Walmart’s Message to Suppliers: Talk to the Hand

According to a Reuters report last week, Walmart (including its Sam’s Club division) is continuing to put the squeeze on suppliers, as the company tries to offset rising costs due to increases in wages, e-commerce investments, and store improvements. Walmart recently warned that its earnings would decline by as much as 12 percent in its next fiscal year — sending its stock price down by 10 percent, which wiped out more than $21 billion in shareholder wealth.

“There might be unpleasant conversations but ultimately we want to do right by our suppliers because we want to create strategic relationships,” Sam’s Club spokesman Bill Durling said, as quoted in the article. “We want them to be along with us for the ride as we continue to grow.”

But if Walmart’s true desire is to create strategic relationships with suppliers, its actions don’t reflect it, as this interaction highlighted in the article illustrates:

Sam’s Club’s buyers summoned major vendors to meetings and told them a “cost gap analysis” showed they should be delivering at a lower price, and demanded millions of dollars in discounts on future purchases, according to emails reviewed by Reuters and interviews with suppliers and consultants involved in the talks.

Unlike in prior talks, which featured give and take, vendors were told they could not ask questions at the meetings, with queries to be handled later via email [emphasis mine], according to suppliers and consultants involved in or briefed on the meetings.

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No questions allowed? Communicate via email instead of in person? This is the corporate equivalent of “Talk to the Hand,” a slang phrase from the 1990s that basically says, “I really don’t want to hear what you have to say.”

Back in June, Walmart sent 10,000 contract renegotiation letters to suppliers, asking them to pay stocking fees and to extend payment terms. “What we are doing is what is happening across the industry,” and so [these action are] bringing Wal-Mart in line with competitors, Wal-Mart spokeswoman Deisha Barnett said, as quoted in the Wall Street Journal.

But as I said back in June, we’ve seen this movie play out many times before: bad things happen in the long term (quality issues, supplier bankruptcies, etc) when you increase the cost of doing business for your suppliers but still demand price decreases from them. Instead of being a true trailblazer, Walmart is following in the same worn footsteps of its competitors in the retail industry.

No doubt, the retail industry is undergoing significant transformation, driven by e-commerce, omni-channel fulfilment, and more demanding consumer expectations (see recent post, Built for Yesterday’s Consumer: The Demise of Malls and Traditional Distribution Networks). Retailers like Walmart have to respond to these changes in order to grow profitably in the years ahead — but in my opinion, their response needs to be bold and different, not old and tired, and unfortunately, based on these reports, it seems like Walmart has chosen the old and tired approach to supplier relationship management, which Arnold Schwarzenegger depicts beautifully in this “talk to the hand” clip from the movie Terminator 3.

For related commentary, see The High Cost of Poor Supplier Relationships and Nothing Easy About Supplier Relationship Management.