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Wal-Mart: Supplier performance and market power

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  • Mottner, Sandra
  • Smith, Steve
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    Abstract

    This research seeks to further the understanding of the relationship between Wal-Mart and its suppliers. 1988-1994 demonstrates Wal-Mart's market power in relation to manufacturers [Bloom PN, Perry, VG. Retailer power and supplier welfare: the case of Wal-Mart. Journal of Retailing 2001; 77( 3): 379-396.]. Wal-Mart suppliers for that period had lower profits than non-suppliers, which indicate a dependency model of market power when suppliers give concessions to a stronger retailer in order to obtain or maintain the relationship. Wal-Mart's dramatic growth and increasing marketing power since the 1988-1994 period offer an opportunity to retest previous findings and further the understanding of a major retailer's strategy for managing suppliers through the use of the strategic profit model. Initial results indicate that gross margin is significantly less for Wal-Mart suppliers than non-suppliers indicating pricing concessions and a dependency model of market power. However, a fixed-effects model controlling for unobservable firm characteristics such as strategic choice suggest that Wal-Mart suppliers are self-selecting or are implicitly pre-screened such that Wal-Mart suppliers have a low-cost strategy and choose lower returns as a market strategy. Findings indicate that small firms do experience a dependency model in that they have lower gross margin, lower operating income, and higher turnover. However, considering fixed-effects for these firms, small manufacturers experience only higher turnover as a result of doing business with Wal-Mart, thus indicating more of a partner-type model of market power.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Business Research.

    Volume (Year): 62 (2009)
    Issue (Month): 5 (May)
    Pages: 535-541

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    Handle: RePEc:eee:jbrese:v:62:y:2009:i:5:p:535-541

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    Web page: http://www.elsevier.com/locate/jbusres

    Related research

    Keywords: Retail Financial performance retail strategy Suppliers Wal-Mart Strategic profit model;

    References

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    1. Hsiao,Cheng, 2003. "Analysis of Panel Data," Cambridge Books, Cambridge University Press, number 9780521818551.
    2. Trish Kelly & Martin Gosman, 2000. "Increased Buyer Concentration and Its Effects on Profitability in the Manufacturing Sector," Review of Industrial Organization, Springer, vol. 17(1), pages 41-59, August.
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    Cited by:
    1. Shou, Yongyi & Feng, Yi & Zheng, Jingjing & Wang, Guofeng & Yeboah, Nyamah Edmond, 2013. "Power source and its effect on customer–supplier relationships: An empirical study in Yangtze River Delta," International Journal of Production Economics, Elsevier, vol. 146(1), pages 118-128.
    2. Jiuh-Biing Sheu, 2014. "Green Supply Chain Collaboration for Fashionable Consumer Electronics Products under Third-Party Power Intervention—A Resource Dependence Perspective," Sustainability, MDPI, Open Access Journal, vol. 6(5), pages 2832-2875, May.

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