To help fix disappointing sales numbers in the U.S., retail giant Walmart (WMT) is putting pressure on suppliers.
The company is looking to get pep back in its step by telling suppliers to cut their prices, the Wall Street Journalreported. How to do so? By cutting back on in-store and online marketing.
The makers of consumer products sold at the retail giant’s 4,177 U.S. stores typically devote part of their marketing budgets to joint efforts with Walmart, such as in-store displays and banners, and online advertising programs. Now Walmart will aim for a tradeoff: less marketing, but more sales.
Of course, Walmart squeezing its suppliers is nothing new, but this particular strategy—cut marketing budgets, use the savings for lower prices—is reportedly creating tensions. The mandate gives brands less control over how their products are presented in stores, and less opportunity to differentiate them from competitors that share the shelves.
Competition in big-box retail, especially in the U.S., has heated up in recent years, and Walmart has lost some of its shine as the no. 1 low-cost retailer. Longtime competitors such as Costco (COST) and Kroger (KR) have both eaten into Walmart’s market share, but so have surprising entrants like Amazon.com (AMZN), which has thrived in an age when U.S. shoppers frequently forego brick-and-mortar store visits to buy online instead.
The new request to suppliers likely comes from Walmart’s relatively new U.S. leadership: the company named Greg Foran, formerly CEO of Walmart China, its U.S. CEO in July, replacing Bill Simon. Foran is tasked with bringing the U.S. business back—sales were up some 3% last year, but the lion’s share of that was due to newly opened stores, not organic sales growth. Some of Foran’s tactics for the U.S. have involved opening smaller Walmart Express stores.
This new mandate to suppliers is clearly another step toward that challenge.
On Wednesday morning, in an informal discussion with analysts in New York, Foran was asked about the Journal article that reported the news regarding suppliers. “Gee,” he said, “I’d be disappointed in a business of our scale and size that’s not on top of that—reaffirmation of everyday low prices—I’m a very strong support of that… and ensuring that we negotiate the very best price and then pass it on to our customers.”
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