The New Regulator in Town: The Effect of Walmart’s Sustainability Mandate on Supplier Performance
Suppliers are increasingly being forced by dominant retailers to clean up their supply chains. These retailers argue that their sustainability mandates may translate into profits for suppliers, but many suppliers are cynical about these mandates because the onus to undertake the required investments is on them while potential gains may be usurped by the mandating retailer. We examine whether supplier fears are justified by studying the impact of Walmart’s sustainability mandate on its suppliers’ (short-term) shareholder value. Although about two-thirds of suppliers are indeed financially harmed, approximately one-third benefit. To delve deeper into this variation, we relate suppliers’ short-term abnormal returns to Walmart’s appropriation power and explore whether and to what extent a supplier’s referent and expert power sources, derived from its marketing and operational characteristics, respectively, can counteract Walmart’s appropriation attempts. We find that the supplier’s marketing characteristics (its environmental reputation, brand equity, and advertising) provide it with the countervailing power needed to resist Walmart’s appropriation attempts. In contrast, cost-efficient suppliers and suppliers that invest heavily in R&D have more difficulty withstanding Walmart’s squeeze attempts.
Note: Research papers posted on ResearchGate, including any findings, may differ from the final version chosen for publication in academic journals.
Gielens, K., Geyskens, I., Deleersnyder, B., & Nohe, M. (2018). The new regulator in town: The effect of walmart's sustainability mandate on supplier shareholder value. Journal of Marketing, 82(2), 124-141. doi:10.1509/jm.16.0276