Could Someone Beat Wal-Mart (Part 1) ?

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Wal-Mart is the 500 pound gorilla that seems to be unstoppable. They are so big that they control all they survey. Wal-Mart is the undisputed leader of retail. They are the largest retailer in the world. But, there are chinks in their armor. Over the next few blogs we will take a look at some of those chinks and how they could be exploited.

Wal-Mart has been running roughshod over their vendors and suppliers for years. Wal-Mart buys at the price they set. They set the rules for what vendors and suppliers will provide for what price. If a supplier does not agree, that supplier no longer does business with Wal-Mart. Few can afford to lose Wal-Mart’s business. Not because Wal-Mart is so powerful, but because the company made investments based upon doing business with Wal-Mart.

Sears was like that years ago. At one point in time, Sears was the largest retailer. Sears would contract with local fence companies to install their fencing. It was a win-win situation. The fencing contractor got work they wouldn’t ordinarily have and Sears would get a reliable source for fence installations.

The problem was that the fencing contractor would have to make investments in more trucks and other equipment, as well as hire more people to be able to fill the Sears contracts. When the initial contract expired, Sears would negotiate new terms more favorable to Sears.

The contractor could not afford to lose Sears’ business. But it could not afford to keep it either. There came a point in time when the company was barely making a profit on doing business with Sears because it had to pay off the investments.

If another company could provide a market for those vendors who have lost favor with Wal-Mart, they could offer products that Wal-Mart won’t offer. Wal-Mart provides a very narrow choice of products (one or two brands of mayonnaise, one or two brands of chili). So, if another company offered products by these orphaned vendors, then customers win with a larger product selection, the vendors win with a market for the excess capacity they have thanks to having done business with Wal-Mart, and the new company wins with sales to former Wal-Mart customers.

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There is no one right answer to any business question that will cover all circumstances.
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