Will Wal-Mart and Its Customers Pay More?

Discussion
Jun 21, 2005
George Anderson

By George Anderson

The cost of energy and other raw material costs has continued to go up but consumers, for the most part, have been immune to inflationary pressures as both manufacturers and
retailers have held the line on prices.

Now, however, consumer product manufacturers are looking to raise prices on some goods but the question is, will retailers agree to pay more?

Scott Krugman, spokesperson for the National Retail Federation, told Bloomberg News, “The very last thing they want to do is to increase prices for the consumers.”

Barry Bosworth, a senior economist at the Brookings Institution, said, “Over the past few years, the pricing power in the marketplace has shifted away from the manufacturer to
the distributor-retailer like Wal-Mart. These chains are so big, they have the upper hand in setting prices. If products don’t sell, they eliminate them from the shelves.”

Wal-Mart’s Karen Burk said, “When suppliers bring price increases to us, we don’t just accept it. We ask them to show us that raw materials costs have actually gone up and that’s
the reason for the increase.’

Even then, said Ms. Burk, “if suppliers’ costs are going up, it doesn’t necessarily mean it’ll be reflected in our stores. If there’s any way we can not pass the price increase
on, we try not to.”

Moderator’s Comment: Will large retailers such as Wal-Mart accept the higher prices suppliers want to charge for goods? How would you describe the current
state of trade relations relative to pricing and other issues?

George Anderson – Moderator

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7 Comments on "Will Wal-Mart and Its Customers Pay More?"


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Bob Bridwell
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Bob Bridwell
15 years 8 months ago

We have seen lots of “stealth” price increase already. These are of the variety of 32 oz to 30 to 28 now 25 oz packages. So you get a 15-20% increase but the retail remains the same.

Most of the CPG makers today are lean and mean and well-managed, so I think the price increases will stick whether the big box retailers like it or not. Price increases may be highly scrutinized now, but inevitably they are going to go through.

Ryan Mathews
Guest
15 years 8 months ago

Two different questions. Why should Wal-Mart accept price increases they don’t want? Answer — hard to say. What’s the state of trade relations on prices? I’m not sure I even understand the question, but I think the answer is those with the least supply chain leverage are forced to live with the tightest margins.

Don Delzell
Guest
Don Delzell
15 years 8 months ago
Reality is raising its ugly head, and it’s becoming a day-to-day issue of how much of that reality will be accepted by each party along the value chain. Oil prices are at an all time high (record as of yesterday). Plastics are made from petrochemical feedstocks, and plastic prices are directly linked to oil prices as well as production capacity. Everything, and I do mean everything, links back to this basic fact. Natural fiber apparel prices increase because synthetic fiber prices increase (factories seeking to capture economic benefit). Toys, appliances, housewares….everything dependent on plastic goes up. Period. The actual component costs of most products are primarily in the material (as well as amortized tooling or machine costs). Labor, unfortunately, in most cases, does not represent the largest component of costing, which means that importers, faced with bona fide raw material increases, simply cannot offset those increases by moving to lower cost sources of labor…which means that the importer’s cost of goods IS going up. The simple fact is that buyers are not supposed to accept… Read more »
Bernice Hurst
Guest
15 years 8 months ago
So Benjamin should have taken that advice all those years ago to go into plastics. Virtually everything we buy today is either made of it or wrapped in it. Nothing is real, least of all prices. What do they really reflect? Do bottom of the supply chain producers actually get paid a living wage? Do customers at the opposite end of the supply chain pay anything that resembles a fair price? Only the middlemen are making money and if one or both ends of the supply chain put their collective foot down, that is going to change once and for all. Certainly British retailers are complaining about poor sales and producers are complaining that they are being squeezed. I read today that Polish producers are also standing up against supermarkets who they feel are inflicting undue pressure on prices. In China and Russia and probably other countries supplying Western retailers and manufacturers, lots of people are making lots of money but even more people are not improving their standard of living a great deal at… Read more »
Les Haughton
Guest
Les Haughton
15 years 8 months ago

Bernice, if you think consumers will switch from disposable diapers and start washing their own cloth diapers……click your heels twice and you’ll be in Kansas!

Bernice Hurst
Guest
15 years 8 months ago

Les – My point was that people WON’T wash their own diapers, they will simply instigate yet another transition from manufacturing and retailing (disposables) to service industry (someone else to do the job for you). Whatever difference in cost there is will be more than made up by the demand for continuing convenience, who cares who does the work? Actually, thinking it through further, it could even result in increased employment for low-paid immigrants either legal or not.

Franklin Benson
Guest
Franklin Benson
15 years 7 months ago

Really the only time a retailer should accept higher prices is when the vendor threatens to stop doing business with the retailer at all because of not getting a good enough price. And, in that scenario, the vendor should be prepared to be undersold by a competitor.

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