Wal-Mart's Global Ambitions

Wal-Mart (NYSE: WMT  ) is known as a tough retail competitor, and it's recognized as ruthless when it comes to squeezing its suppliers to deliver the best possible prices. When consumers are exceptionally price sensitive, wringing every penny out of a product is essential to growing sales.

Scrounging for pennies
That truism was borne out when Wal-Mart switched from an "Always Low Prices" motto to "Save Money. Live Better." Instead of delivering the best value proposition, the company focused on reducing clutter from its aisles to help drive cost savings on popular products. But when customers couldn't always find what they wanted on its shelves, they pushed their shopping carts to the dollar-store chains like Dollar Tree (Nasdaq: DLTR  ) and Family Dollar (NYSE: FDO  ) , which have expanded their offerings to attract consumers.

International rival Carrefour, the world's second-largest retailer behind Wal-Mart, ought to take note as it summoned 20 of its largest suppliers -- global companies such as Procter & Gamble (NYSE: PG  ) and Diageo (NYSE: DEO  ) -- which account for nearly half its sales, to cull items from its shelves. Reducing assortment could result in reduced sales, as Wal-Mart found out.

Paint it black
Wal-Mart is increasingly pushing to use global suppliers as the company itself becomes more global. That focus on and preference for global suppliers has typically separated the Bentonville behemoth from other rivals. Most recently that has resulted in the retailer dumping domestic paint maker Sherwin-Williams (NYSE: SHW  ) in favor of Dutch coatings manufacturer Akzo Nobel, the maker of Glidden paints, which are also found at Home Depot.

Sherwin-Williams, the maker of Dutch Boy paints and Wal-Mart's own Color Place brand, only derives 16% of its revenue from outside the U.S. In contrast, Akzo generates 80% of sales internationally. That kind of global reach undoubtedly enables Akzo to deliver paint at an even lower price while meshing more neatly with Wal-Mart's discount image. It was actually a bit surprising that Sherwin-Williams was a supplier to begin with, since it has a premium persona in line with that of paint maven Benjamin Moore.

Don't worry about Sherwin-Williams, though. Wal-Mart sales contribute about $250 million annually, so that's only around 3% of the paint maker's $7.3 billion in trailing revenue. In fact, it might be good news. Beverage maker and former Wal-Mart supplier Cott (NYSE: COT  ) actually saw its shares soar after the retailer severed their 10-year exclusive supplier contract and its margins expanded last year. Wal-Mart's ability to hurt suppliers is well-known.

But Wal-Mart's negotiating power can also work to a supplier's benefit, such as its move toward RFID tags for merchandise, where it's using its buying power to help its own suppliers buy the tags at reduced cost.

In a cutthroat business like retail where a penny saved can mean a dollar earned, Wal-Mart's laser-like focus on expenses has global implications.

Home Depot and Wal-Mart are Motley Fool Inside Value recommendations. Sherwin-Williams is a Motley Fool Stock Advisor selection. Diageo and Procter & Gamble are Motley Fool Income Investor choices. The Fool owns shares of and has written covered calls on Procter & Gamble. The Fool owns shares of Diageo and Wal-Mart. Try any of our Foolish newsletter services free for 30 days.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.

Fool contributor Rich Duprey does not have a financial position in any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.


Read/Post Comments (2) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 04, 2010, at 12:48 PM, madmilker wrote:

    People of the World Global Ambitions.....

    reading this and taking it to heart like the nice people of Germany and South Korea did...

    "There is only one boss. The customer. And he can fire everybody in the company from the chairman on down, simply by spending his money somewhere else."

    Sam Walton

    Retail makes NOTHING...

    Governments only make MORE DEBT...

    It's time for less of those two and for America to get back to what it does best....MAKE STUFF..

    cause George Washington on that dollar can't help anyone in the United States of America if he is being held in a foreign hand.

    Made In America is the only way out of this mess cause foreign made put US here.

  • Report this Comment On September 15, 2010, at 6:33 AM, Joe5623 wrote:

    I believe that you are giving out false information about COTT!

    WalMart didn't drop them as a supplier; they just didn't support them as a "preferred supplier".Their present contract doesn't expire till 2012 and I believe that within a short peroid of time, you will again see them as "the preferred supplier.

    No other beverage company has the facilities to do this, except the Major brands and both Pepsi and Coke are battleing it out, for markket share, at the present time......so I guess that the present time is as good as any to get their house in order and to come back as the "preferred supplier" to Walmart!!!

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1291065, ~/Articles/ArticleHandler.aspx, 12/18/2014 7:44:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement