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Comment by antoinehersen | Hacker News Reader

If they make more money this way why are they getting screwed?

I'm not a Walmart hater, but as I understand, the company requires their suppliers to open their books for the inventory they sell to Walmart. If the company "makes more money", Walmart will squeeze them to lower their wholesale cost, but that won't necessarily be passed to the consumer.

Essentially, if you get in bed with Walmart, you will make the money you want in the short term, but eventually, if you want to keep that money coming in, you will lose control of your pricing.

This doesn't even get into exclusivity requirements for products, etc.

See Snapper lawn mowers, for some insight to this process.

Make a deal with the devil... and you'll end up at the behest of the devil.

>the company requires their suppliers to open their books for the inventory they sell to Walmart.

They do. And they'll start making demands about how you run your business (e.g. "stop buying this local, you need to buy it from China and here are a list of companies we recommend you use"). You will have lots of sales through Walmart but you have to be careful that they don't destroy your business on a whim. See Dill Pickle Co for an example.

See what? I can't find what you're referring to.

It's referring to the anecdote of Vlasic, a pickle manufacturer, and it's woes of being a supplier to Wal-Mart. Basically, Wal-Mart negotiated hard with Vlasic to provide gallon(!) jars of pickles at at much lower margins than the company was used to.

That nationwide Wal-Mart "every day low price" cannibalized sales of smaller pickle units at other stores and Vlasic saw it's profits on pickles fall 25%.

In unrelated news, Vlasic filed for bankruptcy a few years later.

The entire tale is told in much better narrative by a 2003 Fats Company article: http://www.fastcompany.com/node/47593/print

One story that I think can help explain why many companies are stuck selling to Walmart is this one: http://www.fastcompany.com/node/47593/print

The issue quickly becomes a "damned if you do, damned if you don't" issue. If you supply them, they quickly drive your margins to the point where you have to offshore to stay in business. If you don't supply them, you get cut out of the largest retailer in the US and lose that way. Either way, you are screwed.

As I mentioned earlier, if you replace your ERP system (or upgrade it past a certain dollar point), you have to modify it so that Walmart has direct access to the internals. This means that they're placing (and cancelling) orders directly in your system without intervention (if you aren't careful, this can foul up your staffing). This also means that they know your costs, expenses and margins. You aren't going to have any negotiating power when it comes time for them to lower your prices.

In other words, Wal-Mart requires that you use efficient, modern production techniques and they will help you implement them. But if you don't, they will find a competitor who will. Brilliant.

Generally what happens is that the company wants the volume from Walmart, and thinks it will lead to lots of profit, but Walmart ends up making most of the profit, and the company spends a lot of money and then is overextended and can't even stop selling to Walmart without taking a big loss, since there is no replacement volume out there.

But any company making a deal with Walmart should know this by now, so who is really to blame?

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