :biggrin5: Now lets see if WalMart tries to buy these from me? :ciappa:

EFE

[emaidel]

Without hesitation let me state that my viewpoint would not change. This is a philisophical difference. .

With that, let me end this dialog between the two of us by stating that we agree to disagree. I've made a point (or at least I thought I did), and you disagree with it entirely. You've responded with your viewpoint, and I disagree entirely with all that you have to say. There's nothing more to accomplish with this back and forth arguing, since neither of us is going to change the other's mind.

Have a nice day!

[emaidel]

[QUOTE=GMichael]

It's normal for big companies to take a hard line. And the little companies get the shaft. I'm not saying that what Wal-Mart did is nice. But it's typical of big business.


QUOTE]


You're absolutely right. I normally tried to negotiate a program for my dealers, rather than a specific price on my products, and that's pretty normal for the audio industry. Instead of a dealer and manufacturer agreeing to a fixed price on a given item, the manufacturer offers that dealer a succession of discounts off the regular Dealer Price List on every product. What's usually asked for in return, and which normally was rarely, if ever, provided in return, was a specified annual volume expected of that dealer. All of this was put in writing, but that didn't help much.

At the end of a year, if that dealer didn't live up to his end of the bargain, then he lost the program, and received a lesser one. this didn't always work out too well, as the dealer expected the discounts, regardless of the amount of business he did. Not exactly "fair," but then, that's how much of the industry worked.

Insofar as proprietary or "private-label" items, it was a different story. The dealer and I negotiated a specific price on a particular item, and that price was good for a year, and the dealer was expected to purchase a specified amount of that item throughout that year. Ordinarily, the dealer would issue a blanket purchase order for, say, 5,000 phono cartridges, and would accept montly "releases" of about 550, or so, and the price he was paying was based on a quantity of 5,000. We had higher prices for lower quantities. Unfortunately, this also backfired when the dealer stopped accepting releases, or pushed them back from month to month, but still expected to pay the same price, even though he too wasn't living up to his end of the bargain.

So, even when one member of an "agreement," or "contract" lives up to his requirements, the other often doesn't. And, in my 30+ years in the manufacturing side of the audio business, it was always the retailer, and not the manufacturer, who fell behind.

So, perhaps I too am biased, but then, it's based on over 30 years experience. And I never, ever, ever considered selling anything to Wal-Mart!

[topspeed]

Hey Topspeed,
I thought convertible BMW's had self cleaning windows and headlights? :cornut:

Just for you, I now offer some new EFE bug blaster car speakers! Install and turn them up to 120 decibels for 20 seconds and every type of debris and bug that hits your windshield will miraculously loosen up and fall off, no need to ever scrap or clean again! :biggrin5: EFE
Sign me up! I'll drop the check in the mail tomorrow, Ed! :D

BTW, you know darn well that self cleaning widows only come on Z06's. You've got the only ride quick enough to blow anything off your windshield through sheer wind speed

...and that's in 1st Gear!!! :eek6:

Just for you, check out this vid of a C6 Z06 vs. Ford GT (http://www.dpccars.com/car-movies/05-09-06pageCorvetteC6Z06vsFordGT.htm). Stupid, but fun.



With that, let me end this dialog between the two of us by stating that we agree to disagree. I was thinking the exact same thing. Still, it was more invigorating that helping a noob choose between a $300 Denon vs. Yammie avr. :D

Make it a great day!

[daviethek]

I'm no expert in business, but just when you think Wall Mart is going to be the final word in retailing, along comes Target, resurrected from the dead. When I was younger, Target was lower in the food chain than K-mart and look at them now. They have a good business model, they have grown tremendously, they are carefull to offer what Wall mart doe not and the best looking women in my town shop there. I think Kex was right in suggesting that Wall Mart is not invincible. Its up to business to figure out who doesn't shop there and go after their money.

[Woochifer]

Very interesting topic and a lot of very good responses. I've got a slightly different perspective because I've worked on environmental impact studies for proposed Wal-Mart projects. The angle that I've analyzed is the business and job losses that potentially occur when they come into a market. Basically, there is no one-size-fits-all answer because the economic conditions are different in every market.

But, the short of it is that if Wal-Mart enters a market where there are no existing discount stores along with a stable population base, then the impacts can be huge and cut across a wide range of economic sectors. In markets where existing discount stores already operate, then the impacts might be limited to those stores with less "collateral damage" to other stores. The impacts will also vary depending on the types of stores that exist in a community, the amount of spending that already leaves the community, population and income growth, and how well the existing stores are actually doing (i.e. if their profitability is already off the chart, then they might be able to sustain sales losses and still operate profitably).

Wal-Mart's impact on the retail sector has been enormous. In the early-90s, Sears was still the #1 retailer, yet Wal-Mart's current sales more than triple Sears' earlier sales.

Wal-Mart is a hot button because their business practices touch on so many different areas, and their influence has reached an unprecedented level among retailers. Emaidel already touched on the supplier relationships, and there's also their predatory pricing policies, their labor practices, their lobbying methods, etc.

Wal-Mart's corporate culture has always been about cost cutting and staying focused and frugal. But, ever since Sam Walton died, I think that this corporate edict has gotten to a new extreme. At least when Walton was still alive, he tried to work for U.S. companies and promote American-made products. All of that has gone by the wayside since Walton's death.

Someone else mentioned that Wal-Mart has gotten to their dominant position because we've allowed it to happen. To a degree that's true, but I think a huge part of this goes back to how local governments are funded. In most states, sales tax is the one revenue source that cities have the most control over.

Wal-Marts represent cash cows to cities because of the sales tax, and Wal-Mart knows this. In rural areas especially, they will pit one town against another. The argument is that if Wal-Mart comes to YOUR town, then at least YOUR town will get the tax revenue. Businesses and jobs will be lost in both communities no matter, so the issue is which town benefits and which one loses out. This gives Wal-Mart tremendous leverage in exacting subsidies and other inducements from local governments. IMO, this also results in atrocious developments that are inappropriately scaled and create a traffic nightmare. All you have to do is look at how much better the big box centers are in Oregon (a state with no sales tax) to see how big an effect this tax incentive has on the quality of development.

More recently, communities have begun resisting Wal-Mart. For one thing, Wal-Mart has already penetrated into most markets and at this point, they're largely adding stores to markets that they already serve. The recent flashpoint in California has been the proposals to add Wal-Mart Supercenters.

Up to this point, the Wal-Mart stores have not included grocery sections, but the more recent Supercenter proposals entail much larger stores with grocery sections, and this has run into resistance in many areas. Local governments are more emboldened to oppose these projects, not because of principle, but because groceries are nontaxable (in California at least) and approving these projects does not result in higher tax revenue for local government. In addition, most supermarkets in California are unionized, and this has brought out organized and well-funded opposition. And just a week ago, a city in the Bay Area, after rejecting a Wal-Mart proposal last year, has begun pursuing eminent domain on the land that Wal-Mart owns, which would force Wal-Mart to sell the land to the City at market cost.

With the labor practices, Costco has often been held up as an example of how a discount retailer can operate profitably while paying higher wages and benefits. I believe that Costco's average hourly wage is almost double that of Wal-Mart, and their benefits are more generous. Costco's argument is that higher wages produce a more stable and higher quality workforce, which helps the bottomline. Less staff turnover = less training costs, better customer service, less recruitment costs, happier employees.

For me, I don't shop at Wal-Mart for any number of reasons (having dealt with their corporate lawyers is reason enough). Given that this is an audio/home theater board, I don't support Wal-Mart simply because they don't support widescreen DVDs or special edition issues, and have lobbied the studios to put out more movie-only pan & scan versions (i.e. make it cheaper and make it dumber). They eventually came around on widescreen (at least now they will buy some widescreen copies when a P&S version is available), but their mentality towards the studios is the same as any other supplier -- push the price lower no matter how it affects the quality of the disc release itself.

[emaidel]

Fantastic, and informative posting, Wooch. You put a different perspective on reasons not to shop at Wal-Mart, and some pretty good ones too.

Here in the Denver area, a recent plan for Wal-Mart to open yet another super center (not too far from three others) was nixed by all because of the environmental impact it would have had: not only would an existing strip mall (consisting of several, well-established small retailers) have been condemned to erect the superstructure, but a lake would have had to have been drained and filled to accommodate Wal-Mart's parking lot. Thank goodness it didn't happen.

Also, there have been mentions of other retailers in this thread, particularly Target. I routinely shop at a Super Target without hesitation. Salaries for their employees range from $3 to $4 more per hour than their Wal-Mart equivalents, and while not always the sharpest knives in the drawer, Target employees are considerably more intelligent and useful than the cretins who work at a nearby Wal-Mart Supercenter.

Target's prices in their supermarket on some, but not all, items are significantly less than at neighboring supermarkets, and this provides me with not an entirely new place for which to purchase all my groceries, but an additional place to do so. Sometimes their prices are amazingly low (Land 'o Lakes butter at $2.49 as compared to $4.99 in three supermarkets), and at other times, despite heavy in-store promotions, their prices are a lot higher, especially on Coke and Pepsi products.

Healthy competition is a good thing. Predatory business practices and ruthless treatment of suppliers and employees isn't.

[shokhead]

I'm no expert in business, but just when you think Wall Mart is going to be the final word in retailing, along comes Target, resurrected from the dead. When I was younger, Target was lower in the food chain than K-mart and look at them now. They have a good business model, they have grown tremendously, they are carefull to offer what Wall mart doe not and the best looking women in my town shop there. I think Kex was right in suggesting that Wall Mart is not invincible. Its up to business to figure out who doesn't shop there and go after their money.

Gemco,Two Guys,Zodys,Whitefront

[ForeverAutumn]

Wal-Mart's only interest is Wal-Mart, and profit for Wal-Mart.

Isn't that the very reason that you chose to sell your coffeepots to Wal-Mart in the first place? Profit? You went from selling 15,000 pots a month to selling 15,000 pots a week. Your profit went up considerably. But you alienated your other customers in favour of that profit. It's simple economics and your failure was caused by your own greed.

Now, I'm not condoning Wal-Mart's actions. I don't think that they are very good corporate citizens and I also refuse to shop there for many, many reasons. But you made, what ultimately turned out to be, a bad business decision. You can't blame Wal-Mart for that.

I have a friend who owns an advertising agency. She signed on a very large account. In order to properly service this one large account, she eventually had to let go of a few of her smaller accounts. This was a profitable decision for her and worked well for a few years. Eventually, this large account ran into it's own financial problems and declared bankruptcy. Because she relied so heavily on this one account, she was also forced into bankruptcy. She lost everything... her business, her house, everything. After time, and a lot of hard work, she rebuilt her agency. And the large account also worked out its problems and reopened. But she had learned her lesson...don't rely on one account to put food on your table because you can't control that accounts actions and how those actions will affect you. She turned down working with this account again, in favour of taking on a lot of smaller accounts. Now if one of her accounts leaves her...for any reason...it won't have such a large impact on her business.

I feel very bad for the people in the Rubbermaid factory. However, why do you think that Rubbermaid agreed to sell to Wal-Mart in the first place? It was profitable to do so. So blame the Bozo at Rubbermaid, who signed the agreement with Wal-Mart, for making a bad business decision and putting all of his eggs in one basket. Don't blame Wal-Mart.

[Feanor]

"Monopsony" -- definition: situatution of a single buyer with many sellers; the opposite of monopoly. Although the Wal-Mart situation isn't quite a strict monopsony, the fact is that this retailer is so relatively large that they can deal differently and more severely than other buyers. Monopoly and monopsony aren't healthy situations, and if you deal with them, you deal with the devil.

The defences of Wal-Mart I've heard so far miss the critical point, above.

Yes: Wal-Mart has a contract that the manufacturer signed "voluntarily", (to use the term loosely);
Yes: Wal-Mart has a legal contract;
Yes: Wal-Mart has the same, God-given right to earn a profit as anyone else;
Yes: Wal-Mart is only seeking compeditive advantage which is a normal thing to do;
Yes: Wal-Mart is in line with normal "business ethics", (to use another term loosely).But no: dealing with Wal-Mart is not like dealing suppliers like other retailers on account of their size and prevalent market position. Competition is a good thing, (the "invisible hand" of Adam Smith), but competition is severely reduced on account of Wal-Mart being who they are. Remember your micro-economics: when a monopolist or monopsonist simply acts in their own best interest, (as if they were a compeditor), it is invariably bad for the public interest one way or another.

[emaidel]

[QUOTE=ForeverAutumn] Your profit went up considerably. your failure was caused by your own greed.

However, why do you think that Rubbermaid agreed to sell to Wal-Mart in the first place? QUOTE]

My profit dollars may have gone up, but my profit margin went way down. and my "failure" was in no way caused by greed: accepting an offer to more than quadruple my business, just as Rubbermaid's acceptance of Wal-mart's offer to buy four of their products in quantities none of their existing dealers were capable of buying, was a reasonable and understandable business decision. Most significantly, no other retailer anywhere, nor any combination of retailers, could even come close to the volume both I (with my hypothetical coffee pot) and Rubbermaid (with their real-world items) could do by selling our products to Wal-Mart. This is a key, and insidious characteristic of Wal-Mart - they are the largest retailer in the world, and no one retailer, or combination of retailers, is capable of generating an eqjivalent volume of purchases.

Also, as I described in a previous post, I would not have simply said to Wal-Mart, "Your price is......," but rather, would have structured a program for them (just as I'd done for all my other dealers) that resulted in a net price to them that was that which they wanted to pay for my coffee pot. Whatever I put in writing as a "contract," or "agreement," or whatever one wishes to call it, would be the program, and not the price itself. Then, in the all-but-inevitable reality of the business world, in which prices go up all the time, my initial Dealer Cost would go up as needed, but the retailer's, and in particular Wal-Mart's program, would remain intact. This is how I've done business for decades, as I learned a long time ago, that if dealer programs or "deals" are crippling my company's profits, then, instead of cutting those programs (which always results in dealer uprorars and bad manufacturer/dealer relations), I'd be better off raising my prices, and still allowing my customers to have their programs, or discounts, or "deals," or whatever one wishes to call them.

Also, when originally designing "Ed's Coffee Pot," I would have made sure that the original "suggested retail price" of $99.95 was a genuine value, and provided me with a decent range of potential increases (if, and when necessary) that would still render the device competitive - say, up to $129.95, but no further. Raising my prices then to everyone, but keeping all the programs and "deals" in place is a fair way of doing business. And, most importantly, the end-user (the consumer) still gets an appliance at a fair, and competitive price.

When Rubbermaid sold their products to Wal-Mart, they were still selling them to most of the dealers they were originally selling them to. In order to meet the gigantic demands for the quantities Wal-Mart purchased, they had to invest heavily in expanding their manufacturing facility, and the required personnel to staff it. When their cost of goods went up, and they had to raise their prices, all the rest of their dealers agreed - only Wal-Mart didn't, and the facility, now much too large for the original demand from the original dealer base was forced to shut down. I'm sure no one in Rubbermaid was foolish enough to offer Wal-Mart a "contract," or whatever one may want to call it, that held prices in perpetuity, and in all likelihood, structured a program much like what I've suggested.

I know this won't convince you completely, but your response (or "retort") to me suggested greed where it didn't exist, and sheer stupidity on the part of "someone" at Rubbermaid, and that's a bit too simplistic.

[ForeverAutumn]

My profit dollars may have gone up, but my profit margin went way down.

So you knew the risk that you were taking when you struck the deal with Wal-Mart. But because your profit dollars were going to increase, you made a decision that the reward was worth the risk.


and my "failure" was in no way caused by greed: accepting an offer to more than quadruple my business, just as Rubbermaid's acceptance of Wal-mart's offer to buy four of their products in quantities none of their existing dealers were capable of buying, was a reasonable and understandable business decision.

No, it wasn't a reasonable and understandable business decision because you put all of your eggs in one basket. This is a bad business decision. And, ultimately, this is what hurt you.

In Rubbermaids case, they expanded their business to accomodate Wal-Mart. I understand that business's do that all the time. The purpose of a business is to be profitable, otherwise, why bother doing business. But again, that was a decision that Rubbermaid made in order to get Wal-Mart's business and increase their bottom line. When you make a decision like that, you have to expect that if Wal-Mart pulls out it's going to have a significant impact on the business. You can't be surprised by the layoffs when they happen. As I said, it's an unfortunate situation, and perhaps Wal-Mart's business ethics may be in question (I say may be. I don't know enough about the big picture to comment) but I'm still not convinced that Wal-Mart is the only one to blame in this case. I think that Rubbermaid has to take on some of the responsibility for expanding their business, knowing that it was not sustainable if Wal-Mart bailed on them.

In the example of your coffee pots, you took on more risk than you could afford. I still don't see how, in this particular example, this is Wal-Mart's fault.

[emaidel]

No, it wasn't a reasonable and understandable business decision because you put all of your eggs in one basket. This is a bad business decision. And, ultimately, this is what hurt you.

.


I agree with you on this one, but only partially. Putting all of one's eggs in one basket is indeed a bad business decision, but Wal-Mart's icredulous size has changed the rules of the playing field: as I, and Feanor, have stated, there is no other single retailer, nor combination of retailers who can possibly generate the volume that Wal-Mart does, so, if you lose Wal-Mart's business, you're pretty much up s**t's creek, and they know that.

One enters into a business relationship with Wal-Mart with a good deal of trepidation, knowing that if they back away from you, there' s no where else to go to make up the volume. I'm sorry, but I simply can't blame a manufacturer for expanding his facility to meet Wal-Mart's needs, only to have Wal-Mart then tell him to "go take a hike," for whatever reason they fancy at that moment, and not hold Wal-Mart accountable in some measure.

In the case of my hypothetical coffee pot, and Rubbermaid's real-world scenario, what Wal-Mart did, while not illegal, was most decidedly unethical. Both Rubbermaid and I still offered them the opportunity to make the same margin they once did, but Wal-Mart flatly refused. And, more importantly, in both cases, our products were NOT replaced with similar ones from another manufacturer, but they simply disappeared from the shelves. Who lost out in the end here? The consumer, as my coffee pot (remember, I said it was as terrific deal at, and beyond $100), and those four Rubbermaid items simply vanished from the marketplace, and are no longer available. Anywhere.

Case in point: the famous Rubbermaid wooden, or plastic handled spatula, or "scraper." Though Rubbermaid now sells several "made in China" variants, the original spatula, at least from this cook's perspective, had no peer and was something my family and I used for decades to remove the last vestiges of mashed potatoes, whipped cream or pancake batter from a bowl. And now it's gone. Thank you, Wal-Mart.

[EFE Speakers]

A side note that I think is important for the manufacturer to consider.

If a manufacturer chooses to sell to a large retailer like WalMart who sell that particular product for a cut rate discounted price to beat all the competitors, most likely many other competitors may drop that product rather than try to compete with WalMart. This adds to injury because WalMart would love to be the exclusive dealer for all its products and eliminate all the competition, that's every corporation's dream! I know many manufacturers will not sell to WalMart or any other large discount store for that very reason.

Once a big retailer holds a manufacturer hostage to a set price in spite of cost increases, the only recourse for the manufacturer is to drop that retailer (WalMart), refuse to sell to them again and make an effort to increase sells through their other retailers, including trying to restore those retailers that may have discontinued carrying the product because of WalMart. They may have to endure with layoffs while attempting to make up for the loss, but if WalMart no longer carries the product consumers will go elsewhere to find it, basically to all the remaining retailers.

The original purpose of this posting may have stirred up some opposing opinions, but the benefit from it should be a lesson for all manufacturers who face growing pains and are considering a contract with any large retailer. You decide to jump in bed with a monster to get rich and you may not get out without being hurt!

EFE

[kexodusc]

I agree with you on this one, but only partially. Putting all of one's eggs in one basket is indeed a bad business decision, but Wal-Mart's icredulous size has changed the rules of the playing field: as I, and Feanor, have stated, there is no other single retailer, nor combination of retailers who can possibly generate the volume that Wal-Mart does, so, if you lose Wal-Mart's business, you're pretty much up s**t's creek, and they know that.



Emaidel,

You are making a bad assumption to support your argument:

you lose Wal-Mart's business, you're pretty much up s**t's creek, and they know that.

This is absolutely false. There are millions of extremely successful manufacturing companies that don't deal with Wal-Mart...it's not Wal-Mart or bust...The world doesn't revolve around Wal-Mart. The reality is companies can thrive without aligning themselves with Wal-Mart. The decision to do so is entirely up to them. And let's face it, if you're smart enough to reason that getting into bed with Wal-Mart is the kiss of death, they should be too and not make that mistake. The responsibility rests with them, and them alone. Hence, the "rules" haven't been changed at all. There's always been a market share leader, and always will be. The only thing that changes is the name.

Consider the other side of the story as well. I'm responsible for a company in our portfolio that manufactures small, inexpensive items, very homogenous, with little brand identity or recognition. Let's say this company sells thumbtacks or nails (it doesn't - but I'm just covering my hide here). This company also sells it's products through Wal-Mart. By virtue of making that decision to sell with Wal-mart, their production demands almost tripled. This enabled that very same company to leverage itself against its suppliers, some raw materials and large machinery vendors...The overall result was dramatic decrease in the Cost of Goods sold for this company, overhead declined considerably as well. To further capitalize on this situation, the company decided to use it's newfound low-cost leader advantage to offer pricing discounts to Wal-Marts competitors as well...In the end, the consumer saved as prices across the market dropped. The catch is, the profitability actually went up for this company. What's more, the manufacturer was able to grow at such a rapid pace, it decided to undertake vertical integration, and purchased one of its suppliers, as well as started-up a new wholly owned subsidiary business to supply another essential service. This was done domestically, rather than having to buy raw-material from Venezuala. The costs further declined.

Before Wal-Mart, this company's industry was very capital intensive, high start-up costs, low margins. The sheer volume of production allowed it to absorb these costs better. The fact is, the competition had saturated the market to a point where it became inefficient and, surplus costs were passed on to the consumer.

This success likely could not have been achieved without Wal-Mart's distribution channel.
Walmart didn't benefit anymore from this companies success, nor is it entitled to...just goes to show it works both ways. We tend to hear the disaster stories much more than the success stories.

[topspeed]

Nice post, Kex :thumbsup:

[emaidel]

Emaidel,

You are making a bad assumption to support your argument:


There are millions of extremely successful manufacturing companies that don't deal with Wal-Mart...it's not Wal-Mart or bust...The world doesn't revolve around Wal-Mart. .

That's very true, and you're absolutely right, the world doesn't revolve around them. I was trying to make a particular example of how their predatory pricing structure at retail forced competitng dealers, at least in the case of "Ed's Coffee Pot," to cease selling the product, and leave me with Wal-Mart as either my disproportionately large, or even only account, and then find myself going out of business because they wouldn't accept a necessary price increase. And, if this were a real-world scenario, I can assure you that they would have been well aware of their importance to me (and others), and not give a flying f**k either.

Many successful manufacturers don't do business with them, and refuse to for whatever reasons. You won't find any Krups, Braun or Cuisinart products there, yet those three companies still do quite well elsewhere. The person who'se "up s**t's creek" is the one who, regardless of how it happened, has Wal-Mart as his biggest or only customer, and when and if Wal-Mart stops buying that person's product(s), all the cost savings you described (very well, I might add) stop immediately.

I think I made a good example of how Wal-Mart can ruin a manufacturer and cost hundreds of people their jobs. You made a good example of how cost of goods could go down due to increased volume. But once Wal-Mart decides to go elsewhere, then all that goes up in smoke.

With that, let's you and I (just as I did with Topspeed) agree to disagree.

So, in the interest of civility, what are your favorite speakers?

[kexodusc]

I don't actually disagree with your assessment of the impact Walmart has on some retailers, and the bad things they do...they ain't no saint...that's for sure.
But the fact Wal-Mart is evil or not doesn't get businesses who made the mistake of exposing themselves to "Wal-Mart risk" off the hook either. They are at a minimum 50% responsible. In my opinion, the fact they weren't forced into a Wal-Mart deal, but rather tempted, puts that at least at 51% responsibility.
I feel those employees that lost their jobs should blame the decision makers more than Wal-Mart. Truth is, if it wasn't Wal-Mart it would have been someone else, and the mistake still would have been made with the same result.

Doesn't excuse Wal-Mart of their predatory tactics either...I think this lack of "exclusive responsibility" was the point/counterpoint most of us were trying to make with you. And I think you also agree with it if I'm not mistakend.

I don't have favorite speakers really, I like too many models. Though the past year, my favorite design has been the Focus Audio FS-788.
You?

[shokhead]

Does Walmart force any retailer to sell there product at Walmart?

[Feanor]

...
But the fact Wal-Mart is evil or not doesn't get businesses who made the mistake of exposing themselves to "Wal-Mart risk" off the hook either. They are at a minimum 50% responsible. In my opinion, the fact they weren't forced into a Wal-Mart deal, but rather tempted, puts that at least at 51% responsibility.
....


So perhaps Wal-Mart's deal is like Faust's deal with Satan. Who was to blame, Faust or the Devil? Did Faust think to outsmart the Devil? Is there any hope of redemption for Faust?

[bobsticks]

Does Walmart force any retailer to sell there product at Walmart?
This weekend 60 Minutes will be releasing a report on a payroll audit done by the IRS on Walmart's foreign corp. Wal-Mex. Evidently, there are some paramilitary figures on the payroll including some former Narodnyi Kommissariat Vnutrennyhk Del officers. It alledges a campaign of threats and intimidation being carried in conjunction with full scale bribery of foreign dignitaries. Thus far, President Bush has been able to avoid comment or action on the situation as operations have originated from training facilities in Mexico and Venezuela. Moreover, the administration can largely spin it as largely a "problem for Mainland China" though "regrettably an issue of Chinese sovereignty".

[shokhead]

Huh???

[emaidel]

I don't have favorite speakers really, I like too many models. Though the past year, my favorite design has been the Focus Audio FS-788.
You?

I haven't kept up with current models, but I still love my "Show Model" Dahlquist DQ-10's that I purchased direct from Dahlquist in 1977. The crossovers of my speakers incorporated mylar caps long before Dahlquist routinely inclulded them in standard production, and the speakers were somehow "tweaked" to outperform normal production units, as they were exclusively used in trade shows , and that's where I bought mine. Maybe that's why they sound so good.

I recently paid Regnar close to $300 to completely rebuild the woofers after Simply Speakers in Florida refoamed them, but did a sloppy job, resulting in audible distortion at certain frequencies which the folks at Simply Speakers sloughed off as me "exceeding the speaker's capability." The service manager at Regnar called me and gave me a long, and well-documented explanation of what was wrong with Simply speaker's work, and now, I feel as if having spent that $300 was well worth it. I supplement them with a Definitive Technology SP-15+ powered sub, which significantly outperforms my previous Dahlquist DQ-1W as it goes much deeper, and it's built-in crossover has a much sharper cutoff than the Dahlquist version (the active unit, not the passive one).

I'm sure there are better speakers available out there, but not at the price of the DQ-10. In fact, they even outperform my far costlier B&W 802F Specials.

[bobsticks]

Huh???
The only appropriate respose shokhead. I was exaggerating for effect, and for the record, I agree with your previous post. I fall into the camp of those that would suggest that perhaps, just perhaps, if we all took greater resposibility for our actions the world might be a bit better place.
" Ever dance with the devil in the pale moonlight?" Any supplier that gets into bed with Wal-Mart has to know that this outcome is possible. Any supplier that is not mindful of insulating itself against the effects of market/cost fluctuations while in service to Wallyworld is negligent to itself and toward its employees. It's not exactly like 3000 Wal-Marts popped up last week. Suppliers go into the deal knowing that they are playing in the big-boy league.
EFE successfully demonstrates that there is life sans Wal-Mart, and how grateful we should all be. Frankly, the fact that we can sit around here discussing $1000-$10,000 speaker systems leads me to believe that none of us fall into WM's target demographic anyway. Another cause for gratitude.

Cheers to y'all

[PAT.P]

Frankly, the fact that we can sit around here discussing $1000-$10,000 speaker systems leads me to believe that none of us fall into WM's target demographic anyway. Another cause for gratitude.

Cheers to y'allAre you saying that only the lower income person shop at WalMart?You be surprise! Look in their parking lot and look at the cars some people drive:ciappa: .I'm sure glad there is one just a few blocks from where I live.:ihih:

[Feanor]

Are you saying that only the lower income person shop at WalMart?You be surprise! Look in their parking lot and look at the cars some people drive:ciappa: .I'm sure glad there is one just a few blocks from where I live.:ihih:

My closest is the one at Whiteoaks Mall. We shop there all the time, for certain things at least. :arf: Not that we're rich. :cryin:


We used to live in Leaside in Toronto. One time, quite a few years ago, I saw Lord Kenneth Thompson in the Loblaws that was at Bayview and Moore Ave. At the time I guess he was only worth $5 billion or so. Guess the servants had the day off. :eek:
http://www.forbes.com/lists/2006/10/0ZB0.html

[bobsticks]

[QUOTE=PAT.P]Are you saying that only the lower income person shop at WalMart? QUOTE]

No guys, that wasn't what I meant but I do concede that I phrased it rather clumsily. My intentions were to convey two things.
The first post was a bit of sarcastic over-exaggeration. It was really designed to be alarmist in that people love to believe and rail against the monoliths of the world--be they governments, bureaucracies, or corporations. It's easier to lay a blanket of blame on a nameless, faceless leviathan than it is to look at individuals and the reprocussions of individuals' decisions. I can't help but notice that nowhere in this thread has anyone mentioned the variety of good things Wal-Mart does, not the least of which was the millions of dollars of relief aid donated during Hurricane Katrina ( and few and far between were the mentions of this in the press since positivity doesn't sell papers ).
The part in the second post to which you which you refer was ineptly truncated for purposes of brevity. Looking back on the specific words, I can see why many might take exception so let me give you a little background. A few days,out of curiosity, ago I went to a Wal-Mart at 7:00 PM (see what I do for you guys). It has been my infrequent practice to shop at WM only during the early AM hours as I dislike long waits in line--and I really despise them when there are 35 registers and only 7 of them are open. Also, it's important to note that WM is one of the only "big-box" stores in Indiana that accepts food stamps. Here those come in the the form of "dbt" or "ebt" cards, or something like that. They are essentially debit cards for the unemployed. Out of the 8 people in line in front of me 2 had cards that either wouldn't work or had already been run to the maximum. This of course was not discovered until completion of the lengthy "ringing-out" process. Now this being an inner-city store it's probable that this type of problem is more prevalent here than in suburban areas, but it was bothersome nonetheless to watch food sit wasting in carts as there were no employees around to deal with it.
Earlier I had stopped in the electronics department, and on the video-side of things was impressed. A variety of smart looking plasmas and lcds lined the walls. On the downside, it appeared as if they were splicing one sat line for roughly 35 tvs, and so, it was impossible to get even a remote idea of the true capabilities of any of the units.On the plus side there was, for every set, a detailed information card. This was even more valuable because upon questioning, neither of the two employees had any knowledge about HD signals, connectivity,etc. Evidently, according to the signage, one can purchase an extended warranty through the store and I would love to list the terms of that but neither of said employees knew anything about that either.
From the looks of the product here and around the store, I have to partially contradict myself. It would appear that WMHQ or its buyers may be targeting exactly a middle-class and above demographic. From an operational standpoint, this doesn't seem to be making it to the store level.
Presumably, WM reports its numbers to "The Street" just like everyone else. Inclusive in this would be not only overall dollars earned, but profit margins as well. When looking at controllable expenses, the historically frugal WM may not have a lot of other options but to look at wages as an opportunity. In defense of the two employees that night, I doubt that with 30-40 people all needing attention these kids had a lot of freetime to read up on product literature.
And that's the point. With its wage control practices this company may be, at least in some stores, alienating the very clientele to which it's aiming with its product mix. They seemingly fail to realize that as income goes up time becomes a consideration of utility. The same loss of knowledgable advice that has been lamented in other threads on this forum is never so present as in these stores. The average customer doesn't need to ask questions about $2.00 shampoo, but that same average customer invariably will need a bit of guidance with a major tech purchase.
I am not a WM hater and I think I've made that clear. I think for all its faults and attributes WM is a most appropriate symbol of American capitalism. However, just as I wouldn't speak in favor of governmental practices with which I disagreed, I wont spend my days off standing in line to save a few pennies because I support Wal-Mart "in theory". There's too many tunes to be spinnin'. I believe that WM helps a lot of people, and probably the folks that need it the most, but at the same time I'm grateful that WM is not my only option. Great prices are fine, but after a while I felt like I was standing in the Russian bread lines.
I hopes this clarifies my position. I was not sitting in judgement of anyone's buying practices. Just IMO and personal experience...

Cheers to all

[shokhead]

I save more then a few pennys but its at Target and i'm with you about lines so i'm there when needed at 8am on sunday to get in and out.

[dean_martin]

I have only a general idea of the direction of this thread. I certainly haven't read every post. I resist Wal-Mart most of the time, but when I need toiletries, dog food (for my dog), paper products, batteries, air conditioning filters, light bulbs, etc. I often find myself there because of the prices. I don't particularly like going there mainly because if I go there with the wife we always get seperated and it takes forever to get out of that damn place. Anyhoo...here's an article reporting a study on Wal-Mart's effect on poverty levels. From the very nature of the study it looks like they were looking for a particular outcome...but I have no opinion on possible biases, etc. - just acknowledging the potential.

http://www.bizjournals.com/stlouis/stories/2006/05/15/daily29.html