The news a few weeks ago that Walmart had set up a huge sourcing infrastructure in Asia and that it was going to aggressively expand the amount of direct importing it was doing was not just massive: it was Walmartian massive.
I think in a few years the general merchandise industry will look back at this as a seminal moment in the history of retailing and supply chain management. For 2010 was the year Walmart changed all the rules.
Some vendors will tell you this is no big deal. Walmart has been buying direct from Asia since it silently gave up on its Buy American campaign two decades ago. And they will say Walmart still needs a vendor who has good products and good brands. They will even say Walmart needs the vendors to be their fall guys when things don’t work out as planned.
I think these vendors are talking to themselves.
If I was a Walmart supplier, I would be terrified by this new policy. It means that Walmart is going to take more and more control over the entire process of designing, making, shipping and selling the products it retails, be it sheets and towels or franks and beans. What vendors are still in the assortment will be largely reduced to contract manufacturers making what Walmart wants, when it wants it and at the price it wants.
And good products and good brands aren’t going to be enough. We’re already seeing Walmart concentrate its product mix in such categories as laundry detergent and batteries, eliminating powerhouse brands that their owners thought were untouchable.
Now, this doesn’t mean the end of the world for everyone. No other retailer in America has the scale to duplicate this kind of strategy, despite whatever Target or Home Depot thinks. So there will be opportunities elsewhere in the marketplace for good suppliers.
And who is to say how long lasting this strategy will be. If you have a decent understanding of retail history, you’ll remember that before World War II, Sears was by far the largest retailer in America and it not only controlled much of its sourcing, it actually owned many of the manufacturers themselves. That eventually petered out as the number of retailers and suppliers exploded after the war. The same thing could happen to Walmart ... maybe.
But until it does, this is an entirely new business model and vendors better figure out how to exist in it. Maybe that means owning, rather than renting, manufacturing facilities in Asia. Maybe it means buying up your competition so you own all the cards when the assortment consolidation comes. Or maybe it means tactics and strategies nobody’s even thought of yet.
Whatever it means, it most certainly does not mean one thing: standing still and saying you’re not worried. As it has for much of the past several decades, Walmart has changed how business is done and you better get used to it if you want to stick around ... always.
