quote:
What is it that enables Wal-Mart to know what it wants, when it wants [it] and where it wants it?
The bar-coding revolution… That little bar code that you see [has] everything [on it]: which company it is and exactly what product [it] is; a shirt of a certain size, a certain color, short sleeves, with pockets, every little detail -- a precise description of the product.
When they scan that in when you buy it, that information is immediately collected. So they know where you bought it; they know the brand name and so forth. All of that is put into the information system. And then, if you have a good partnership with your vendor, that [information] is beamed down to them, and they know [what] has sold. They know, "We need to reproduce this." …
Why does it give Wal-Mart power, if it's dealing with the shirt makers, or with Procter & Gamble making hairspray or soap or whatever? You talk about a revolution and changing relationships. …
Part of Wal-Mart's power lies in its sheer size. There's a kind of building effect that occurs. ... They form a monopsony: in other words, a single buyer for a number of major products. So they are the major buyers. They don't control 100 percent of the market, but they may control 38 percent of the market for [several] goods. They are the largest toy seller. They are the largest grocer. So there are large products that they control. And then the manufacturers are basically stuck having to sell to them. If they don't sell to [Wal-Mart], then they're in deep trouble. So there's a big volume effect. ...
Wal-Mart's big, but is that really the only source of its power? I mean, what gives Wal-Mart the incredible leverage it has in the marketplace?
Wal-Mart's leverage lies in the fact that they are at the end of the supply chain: in other words, that they front with the consumer, and the transaction of selling the goods is under their control. Therefore, they know what is being sold, and they're able to use that information to tell the producers what needs to be made, when, where. They also know what prices are popular, so they are able to say: "We want to sell this at a certain price. You make it at a certain price, or we're not going to work with you."
So the manufacturers are dependent on Wal-Mart for knowledge of the market?
That's right. And the manufacturers are dependent on Wal-Mart for being able to sell their goods at all. … And the shelf space is absolutely critical to their power. In other words, there are some industries that don't depend on large retailers, like the automobile industry, which still controls its dealers. The dealers are small and don't have power, and it's General Motors and Ford that control them.
But in these mass consumer-merchandise [industries], the retailers are the ones that have grown in power and have become enormous and incredibly wealthy. And you can see that shift in the way that the Fortune 500 has changed. In other words, it used to be General Motors and Exxon that dominated the Fortune 500 for years. Now Wal-Mart is number one. It shifted in 2002, I believe, and they now are the largest corporation in terms of sales in the world, let alone in the United States, and they're growing at something like a 15 percent clip. So there's no hope of anybody catching them up, unless they have a large consolidation of some kind.
jon lehman
Former Wal-Mart store manager
photo of lehman
read the full interview
... What do you get from a bar code when you're running Wal-Mart or a Wal-Mart store?
Well, the amount of merchandise now that you can get through the computer systems and bar codes, universal product codes, is -- believe it or not, you can track sales on specific items, specific weeks, specific days, specific hours of the day, when you sell merchandise the most. You can find out what size of toothpaste is your best seller, what times of the year you sell that toothpaste. You can track sales spikes during the year, during certain seasonal periods and --
Clothes.
