Major CPG maker achieved higher profits by working with Wal-Mart, despite retailer's reputation for squeezing supplier profits; same study found that retailers in vicinity of Walmart stores did steady business, were not put out of business

CHICAGO , April 11, 2012 (press release) – The results of a unique study published in the Journal of Marketing Research show how a supplier can benefit from selling to Wal-Mart, while maintaining shipment levels to other retailers.

Wal-Mart Stores Inc. gets a lot of bad press for how it uses its clout to squeeze supplier profits, but an independent analysis by marketing researchers shows how a major consumer packaged goods manufacturer achieved higher profits by working with the world's largest retailer. The analysis also reveals that orders from other retailers operating in the same geographic areas as Wal-Mart held steady on average, which runs contrary to the popular opinion that Wal-Mart runs other retailers out of business.

The analysis appears in the April 2012 issue of the American Marketing Association's Journal of Marketing Research and is based on five years' worth of detailed records on profits, wholesale prices and shipments of hundreds of SKUs provided to the researchers by the CPG manufacturer; the name of which is confidential.

"Although news stories threaded with manufacturer complaints about Wal-Mart resonate with critics and the general public alike, we argue that some complaints about selling to Wal-Mart may be overstated, as the supplier studied is clearly better-off after Wal-Mart entry," write authors Qingyi Huang, Vincent R. Nijs, Karsten Hansen and Eric T. Anderson. The CPG manufacturer's profits increased an average of 18% after entry. Meanwhile, profits generated by sales to other retailers decreased only marginally.

Since Wal-Mart often sells only the fastest-moving SKUs and does so at prices few other retailers can match, other retailers can remain competitive by stocking a wider selection, the authors advise. "When retailers carry the same assortment as Wal-Mart, they are likely to lose profitability," the authors say. Some manufacturers prune their product lines to better target Wal-Mart's customers offering incumbents little room to diversify. They are setting up a "lose-lose" situation, as retailers cannot but carry the same products Wal-Mart does.

More detailed findings about shipment volume, sales performance and assortment characteristics can be found in the study, "Wal-Mart's Impact on Supplier Profits" in the April 2012 issue of the Journal of Marketing Research.

About the AMA
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