Retail Giant Walmart Strong Arms Its Suppliers

Written by Adriana Pulley

Walmart warns its suppliers that they will not be paying higher prices for products anymore. The move spurred rivals Target and Amazon to take a similar stance per the Wall Street Journal. 

These larger retailers are reclaiming power by canceling orders, resisting price increases, and in some cases asking suppliers to provide discounts. 

The Supplier’s POV

• Estée Lauder Cos. says beauty product sales would drop further than expected due in part to tighter inventory management by some US retailers. 
• Mohawk Industries Inc., a flooring and carpet manufacturer, says sales of many products are down and freight isn’t moving as retailers work to shrink their inventories. 
• Newell Brands Inc., producer of Rubbermaid and more, had to cut its sales and profit outlook in both September and October. It hopes to shrink the $500 million inventory surplus it has this year.

The Retailer’s POV

• Walmart CEO Doug McMillon says the company is searching for innovative ways to avoid price increases: shrinking packages, and earlier orders…or competition. 
• Walmart sales increased 8.2% in Q3 compared to last year, beating predictions. The company showed confidence by announcing a $20 billion share buyback. 
• Food sales are up, but retailers look to cut prices on home goods, apparel, and electronics. 

The Consumer POV

• 56% of Americans feel companies are frivolously raising prices, per a Deloitte survey. 
• 8 in 10 consumers plan to rethink or reduce spending in the next 3-6 months, per The NPD Group research.
• People still spend on little feel-good items like chocolates, fragrant soaps, and air fresheners, according to market experts. 

As suppliers rushed to build inventory last year…

…they increased hiring and struggled to meet freight needs at so high a rate. The demand was high, and these suppliers were able to shift the power in their favor. Earlier this year, however, retailers flashed warnings about high inventory levels. Walmart and Target buyers stopped placing orders with Newell and other suppliers in a swift takeback of power. 

The tough play isn’t anything new for giant Walmart. 

However, these latest negotiations will continue to be exceptionally fierce due to the unpredictability of today’s economic climate. Retailers seek to attract increasingly thrifty shoppers, but producers want price hikes to cover rising costs. Yet it’s clear that in this game of tug-of-war, Walmart just has more pull.