Wal-Mart moves to cut out manufacturers' middlemen

December 04, 1991|By Kim Clark

Wal-Mart Stores Inc.'s decision to refuse sales calls from independent brokers and product representatives will make it tougher for small manufacturers to sell to the nation's biggest retailer, analysts and manufacturing executives said yesterday.

Wal-Mart, the discount retail chain based in Bentonville, Ark., broke the industry's long-standing practice of dealing with middlemen on Monday, insisting that it would only deal with manufacturers' "principals" from then on.

The move threatens not only hundreds of commission-paid "reps," as they are called, but the hopes of thousands of small manufacturers who dream of making it big by getting their items on the shelves of the top-selling chain.

Charles Shivery, a manager of the Elkton Sparkler Co., said yesterday he was disappointed by the move because he had recently signed a contract with a representative who was trying to get the Maryland-made sparklers into Wal-Mart stores.

Mr. Shivery said he can't afford to hire his own salesmen to make calls on stores and chains, so he relies on independent representatives who make sales calls on stores and keep a commission of about 5 percent of their sales.

Wal-Mart may be trying to cut out costs by cutting out middlemen, but middlemen perform a service by getting the goods into stores, he said.

"I've never really figured out a way to eliminate the expense," since his sparklers have to get sold to stores somehow, Mr. Shivery said.

Mr. Shivery is not alone, said Steven Kernkraut, who follows retail stores for the Bear Stearns investment house in New York. The move gives all big manufacturers an edge over their smaller competitors, Mr. Kernkraut believes.

Wal-Mart has insisted that manufacturers get rid of reps and connect themselves to the company's computer system to track inventories and sales. But many small companies can't afford that investment, Mr. Kernkraut said.

Since Wal-Mart is the largest retailer in the country, other chains are likely to follow suit -- further worsening smaller companies' chances to break into big markets, he warned.

In a letter dated Nov. 6, Wal-Mart Chairman David D. Glass said the chain wants to deal only with its suppliers' decision-makers so that communications and decisions can be quick.

"To attempt to accomplish all this through a third party would be virtually impossible and run a high risk of misunderstanding or slow reaction to opportunities or problems," Mr. Glass told manufacturers.

Mike Crawford, executive vice president of Wite-Out Products Inc. of Beltsville, said he used to make calls on companies like Wal-Mart himself, but he recently hired a representative because traveling to Arkansas several times a year was a lot of trouble.

Every visit to Wal-Mart's headquarters took at least three days, Mr.Crawford complained. It took a day to fly to Dallas, catch a commuter plane to Fayetteville, Ark., rent a car and drive to Bentonville; a day to meet with buyers; and then another day to get home, he said.

"Hiring a rep was a pretty good use of money," he said.

Mr. Crawford said he agrees with Wal-Mart's premise that dealing with "principals" will speed up communications and decisions.

And the maker of typing correction fluid will obey the new rules, if necessary, he said.

But Mr. Crawford said Wal-Mart's new ruling may not hold fast. The retailer has made similar pronouncements in the past, only to let brokers make calls anyway, he noted.

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