Wal-Mart: Partner or wolf in sheep's clothing?

Saturday, April 30, 2005

Everyone in the industry should be interested in progress reports on HME relationships with Wal-Mart, but would also be well-advised to warily check some of their enthusiasm at the door. Like the chicken "involved" in production of the egg and the pig "committed" to the supply of bacon, HME companies may find themselves committed when they only wanted to be involved. Anyone that thinks "the opportunity that Wal-Mart is presenting the industry" is about anything other than Wal-Mart's self-interest must not have been paying attention to the history of the retailing giant.
That isn't meant to suggest that HME companies are unwise to take temporary advantage of the situation or that they can't protect themselves from being outfoxed by the company whose clear mission is total domination of the retail channel. But, Wal-Mart's slash and burn tactics with their suppliers are well documented and the HME "partner" is just another supplier at best. At worst, the HME boutique serves as an interim (and gratis) trainer and middleman to be eventually eliminated for the sake of the Smiley Face price reduction.
Does anyone delude themselves that Wal-Mart doesn't understand the demographics in play better than the HME industry? The HME world has the non-sensical business demands of the Medicare program to thank for keeping Wal-Mart largely out of the business this long. ("You mean the customer can come back three years later and demand a refund without returning any merchandise? Surely you jest ...") While Wal-Mart may continue to conclude that Medicare's conditions for doing business are too ridiculous to accept, that won't mean that their number crunchers haven't analyzed the HME profit structure sufficiently to identify every pressure point as the re-negotiation of lease agreements roll around.
Take banking, a business that experts say is a question only of "when" not "if" for Wal-Mart. Once Wal-Mart has their banking licenses, how long will their "partner" banks last that are now simply tenants desperately bidding for access to Wal-Mart's traffic?
Or take almost any private label relationship between a small manufacturer and a huge reseller. The reseller (and there are many examples in healthcare) is giddy to be feasting at the trough and may fall asleep at the wheel as too much of their total business gets wrapped up with the big customer. Once this trout is hooked, only then is it time to reel it in. Often by that time, the small vendor can afford neither to keep the business nor to lose it.
A recent national television commercial extolling the community benefits of having a Wal-Mart features a local jewelry repair shop owner talking about how great Wal-Mart has been for his business. When will Wal-Mart get around to solving the particular dynamics of providing repair services in the jewelry sector? Maybe later rather than sooner, but this guy had better be cautious about buying a bigger home on Wal-Mart's future dime. The HME world should heed the same warnings.
As always, where you stand on Wal-Mart depends upon where you sit. Those who whine the most will rarely pass up the bargains offered when they are spending their own money. Does anyone really enjoy the shopping experience at Wal-Mart? Does it really matter? Can a relationship with Wal-Mart stay truly win/win for very long? Stay tuned ... only time will tell.


Alan Grogan is president of Grogan's Healthcare Supply in Lexington, K.Y.