The more I read about Wal-Mart - the world's largest retailer with its nearly $250 billion-and-rapidly-growing gross sales last year, and in its third year as #1 on Fortune 500's list - the more like the insurance industry they appear to be. In fact, one might wonder whether Wal-Mart is taking its cues from the insurance industry or vice versa. 

Strom

An article in Fast Company, "The Wal-Mart You Don't Know," by Charles Fishman (www.fastcompany.com) describes how Vlasic pickles got pickled in their own juices when dealing with the world's largest retailer. Wal-Mart wanted to make a super-sized "statement" - that anyone could purchase a year's supply of the Cadillac of pickles for only $2.97 - by placing a Wal-Mart-special gallon version of Vlasic pickles conspicuously at the entrance of each of their 3000+ stores. When the negotiating dust settled, Vlasic claims it ended up making, at most, a few pennies on each of the 240,000 gallons of pickles it sold each week through Wal-Mart

This one profitless venture, amounting to an astounding 30% of Vlasic's business, made the pickle-packer's profits plummet profoundly (sorry, but this story needs a shot of humor!) some 25%. Ironically Vlasic, which had worked years to convince consumers to pay a premium for its pickles, was now at best giving them away.

Vlasic's story is painfully close to home, and instructional for collision shops, especially those deeply indentured to insurers. In their mad dash to fulfill the enormous obligation they had negotiated with Wal-Mart, Vlasic was forced to buy additional enormous fields of cucumbers, as well as purchase all the additional machinery, real estate, personnel, and the like needed to meet the enormous production-related demands associated with satisfying their giant, very demanding client. Sounds familiar, doesn't it?

Wal-Mart's mantra is to give the lowest possible prices to its customers. To achieve this, the giant asks its 21,000 product suppliers to reduce the price of their unchanged products to Wal-Mart each year, for the privilege of doing a much greater volume of business with Wal-Mart.

As a collision repairer you might consider when was the last time you were able to increase your labor and materials rates to insurers, while the costs of doing business, inflation, and other undesirable business baggage have continued to scuttle your profits? And most shops I correspond with have recently had their mechanical rates slashed to equal their body labor rate, not increased to be in line with the actual cost of mechanical repairs.

It is this relentless pressure, brought to bear by giant corporations, that has caused a growing number of U.S. companies to relocate their businesses to low-wage overseas countries.

Today, nearly 10% of all China exports to the U.S. go to Wal-Mart - imports which have doubled over the past five years.

Pickles don't grow on trees!

One former Vlasic official associated the company's experience with Wal-Mart as similar to being held under water until nearly drowned. In financial difficulty, Vlasic wanted to raise the gallon price of its pickles a mere 52 cents. WalMart wouldn't pay the increased price and allegedly told Vlasic that if the price were raised they might also remove all of Vlasic's other products from their shelves and give their pickle-supplying contract to a Vlasic competitor, several of which, Vlasic was told, were willing to produce the low-priced gallons of pickles for the privilege of being Wal-Mart's exclusive pickle-product supplier.

Again, sounds familiar doesn't it? Having broken Vlasic's will and profitability down to bare minimum, Wal-Mart was ready to deal with them on a basis of weakness. Only then was a deal struck by which Wal-Mart instead sold a half gallon of pickles for $2.79.

A recent CRASH Network reported on Farmers Insurance's revamped provisions for its COD shops which states that "a repair facility must offer the same or better pricing or other terms to Farmers," as any other insurance company.

In true Wal-Mart fashion, Farmers has begun taking a 5% parts discount from the list price of all new OEM parts; expect it to be an additional 5% to 10% by next year. Insurers don't care that favorable "pricing or other terms" certain shops have negotiated with part houses and other service providers, allowing them better price breaks, is based upon these businesses doing more volume, purchasing all their parts from these suppliers, and paying their bills on time and in full - a fact from which insurers might take a cue.

Wal-Mart and insurance companies don't seem to understand - more likely don't care - that there is a limit to the economizing a shop can do without being priced out of business or forced to diminish product or service quality.