Scaling The Wal
It's the day every small manufacturer dreams of, works for and fantasizes about. Wal-Mart Stores Inc., the nation's largest retailer, has just agreed to carry your product. Welcome to Easy Street!
No, welcome to reality. "I thought I would become a millionaire," says Steve Kendall, whose Cutting Edge Opener System, a device that opens shrink-wrapped CDs, audiotapes and videotapes, is sold in Wal-Mart stores. "I didn't come anywhere close to that."
Just because your product is sitting on Wal-Mart's shelves doesn't mean you can sit back and relax. You need to work just as hard to make your product successful in Wal-Mart as you did to get it there in the first place.
Karen Axelton, former articles editor for Entrepreneur magazine, is a writer in Long Beach, California, who specializes in business topics.
Ready Or Not?
For many entrepreneurs, Wal-Mart is the Holy Grail of retailing--and the process of winning its business can be as long and arduous as the search for that mythical chalice. You'll need patience, professionalism and persistence for this journey. Begin by asking yourself three key questions: Is Wal-Mart right for your product? Is your product right for Wal-Mart? Is your company ready for Wal-Mart?
"Start by deciding if this type of mass merchandiser is appropriate for you," says Liz Tahir, owner of New Orleans-based retail consulting firm Liz Tahir Consulting. Is the Wal-Mart customer your customer? How does Wal-Mart fit into your overall distribution strategy? "It's very idealistic to think you can sell to Wal-Mart and then turn around and sell the same product to [a high-end retailer like] Macy's," says Tahir.
Determining whether your product is right for Wal-Mart takes research and legwork. Paul Cantrell, 31, put in plenty of both and was rewarded by landing Wal-Mart as his first retail account. A background in sales and marketing with Procter & Gamble (P&G) helped, including three years working exclusively on P&G's Kmart account. "I gained good insight into what it takes to make a product successful in that retail channel," says the Matthews, North Carolina, entrepreneur.
Offering something unique is important. Cantrell's product, the Utilitote, is an adjustable bed-liner that fits in the back of sport utility vehicles (SUVs), minivans and station wagons. In early 1996, when the Utilitote was ready for mass production, Cantrell started studying Wal-Mart parking lots, where he saw plenty of SUVs and minivans. Assessing Wal-Mart's automotive department, however, he saw a product mix focused on cars and trucks. "The product clearly had an ability to reach consumers they weren't targeting," Cantrell says.
Last but not least, is your company ready for Wal-Mart? "You've got to have production patterns to get the product out the door to meet ship dates," says Steve Wurzel, a Franklin, Tennessee, consultant whose company, Marketforce Inc., specializes in helping businesses sell products to mass retailers. "The little guy working out of his garage isn't going to get in [Wal-Mart] in a billion years."
Steve Kendall, whose homebased SMK Marketing is a one-man company, is a little guy who beat the odds. Even so, he agrees with Wurzel. "The biggest mistake people make is that as soon as they come up with an idea, they try to get it in Wal-Mart," says Kendall, 46, who had 20 years of corporate marketing experience under his belt before approaching the retailer. "Don't even think of selling to Wal-Mart with just a prototype or sample."
Kendall got his break in the spring of 1995, when QVC saw his CD opener during a national search for new products. The shopping channel persuaded him to go ahead with two other ideas, a videotape opener and an audiotape opener, then packaged the three together and put them on the air. The St. Louis entrepreneur gained national exposure, then started wholesaling to distributors, who placed the products in retail music stores. That experience helped when, soon after, he approached Wal-Mart through its Minority and Women-Owned Business Development Program (see "Step By Step" above).
Perhaps the key to getting your product into Wal-Mart--and keeping it there--is a willingness to build a partnership with the company. That attitude paid off for Charles and Patricia Monte, whose Monte Babe line of appliqued clothing for girls has been in Wal-Mart stores for about a year. "It was an open-book situation," says Charles, 49, of the Bay City, Michigan, company's initial meetings with Wal-Mart two years ago. "They wanted to know about certain aspects of our business--our facility, our financials. At the same time, they were open with us as to what they expect from a vendor."
Be ready to meet those expectations--fast. "When Wal-Mart sent us their first order, they wanted 24- or 48-hour turnaround; otherwise they would cancel," says Paul Cantrell. "We had to decipher the purchase order, ship through 17 different distribution centers, get all the invoices done correctly--all in [a short time]. It was quite a challenge, but it was a great feeling of success watching those trucks roll out."
Savor your success for a moment . . . then get ready for the next challenge: "Just because [your product is] in Wal-Mart doesn't mean it's going to sell," says Cantrell. At least, not without your help.
There are no hard-and-fast rules about how long a product stays on Wal-Mart's shelves; Wurzel has one client whose product has weathered 13 years. Suffice it to say, though, there's stiff competition for those slots. Wal-Mart buyers review each product's performance on an ongoing basis and make suggestions for how to improve sales. But that doesn't mean you can sit back and let them do all the work. This is a partnership, and you've got to take an active role.
Start by monitoring what is going on with your product. One way to do this is through Electronic Data Interchange, which allows the exchange of purchase orders and invoices between Wal-Mart and vendors, or through Wal-Mart's Retail Link, a software program that provides a direct link to the company's merchandising and sales data. Also, visit stores to see how the item is merchandised and whether it looks appealing. Pretend you're a customer: Are the product's benefits clear? Can you tell what it is? Does the packaging make you want to buy?
Don't expect the consumer to learn about your new product through Wal-Mart's advertising. "Advertising, for Wal-Mart, means their monthly circular," says Cantrell. "They're not going to put a new, untested item in there because that's not their strategy. Their strategy is to convey that they're the low-price leader--and if it's a new item, there's nothing to compare its [price] to."
Besides the monthly circular, Cantrell notes, "there aren't a lot of avenues within the Wal-Mart structure for anyone, even a Procter & Gamble, to advertise." That means you need your own advertising strategy--and budget. Cantrell, for example, is planning a six- to 12-month ad campaign on cable television that will show the Utilitote in action.
If your product hits a slump, think about ways to remedy the situation. "Is there a giveaway, promotional activity or special event that can help?" asks Tahir. "Offer to go in and work the shelf space yourself, hire someone to do it, take another flight to headquarters--whatever is necessary."
The Wal-Mart Mystique
You've negotiated the complex process of getting into Wal-Mart. You've carefully nurtured your product with marketing support, on-time delivery and smart merchandising strategies. You're seeing sales beyond your wildest dreams. Now what?
"Too many entrepreneurs get into Wal-Mart and want to coast," says Wurzel. "The rest of their business drops off. Then Wal-Mart finds [a cheaper version of] your product somewhere else. People go out of business because of that mistake."
"Don't put all your eggs in one basket," agrees Cantrell, who was courting several other mass merchandisers in addition to Wal-Mart. His clients now include discount retail chains and auto supply chains like Paccar Automotive.
Smart entrepreneurs make Wal-Mart part of an overall distribution strategy. A good rule of thumb, Wurzel suggests, is to never let Wal-Mart account for more than 25 percent of your total business. Charles and Patricia Monte had accounts with Mervyn's, Montgomery Ward and Sears before landing Wal-Mart, which now makes up 20 percent of their company's more than $4 million business.
Shouldn't landing other retail accounts be a snap once your product has passed the Wal-Mart test? That's conventional wisdom, and in some cases, it's true. "Being able to say, `Hey, we're in Wal-Mart now' is certainly a door opener," says Wurzel. "It's that `me too' mentality--if people see it doing well in Wal-Mart, they'll want it in their stores, too."
But not always. "Once I got into Wal-Mart, many other [retailers] shunned me," says Steve Kendall. "I went back to Kmart [and other mass merchandisers] I had approached before, and they said, `If your product is in Wal-Mart, then why do people need to buy it from us?' "
How can you avoid this Wal-Mart backlash? One solution is to diversify. If you have several products or product lines, you can sell one to Wal-Mart and others elsewhere.
Another idea: "Get Wal-Mart to put its private label on your product," says Kendall, who did just that with the Cutting Edge Opener System. "Then you can still sell it under your own label elsewhere, and it won't be directly comparable to the Wal-Mart item." Kendall uses this strategy to sell his product via the Internet.
Whether you can leverage the Wal-Mart cachet to boost sales elsewhere is not necessarily the point. The real benefits of working with Wal-Mart go deeper than that. "The exciting thing is that in dealing with Wal-Mart, you become a better company," says Charles Monte. "You learn how to sell to a mass merchandiser, and that's a benefit some companies may not recognize."
Whether their products succeed or fail in Wal-Mart, entrepreneurs who have worked with the retailer value the education they've gained. "One thing we learned from [our experience with] Wal-Mart was to focus on our marketing plan," says Paul Cantrell. As a result, he's changing the company's distribution focus from mass retailers to automotive stores: "That's where our customer shops."
If you see Wal-Mart as the pot of gold at the end of the rainbow, or the finish line at the end of the race, you're thinking's all wrong. Instead, think of it as training for a marathon. You may win first place, or you may drop out halfway through. But however far you get, you'll likely be in better shape when the experience is over than you were before you began.
"Wal-Mart is a learning experience, and we're still learning," says Charles Monte. "It's a challenge, and we choose to rise to it."
Step By Step
To become a Wal-Mart vendor, start by calling corporate headquarters in Bentonville, Arkansas, at (501) 273-4000. Operators will refer you to the appropriate department for the information you need. Or visit Wal-Mart's Web site (http://www.wal-mart.com) for step-by-step instructions on preparing and submitting your application package.
In addition to following these steps, you must have your financial information listed with Dun & Bradstreet, apply for Universal Product Code (UPC) Identification Number(s), meet applicable liability and workers' compensation insurance requirements, pass quality assurance testing, and meet packaging and labeling requirements.
Wal-Mart says it responds to all product applications within 90 days. If your product passes the initial application phase, it will be recommended to a buyer. In most cases, you'll need to visit corporate headquarters to make a sales presentation.
Wal-Mart has two programs designed to help small businesses become vendors:
* The Support American Made Program is a joint project of Wal-Mart and Southwestern Missouri University. Entrepreneurs with an American-made product receive a product evaluation form to fill out when they submit their application. The university's business experts assess the product's potential and either recommend it to Wal-Mart buyers or offer suggestions for improvement. For more information, contact Wal-Mart headquarters.
* The Minority and Women-Owned Business Development Program offers a variety of services to businesses that are at least 51 percent owned, controlled and operated by women or members of minority groups. To participate, companies must be certified as minority- or women-owned by regional affiliates of the National Minority Suppliers Council or the Women's Business Enterprise National Council. For more information, contact Wal-Mart headquarters, call the Minority and Women-Owned Business Development Center directly at (501) 277-1770 or (800) 604-4555, or e-mail firstname.lastname@example.org.
To do business with Wal-Mart, you've got to know your product and market intimately. Don't approach the retail giant unless you can answer the following questions:
- Where is future growth in this market/industry going to come from?
- How will your product or service help position Wal-Mart to take advantage of this growth (gain market share and control costs)?
- Who is your customer (age, income, median family size, geographical location and population size)?
- What is the overall size of the market/industry, and who is your competition?
- What added value does your product or service have over your competition?
- How will your product or service impact other related products or services in Wal-Mart stores?
Liz Tahir & Associates, 201 St. Charles Ave., #2500, New Orleans, LA 70170, (800) 506-1670
Marketforce Inc., 131 Third Ave. N., #107-108, Franklin, TN 37064, (800) 509-9961
Monte Babe Inc., 1400 S. Lincoln Ave., Bay City, MI 48708, (517) 895-7020
SMK Marketing, 9648 Olive, #115, St. Louis, MO 63132, (314) 991-4441
Utilitote Inc., 3371 Smith Farm Rd., Matthews, NC 28105, (704) 821-6199
Wal-Mart Stores Inc., 702 S.W. Eighth St., Bentonville, AR 72716, (501) 273-4000