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Wal-Mart's obsession with low prices is causing major tension with suppliers
(Reuters)
Wal-Mart's renewed focus on offering the lowest prices is putting pressure on suppliers.
The retailer has been telling suppliers to stop investing in joint marketing and give them the goods for cheaper instead, The Wall Street Journal reports.
The people who supply Wal-Mart's goods are worried about the new strategy.
"While lowering prices by shaving down marketing budgets may help Wal-Mart draw more customers, it gives suppliers less control over how their products are displayed or promoted, and less ability to make them stand out against store brands or other rivals," WSJ writes.
Wal-Mart also has a team that monitors commodities and asks suppliers to lower prices when costs go down.
The pressure is also on suppliers because Wal-Mart has been investing in higher wages, meaning it has fewer options for cutting costs.
When suppliers don't budge, the company finds other ways to offer low prices.
"Recently, in what was widely seen as a move to pressure Procter & Gamble Co. to lower prices of its popular Tide detergent, Wal-Mart struck a deal with consumer products company Henkel AG to introduce a new premium-priced detergent brand, Persil, exclusively in its stores," WSJ writes. "Wal-Mart is selling Persil at the same price as Tide, and displaying it on shelves next to Tide."
Wal-Mart's reputation as the cheapest retailer has been challenged by dollar stores expanding their assortments.
Executives believe that offering the lowest prices is a key component of the company's success.
"We cannot let our competition beat us on price," US CEO Greg Foran told investors on a recent earnings call.
Wal-Mart rolled out an app last year called Savings Catcher, which helps shoppers compare prices on merchandise and then pays them the cost differences on a gift card.
About half of the receipts that the app has processed so far have qualified for a refund because it found lower prices at different stores.
Low prices have been a part of Wal-Mart's core business strategy for a long time, said Deisha Barnett, senior director of corporate communications.
"We always really value our relationships with our suppliers and believe we have the privilege of having strong suppliers who see the benefit of joint business planning with us," Barnett said. "Our business succeeds and their business succeeds when we work together."
Hayley Peterson contributed to this story.
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