Wal-Mart's suppliers could be hit by payroll tax and gas prices

Wal-Mart's suppliers could be hit by payroll tax and gas prices

POSTED: Saturday, February 23, 2013 - 3:00am

UPDATED: Saturday, February 23, 2013 - 3:04am

Wal-Mart will report quarterly earnings on Thursday, but many investors are more focused on how the nation's largest retailer is faring this month.

As the payroll tax and higher gas prices take a big bite of out paychecks, reports surfaced that Wal-Mart suffered in the second month of the year.

Executives said Wal-Mart sales at the beginning of the month were a "total disaster" and the worst in seven years, according to emails obtained by Bloomberg News.

"Where are all the customers? And where's their money?" one of the emails from Cameron Geiger, senior vice president of Wal-Mart U.S. Replenishment, reportedly said.

So what does this mean for Wal-Mart's vast network of suppliers? Some experts say it could have a big impact.

"Soft months set up ripple effects through the supply chain," said David Hyatt, a professor of supply chain management at the University of Arkansas' Sam M. Walton College of Business. "When such a big player has a soft month, it has a big effect on the whole system."

Many are expecting February to be a softer month across the board, since Americans have recently been slammed with higher costs while also taking home less pay. The price of gasoline has increased more that 13 percent in the last month alone, and most of the country's 160 million workers are seeing smaller paychecks since the payroll tax cuts expired last month.

Workers earning the national average salary of $41,000 are receiving about $60 less each month.

John Lawrence, an analyst at Stephens Inc. who has covered Wal-Mart for 20 years, said Wal-Mart's customer base -- low-end to mid-scale shoppers -- is tapped out.

"This really eats away at discretionary spending, so people aren't going out and buying the TVs or the pair of jeans," he said. "There is no question that that stuff backs up in the supply chain."

Wal-Mart is better equipped at handling this sort of issue, said Kevin Sterneckert, vice president of research on the consumer value chain at Gartner. He said Wal-Mart's suppliers use a system that allows them to check in real time how their items are selling in each store.

"If there was a slowdown in a certain item or category, vendors know long before Wal-Mart would respond in the supply chain and change an order," he said. "If there is a softer period for particular merchandise, vendors are fully aware and can respond quickly by adjusting production."

Sterneckert said this system kept Wal-Mart from having a huge amount of overstock even during the depths of the recession.

But just because suppliers can quickly adjust to changing demand doesn't mean they won't be hurt by it.

"It is very difficult for suppliers to adjust," said the University of Arkansas' Hyatt. "Their numbers get off. It messes with inventories. All this turbulence makes it hard for planning."

Wal-Mart did not comment on February sales or their impact on suppliers. But David Tovar, a spokesman for the retailer, said the leaked emails are not entirely accurate and lack the proper context. 

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