Sponsored By

WAL-MART AT TECHNOLOGY'S CUTTING EDGE

NEW YORK -- Sam Walton gagged at -- and then bragged about -- spending $24 million in the 1980s for the satellite communications system that facilitated Wal-Mart's becoming the world's fastest-growing and largest retailer.Today, Wal-Mart's $165 billion revenues and ever increasing profitability are credited to a technology arsenal that allows it to operate lean and mean with astounding supply chain

Andree Conrad

August 21, 2000

5 Min Read
Supermarket News logo in a gray background | Supermarket News

ANDREE CONRAD

NEW YORK -- Sam Walton gagged at -- and then bragged about -- spending $24 million in the 1980s for the satellite communications system that facilitated Wal-Mart's becoming the world's fastest-growing and largest retailer.

Today, Wal-Mart's $165 billion revenues and ever increasing profitability are credited to a technology arsenal that allows it to operate lean and mean with astounding supply chain efficiencies worldwide. Its technology investments, along with aggressive global expansion plans, seem to have rattled a few cages -- and may be the trigger that set off a flurry of business-to-business retail trading exchanges.

More pointedly, one goal of trading exchanges like GlobalNetXchange and the World Wide Retail Exchange is to generate the same kinds of economies Wal-Mart has enjoyed for decades. In the process, they expect to create a supply chain infrastructure required for survival in a global and consolidated market environment.

Do these new collaborative groups, comprised of competing retailers, hold the potential to shift the power from the long-time dominant player? Wal-Mart declined to comment but the concept driving these exchanges is certainly sound: critical mass, where collective size drives unprecedented economies of scale and reduced cost of technology through sharing.

Gerald Storch, president of financial services and new business, Target Corp., Minneapolis, and head recruiter for the World Wide Retail Exchange, said, "They [Wal-Mart] are large enough to do this themselves, whereas most retailers are not. We have tremendous respect for them. But we are going to be successful too."

Pat Steele, executive vice president, information systems and technology, Albertson's, Boise, Idaho, and technology adviser to the members of the World Wide Retail Exchange, was equally bullish. "We have the world covered, both GlobalNetXchange and a guy called Wal-Mart."

Of course, it's not entirely about Wal-Mart. The changes afoot have much to do with transforming relationships among all supply chain partners.

"The two exchanges came about not so much as a response to Wal-Mart, but as a response to other vertical exchanges in other industries," said Janet Suleski, industry analyst, retail applications at AMR Research, Boston. "They were looking partly at the competitive breadth imposed by Wal-Mart, but also at the chemical, steel and automotive exchanges and said, 'We ought to do it."'

The motive behind exchanges is clear enough. "Industry studies suggest we'll be saving 3% to 5% [on merchandise] and much more on purchases of commodity supplies," said Storch. "Most retailers earn a single digit percent and operate with notoriously thin margins. Anything that can generate additional points of margin will be great."

The savings Storch sees for retailers is going to come out of the suppliers' pocket, no question. But Albertson's Steele thinks suppliers will be excited to use the exchange. "It will improve the information flow, lead to process improvements Data standards will become reality and suppliers will know this is how business is transacted," Steele said.

Storch said manufacturers will buy into the idea "because they want to make a sale. This is the way we are going to purchase goods. It isn't an issue of their agreeing."

While this may have the sizzling sound of feet being held to the fire, industry experts see plenty of benefits for suppliers. The advantages may not be enjoyed by manufacturers of commodities but they will likely fall to the fashion and value-added providers.

"With pens and pencils you don't want to pay more than you need to," said Bill Murry, principal analyst at PricewaterhouseCoopers here. "Fabrics and fashion that are trendy have marginal elasticity and people will have more room for negotiation," he said.

Maybe, maybe not, said Bobby Cameron, principal analyst at Forrester Research, Cambridge, Mass. "The jury is ultimately out about the efficacy of exchanges. We have very little evidence of those working yet."

"The controlling hand retailers think they exercise on the retail market won't exist. We project there will be a collaboration that emerges. Look at Procter & Gamble's reflect.com -- it's a multi-brand environment for cosmetics, with both manufacturers and retailers involved. Look at Maidenform, which has built a network of affiliates, sharing aggregate data about customers and sharing in performance-based revenue. It's a collaborative model."

Collaboration is precisely the weak point of these exchanges, according to Gene Alvarez, program director, electronic business strategy service, Meta Group, Stamford, Conn. "Suppliers are not happy about this," he said. They're concerned that proprietary pricing information becomes readily available. "Do I want Kmart to know what I am charging Target?"

AMR's Suleski said the exchanges had better play it straight. "In order for an exchange to be successful in the long run, it cannot be used as a tool to beat up suppliers for the lowest possible price. It must be used as a tool for collaboration and improvement of supply chain costs."

Both major retail exchanges continue to grow by the minute. Late last month, GlobalNetXchange added Pinault-Printemps-Redoute SA, the largest non-food distributor in Europe, and ranks No. 3 worldwide in luxury goods thanks to its ownership in Gucci Group. The addition brings to seven its retail members. Founding members include Sears, Carrefour and Oracle, with recent additions including Kroger, Metro AG, J Sainsbury plc (the United Kingdom's second largest grocery retailer) and Coles Myer, the largest retailer in Australia, where Wal-Mart is becoming more active.

GlobalNetXchange was live in mid-March with procurement transactions. These commodity purchases -- pens, pencils, cleaning chemicals -- have amounted to more than $100 million since the exchange went live in February.

The World Wide Retail Exchange, meanwhile, has three times as many members, representing total revenues of $487 billion. It's expected to be up and running by the end of August. New members joining this month include Dansk Supermarked, Denmark; Dixons Group plc, U.K., and Germany's Edeka.

Stay up-to-date on the latest food retail news and trends
Subscribe to free eNewsletters from Supermarket News

You May Also Like