Wal-Mart's Power Play

Wal-Mart is trying to rewrite yet another rule of the retail industry.

In the past few decades, as Sam Walton opened warehouse-like stores across suburbia, the company transformed the way merchandise travels from factories to store shelves to consumers. Now Wal-Mart is shaking up the cozy market research industry by refusing to play ball with competitors.

As of July, Wal-Mart will no longer sell its cash-register data to market researchers like AC Nielsen and IRI. The pullout presents a challenge to the $6 billion research sector, which aggregates sales data to sell to manufacturers and analysts. Can these firms report who's buying what in a timely, comprehensive fashion without the cooperation of the world's largest retailer?

Independent market research is used in industries ranging from automotive to travel. Research firms generally collect sales data from competing companies by promising to return aggregated data for the entire industry. While the crunched numbers don't necessarily break out each company's performance, they allow each party to see how its performance compares with the whole sector.

The data is gathered in two ways. Researchers conduct weekly surveys on the shopping habits of set panels of thousands of households. They also receive sales data directly from cashiers.

Wal-Mart, however, has concluded that manufacturers and other retailers need data from Wal-Mart more than it needs sales data from its competitors. "We have figured out a way to obtain that information ourselves," says Wal-Mart spokesman Bill Wertz.

It's possible that Wal-Mart's move is a ploy to squeeze more money out of the research firms. Industry analysts estimate that each company pays Wal-Mart several million dollars annually, and they speculate the retailer may just want more. That's similar to what happened with Safeway in the United Kingdom in 1996. For six months the supermarket chain stopped providing data to AC Nielsen until the two companies reached new terms.

But Wal-Mart's move may be more than a negotiating ploy. Larry Gold, publisher of the Inside Research newsletter, says Wal-Mart already sells some data directly to manufacturers; the company may have decided that it no longer needs a middleman.

Research firms are playing down the significance of Wal-Mart's decision. Other retail chains, like Kmart and Target, continue to provide such data. In the meantime, IRI is looking to expand the size of its survey from 55,000 to 65,000 households. The information from that survey will have more detailed product information than what Wal-Mart provides, and it will come from a wider geographic sample, says Ed Kuehnle, IRI's president of North America. "We're talking to our customers - retailers, manufacturers and Wall Street analysts - telling them that the world is not going to end because of this," he says.

However, the survey data can be less reliable than cashier data, as it is more vulnerable to human reporting errors, analysts say. What's more, it can take a month to deliver the data to manufacturers, while Wal-Mart's point-of-sale data can be ready in as few as 12 days.

That's why some manufacturers, like Gillette, wish that Wal-Mart would preserve the status quo. Still, it's not a matter of what suppliers want, but what Wal-Mart wants. And what Wal-Mart wants, it usually gets.