You Can Bet Suppliers Will Be Paying for Wal-Mart's Cost Cutting

How do you spur holiday sales in a tough general merchandise retail environment? The answer is easy -- drop already low prices another notch. This appears to be the strategy that Wal-Mart is following as it attempts to breathe some life into a lackluster holiday season and year. According to Forbes, Wal-Mart will cut prices between "7 percent to 17 percent on roughly 50 small home appliances, including GE microwaves and programmable coffee makers." Knowing Wal-Mart, I highly doubt they'll be eating between 700 to 1700 basis points on their already thin margins. In other words, I'm sure their suppliers are chipping in concessions -- perhaps being coerced is a better description -- to help spur sales.

This latest round of Wal-Mart price cuts comes on top of another series of "rollbacks" in the past month on a range of electronic items and toys. But I doubt the competitive retail market will sit still. For example, given Target's tight-lipped sophistication in procurement and Spend Management, I have no doubt that their counter moves will be carefully planned and executed. In the cost cutting game, Wal-Mart might have the biggest hammer, but Target is quietly proving itself to have some of the biggest Spend Management brains in the retail business. Now, if only we could get them to talk more about what they're up to. Alas, Target is to retail Spend Management as Emerson is to LCCS! In other words, neither has any motivation or desire to give away the secrets of what they're up to. Rather they view their Spend Management strategies as a core competitive advantage in the market.

Jason Busch

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