|
 Wal-Mart managers in recent weeks have contacted more than 10,000
suppliers in various countries, all of which have manufacturing
facilities in China, seeking cost cuts of 2 percent to 6 percent on
mainly general merchandise including home furnishings, apparel,
health and beauty products, appliances, electronics and toys,
according to a consultant who advised Wal-Mart on the move and spoke
on condition of anonymity to protect his relationship with the
retailer.
The company is telling suppliers that they should pass on the
savings arising from the yuan devaluation so Wal-Mart can achieve
EDLC, or "everyday low cost," its term for the tight cost controls
needed to keep prices low for consumers, according to executives at
two vendors of durable goods, who also requested anonymity. Both
were asked for cuts in the lower half of the 2 percent to 6 percent
range. Both said they planned to negotiate a reduction in the
proposed cuts.
Wal-Mart spokeswoman Deisha Barnett declined to comment on whether
the company was seeking price cuts in China-made goods. With almost
$500 billion in annual sales and a globally diversified supply
chain, Wal-Mart holds tremendous sway over its vendors, which could
risk their business with the retailer by pushing back too hard on
its requests to lower costs
The move by the world's largest retailer follows efforts by other
retailers to benefit from a cheaper yuan. A senior Toys R Us
official told Reuters last month that the company was "engaging"
with suppliers about improving terms. Home Depot Inc <HD.N> Chief
Financial Officer Carol Tome said they had identified potential cost
savings from the currency's decline and would pursue them.
Last month, China devalued its tightly controlled currency in a bid
to boost growth and help flagging exports. The nearly 2 percent cut
on Aug. 11 was the most significant downward adjustment to the yuan
since 1994. The currency is down 2.9 percent versus the dollar so
far this year, making exports from the country less expensive when
purchased with dollars, the currency most often used in supplier
contracts.
Wal-Mart's latest overture to suppliers comes as it seeks to push
through broader changes designed to lower its costs through changes
to vendor agreements. In June, Wal-Mart began asking all suppliers
to pay fees to store inventory in Wal-Mart warehouses and in some
cases has sought to extend the time Wal-Mart takes to pay its
vendors.
[to top of second column] |
Wal-Mart has been struggling to shore up its profit margins, which
have been weighed down by a $1 billion investment announced earlier
this year to increase wages for half a million store-level workers
and other cost pressures. The company's stock is down 26 percent so
far this year.
Barnett said the new vendor agreements are aimed at making its terms
more consistent across suppliers, and were part of its efforts to
keep prices low at the store.
"It's change at the end of the day and that's not always easy, but
we think what is best for our business and ultimately best for our
customers," Barnett said.
Several vendors told Reuters they have pushed back, arguing the new
terms would increase costs and make it difficult to supply products
at the low prices Wal-Mart demands.
Wal-Mart likely will face resistance to the request related to the
cheaper yuan as well, suppliers and consultants said.
Burt Flickinger, managing director of retail consultancy Strategic
Resource Group, said he expected retailers in general to seek
discounts for goods from China because of the yuan devaluation and
excess of production capacity in the country.
In Wal-Mart's case, Flickinger said, the move reflects an effort to
get help from suppliers to "fund lower prices" as the retailer
grapples with the costs of an increase to a $9-per-hour starting
wage and new investments in its ecommerce platform.
(Reporting by Nathan Layne and Nandita Bose, Editing by David
Greising, Peter Henderson and John Pickering)
[© 2015 Thomson Reuters. All rights
reserved.] Copyright 2015 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
 |
