A new study by supply-chain researchers at the University of Arkansas shows relationships between major big box stores and their suppliers are collaborative in nature, rather than adversarial. Further, suppliers that actively participate in supply chain processes with these major customers are wielding considerable leverage and perform better financially.
The researchers said the study's findings debunk perceptions that the leverage has noticeably shifted from suppliers and manufacturers due to retail consolidation.
"In this vision of the retail industry, large powerful retailers are eight-hundred-pound gorillas demanding concessions and squeezing every last drop of profit from suppliers," said Matt Waller, professor of logistics and supply chain management in the Sam M. Walton College of Business, in a statement. "The general assumption — and existing academic literature supports this — is that this concentration has allowed the powerful retailers to exploit their weaker suppliers, which in turn has caused the suppliers' performance to suffer. But our study found that this isn't necessarily the case. The dynamic between the two is a little more complex."
Researchers analyzed financial statements from Walmart, Target and more than 3,400 firms that sell their products to the two major retailers, particularly looking at how market share — both suppliers' and retailers' — influence suppliers' financial performance. They found that the shift in power from supplier to retailer and the consequent dependence of the former on the latter have not necessarily led to adversarial relationships between the two.
Due in large part to the rapid adoption of innovative supply chain processes, such as retailers sharing point-of-sale data with suppliers, collaboration
and cooperation between the two groups have enhanced financial performance throughout the supply chain.
"It's true that suppliers that depend on these key retail accounts for a significant share of their total revenues relinquish some of their leverage in the marketplace," Mr. Waller said. "But we found that as these powerful retailers gain market share, their suppliers' performance tends to increase. So suppliers may actually benefit from this dependence, and it could reflect successful strategic coordination rather than power struggles."
The researchers' findings were published in the Journal of Retailing.