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Published: 6/6/2004

Area Wal-Mart suppliers embrace efficiency, cope with price pressure

BY JULIE M. McKINNON
BLADE BUSINESS WRITER

The word "Always," a reminder that Wal-Mart Stores Inc. is faithful about offering low prices, adorns the entrances to its discount stores. The retailer's television advertisements often feature its ubiquitous smiley face slashing prices.

The words and images pull in consumers. But for manufacturers with northwest Ohio operations whose products are on those stores' shelves, they may at times be menacing.

The world's largest retailer, which had $256 billion in sales last fiscal year, is known for annually demanding lower prices for basic items that don't change from year to year.

Business with Wal-Mart can mean huge orders to help fill shelves at roughly 5,100 stores worldwide, including warehouse clubs and supermarkets, but it also can translate into lowered profit margins, said Eugene Fram, a marketing professor at Rochester Institute of Technology.

"Typically, it's a love-hate relationship, because obviously they love the revenues and the volumes their work can provide," he said. "On the other hand, Wal-Mart is very definitive in the pricing area."

But for those suppliers that have learned to adjust to Wal-Mart's methods, such as not having to factor in fees for shelf placement and promotions as other retailers require, supplying the Bentonville, Ark., firm may be more profitable than selling to its competitors, said Tom Rubel, chief executive of Retail Forward Inc., a consulting firm in Columbus.

Although a relative newcomer to the Toledo-area market, with three stores opening since early last year, Wal-Mart has long had stores sprinkled throughout northwest Ohio and has done business with various consumer-goods manufacturers here.

Northwest Ohio-made products carried by Wal-Mart cover a wide range, from Dum Dum lollipops made by Spangler Candy Co. in Bryan to ready-to-assembly furniture from Sauder Woodworking Co. in Archbold. Another local supplier is Toledo's Libbey Inc., which makes drinking glasses and other items.

John Meier, Libbey's chairman and chief executive, said the retail giant is a demanding but fair company that keeps good track of trends.

Libbey has employees in Bentonville dedicated to the retailer, and it has received help with reducing freight rates and with suggestions for packaging, such as decreasing the number of glasses in a box to meet a desired price, he said.

Wal-Mart spokesman Melissa Berryhill said the company has more than 21,000 suppliers and works with them to improve efficiencies in transportation and elsewhere.

The retailer shares daily data with suppliers about their products' inventory and sales, along with other information, through an Internet system so they can meet consumer demands, she said.

"We work hard in conjunction with our suppliers to offer every-day low prices to our customers," she said.

So-called big box retailers, Wal-Mart included, have taken costs out of distribution networks, keep little inventory, and expect manufacturers to do the same, said Dean Spangler, president and chief executive of Spangler Candy.

Wal-Mart, meanwhile, is known for sticking by a deal once one is reached without asking for modifications as some other retailers do, said Mr. Fram, the marketing professor.

And there are some indications Wal-Mart has eased up a little on its demands, he said.

The retailer has no interest in putting its suppliers out of business, although that has been the unintended result when manufacturers haven't made good business decisions in the quest for Wal-Mart's favor, said Mr. Rubel of Retail Forward.

The former Vlasic Foods International Inc., for example, made a misstep in offering a gallon jar of pickles for $2.97, which increased demand but helped lead it to bankruptcy, he said.

Wal-Mart sees itself as a modern-day commercial Robin Hood, Mr. Rubel said. "You have to look at what the Wal-Mart brand really stands for, and it's 'Always Low Prices,'‚óŹ" he said. "They work with suppliers with that in mind."

Indeed, economists point to the so-called "Wal-Mart effect" for helping keep inflation low and productivity high in recent years.

Both Libbey's Mr. Meier and Spangler's Mr. Spangler said Wal-Mart isn't different from most retailers in demanding low prices. "Wal-Mart takes most of the arrows because they're the leaders," Mr. Spangler said.

Said Mr. Meier, who hopes Libbey employees make the same cost-cutting demands to its suppliers: "It is very difficult - very, very difficult - in getting any price increases with any retailer."

Other locally made products sold at Wal-Mart include soup and juice from Campbell Soup Co., which has a plant in Napoleon, and spark plugs from Honeywell International Co.'s Autolite factory in Fostoria, which is moving some production overseas.

Some other products sold at Wal-Mart used to be made in northwest Ohio but are now produced overseas where costs are lower, such as Etch A Sketch toys from Bryan's Ohio Art Co. and synthetic leather footballs from Wilson Sporting Goods Co., which continues to make leather game footballs in Ada.

Spangler Candy has shifted some candy-cane production to a co-managed factory in Mexico to answer demands for lower-priced goods, but a bigger move has been forming alliances with other candy companies to more efficiently market products and cut costs, Mr. Spangler said.

The latest is a distribution alliance with Chupa Chups SA of Spain, which will give Spangler more candy lines to sell in the United States and provide an avenue for selling its products elsewhere.

In the last 30 years, the power has shifted from manufacturers to retailers, Mr. Spangler said. Sears, Roebuck and Co. was the retailing leader 40 years ago, he said, and the former Kmart Corp. was 20 years ago.

On a wall in Mr. Spangler's office is a framed check for more than $1.2 million from Kmart that bounced before that discount chain filed for bankruptcy protection in 2002. Spangler Candy has recouped about 12 cents on each dollar it was owed. "I keep it on my wall as a reminder of how quickly things can change," he said.

Retail changes don't sit well with every consumer. Knowing Wal-Mart's shelves contain some union-made goods pleases Bruce Harmon, head of the largest union local representing workers at Libbey's Ash Street factory.

But that hasn't prompted him to set foot in a Wal-Mart, because it pays workers less than retailers like Meijer Inc., which is unionized.

"Yes, I like a deal like everyone else, but still there's a line you have to draw," he said.

Contact Julie M. McKinnon at: jmckinnon@theblade.com or 419-724-6087.



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