Wal-Mart carries a big stick and will use it

Drug Store News, Sept 30, 1991 by Bruce Buckley

Wal-Mart carries a big stick and will use it

Carrots work. But sometimes sticks are better.

Wal-Mart took the latter approach when it informed vendors earlier this year that it would no longer tolerate a casual approach to UPC product coding. Make no mistake: Wal-Mart carries a big stick.

The discount giant told its product suppliers that it would impose stiff fines for violating UPC standards: 10 percent of the purchase order for a first offense and up to $100,000 (or 10 percent - whichever is higher) for three-time losers.

Privately, some of Wal-Mart's approximately 5,000 vendors expressed outrage at the penalty system. But, of course, nobody rebelled. Selling products into Wal-Mart stores is a pretty strong incentive for compliance.

The result of the get-tough policy? Scanning accuracy has improved from the 91 or 92 percent level to 95 percent, Curtis Arend, administrative manager of Wal-Mart's UPC item file, told Drug Store News senior editor David Vaczek. For Wal-Mart, the goal of 98 percent is going to require continuing vigilance, plus resolving some of its own problems with internal coding procedures, Arend said.

In improving the integrity of its product file, Wal-Mart gains in its ability to buy and manage inventory. The discounter already sets the standard for distribution efficiency, but if it is to achieve its long-term growth goals, it cannot afford to rest on its achievements.

Advantages also accrue to Wal-Mart's vendors. Cleaner UPC files mean more accurate and timely national and regional product movement information, better forecasting and stronger marketing all around.

Accurate UPCs also benefit the drug store industry, many of whose companies are now fully scanner-equipped or rolling out systems. Wal-Mart's "stick" may thus cast a longer shadow than anyone anticipated.

Retailing may be in the doldrums because of the sputtering economic recovery, but it would be hard to tell that from the robust activity of the three leading deep discounters profiled in this issue. Their growth has been nothing short of phenomenal.

While many other chains have gently tugged on the expansion reins, Phar-Mor, Drug Emporium and F&M have taken off at a furious pace, galloping into new markets with a loud clatter.

They are also relentlessly increasing their penetration of existing markets. They may eventually bang into some restraining wall out there, but they have not seen it yet. Overstoring is a word not found in their dictionaries.

In today's economy, it's imperative to understand what's motivating customers. The Big 3 - and others in this rapidly expanding retailing segment - have a firm grasp on the worrisome forces confronting consumers.

Their price-driven approach in high-demand product categories is a tonic that will propel growth both now and well into the future.