Walmart's Endgame: Take Over Shipping From Suppliers, Killing Their Markups as It Goes

Last Updated May 25, 2010 11:26 AM EDT

Reaching ever farther down its supply chain to wring out more costs, Walmart (WMT) is now asking all its suppliers to stop shipping the chain's goods. Instead, Walmart wants to pick up products in its own trucks -- and avoid paying any transportation bills.

It's greener for Walmart to run its own full trucks than for suppliers to ship half-full containers, managers say. It's also greedier, as it cuts out Walmart vendors' delivery charges. Market changes wrought by the move could also put lots of blue-collar workers out of work, hitting Walmart's own core shopper base.

With its transportation gambit, Walmart aims to deliver even-lower prices in a desperate bid to lure customers back and stop eroding sales, as its cost will be a bargain no competitor will likely be able to match. The massive new transportation plan could send off big ripples, possibly changing how other chains get their goods, too.

It remains to be seen how many vendors might try to reject the deal or stop selling Walmart due to the price cut the retail giant wants in exchange for picking up vendors' goods. A Bloomberg investigation found suppliers were being asked to give up 6 percent of their price for converting to Walmart's own shipping operation, while some vendors reported transportation was only 3 percent of their costs.

Assuming vendors go for this plan, the shift would affect a wide circle of American businesses. First off, thousands of vendor companies would lose their shipping flexibility and markup, and be at the whim of Walmart's pickup schedule. Second, freight companies stand to lose a giant chunk of their business, if Walmart shifts much of its transportation to its own fleet and its contractors.

Finally, manufacturers who've been running their own trucks to Walmart's distribution centers and then over to Target's warehouse and those of other competitors could well find themselves running half-empty trucks without Walmart's shipments, raising their inefficiency in delivering to competitors. Then they'd need to charge those competitors more for delivery.

And there is Walmart's grand plan revealed -- lower shipping costs for them and higher shipping costs for their rivals. If suppliers get on board, archrival Target (TGT) and others could be left scrambling to create similar levels of efficiency, while Walmart could cut prices to depths competitors couldn't possibly match.

Vendors are in a painful bind under Walmart's new shipping plan: If they give up 6 percent of their price, will they still be able to survive? If they stop selling to Walmart, by contrast, they may go bust as well, as their overhead includes factory capacity for selling the retail giant. The move may drive vendor consolidation as suppliers try to find a way to make this new structure work, or changes in where goods are sold as some vendors give up in disgust and decide to focus on other retail accounts.

Bottom line here: Independent truckers and factory workers shop Walmart, too. If the company's moves deprive too many of them of a living, it could give the company a bad rep with its core audience. Cut thousands of blue-collar jobs, and Walmart may not gain the additional sales it's so desperate to capture.

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  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.