Retailer power and supplier welfare: The case of Wal-Mart

Whether retailers have become more powerful than manufacturers in recent years continues to be a burning question in the trade press and academic literature. Our research adds fresh fuel to the fire by looking at whether Wal-Mart, the largest retailer in the United States, has exerted power over its suppliers and squeezed them financially. Previous academic research on retailer power has looked largely at food stores, but we extend this perspective into nonfoods by using Compustat data as a source. Our analysis of these data indicates that the answer may be more complex than a simple yes or no. We find that Wal-Mart suppliers holding a small share of their respective markets do not perform relatively as well financially when they have Wal-Mart as one of their primary customers. However, large-share suppliers to Wal-Mart perform better than their large-share counterparts reporting retailers other than Wal-Mart as their primary customers. This indicates that suppliers who seek Wal-Mart's wide market reach may derive benefits from using this association if it can be used to strengthen their market positions. Those that fail in this goal, however, may find their profits squeezed and do better by shifting their retail channel focus elsewhere. (C) 2001 by New York University. All rights reserved.