Walmart (NYSE:WMT) has a track record for aggressive cost-cutting measures. Recently, Walmart took the decision to slash 500 jobs from its Arkansas headquarters. On one hand, this could be a good decision if it reduces costs without causing unforeseen circumstances later in the future. On the other hand, cost-cutting doesn’t necessarily equate to increased efficiency. The market responded positively to the news as Walmart stock price shot up from $63.50, and is now stable at $66.93 (closing price on Oct 12).
Why is cost-cutting necessary for Walmart?
In brief, Walmart’s revenues are less than stellar at this moment in time, especially in China. However, this is due to China’s economic problems this year.
Source: Walmart revenue chart by amigobulls.com
Walmart suppliers feeling the pain
Walmart isn’t just cutting costs internally, it is also aiming to squeeze as much as it can from its suppliers too. In the first quarter of this year, Walmart ‘requested’ that suppliers divert the money used for marketing their products inside Walmart’s stores, and instead spend it on reducing the price of goods. As usual, this was a decision taken in order to benefit only Walmart. This is the same company that pitches suppliers against each other so that they can squeeze every last cent out of prices.
Last month, Walmart also asked manufacturers in China to share the good fortunes of a cheaper Yuan by lowering the price of goods sold to Walmart by 2-6%. This request was viewed as audacious in certain circles; however, with the situation Walmart is in at the moment, they must squeeze till they can squeeze no more.
