Wal-Mart Creates Global Merchandising Centers to Streamline Sourcing

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February 2, 2010

Wal-Mart Stores Inc. unveiled a new global sourcing strategy –– which includes the creation of Global Merchandising Centers –– that will leverage its global scale to reduce costs of goods, accelerate speed to market and improve the quality of products.

The plan also calls for a change in leadership and structure and a strategic alliance with Li & Fung, a global sourcing organization.

Increasing direct sourcing for its store brands merchandise, which currently represents more than $100 billion in annual purchasing, is central to the company's overall global sourcing strategy.

"Our new strategy and structure should drive significant savings across the supply chain," said Wal-Mart vice chairman Eduardo Castro-Wright. “The newly-established global merchandising centers (GMCs) represent the largest and most important element of our new sourcing strategy. These centers will create alignment between sourcing and merchandising and drive efficiencies across various merchandise categories."

Ed Kolodzieski, currently president and CEO of Wal-Mart Japan Holdings G.K. and Seiyu, has been promoted to executive vice president and will lead the company’s global sourcing. He will report to Castro-Wright.

Wal-Mart first announced a consolidated global sourcing structure centered on GMCs at its annual meeting for the investment community in October. This new structure is expected to leverage the company's global scale in sourcing both the general merchandise food categories.

Wal-Mart also finalized a series of agreements with Li & Fung, which are non-exclusive and do not include volume or shipment commitments, according to a company statement. Li & Fung, which is forming a new company to manage the Wal-Mart account, is expected to build capacity that would enable it to act as a buying agent for goods valued around $2 billion within the first year.

"In sum, we are redefining how we source products that are imported into Wal-Mart retail markets around the globe," Castro-Wright said. "By realigning our resources, leveraging our scale, and restructuring our relationship with suppliers, we will enable our businesses around the world to offer even more competitive pricing on merchandise and to provide our customers a clear and compelling assortment of better quality products at lower prices."

SBD Views: The string of organizational changes and announcements made by Walmart are bold moves to execute against two central Walmart strategies: 1) Leveraging scale to further expand their competitive cost advantage, and 2) Become more customer focused in merchandising and store level execution.

The establishment of Global Merchandising Centers to increase direct sourcing of store brands will do two things: 1) put further pressure on traditional store brand suppliers too justify their role as a “middle man” and 2) establish a source of funds for enhanced marketing of store brands. Walmart is clearly playing the store brands game with a big end-game in mind.

And if you find yourself asking “Who’s Li & Fung?” click here http://www.lifung.com/eng/global/home.php.

–– John Failla for Store Brands Decisions

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• Walmart Shakes Up Its Leadership Team
• Wal-Mart Edges Out Fry's in Tucson Store Brand Pricing Survey
• Walmart Reveals Third Front to Drive Store Brand Sales
• Walmart's and Great Kitchens' BBQ Pizzas Recalled

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