Blog: Dean BestWal-Mart is making waves

Dean Best | 1 February 2010

The giant has stirred. Wal-Mart, the world's largest retailer, has launched a swathe of initiatives to slash costs and drive margins - programmes that will undoubtedly put the spotlight on its supplier base.

The US behemoth is looking to consolidate how it sources products around the world, is shaking up its managment structure in the US in a bid to drive growth in 2010 and is creating a worldwide, e-commerce platform rather modestly dubbed

Wal-Mart's worldwide sourcing plan is the most eye-catching initiative, with the company teaming up with sourcing giant Li & Fung, which will improve the retailer's knowledge of local suppliers.

Wal-Mart said its plans, which also include the formation of a number of merchandising centres, would help the business "leverage the company's global scale".

"The newly-established global merchandising centres represent the largest and most important element of our new sourcing strategy," Wal-Mart executive Eduardo Castro-Wright explained.

Suppliers may have concerns about the moves but Wall Street was happy. Analysts at Goldman Sachs upped their rating on Wal-Mart's shares and claimed the plans are "game-changers" that will see the retail titan cut costs and improve its route to market.

And, interestingly, a consequence of Wal-Mart's restructuring in the US could be a push into smaller stores, something the company has flirted with in the past, with its Marketside test stores in Phoenix.

The development of smaller stores is a central plank of strategy at Morrisons, the UK's fourth-largest grocer. Morrisons, the fastest-growing of the Big Four in the UK in recent months, has already opened a slew of smaller stores as it expands throughout the country. And the development of those outlets was likely to be a key factor in the appointment of its new chief executive last week.

Dalton Philips will join Morrisons from Loblaw next month and the Irishman's experience at the Canadian retailer - and its series of different formats - could prove a useful feather in the UK grocer's cap. The UK convenience channel remains fiercely competitive, with the growth of The Co-operative Group post-Somerfield and Sainsbury's well-publicised plans for expansion.

The investment community gave the appointment a relatively warm welcome, with analysts apparently not holding Philips' time at Wal-Mart's doomed venture in Germany against the 41-year-old.

However, with some questioning whether Morrisons can sustain its recent growth without significantly diversifying its business, it will be fascinating to see in which direction the company's new CEO will take the business.


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