(April 5, 2004) — Molders are paranoid. Some officials are hiding their new products under cloths at trade shows, and you have to be granted special “viewing” access. Cameras are absolutely taboo on the show floors, because foreign competitors will take a picture, take your idea, and make it cheaper somewhere else. Trade show participation has diminished overall for domestic producers, who find it more cost effective to pay personal visits to their customers.
And it's all the Wal-Mart Effect, a fire fed by relentless consumerism.
Fifteen years ago, at the birth of Plastics News, Wal-Mart Stores Inc. itself was the least of a molder's worries.
“I've never done business with Wal-Mart,” grumbled one source recently. “I never have, and I never will.”
Nothing, repeat, nothing, strikes a chord today like the mention of Wal-Mart.
It is a tour de force. Its operating model will be the topic of business classes for years to come. In 15 years, Wal-Mart has grown, well, at the pace of an aggressive cancer or with the force of a company that's conducted its business just right, depending on whom you ask.
It began innocently enough, with one man's ambition to build a successful five-and-dime retailing operation. Now, we have a term for its impact on the market: walmartization. Suppliers are squeezed, as Wal-Mart fulfills its promise of “everyday low prices.” Consumers run out, searching for the cheapest microwave or the latest deal in Action Alley.
For consumers, there is always that voice in the back of their heads: I know I can get it cheaper. I'll just go to Wal-Mart.
Wal-Mart has long fascinated me. Curious, I picked up Sam Walton's autobiography over my holiday break, intrigued by the man's business acumen. During the Hula Hoop fad, genuine plastic hoses were too pricey and difficult to source, so Walton sourced hose from a lower-cost supplier down South. Walton and company assembled their Hula Hoops in someone's attic.
Anything to pinch a penny. But now the pinching is catching up with everyone, from suppliers to consumers. We do need jobs, after all, to feed our consumption fervor.
For the plastics industry, this means years of redefining how companies conduct business. Injection molders that serve the housewares market have struggled with an inability to pass through any hikes in resin pricing. At the same time, rotational molders have resorted to thinning the walls of their toys.
Big-box stores are picky about their shelf space. They don't want to fill up with big, bulky products. So suppliers have had to find better ways, like relying on other processes and getting innovative with product design.
But over the years, these chains started sourcing products globally, redefining how U.S. manufacturers compete. Wal-Mart is dictating what it wants from suppliers, from distribution systems to radio-frequency identification programs. The mega-retailer dictates ironclad contracts that leave some suppliers wondering why they got into business with the store in the first place. And if a supplier wants to get out of doing business with Wal-Mart, it's not an easy break.
“You have to be very thoughtful about how you exit, because you could ruin your company,” one industry source said, noting that some suppliers are tied into Wal-Mart for as much as 25 percent of their business.
We've all seen what happens to suppliers who relied too heavily on one customer. That's a business no-no. But Wal-Mart has its own heartbeat. It's an enigma. Once you're in, Wal-Mart has you.
I don't have to tell you that it wasn't always this way. Did you know that 1962 was the Year of the Discounter? That's not according to Chinese astrology. That's what I've dubbed it, after learning that four companies started discount chains that year. Think Kmart Corp. Target Corp. Wal-Mart. And can anyone guess the last one … anyone? It was Woolco, by F.W. Woolworth. Does anyone even remember that one?
By 1989, it was a big deal that Wal-Mart grew into 26 states. Rubbermaid Inc. was the industry stalwart, with its landmark plant in Wooster, Ohio. But Rubbermaid was a supplier to Wal-Mart, and Rubbermaid learned a painful lesson when it asked for a stiff price increase. Wal-Mart wouldn't grant the increase, but instead went to competitors such as Sterilite Corp. Well, the customers were soaking up this idea of everyday low prices.
Sterilite is not Rubbermaid's only competitor, of course. However, it is the one brand you see consistently on Wal-Mart shelves. And it is, consistently, the one brand on the minds of people I talk to in the housewares industry.
Sterilite is privately owned. Its manufacturing facilities are in the United States. Sources agree that Sterilite has pulled itself through as consistent, persistent and reliable.
People in the industry say they expect the Wal-Mart phenomenon to start to die out. It's not doing well in penetrating certain European markets, for instance, and it has faced allegations of unfair labor practices. One source predicts a third retail channel eventually will de-velop: There's got to be a change.
Wal-Mart, the world's largest company, is bound to run into trouble, I suppose. Still, it plans to build nearly 55 new discount centers in 2004 alone, and some 230 “supercenters” — all in the United States. To give you some perspective, Wal-Mart opened its first supercenter in 1988 and its first international unit in Mexico in 1991. At the end of the third quarter in 2003, the company had 1,309 international locations spread among nine countries.
For molders, there may be sunlight on the horizon. Several molders said they have been able to push through price increases to customers, finally. A lot of those molders won't say who their customers are, exactly; I usually have to go survey the shelving at Wal-Mart or Target or other retail stores.
Other molders at the recent International Housewares Show in Chicago seem to be rejuvenated after all these years, focusing on product design and keeping manufacturing stateside.
But don't get too comfortable. If you want some motivation, take a lesson from Sam himself: “Swim upstream. Go the other way. Ignore conventional wisdom. If everybody else is doing it one way, there's a good chance you can find your niche by going in exactly the opposite direction.”
I suppose that means even hiding your new product under a cloth at a tradeshow.
Don't get too comfortable, and accept the inevitable truth: There will always be another Wal-Mart, responding fervently to the demands of the consumer, and there will always be one processor willing and able to provide product on the retailer's terms.
As one source said, “We're to blame. We're dying to pay less. We're such ferocious shoppers.”