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Retailer changes supplier terms

Wal-Mart’s goal to control costs by Chris Bahn | June 20, 2015 at 2:01 a.m.

Wal-Mart Stores Inc. is amending the terms of its agreements with approximately 10,000 suppliers as part of its effort to better control the costs associated with merchandise sold in its stores.

The distribution of letters and new agreements throughout the year began this week, the retailer said. A review of agreements and changes in terms were initiated by Wal-Mart U.S. CEO Greg Foran, who first hinted changes were coming during an April presentation for analysts.

Supplier agreements typically are renewed year to year and govern items such as terms of payment, when and how merchandise is supplied, warehousing and distribution of goods, relevant chemical information and other conditions of sale. Terms of agreement differ from supplier to supplier, and Wal-Mart said the goal of the new agreement is to bring more simplicity and consistency to its relationships with vendors.

The changes to terms are being made in hopes of reducing costs.

Keeping costs and prices low "was Sam Walton's plan more than 50 years ago, and it's the plan for our company today," the confidential letter from the Office of Supplier Administration reads. "Operating under this model affects all we do at Walmart, including how we work with your company, how we advertise and how we go to market."

Wal-Mart, which provided a copy of the correspondence it is sending to suppliers, has been working through a strategy to improve traffic and sales in its U.S. stores. During the first quarter of its current fiscal year the retailer reported a 1.1 percent increase in same-store sales. Revenue of $2.4 billion was up 3.5 percent from the same quarter a year ago, a financial performance that Foran described as "reasonable."

Amendments to the agreements focus on five areas where Wal-Mart says it is seeking to become more consistent and simplify how it works with suppliers. Company spokesman Deisha Barnett said Wal-Mart is changing to terms that will "more closely align us to those offered by major retailers and companies in related industries."

Deadlines and specifics of the contracts will vary from supplier to supplier.

Identifying ways to trim costs and operate more efficiently as a result of agreement changes is among the areas that supplier consulting firm 8th & Walton has been working to help vendors. Although Wal-Mart has always subscribed to a philosophy that keeps costs and prices low, there is a renewed public emphasis on the business model.

"As big as Wal-Mart is, they really strive to simplify things as best they can," 8th & Walton President and Chief Operating Officer Darrell Rosen said. "If it can be done in three steps, don't add five. Keep it in three. Simplicity is a way keep costs low."

Wal-Mart's efforts to remain a price leader has been addressed by company executives throughout the year, including its annual shareholders meeting earlier this month. Foran told analysts in April that the company was reviewing its marketing agreements with suppliers and working "day to day with the merchants to sensibly pivot the business so that we get back to the DNA that we know is pretty good."

Wal-Mart's Every Day Low Price (EDLP) model is designed to drive high sales volume. It is counter to what some other retailers are doing, but CEO Doug McMillon told suppliers during a recent appearance at a conference in Springdale organized by the University of Arkansas that it is good for them in the long run.

"It's so counterintuitive. It takes so much discipline," McMillon said. "What EDLP does, it builds customer trust because they don't feel you're jerking them around and changing prices on them all the time."

Business on 06/20/2015

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