[Vision2020] Re: Joan and her arguments against a WalMart Supercenter

[Jeff Harkins]

Mr Schou,

If it were that easy, don't you suppose that 
other large chains would employ the same 
tactics?  Sears tried this strategy during the 
1970's and 1980's.  Other large retailers took 
advantage of that position - Sears is certainly 
well positioned now aren't they?

But you do make a good case for having a solid 
business education before seeking to compete in 
the marketplace.  We generally deal with the 
problem of "leaving all your eggs in one basket" in the sophomore year.

You really do need to read the works by Michael 
Porter that I referenced earlier.  The tactics 
and strategies that you purport in your example 
are no longer going to be effective in the 
marketplace.  I think you are relying too much on 
the union position for your argument.

At 09:16 PM 1/31/2006, you wrote:
>I realize that I missed two points.
>
>First, I promised to explain how Wal-Mart forces its suppliers to sell
>goods at low margins or even at a loss?
>
>Imagine you are a relatively small supplier. Wal-Mart approaches you
>with an order that exceeds your capacity. You, being a good business
>owner, do an economically sensible thing and take out a loan for
>capital investment. If Wal-Mart has a five year purchase contract,
>it's not at all unreasonable to take out a ten year loan for slightly
>more than the contract Wal-Mart owner, assuming that Wal-Mart will
>likewise increase their loans.
>
>Wal-Mart may demand an exclusivity contract, or at least exclusivity
>for certain products. But this is your big break! All it does is
>prevent you from seeking out other purchasers for your goods, or at
>least to give Wal-Mart a better price than other buyers*.
>
>When it's time for you and Wal-Mart to renegotiate your contract, if
>you're a small supplies, Wal-Mart will demand a smaller margin for
>you. In many cases -- say, for instance, the case of the three-dollar
>Vlasic pickle jar -- they may demand a higher margin than the supplier
>can offer. Wal-Mart is likely to ask you for your private financial
>records, tell you your margins are too high, and tell you to reduce
>them.
>
>You're a small supplier. Your loan payment is due. Wal-Mart is 90% --
>or 50% -- or 30% of your business. If that gets cut out, your widget
>factory is operating at less than capacity. Wal-Mart offers you a deal
>that may put your margins to very little -- or into the negative --
>but you might be able to make it up in the next fiscal year.
>
>Not everything is bad. You've still got good growth numbers. You've
>got great sales numbers. In a normal world, your books are reporting
>that you're going through a normal period of capital investment that's
>eating up your profits, except -- if Wal-Mart is your only potential
>buyer, or has half of your market -- you'll never be able to wield
>enough market leverage against Wal-Mart to worm your way out from
>under them. Those growth and sales numbers mean nothing, because -- so
>long as Wal-Mart is cramming your margins down -- those numbers are
>never going to produce profits. And when Wal-Mart decides that your
>project would make a good loss-leader, your business is going to be
>basically entirely hosed.
>
>Also, I basically completely forgot to finish this paragraph. I fired
>my editor. It shouldn't happen again. It should read:
>
>By "worst" you mean "businesses that can't compete with Wal-Mart."
>Wal-Mart will not wipe out the worst 5% of corporate citizens -- it'll
>wipe out the businesses that refuse to play by its rules. Many of
>these will be uncompetitive. Others will be suppliers that don't
>cooperate. That's a big problem.
>
>-- ACS
>
>* This is actually illegal under the Robinson-Patman Act, which has
>gone entirely unenforced during the Bush Adminstration.
>
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