Positive and Negative Effects on Suppliers and Manufacturers

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Negative: Vlasic's Pickle

The most ostentatious example of Wal-Mart's overpowering effect on a supplier is found in its dealing with Vlasic, the pickle company. Vlasic had a gallon of whole pickles, essentially dozens of cucumbers floating in a 12 pound jar of pickle juice. The item wasn't intended as one of Vlasic's major selling items (pickle chips and spears are.). No one other than restaurants can use up the pickles fast enough before they go rotten.      A Wal-Mart buyer approached Vlasic about its pickle jar and the two decided to offer the gallon jar at $2.97 in sales tests, and customers snatched them up. So Wal-Mart began offering the item at every store. At $2.97, Vlasic and Wal-Mart made an estimated $0.01-$0.02 per jar, perhaps less.The store sold an estimated 240,000 jars of pickles per week.      Vlasic's spears and chips offered at Wal-mart and other stores, the only pickle itemsthe pickle company made a true profit from, didn't sell. Customers bought the cheaper gallons instead. Vlasic's total pickle profits fell by more than 25%, according to Steve Young, former Vice President of grocery marketing for Vlasic.      So many pickles sold so qiuckly that Vlasic struglled to find enough to pick. But despite profit losses, Vlasic dominated a portion of Wal-mart's market, something that boosted sales and growth, giving it signifigant power in the American market.      Without profits though, the company couldn't survie.. It begged Wal-Mart for help. Acoording to Young, when Vlasic said that raising the price to $3.49 would help, Wal-mart outright threatened the company with finding business elsewhere.       Eventually, Wal-mart allowed Vlasic to raise the price to $2.79 per half gallon. In January 2001, Vlasic file for bankruptcy.

Positive in some ways, Negative in others: Huffy Bicycle Co.

Huffy had agreed to supplying Wal-Mart with 900,000 low-priced, entry-level bikes, "as many as Wal-Mart needed" according to its sales Huffy's former president John Mariotti. But the company could only produce 450,000. Mariotti felt that his business relationship with Wal-mart was indispensable in order to stay competitive, so in order to meet the demands necessary to make more of the cheaper bikes, it sold the designs and rights to four of its better, more expensive bikes to rival manufacturers, focusing production on the cheaper bikes for Wal-mart.      Today, Huffy is the third largest sellerof bikes in the US, and Wal-mart is largest retailer. In 1999, Huffy made its last bike in the United States, and has since moved its factories to China and Mexico.      Mariotti has a positive view of Wal-Mart. He feels that, "wal-mart has done more good for America by several thousand orders of magnitude than they've done bad...They've raised the bar for everybody."

Another mixed set of results: Levi Strauss and Wal-Mart

Last year, Wal-mart sold more clothing than any other retailer in the United States It also sold more jeans than any other store.

Levi Strauss, one of the most famous names in American retail, and known for its quality, domestically made clothes, had survived without Wal-Mart for years. But recently, as department store sales fell to cheaper retail chain stores, Levi felt pressure as sales dropped. Between 1981 and 1990, Levi sent 25% of its production overseas to cut costs. Between 1997 and 2002, sales dropped by $3 billion. With Wal-Mart's hold on the country's clothing market, Levi could be restored if it went to Wal-Mart.     The problem was Levi's jeans all sold for over $30, and Wal-Mart's jeans all sold for less than $20. In addition, Levi's computer systems were outdates, and its deliveries were notoriously late, something Wal-mart would not be able to tolerate (it has a 30-second delivery window).      Wal-Mart happily converted Levi into a more efficient company, increasing delivery speed, helping it to manage its inventory better, even building a Levi office next to Wal-mart's headquarters in Bentonville, Ark. It then developed a cheap line of jeans with "Levi Strauss Signature" stamped on the back.      In the third quarter of 2003, after a decline in the first six months, Levi's sales rose 6%, and during the summer, profits almost doubled.

Negative: Lovable Company

Lovable, started in 1926, was at one time the sixth largest make of intimate apparel in the US, with 700 employees in the US and eight factories in Central America. Wla-Mart eventually became Lovable's biggest customer.      The specifics of their falling business relationship with Wal-Mart are vague, since the company still fears legal backlash from Wal-Mart, but basically: Wal-Mart awarded Lovable a conract, but then changed the terms so that Lovable couldn't meet the new production guidelines laid out for them. Lovable had to end its relationship with Wal-Mart, and three years later, the 72 year old company shut down. "They chewed us up and spit us out," said Lovable's last president, Frank Garson II.

Negative: One Umbrella Company's Story

A partner of Bain & Co., a global management consulting firm, tells a story of an umbrella company that lost its Wal-Mart business. The company went to Wal-Mart and asked for a 5% increase in ticket price for its items to cover increasing costs. Wal-mart told the company it wanted a 5% decrease in offering price that year. Unable to meet that demand, the umbrella company offered a 2% increase. Wal-mart then decided to go with a cheaper, Chinese umbrella manufacturer, ending its relationship with the American company.