After years of meeting demands for ever cheaper prices, many Wal-Mart Stores Inc. suppliers are saying no to new margin-squeezing storage fees and a payment schedule that could delay for months how quickly some are paid.
The world’s largest retailer says the changes, laid out for vendors starting in June, reflect a push to simplify its relationships with suppliers, put them all on the same footing and reduce costs so it can offer customers the lowest prices. But some vendors see the new policy as an attempt by Wal-Mart to fatten its margins and offset wage hikes for store workers earlier this year.
Saying the new fees will hurt their own bottom lines, several vendors are hiring lawyers, and a top executive from at least one supplier visited Wal-Mart’s headquarters in Bentonville, Arkansas, in hopes of reversing all or some of the new terms. Two large suppliers with well-known brands that asked not to be identified for fear of hurting their relationship with Wal-Mart have refused to accept the terms and plan to use their size as leverage to negotiate a better deal.
“Any established supplier doing business with Wal-Mart is already offering by all means the lowest price possible,” said Carol Spieckerman, a consultant who works with several Wal-Mart vendors. “So these fees certainly sting.”
Wal-Mart began sending letters to 10,000 U.S. suppliers in June asking them to pay to use its distribution centers, warehouses and for shelf space in new stores, according to letters obtained by Bloomberg News and interviews with eight suppliers and industry consultants. Under the new rules, the frequency of payments depends on how quickly a supplier’s inventory moves.
Not all 10,000 suppliers will face higher charges because some were already paying to use Wal-Mart warehouses. Others won’t see a change to when they are paid.
Traditionally Wal-Mart has largely avoided the extra fees some other retailers charge, so the policy change was a surprise, said Leon Nicholas, a senior vice president at Kantar Retail, which advises dozens of Wal-Mart suppliers.
“What is so shocking this round is that they are being aggressive not in asking suppliers to take costs out of the system so the supplier can lower prices, but instead adding cost into the system,” Nicholas said. “It looks as though they are trying to have it both ways and trying to pad their own margins where they are facing cost pressure.”
Vendors were already feeling added pressure from Wal-Mart to cut costs after the retailer told them earlier this year to dial back on marketing and promotions and use the savings to lower their prices, he said.
Wal-Mart says the new fees aren’t an effort to offset wage increases for store workers, but part of an overall strategy to revive the U.S. business, which includes everything from making stores warmer to how employees manage inventory and stock shelves, said Wal-Mart spokeswoman Deisha Barnett.
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