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Wal-Mart seeks to take over transport duties to slash costs

Wal-Mart's annual shareholders meeting last week focused on how the world's biggest retailer is turning overseas for more growth while trying to revive its sagging domestic sales with yet more price rollbacks.

There was only fleeting reference to a bold new tactic the discount store giant hopes can help leverage prices down another notch in the long term.

It's the next logical step after the chain's global sourcing experiment that this year helped it sell bananas for 39 cents a pound — a good 25 cents below rivals — by bypassing mid-level distributors and dealing directly with growers in Brazil.

Most retailers today negotiate lower prices while trying to shift even more of their expenses to manufacturers. It's a shell game that explains how attaching printed price tags on apparel, for instance, got to be a job and expense handled for retailers in factories as far away as China. But today, all but a few product makers build into wholesale prices the cost of delivering to a retailer.

Wal-Mart's next big idea is tailored to maximize its competitive long suit in state-of-the-art distribution systems, which includes the nation's biggest truck fleets.

In recent months, Wal-Mart asked more than 100 suppliers for lower wholesale prices if Wal-Mart could save them money by delivering the goods to its warehouses cheaper.

"It is the first I've heard of a retailer moving further upstream in the supply channel to take over transportation services," said Leon Nicholas, director of retail insights for Kantar Retail, a Boston consultant. "It's a potential game changer that I don't think any other chain is big enough to pull off."

It could prove too much. The suggestion already generated apprehension among suppliers.

It also has the trucking industry on edge should Wal-Mart's massive 6,500-tractor, 55,000-trailer fleet start competing with them to deliver products to Wal-Mart warehouses.

Wal-Mart, which last year used better scheduling to lop 100 million miles off the 849 million its fleet drove in 2008, says it's only trying to make its fleet travel with full loads more often by adding route stops at suppliers. It's possible, Wal-Mart says, that it will even assemble and bid out consolidated shipments to its warehouses to private haulers.

Wal-Mart is mum on details. Bloomberg News reported that during some supplier negotiations Wal-Mart asked to shave 3 to 6 percent off wholesale prices if it picks up its own products. Making the offer sweeter: Wal-Mart already penalizes suppliers that much for missing delivery deadlines, a penalty they won't pay if it handles shipping.

In dollars and cents, that means goods Wal-Mart now buys for 75 cents to sell for about $1 could cost 65 cents and retail for about 95 cents.

That's both more profit and lower retail prices, Nicholas said.

"We're going back to the basic productivity loop (formula) that got Wal-Mart where it is," said Michael Duke, chief executive of Wal-Mart Stores Inc. "More productivity brings lower prices, which brings more customers."

Mark Albright can be reached at [email protected] or (727) 893-8252.

Wal-Mart seeks to take over transport duties to slash costs 06/07/10 [Last modified: Monday, June 7, 2010 8:27pm]
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