Things aren’t looking too well for Wal-Mart, as the company declared just last week that its earnings would decline by as much as 12 percent in its next fiscal year to January 2017. To cope with this financial problem, they’re planning to squeeze suppliers for price cuts and cost sharing, says Reuters.
“The ground is shaking here. Suppliers are going to have to help Wal-Mart get back on track.”, stated Cameron Smith, head of Cameron Smith & Associates, a major recruiting firm for suppliers located close to Wal-Mart’s headquarters in Bentonville, Arkansas, according to the same source.
Wal-Mart has a reputation for demanding low prices from its suppliers, but now it seems like the retail company is asking way too much from its vendors. But do they have a choice?
Wal-Mart generates more than $340 billion of annual sales in the U.S, equivalent for more than 10 percent of the American retail market. This means that no supplier can afford brands kicked off Wal-Mart’s shelves because of a dispute regarding prices. The enormous pressure comes from competitors also, like Amazon, dollar stores and regional supermarket chains, so their strategy to keep prices it pays suppliers as low as it can is crucial.
But, according to Reuters, helped by investments to spruce up stores and boost worker pay, Wal-Mart believes it can grow sales by 3 to 4 percent a year over the next three years, or by as much as $60 billion, offering suppliers new opportunities to boost their own revenues.
At the start of this year, the chainstore announced that it would raise the minimum pay rate for its workers to $9 an hour by April, and to $10 by February 2016. Nearly $2.7 billion will be the cost supported by the retail company for this action.