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STRATEGY

Running the Gauntlet at Wal-Mart
 

The process of selling to the behemoth of Bentonville starts well before you push open the doors of its Arkansas headquarters. But it's within the fortress itself that the dream (or nightmare) of working with Wal-Mart really begins.
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Anthony Misuraca was two years out of college and bored stiff working at an insurance company in Oklahoma City when a colleague showed up at work one day with a small plastic jar filled with a homemade sauce. The colleague asked him to try it, and Misuraca gently dipped his finger into the jar and put a dab of the sauce on the tip of his tongue. Surprised, he blurted out, "That's great! What is this stuff?"

"I call it honey mustard salad dressing," said the co-worker.

Thus was born a partnership: Two eager but wet-behind-the-ears entrepreneurs had found the product that was, they hoped, going to make them rich. And, for a time, it looked as if it just might--never more so than in 1992 when a Dallas wholesale broker offered to introduce their product to a buyer at Wal-Mart. By then, Misuraca and his partner had gotten their salad dressing, labeled Country Gourmet Foods, into virtually every major grocery chain in Oklahoma. The Wal-Mart buyer, Misuraca says, liked the product and liked the story--especially the fact that it was all natural. But he didn't like the price. If Wal-Mart was going to take on the product, the price would have to come down from $2.25 a jar to a rock-bottom "buck seventy-nine." The price scared Misuraca but he was, he says, intent on selling to Wal-Mart no matter what. So he relented and walked away with an initial order for 1,300 cases--this for a two-man firm used to selling "maybe 130 cases a week."

At first, Misuraca was exultant. After a while, though, he began to wonder how he and his partner would make that much salad dressing. How would they finance it? Where would they line up the production equipment? But even that didn't deter him:

He was going to be a Wal-Mart millionaire.

Who wouldn't want to sell something to Wal-Mart? It is, after all, the world's largest corporation. Its annual revenue of $244.5 billion exceeds the gross national product of Saudi Arabia. On just one day in 2002--November 26, to be exact--it did a record $1.43 billion in sales, which is more than the annual output of the entire state of Kentucky. This is a company whose 2,936 discount stores, Super Centers, and Neighborhood Markets--and more than 520 Sam's Clubs--eat up more than 30% of the entire production lines of multinational giants like Kraft Foods and Philip Morris. This year alone, Wal-Mart will build 210 new Super Centers. And with each new store, there's room for more product.

It's not surprising, then, that the demand for new products and new lines at Wal-Mart is unending. Its appetite is insatiable, says Fred Traylor, a Bentonville-based vendor and broker who makes his living both selling to Wal-Mart and counseling others on selling to Wal-Mart. "The buyers there are always on the lookout for the Next Big Thing. And they don't care who provides it--whether big outfit or small."

There is, however, a caveat, warns Traylor. The infamously tough buyers at Wal-Mart, he says, "play for keeps. If you're a small vendor, and you fail them once, they'll never forget. You're on their shitlist for life."

But if you succeed...well, there are a whole lot of shelves to fill.

"People think there's some big secret to selling to Wal-Mart," says former company COO Don Soderquist, for 22 years a member of the Wal-Mart board of directors. "There isn't. We always ask the same two questions: Do you have a product that our customers want? And can you price it low enough for us to sell it?"

But while there is no magic formula, says Soderquist, "there is a method" (see "How Wal-Mart Says You Should Sell to Wal-Mart"). Just what that method is and how it works is deeply rooted in the culture not only of Wal-Mart but also of northwestern Arkansas. In an attempt to understand the culture and the process, we spoke with numerous vendors, brokers, and Wal-Mart executives. Many of the brokers and vendors, fearing that anything they said might damage their relationships with Wal-Mart, refused to be quoted unless their names were withheld. What emerged from these interviews is a culture that is rooted in an odd juxtaposition: The biggest corporation in the world has its headquarters in one of the nicest and, until recently, most isolated little towns in America. Welcome to Bentonville (population: 23,500).

To visit the downtown is to be carried back in time. One block off the square is the former Hotel Massey, of Civil War fame--the Battle of Pea Ridge having taken place 10 minutes from here (the old hotel is now a public library). Just down the street is Gene's Barber Shop, where Gene and Clovis and "Sometimes Carl" still practice their trade. Inside can be found three red leather chairs, several maroon University of Arkansas banners, a large wooden boat paddle with the label "Texas Fly Swatter," and a small metal box that's all the cash register there is. The only thing missing--as the old-timers will tell you--is "Mr. Sam" Walton, who for decades began his day with a visit to his pals, Carl and Gene.

On the east side of the square is the Benton County Courthouse. High above its porticoes, the U.S. and Arkansas flags flap lazily in the breeze. The square itself could be that of just about any sleepy little southern town of bygone times. Occupying center stage is the soldier in his marble repose facing west--"the Southern Soldiers," reads a plaque on the monument. "Confederate," it says at the base. Across from the soldier is the original Walton's five-and-dime, "Est. 1950," which is now a visitors center and museum. Propped in the store window is a copy of "Sam's Rules for Building Business." There too is a display of merchandise from the 1950s and 1960s, "Donated by Wal-Mart Vendors." Here a manual Royal typewriter, there a Sunbeam coffeemaker. One window is full of old-fashioned Johnson & Johnson products. Mr. Sam's old pickup is here, too.

It seems more than passing strange that a company so anchored in the present and with such a long history of turning the contours of small-town life upside down has deliberately seen fit to keep its own downtown so quaint. This, though, is the ultimate company town. On the north side of the square is the local banking giant, Arvest Bank of Bentonville. A couple of blocks southwest is the newspaper, the little Benton County Daily Record. The owners of both institutions: the Walton family.

A scant decade ago, a sales visit to Wal-Mart likely entailed flying a puddle jumper into the college town of Fayetteville, renting a car, then snaking along the old U.S. 71 through the Ozarks until you hit Bentonville. No longer. Today, if you fly in, it's probably aboard a full-sized jet that takes you to Northwest Arkansas Regional Airport, which opened in 1998 and is located just 10 minutes from Bentonville and neighboring Rogers. The runways are long at Northwest--long enough, in fact, to accommodate any commercial plane. There are four flights a day from the New York area. "In another decade," says Fred Traylor, the vendor/broker, "this place will be the next Dallas."

Wal-Mart executives will tell you, says Benton County Daily Record reporter Kyle Weaver, "that they don't insist on vendors having a sales team based here. But for all intents and purposes they do." Hence, the rapid buildup of major office complexes in the area: a half-dozen or more, all of them within five miles of Wal-Mart headquarters.

One of the original of these complexes--known as Beau Terre and founded by a retired Wal-Mart executive--is located some two and a half miles from downtown. It is home to dozens of companies and their Wal-Mart sales forces--though you might not know it by looking around the grounds. Many are the offices, indeed, that have no company name on the door, just an address. "The culture, when it comes to selling to Wal-Mart," says Weaver, "is secretive. People keep a very low profile around here. The last thing they want to do is mess up their relationship with Wal-Mart."

"The goal is to convince the buyer that there's a void on his shelf, and that your product will fill that void."

The exception to the rule is the splashy new two-story Newell Rubbermaid building near the airport. Rubbermaid has had an up-and-down relationship with Wal-Mart through the years, and the building seems to suggest that the company wants it known it's going to be around. And yet, even Rubbermaid's executives are loath to talk about what they've learned from decades of working with Wal-Mart. When asked what the lessons were--what they'd done wrong and what they'd done right in developing a relationship with the company--a spokeswoman declined to comment, except to say, "Our direction is to be a little more low profile."

The fancy new Rubbermaid building aside, most of the satellite offices in Bentonville are housed in bland, one-story office complexes along the four-lane South Walton Boulevard, where sits the massive red-brick and concrete Wal-Mart Home Office, four-stories tall, squat and ugly, virtually windowless, surrounded by a parking lot about the size of the one at Giants Stadium in New Jersey's Meadowlands. The lot is patrolled by Wal-Mart security guards in vans labeled "Loss Protection."

You come invited, or you don't come at all.

"Yes, sir," the late-middle-aged man in the plaid shirt says, virtually hollering into his cell phone while seated in a restaurant, "7:15, 7:15 in the morning, 7:15 a.m. I will be there. Yes, sir, I am very prompt. I am always on time. Yes, sir. Don't you worry, I am very organized. The CEO of my company? I am. You'll be getting the real deal. The straight poop. Yes, sir. At 7:15 a.m. Right on the button. At 7:15 a.m. in the morning."

When he hangs up, the man sighs audibly. After that, he wolfs down his meal, throws back a couple of cups of coffee, pays the check, and stalks out, wiping his brow. Those fortunate enough to get an invitation know that a visit to the Wal-Mart Home Office amounts to a high-stakes game--with the other player holding most of the cards. The whole process is more than just a bit awe-inspiring.

The first step on the long road to being a Wal-Mart vendor is to go online at www.walmartstores.com, click on "Supplier Information" and submit detailed financial info about your company. You also have to order up--and pay for--two Dun & Bradstreet reports. Basically, Wal-Mart wants to know that you can take a hit.

If you survive that round, you will find yourself in that sprawling parking lot filled with thousands of cars, many of them--the ones with the Hertz and Avis and National stickers--driven by fellow vendors, the competition. They're the ones opening up their trunks and pulling out black vinyl strollers loaded with samples. Some come alone, some in groups. Nearly all look hungry--hungry, that is, to make a sale--and a few look scared.

All make the same pilgrimage--say those who've made it--across that same tarry wasteland and through the same unpretentious doors and into the Wal-Mart waiting room. Walk in, and you'll find yourself in a cavernous space fronted by the welcome desk, where you'll be asked your name, your affiliation, and whom you've come to see. Then you will be told to take a seat, please.

On each side of the desk are 30 to 40 chairs, metal with seat cushions. The competition is, of course, everywhere. The women--a third to perhaps 40% of the vendors are women--come, mostly, in skirts and heels. The men come in either khakis and polo shirts or in suits. The unbreakable rule: Don't be flashy. The standing joke among veteran Wal-Mart buyers and vendors is that "you can tell a rookie by his suit." Like the Wal-Mart buyers themselves, veteran vendors wear khakis and button-down shirts or else polo shirts. One thing you can tell for sure: The men and women of Wal-Mart, whether part-time associate or CEO, all wear badges strung around their necks.

Oftentimes, the buyer will tell the visiting vendor, "I'll meet you by the chairs and walk you in." Other times, he'll say, "I'll meet you at the tables." If the latter, it probably means that the "pitch rooms" are booked, and there's no place to meet save at one of the folding metal tables that also grace the waiting room. That means you'll have to give your pitch--and suffer your fate--in front of the other supplicants.

"Don't be surprised if you have to give your pitch--and suffer your fate--in front of other would-be vendors."

If you're invited into a room, you walk past the uniformed guards from Wal-Mart Loss Protection, who stand behind the welcome desk, and through a set of doors. You're now in what the vendors call the "Hall of Humility," the long and sterile hallway on either side of which are to be found the several dozen pitch rooms. Peek into any of them, and you'll see the true business of Wal-Mart being carried out daily. For these are the infamous "cubicles," the mostly 8-by-10 rooms where buyer faces vendor, and deals do or don't get done. There are larger rooms where apparel products can be hung on metal wire grids. But all of them share the same anonymous features: folding chairs, a folding table separating buyers from vendors, bright fluorescent lighting overhead, a copy of Sam's Rules mounted on a wall, and a photo of Mr. Sam. On any given day, there might be sneakers on the table or bottles of a sport drink or maybe a box of macaroni and cheese. It hardly matters--save to whomever's in the room at the moment. But to them, it might mean everything.

The buyers themselves are mostly young; the majority, male. They pretty much fall into three categories, with the most experienced likely to be in their early 40s and making $75,000 or more a year. But even a beginning buyer, at age 28 and making as little as $30,000 a year, has power--a lot of power. What most have in common, tyro and vet alike, is background and skill. The typical Wal-Mart buyer is "a country cousin from somewhere around here," says an experienced vendor. "But he's also probably smart as hell and tough as nails. And he controls tens of millions of dollars in purchasing power. If he's got you in that room with him, he's sure as god got you by the balls."

Since the pitch rooms in which these hard-nosed negotiators operate are usually reserved for no more than 45 minutes to an hour, vendors' presentations must be short and sweet. Don't get to the point quickly, and you're done. "Often," says a local consultant, "those buyers will just say, 'Don't like, move on. Don't like it, move on.' They don't have time to BS."

What buyers want to know, says a local consultant, is where your product fits on the shelf. The best preparation for a visit to the cubicle, he adds, is "an advance visit to your local Wal-Mart." The thing you want to do, this man says, is to convince a Wal-Mart buyer "that there's a void on his shelf, and that your product is going to fill that void."

"I wasn't ready for it," says Anthony Misuraca, a former vendor. "I wasn't ready to stand up to Wal-Mart."

But even if the Wal-Mart buyer likes your product and is convinced that it will fill that void, he's probably not going to do the deal with you then and there. "The chances of closing a sale in 45 minutes just are not great," says the consultant. But don't be deterred if the Wal-Mart buyer proposes "a homework assignment." Be glad. "You get a homework assignment," he explains, "and you've got a dialogue going. You get a dialogue going, and you're on the road to making the sale."

A typical homework assignment: "Figuring out how you'll handle that little problem called returns."

It was the returns that got Anthony Misuraca. An all-natural product, his salad dressing had a two- to six-month shelf life. Soon after making the deal with the Wal-Mart buyer, Misuraca began to wonder: What if Wal-Mart had bought too much? What if the product sat too long on the shelves and turned bad?

Misuraca called the buyer and suggested that they start off their "partnership" with a smaller order, say 600 cases a week. That would be less than half what the buyer had ordered--but six times what Misuraca and his partner had been making.

"Can't handle it?" the buyer sniffed.

"Oh, we can handle it," Misuraca replied.

"Well, if you can't, we can find someone who can handle it."

Misuraca got the picture. And for six glorious months in 1992, Misuraca knew what it was like to be a Wal-Mart vendor: He'd go to the office in the morning only to find that his fax machine had run out of paper, thanks to all the Wal-Mart orders that had poured in overnight.

But then came the moment of reckoning. "The telephone rang," Misuraca recalls, "and it was Mr. Wal-Mart, and he says, 'I need an address where I can ship this stuff back."

Huh?

"We got some spoilage here, pardner."

Sure enough, the salad dressing had turned. Misuraca took it back but when Wal-Mart demanded its money back, he refused--which ultimately ended their relationship. Misuraca's dream of being a Wal-Mart millionaire was over.

When he looks back on his experience, Misuraca doesn't just blame Wal-Mart or the buyer, he blames himself: "I wasn't ready for it. I wasn't ready to stand up to Wal-Mart. If you can't do that, you don't have any business trying to sell to them."

If anything, the buyers at Wal-Mart have become even more demanding. In fact, these days, vendors have to prove they have the wherewithal to handle Wal-Mart-size production and Wal-Mart-size returns long before negotiations begin. "You can't even go through that door without showing proof that you have adequate financing," says Traylor, who is one of maybe a dozen or so brokers located in the Bentonville-Rogers area.

It's also more likely now that an experienced broker like Traylor would guide someone like Misuraca through the process. With his blue jeans and checkered shirt and southern accent, Traylor seems right at home in Bentonville. And while he isn't a native--the Traylors come from Shreveport, La.--he might as well be. Fred's father was a traveling salesman for Aladdin lamps, and one of the elder Traylor's earliest customers was a fellow named Sam Walton. "This was at his original five-and-dime store on the square," recalls Traylor. "My daddy sold to Mr. Sam from day one, and as a little kid I used to come along with him."

Tall, bearded, still ruggedly handsome in his mid-50s, Traylor runs a brokerage in Bentonville that specializes in matching up clients with Wal-Mart. The retailer--officially, at least--frowns on having to deal with brokers. In the words of executive vice president/general merchandise Don Harris: "We struggle having an open relationship when there's a third party involved."

But for some reason--no one seems quite sure why--the Sam's Club division has been more open to the presence of brokers. And it's with the Sam's Club that Traylor does most of his brokerage business. His own biggest selling point: himself. "They know me across the street," he says, pointing to the neighboring Sam's Club headquarters.

Without him and the other brokers, Traylor claims, it would be next to impossible for a first-timer to get the ear of the buyers: "Wal-Mart will tell you to go through new product development, but you'll be one of thousands. You'll get lost." For 2% to 4% of a client's gross, Traylor claims that he can "pick up that phone, call the right buyer, talk to him or her personally, and get you a hearing."

Almost as important, Traylor might be able to persuade the buyer to get up from his or her cubicle and walk over to his showroom, where a vendor can set up his wares in advance and make sure that everything's just right. "If I have a strong relationship with the buyer, I can say, 'Hey, come by and see it for yourself."

Still, he warns, "in the end, however hard I work for you, whatever strings I can pull, the buyer'll either like the product--or he won't. These folks don't do noth'n for love." I

First Person: I Was Inspired When I Got There

John Keeler, CEO, Blue Star Food Products, Miami

It's so well-organized and so low profile. You check in, get your badge, and wait for your number. You have to go through security. You enter a main hall, where they have cubicle-type rooms. Sam Walton's picture and their core values are in each office, which is important to know, honestly. The buyer was so easygoing. You would never imagine that someone who makes such an important decision would be so down-to-earth and human. He was like your neighbor next door, not a hotshot. That relaxed me. I realized I just had to be myself. The meeting lasted 15 to 20 minutes. My marketing and sales team leader gave a presentation about our crabmeat. And when I had a chance to talk, I told them what it meant to be there. I shared my core values--we care about each other, we care about our customers. And I told them we would care about Wal-Mart, too. That wasn't something I planned to say ahead of time. I was inspired when I got there. Honestly, it wasn't hard for me to say it. The buyer was such a nice guy. I think Wal-Mart has its own culture, a different culture from the image I have of corporate America. It's Wal-Mart America.

First Person: Be Honest

Jeff Lakes, president, Kuji Sports North America, Bentonville, Ark.

I've been selling to Wal-Mart for almost eight years. We make Wal-Mart house brands, that's our approach. Selling to Wal-Mart was a paradigm shift for our company: Do we want to manufacture our own brand or do we want to sell sporting goods and other items direct to the world's biggest retailer? We want to be Wal-Mart's partner. Wal-Mart is very stringent with their house brands because they want them to be equal to or better than national brands. Really, Wal-Mart is very fair with their vendors, and you always know where you stand. They really don't play games. It's very fact-based. It's based on the quality of your product. Does it offer a great value at a great price? You're always looking at ways to cut costs. We're always looking at what the branded people are doing and making sure we're offering better improvements. One of the bigger lessons I've learned is that the best policy is honesty with Wal-Mart. Be transparent and have a low resistance to change, and always make sure they know what you're doing--good, bad, or indifferent.

First Person: Why Should I Buy Anything From You?

Christopher Baker, CEO, ZonePerfect Nutrition, Beverly, Mass.

Going into the meeting I was under the impression that by bringing a CEO in with salespeople, you'd be able to make an impact on the Wal-Mart people, and that was as far from the truth as it could be. I walked in with the head salesperson and our broker. We go into a room that must have been three feet by three feet, and we set up our nutrition bars. I don't mean to say it in a pejorative sense, but the buyer looked like he was from Bentonville. And his first question was, "Why should I buy anything from you?" I hardly spoke at all. I backed off and let the salesperson and the broker go forward, and I watched the buyer's body language. He tears open the bar, tastes it, and slams it into the garbage can. They probably heard it two states away. But he got ahold of one bar that he really liked, and he couldn't put the damn thing down. He kept eating it. So I gave him the line, which I believe, which is that we want to establish a joint venture. We want to be able to build the brand with you as a partner. We gave them a price, he batted it around a little bit, and I told him point-blank I couldn't go any lower than that. He eventually said, "Okay, I understand that." And we had a deal.

Sidebar: How Wal-Mart Says You Should Sell to Wal-Mart

As with many in Wal-Mart's high command, Don Harris, executive vice president/ general merchandise, is a child of the Ozarks and a company lifer. In other words, he knows Wal-Mart.

Step one for prospective vendors, says Harris, is to go to a Wal-Mart Super Center and figure out where--meaning precisely where, on which shelf--your product should be placed. If you think there's an open spot, proceed to step two. If not, you better have good reasons why your product is better--and can be sold cheaper--than the one that's already on the shelf.

After that, go to www.walmartstores.com and fill out the required questionnaire. The company wants to make sure you have the financial and production wherewithal to be a vendor. You'll also be instructed to pay for two Dun & Bradstreet reports on your company's finances, one for yourself and one for Wal-Mart. The company receives 2,000 inquiries a week, says Harris, and it manages to review "every single one." Almost all go to the new-supplier development division, which was started in 1994 as a venue "for women-owned and minority suppliers" but is now the starting point for all new-vendor business.

And if everything checks out?

"Next thing you know, you'll wind up in front of a buyer," says Harris. Even then, the odds are never good for a first-time vendor. But they're probably best, Harris suggests, for a niche business. The classic example, he adds, "would be a regionally important business."

And, no, it won't do you much good to show up at the Wal-Mart Super Center in your town and try to pitch your product to the manager there. "You'll still have to go through the new-supplier development division," says Harris.

In a word: Bentonville--and those infamous cubicles. There, says Harris, if all goes well, the buyer "will negotiate a price, get a vendor agreement set up covering all technicalities--ship point, method and timing of payment, so you can send it and we can pay you for it."

And after that? The buyer may decide right then or "you get a firm decision a week later."

The odds still aren't in your favor if you're a first-timer. After all, says Harris, "we've already got 21,000 suppliers." But then, he adds, "no one faults you for calling on Wal-Mart or making a pitch to us--even if you are making your product in your garage." Harris chuckles, pauses again, his voice dead serious now: "Hey! Selling to Wal-Mart, that's the American dream."

Sidebar: Bentonville: Breeding Ground for Entrepreneurs

The ultimate way to sell to Wal-Mart may just be to pick up and move to Bentonville and devote your life to the cause. In little more than a decade the area has become a breeding ground for entrepreneurs, many if not most of them catering to Wal-Mart and its vendors. One such is Patrick Sbarra of New Creature. Raised in Scarsdale, N.Y., Sbarra had had a good run in Dallas as a radio executive with a penchant for advertising and promotion when he turned 41 and told his wife, "I've reached the pinnacle! Now what?"

The Sbarras had vacationed in the Ozarks for years and loved the climate and the geography. But with more than 500 suppliers (many from major brands) having built offices in the Bentonville-Rogers area, Sbarra had other thoughts as well: "I said, 'What are the water, oil, and trees here?' The answer: Wal-Mart. I said, 'We're there! This is the Promised Land!" Founded in 1999, Sbarra's new company is a one-stop shop for Wal-Mart vendors, proffering advertising, packaging, and design "solutions."

This fall's Wal-Mart launch of Levi's jeans may well be the breakthrough deal for New Creature. Somewhat surprisingly, the launch marks Levi's first appearance at Wal-Mart. Less surprisingly, Levi Strauss is going about its new "partnership" in a big way. As part of its in-store campaign, Levi's decided to order some 5,000 floor displays for "Action Alley." Running in pairs, east and west, north and south, these are the four largest, widest aisles to be found in every Wal-Mart store. Action Alley, says Sbarra, "is the main drag, the critical point of purchase--where every vendor wants to put up a display."

Levi's held a beauty contest to decide who would win the job of making the displays. In the beginning, there were five contestants. All were given "the same homework," all invited to present a display concept and a prototype. After that first stage of the contest, two would-be suppliers were left, one of them New Creature. Sbarra isn't sure, but he thinks New Creature won because of its logistical plan: "We knew that the jeans being shipped to Wal-Mart were warehoused in Dallas, so we executed our displays there." Just as Sbarra had gone to Bentonville to work in close proximity to Wal-Mart, so he'd gone to Dallas, the better to be near Levi's. The winning formula, adds Sbarra: "Presentation, price, proximity."

"So who got the job placing those displays?" Sbarra asks rhetorically. "Your friend from Scarsdale, the entrepreneur." He pauses. "Is this a great country--or what!"

John Anderson wrote about Omar Minaya, general manager of the Montreal Expos, in the April 2003 issue of Inc. Additional reporting by staff reporter Rod Kurtz.

Last updated: Nov 1, 2003




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