That's a practice that Mitchell continued when he succeeded Tabb as president. (For more on Mitchell's early days as GTO's president, see " Real-World Reengineering," April 1995.) Mitchell was adamant about it. "We weren't going to be a slave to Wal-Mart," he says.
"Due to the differences in business philosophy, Sam's must discontinue the purchase of the E-Z Gate from GTO effective May, 1996." That caustic sentence leaps off the page of a letter that Mitchell received from Thomas J. Sharpe, divisional merchandise manager at Sam's Club. It's one of 3,000 documents in GTO's archives--including photos, test results, and Mitchell's correspondence--that trace the rise and fall of the company's anguished tenure as a Sam's Club supplier.
Once Mitchell returned from his September 1994 trip to Bentonville, he and Bevis became monthly pen pals. A few days after their meeting, he sent a four-page proposal to Sam's Club to open a new chapter in their relationship and remind Bevis of the $24,000 check Mitchell was expecting. Two letters later Mitchell wrote an indignant encore, setting a December 19 deadline for confirmation of payment to come (the claim had risen to $35,986.89, swollen by more "incorrect" returns) and threatening for the first time to sue. "It's been nearly two months and, despite my written requests and our repeated phone calls, we have not heard anything from you regarding these issues," Mitchell wrote. A day after the deadline, a fax arrived at GTO with a copy of Mitchell's letter and Bevis's scrawlings on top: "Linda, we are submitting $35,986.89 for approval to repay this week."
The check actually arrived in March; it was short by $420. "They clipped us for certain credits," Mitchell says.
Throughout 1995 Mitchell assumed that he and Bevis had a new agreement. He submitted quarterly reports to Sam's Club and requested money for returns that he had determined were invalid. The amount would total almost $45,000 for the year. But by mid-1995, Bevis had transferred to another division. His replacement told Williams that he didn't know anything about a new agreement.
So at the start of the new year, Mitchell wrote to the president and CEO of Sam's Club, Joseph Hardin Jr. Once again he reviewed the basis for GTO's burgeoning claim, and he enclosed copies of five previous letters. The letter also alluded to the cache of Polaroids and diagnostic reports that Mitchell had amassed. Not that Mitchell was depending on his stash of evidence to sway Sam's Club; he had significant leverage, he believed. He says that Sam's Club bought the gate openers for $366.50 and sold them for $437, which meant it enjoyed a bulky 19% gross margin on GTO's product. "I knew at some point, when I pushed too hard, they were going to cut me off," he says. That time, he soon learned, was at hand.
It was Sharpe who responded on Hardin's behalf. According to the notes Mitchell took of their February 21 conversation, Sharpe told him that Sam's Club didn't owe GTO any money and any agreement with Bevis was "invalid because he didn't have the authority to negotiate on the part of Sam's." Sharpe would not hear of a new vendor agreement. The two haggled over the definition of defective, with Mitchell citing the inexplicable diaper delivery. Sharpe, however, proposed a few options: why didn't GTO, for example, raise its prices to cover the cost of the returns? As for the agreement, Sharpe told him flat out, "We're going to interpret it the way we interpret it, and if you don't like it, you don't have to sell to Sam's anymore."
What Sharpe suggested--setting a purchase price that covers the cost of returns--is, in fact, what Wal-Mart's vendors typically do, according to Betsy Reithemeyer, a spokesperson for the chain. "It's all part of the negotiations when we're talking to a vendor," she adds. But GTO's days as a Sam's Club vendor were waning after the argument between Mitchell and Sharpe. Three months later, after a further exchange of letters, Mitchell received Sharpe's "Dear John" letter. (Both Sharpe and Hardin have since left Sam's Club. Sharpe couldn't be reached for comment, and Hardin declined a request for an interview.)
Having pushed Sam's Club hard to honor his claim, and then having provoked the retailer to the point of severing their relationship, Mitchell recalls, "I didn't have this big remorse. I had laid the groundwork for this to happen. I had set them up to dump us." And Mitchell already knew his next move: he would sue Wal-Mart. But first he had to persuade his board to go along with it.
The 15-member board "wasn't wild about the idea" of taking on Wal-Mart in court, Mitchell quickly learned. Accountant Benson Skelton, for one, voiced strong doubts about taking on "the Big Gorilla," as everyone routinely referred to Wal-Mart. "I just wanted to make sure we wouldn't be eaten alive by lawyers," says Skelton. Similarly, Mike Blankenship, having run his own pipeline- and road-construction company for 30 years, urged Mitchell to salvage the important relationship. "Anytime you litigate, everybody is in trouble," he now says. In the end the board authorized spending $25,000 to allow the company's attorneys to review the documentation and advise it what to do.
