Wal Mart's Supply Chain Voice Dispute Behind The Interview

Wal Mart's Supply Chain Voice Dispute Behind the Interview

 

Wal Mart should reasonably share the tariff cost, rather than transferring all the pressure to Chinese suppliers.

 

 

On March 11, the news that "the Ministry of Commerce and other relevant departments interviewed Wal Mart" was like a blockbuster, which stirred up a thousand waves in the retail industry.

 

The trigger of this incident stems from Wal Mart's recent request for a substantial price reduction to its Chinese suppliers, which aims to offset the cost pressure brought by the Trump government's recent tariff increase. It is reported that some suppliers are required to bear a 10% price reduction in each round of tariff adjustments, which has been resisted by many Chinese suppliers and negotiations between the two sides have reached a deadlock.

 

Although Wal Mart has not officially responded to this, what this event reflects is the deep challenge that the global retail giants face in the domestic market. From the planning of tariff shifting to the upgrading of supply chain game, from the fragmentation of consumption scene to the reconstruction of digital ecology, Wal Mart China is standing at the crossroads of the collision between the traditional retail model and the new industrial order.

 

The local survival rules of multinational retail enterprises

 

According to relevant media reports, some Chinese enterprises, including kitchen utensils and clothing suppliers, have been asked by Wal Mart to reduce their prices by 10% in each round of tariff adjustment, which is almost equivalent to letting suppliers bear all the new tariff costs, while the profit margin of Chinese suppliers is generally lower than 5%. If they accept the 10% price reduction requirement, they will directly lead to losses.

 

To some extent, the tariff policy imposed by the United States on Chinese goods has pushed Wal Mart into a dilemma. Wal Mart unilaterally requires Chinese enterprises to reduce prices, which may cause the risk of supply chain disruption and damage the interests of Chinese and American enterprises and American consumers; Wal Mart temporarily requires Chinese suppliers to reduce prices, which may violate the commercial contract and disrupt the normal market trading order.

 

Due to the severe compression of profits, some enterprises even began to explore alternative supply chains such as Vietnam. However, the uncertainty of product quality made Wal Mart fall into the dilemma of balancing "cost and quality".

 

In the eyes of industry insiders, Wal Mart's experience reflects the three iron rules for the development of multinational retail enterprises in China:

 

Firstly, the essence of supply chain game is the competition for value distribution rights. Only by establishing a localized flexible supply chain system can a high level of profitability be maintained in the face of demand fluctuations; Secondly, the "scene creation demand" of offline retail formats such as hypermarkets does not lie in physical transformation, but in the reconstruction of emotional value. The transformation from a "trading field" to a "life laboratory" requires deeper user insights; Finally, digitization is not a multiple-choice question but a survival question, but a self controlled technological foundation is the foundation of long-term competitiveness.

 

In the long run, this supply chain game actually involves the transfer of the dominant power of the global supply chain and the subversive change of the underlying logic of China's retail industry. China's transition from "the world factory" to "the value center" is clearly breaking the unilateral pricing power established by global retail giants such as Wal Mart through the effect of scale.

 

 

The contradiction between high growth and low expectations

 

Some suppliers believe that under the tariff pressure, Wal Mart should share the tariff cost reasonably while maintaining its price strategy, rather than transferring all the pressure to suppliers.

 

Obviously, Wal Mart's attempt to completely transfer tariff costs to Chinese suppliers is unreasonable, but behind this irrationality lies Wal Mart's real intention not to damage its own interests and then transfer costs. Wal Mart's performance in the fourth quarter of fiscal year 2025, which is lower than the market's expectations, can also reveal its deep structural contradictions.

 

In February this year, Wal Mart handed over a brilliant report card. According to the financial report, in the 2025 fiscal year from February 1, 2024 to January 31, 2025, Wal Mart's global revenue will reach 681 billion dollars, up 5.1% year on year; The operating profit was 29.3 billion US dollars, a year-on-year increase of 8.6%.

 

In the Chinese market, Wal Mart has performed well, with annual net sales of about 20.3 billion dollars. In the fourth quarter, Wal Mart's net sales in China climbed to $5.1 billion, a year-on-year increase of 27.7%, and the growth rate of comparable sales reached 23.1%. Among them, the e-commerce business grew by 34% year-on-year.

 

 

For leading enterprises like Wal Mart, growth alone is not enough. Analysts and investors need to increase the "growth rate" year by year, that is, the growth rate in fiscal year 2025 will be higher than that in the previous fiscal year.

 

But this is a huge challenge for an established enterprise, partly due to the increasing year-on-year base, partly due to the huge changes in the macro environment, the uncertainty of policy factors, and the huge differences in habits and demands of emerging consumer groups.

 

Even though Sam's popularity in China is high and he is in the expansion period, he can effectively share the growth pressure of Wal Mart. From the perspective of regional distribution, Sam's growth in the Chinese market is highly concentrated in the first tier cities and new first tier cities, and his expansion in the sinking market has obviously encountered bottlenecks.

 

 

Then look at Wal Mart's hypermarket business, which has been in a state of adjustment in the past few years. Data shows that from fiscal year 2020 to fiscal year 2024, the number of Wal Mart stores in China is 412, 403, 361, 322 and 296, and the number of closed stores is 9, 42, 39 and 26, respectively.

 

Behind the continuous closing of stores is the continuous decline in the performance of Wal Mart's hypermarkets and even losses. Zhu Xiaojing, CEO of Wal Mart China, once said that Wal Mart's development in China must give up. Only by learning to give up, can we achieve the ultimate. The implication is that Wal Mart stores and Sam's Club stores are in the balance.

 

Looking ahead, Wal Mart's global growth forecast for fiscal year 2026 is only 3% -4%, reflecting the prudent attitude of the management towards the macro environment. Just as John Rainey, the chief financial officer of Wal Mart, said, the new performance expectation does not include the impact of the latest tariff policy of the United States. Similar to the situation in previous years, there is still much uncertainty at the macro level.

 

As for whether the sustained high growth of the Chinese market can offset the weakness in other regions, it still needs to be observed. However, it can be predicted that Wal Mart's global operation will experience a difficult period due to the cost and inflationary pressure brought about by tariffs and the business adjustment including China.

 

In this unprecedented change in the global retail industry, Wal Mart's fate is not only related to the rise and fall of an enterprise, but also will become a touchstone to test the ecological resilience of the retail industry. Whether it can make a thrilling leap in the supply chain game, scene revolution, and digital wave will determine the historical position of multinational retail giants in the new industry cycle.