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| | Walton: Wal-Mart's success in low-price strategy
Wednesday, Jun 23, 2004 By Alison Vekshin Stephens Washington Bureau WASHINGTON -- The chairman of Wal-Mart Stores Inc., on Tuesday sought to puncture a popular belief that the retailer's massive size gives it a big advantage in dealing with suppliers. Rather, Wal-Mart's strategy of offering "everyday low prices" sets it apart and has propelled the retail giant's astronomical growth, S. Robson Walton said. "One of the misconceptions of Wal-Mart today is that we arrive at low prices because of our size and our ability to get the best deals from suppliers," Walton, the son of company founder Sam Walton, said in a speech before the annual conference of the American Antitrust Institute. "We are no different from you when you are buying a car or an appliance," he said. "There are limits on what a supplier can do for us on price." If anything, Walton said, Wal-Mart's buyers suspect suppliers charge them more than other retailers. "Wal-Mart may not be able to access all the deal money that some suppliers offer retailers to promote their products," he said. "As a consequence, Wal-Mart ends up paying more." Walton contrasted Wal-Mart strategy with its competitors. While other retailers attract customers by offering discounts on selected items, the Bentonville-based retailer's customers "always get a low price on our full selection of products day in and day out," he said. Under the "high-low" pricing strategy practiced by competitors, customers often find sale items are sold out, available only for a few days, or can be purchased in a limited quantity, Walton said. He said that strategy creates inefficiencies, builds obstacles to bringing new products to the marketplace, distracts buyers and makes it harder to manage the supply chain. "Dad's idea was to build a relationship of trust so that the customer didn't have to wait for the advertising circular to get the best price," Walton said. Wal-Mart does not offer loyalty cards, special sales, promotions or coupons, he noted. "Everyday low price is why we have grown from one store in a small town to thousands of stores in this country," he said. "While some retailers have picked up the concept on a limited scale, Wal-Mart remains the most dedicated practitioner of everyday low price." Wal-Mart's net income has surged from $3 million in 1971 to $9 billion last year, he said. While acknowledging Wal-Mart's pricing strategy is a pillar in its success, retail analyst Joseph Bonner said he found it hard to believe that Wal-Mart is paying suppliers more than other retailers. "It's well known that Wal-Mart, because of their size, tends to drive tough bargains with their suppliers," said Bonner, an analyst at New York-based Argus Research. "This is common knowledge that this is what happens that they are able to get fairly substantial price breaks from their suppliers," Bonner said. Bonner said Wal-Mart stands out because it's a price leader, is perceived to offer the lowest price, and its stores are prevalent nationwide. "They are everywhere," he said. "That makes it a convenience factor. You can walk into Wal-Mart and buy virtually anything you need." In his speech, Walton said Wal-Mart's success is linked to its goal to drive cost out of its business at every step along the supply chain. He also pointed to its understated corporate approach to set the tone for entry-level employees. "There is no massive (headquarters) building, no plush offices or other frills," Walton said. "I'm chairman of the board and my office is 10 feet by 10 feet with no windows." -- 30 -- |
