“Responding to feedback from its vendors that finding U.S. sources of supply was a challenge, Walmart found the solution in ThomasNet.com, industry’s leading platform for product sourcing and supplier discovery.” – Bloomberg Newswire, July 8th, 2015
One of the most frequently used taglines in the movies is “I’ve got a bad feeling about this.”
It is usually said shortly before something disastrous happens, in which the pending calamity is obvious to the viewing audience, but not the characters on the screen.
Unfortunately, this very sentiment almost immediately came to mind, when I read the press release proclaiming that Walmart had “tapped” – that’s right “tapped,” ThomasNet.com to “support its U.S. manufacturing initiative.
Before I explain my reasoning for feeling this way, I think it is important to understand that ThomasNet is a first rate organization that has a rich and deep history in terms of serving the American supply market. This history goes back more than 100 years.
The values that have and continue to, define the company, are generally speaking above reproach, and is reflected in the fact that those who work with ThomasNet have generally been with the organization for their entire careers. In some instances, we are even talking about a familial employee base that is into its second and third generation.
From the supplier standpoint, ThomasNet has built a reputation based on trust and the value it provides through informing, engaging and ultimately empowering suppliers to deliver their products and services to an eager market.
If we were watching a movie, ThomasNet would be the protagonist. The hero or heroine.
Enter Walmart (the antagonist – although I am sure that ThomasNet does not view them as such).
Back in July 2007, I wrote a post titled Public Sector Procurement and the Walmart Effect.
In it I talked about the fact that the more a supplier deals with Walmart, the lower their profits drop in relation to their industry’s average.
For example, I would write the following about the Cott beverage company:
“While Walmart squeezes margins of suppliers of all sizes, it’s still true that smaller companies tend to feel a tighter pinch. For example, beverage company Cott, even with a market cap in excess of $1.2 billion doesn’t have the brand strength of Coca-Cola or PepsiCo, whose products are in more demand at supermarkets, convenience stores and other outlets. So Cott, whose primary business is producing and distributing company-brand carbonated soft drinks, turns to Walmart for 38% of its sales, compared with less than 10% for the two beverage titans. The result? Cott’s gross margin of 12.4% last year was about a third of the industry average, while Coke and Pepsi both registered more than 50%.”
Cott of course is not the exception for suppliers dealing with Walmart, their experience is the rule.
The Vlasic Pickles Story
An article from Fast Company recounted what they referred to as the “sad story of Vlasic Pickles.” Here are excerpts from that article.
“Young remembers begging Walmart for relief. “They said, ‘No way,’ ” says Young. “We said we’ll increase the price”–even $3.49 would have helped tremendously–“and they said, ‘If you do that, all the other products of yours we buy, we’ll stop buying.’ It was a clear threat.” Hunn recalls things a little differently, if just as ominously: “They said, ‘We want the $2.97 gallon of pickles. If you don’t do it, we’ll see if someone else might.’ I knew our competitors were saying to Walmart, ‘We’ll do the $2.97 gallons if you give us your other business.’ ” Walmart’s business was so indispensable to Vlasic, and the gallon so central to the Walmart relationship, that decisions about the future of the gallon were made at the CEO level.”
“The story is that Vlasic, a premium pickle brand, agreed to sell a gallon jar of pickles in Walmart for an absurdly cheap price. What happened is fairly predictable. Why would consumers buy a small jar for $3.00 when they could get a gallon for the same price? Yet the margin on the gallon jar was incredibly thin, so despite the increased volumes, the pickle maker took in less and less, especially when you factor in Walmart’s insistence (stated up front) that suppliers lower their prices each year.”
“Finally, Walmart let Vlasic up for air. “The Walmart guy’s response was classic,” Young recalls. “He said, ‘Well, we’ve done to pickles what we did to orange juice. We’ve killed it. We can back off.’ “Vlasic got to take it down to just over half a gallon of pickles, for $2.79. Not long after that, in January 2001, Vlasic filed for bankruptcy.”
I would like to suggest that you read the original July 2007 post for additional data. However, the above should be sufficient in providing you with the basis for my concerns.
The fact is that historically, Walmart has been something less than a benevolent partner to its suppliers. This is largely due to the retailing giant’s propensity to leverage its size and influence, to extract every last drop of possible savings despite the consequences.
Is it any wonder that finding “U.S.-based sources of supply has been a challenge?”
Now unless something has dramatically changed within the Walmart hierarchy in terms of their approach to supplier relations, tapping into the rock solid reputation of ThomasNet to gain access to suppliers in the U.S.could become a nightmare for the latter’s creditability and brand.
Think about it for a moment . . . it is tantamount to giving Ferris Bueller access to your Dad’s priceless collection of automobiles.
I am going to be watching this story as it develops closely over the coming months.
While I hope that I am wrong, like the movie patrons at that critical moment in the picture, I have an urge to yell don’t do it, as I cover my eyes.