Originally created 09/22/03

Wal-Mart's town becomes new address for corporate America



BENTONVILLE, Ark. -- Wal-Mart's town is becoming the new global business address.

Hundreds of name-brand suppliers are opening offices and sending top representatives to the Bentonville area to be near the retail titan and, they hope, get a bigger chunk of sales from the nation's largest vendor of DVDs, books, groceries, toys and a host of other products.

In the process, they are creating a nucleus of corporate America and white-collar life in a corner of Arkansas long known for little more than poultry farms and Civil War history.

They also are reshaping the retail business relationship elsewhere, as companies take away concepts and practices that change how they do business within their own firms and with others.

Just as some locals are bristling at rising property taxes and increased car traffic, some industry experts worry about a power imbalance, with Wal-Mart at the apex. But so far those concerns are doing little to moderate a missionary-life fervor among those absorbing the Wal-Mart way of business.

"This has helped us reinvent our company," said Tom Muccio, president of global customer teams at Procter & Gamble, the first supplier to open an office in the area, in nearby Fayetteville in the late 1980s. Now it has more than 200 people here.

Over the past few years, P&G has established offices near some of its other key retail customers such as Costco Wholesale Corp. It has begun duplicating initiatives created with Wal-Mart, such as shipping display-ready cases to cut down on store labor costs.

Another big presence is Kraft Foods Inc.

The burgeoning vendor community is a testament to the enormous power of Wal-Mart Stores Inc. - which made $244 billion in sales last year - to attract the corporate elite to a region that's still perceived as a backwater.

Levi Strauss & Co., which sells a line of jeans to the discounter, has just set up shop. Walt Disney Co., wanting to bring back the magic of Winnie the Pooh and other characters, doubled its office space this past summer and relocated the head of retail business development from Los Angeles to nearby Rogers.

The notion of suppliers getting close to big-money clients isn't new. Subcontractors long have huddled around aerospace giants like Boeing.

But Wal-Mart's vendor community in northwest Arkansas seems to be taking things to a whole new level. Some worry it has gone too far.

"I applaud this Wal-Mart-vendor partnership, but I think it's getting uncontrolled and creates an economic and competitive imbalance that could cause the collapse of up to half of the U.S. chains in the next decade," predicts Burt Flickinger, managing partner at the consulting firm Strategic Resource Group in New York.

"Vendors can not afford to do what they do for other stores, and these other stores are not getting their fair share" of staff support, he said.

No one knows the exact number of Wal-Mart suppliers in the area. Raymond Burns, who heads the Chamber of Commerce for the nearby Rogers-Lowell area, estimates there are 500 to 600. That's up from about 200 only two years ago.

Based on the demand for new office space, the total is likely to be 1,200 with two or three years, he said.

That's not including the 200 companies that supply the main vendors, including packagers like Smurfit-Stone and New Creature, Burns said.

Wal-Mart has more than 20,000 suppliers in all. As more of the biggest - or most ambitious - of them move to the Bentonville area, their offices are stretching out in a 20-mile radius from Wal-Mart's own drab brick headquarters that has frayed carpets. Many are filling new high-rise clusters, a marked difference from the strip centers that were rented in the past.

In 2005, two 16-story office towers, the tallest in northwest Arkansas, will open in Rogers. Half the space is expected to house Wal-Mart suppliers, according to Bill Schwywart, a partner at the Pinnacle Group, which is developing the project.

These satellite offices become messengers of a corporate culture that shrewdly focuses on squeezing costs and getting the lowest price for the consumer. Some companies like Nestle post specific sales goals for Wal-Mart at their entrances.

What goes on inside offers a window to the complicated partnership between supplier and Wal-Mart, first forged with P&G and now a paradigm for the retail industry.

Wal-Mart isn't the most loyal partner - it will push another rival's product ahead for a better price. But many companies say their Wal-Mart account is the most profitable because the discounter pushes them to work hard to squeeze the fat from their operations, saving their money on all their accounts.

And while Wal-Mart's competitors have tried to duplicate Wal-Mart's computer systems that offer the most updated data on vendors' business at their stores, suppliers say most are far behind.

"Wal-Mart's tools are phenomenal, and they are at a different level," said Anton Rabie, president and co-CEO of Toronto-based Spin Master Toys, which has doubled its business with Wal-Mart since opening an office here a year ago. "They have changed the relationship between the supplier and retailer, because the tools are so strong. They make you more accountable, but that is a good thing."

Wal-Mart officials said it neither encourages nor discourages companies from coming to the area. "There are lots more vendors not here that still have a very good relationship," said Jay Allen, a companyspokesman. "It'ss not about geography."

Many vendors did not want to discuss their business for fear of damaging ties, but others who did say that having an office here has become increasingly critical. Many have hired former Wal-Mart employees to help them.

In particular, companies are seeing the need to have so-called market analysts on site to dissect data coming in from a Wal-Mart database called RetailLink, so they can quickly respond to product shortfalls or inventory surpluses.

RetailLink - which was started in 1991 but has become more finely tuned- allows vendors to track return rates, profitability and sales of their products in real time by store and region through a password protected site. It is considered the most detailed system compared to other merchants' data base, vendors said.

Wal-Mart expects vendors to monitor the data on a daily basis, and respond to problems immediately. They also demand cost cutting and sharing of data in return for a deal.

P&G is sharing data on the Hispanic customer with Wal-Mart, to develop more effective merchandising programs, Muccio said. That has helped them pinpoint which stores get such products as Ariel, the company's no. 1 laundry detergent brand in Latin America.

Even as it shares information with suppliers, Wal-Mart cagily has stopped providing data to research companies like Information Resources Inc. This has made it more necessary for vendors to be constant touch with Wal-Mart executives to stay on top of the trends.

A tour of some of the offices here shows the constant hustling required to bring new merchandising ideas to excite Wal-Mart.

Nestle, for example, is collaborating with Wal-Mart on developing a store-within-a-store called Kid Connection, which is so far in 126 Wal-Mart stores. Its showroom featured a recent display that highlighted items that can't be found elsewhere in a Wal-Mart - retro candy like Pez, gourmet chocolate, as well as giant Hershey bars.

Isaac Larian, president of MGA Entertainment - the maker of the highly popular Bratz dolls aimed atpreteenss - set up an office in Bentonville this spring, with the goal of making Wal-Mart, now its no. 2 customer, the biggest account. Target now is its largest account.

Disney has been here for five years but, as Bruce Morrison, vice president of retail business development, said, business "just ebbed and flowed" with Wal-Mart. Now, Morrison's job is to lead a stronger merchandising program with Wal-Mart and its suppliers who are here, expanding into areas like food and apparel.

Ocean Spray Cranberries Inc.'s business with the discounter in the non-carbonated juice category has almost tripled to 11 percent since establishing an office in the area in 1998.

"We needed to have talented people close to the office. We wanted to stay close to their strategies, and how they want to grow the business," said Peter Wyman, general sales manager at the Lakeville, Mass., based company, which is in the midst of expanding its office for the third time.

By being close by, Ocean Spray's five-member team was able to find out that Wal-Mart had plans to double the size of its single serve juice section at all of its superstores.

Three months later, in January of 2003, it began shipping the discounter six-pack, 10-ounce plastic juice bottles to the 1,300-plus units, creating a "significant" sales boost, company officials said.

But Wal-Mart is also known for some surprises, particularly as it beefs up its own store labels.

One year after Ocean Spray unveiled a 64-ounce bottle of white cranberry juice for $2.50 in January 2002, Wal-Mart came out with its own $1.98 version under Sam's Choice, the store's no. 1 selling label in the juice category. Sales of Ocean Spray's white cranberry took a hit when Wal-Mart then began cutting prices on its own juice brand, forcing Ocean Spray to promote other products.

But that only makes Ocean Spray work even harder to keep coming out with new blends of juices and packaging, and Wyman noted that having a presence in Bentonville helps get its message across to Wal-Mart that it's constantly innovating.

"You can't help but have respect for Wal-Mart," he said. "They give you the ball, bat and glove, and you decide whether or not you want to play."

On The Net:

Wal-Mart Stores Inc. www.walmart.com

Kraft Foods Inc.: www.kraft.com

Levi Strauss & Co.:www.levi.com

MGA Entertainment: www.mga.com

Ocean Spray Cranberries Inc: www.oceanspray.com

Procter & Gamble Co.: www.pg.com

Walt Disney & Co: www.disney.com