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While there has been some discussion of the possibility that Wal-Mart could decide to become a wholesaler to smaller independent retailers, much of it on MNB, there was an interesting piece the other day in the Christian Science Monitor suggesting that in some ways this shift already has happened.

The paper reported that mom-and-pop stores actually are finding that in some cases, Wal-Mart’s prices are lower than those charged by their wholesalers, and are utilizing the big box retailer as a supplier for specific categories.

While Wal-Mart has long been in the wholesaling business through its McLane subsidiary, this is yet additional evidence that if it chose to, the company could make significant inroads in a way that goes beyond its discount stores, supercenters, and Neighborhood Markets.
KC's View:
Tell you a story…

We have a friend who runs a niche catalog business, and one of the items that the catalog always has stocked was a basic terrycloth towel. Deciding that he wanted to upgrade and also carry a velour towel, our friend went to every manufacturer he could think of, but for various reasons struck out -- either the costs were too high, the towels were sub-quality, or the manufacturer just didn’t want to do business with such a small niche business.

Our friend happened to be shopping in an older Wal-Mart Supercenter one day, and he saw exactly the kind of towel he wanted, and at a price that was a lot better than he would have been charged by the manufacturers he’d spoken to. So, he bought out the stock…and has continued to for some time now…while marking up the cost when he sells them by 100 percent.

Now, at one point he spoke to the manager of the store and asked if there were a way to streamline the process, allowing the pallets of towels to simply be unloaded into his truck. The manager of the store said no, they had to be checked out one by one at the front end. When a new Wal-Mart supercenter opened up nearby with a younger manager at the helm, my friend went over there and made the same request of her – and she was thrilled to help. (Just goes to show you that Wal-Mart can be inconsistent, too. Her towel numbers are looking great!)

The Monitor story makes clear that our friend’s experience is hardly a unique one. The biggest problem that Wal-Mart might face if it decided to become a wholesaler would be regulatory; we know too many retailers willing to buy from Wal-Mart to think that customers wouldn’t be lining up to get Wal-Mart-style prices.

And maybe the regulatory problem goes away if Wal-Mart is able to make the argument that not only won’t it engage in the financial shenanigans that have gotten so many other retailer/wholesaler companies in trouble, but that it is doing its best to keep its competition in business.