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  - July 6, 2015 -  

Supply Chain News: Walmart Greatly Extending Payment Terms, Asking Some Vendors to Pay DC Handling Fee

Walmart Looks to Vendors to Help Shore Up Weak Bottom Line; Could Other Retailers Jump on the Handling Charge Concept?

  by SCDigest Editorial Staff  

Under pressure to boost its earnings, Walmart is changing several vendor policies, including greatly extending its payment terms and now saying many vendors will be charged a fee for moving their products through Walmart's distribution network.

The policy changes were detailed in a letter being sent to some 10,000 of Walmart's suppliers beginning June 17. Vendors are being asked to agree to the new terms by July 1.

SCDigest Says:

Obviously, the impact of all these changes will put a hit to bottom lines of thousands of Walmart suppliers - though it may just lead to higher prices to Walmart for the merchandise in the end.



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While many retailers have a complex web of discounts and chargebacks, the idea of in effect adding an inventory carrying change is a concept that could take hold at other retailers besides Walmart.

The City Wire newspaper reported last week that among several changes, the retail giant is asking for extended payment terms on so called "slow moving" items. Walmart also wants an additional 1% cash discount for paying early - even if it doesn't pay early.

A Walmart spokesperson told The City Wire that being an everyday low price retailer is difficult and sometimes the retailer has found itself sort of stuck in the middle.

"We are getting back to a place where we focused on 'everyday low cost' and 'everyday low price' in an effort to best serve our customers," said Deisha Barnett told the paper.

Walmart is said to be asking suppliers for an additional 1% discount for quick payment, bringing the total to 2% - except it now intends to pay in 90 days, not the 20 day timeframe previously needed to trigger the rapid payment discount. As with consumer goods companies that have stretched out vendor payment terms in recent years to 90 or even 120 days, Walmart is said to be lining up low cost financing options for suppliers based on the receivables coming from Walmart. By doing this under the Walmart umbrella, that financing should be lower cost than a supplier would likely be able to obtain on its own.

In addition, Walmart is said to be the adding a new 1% handling charge for products that enter a distribution center. It applies to the vast majority of the products Walmart carries. Exempted items include things like liquor and perishable items such as produce and flowers.

Another Walmart spokesperson, Molly Blakeman, told Multichannel Merchant magazine that there are three main points of the new rules: More closely aligning payment terms with inventory days on hand; bringing consistency to the collection of allowances related to the growth of suppliers' business and use of Walmart's network, including new stores, warehouses and distribution centers; and aligning allowances with rates of return on defective or unsalable merchandise.


"These types of fees are not new, but what is new is more consistently executing them across our US supplier base, to drive consistency and simplicity across the terms," Blakeman said. "We're working with our suppliers every day to serve our shared customers, having on-going conversations to make sure we're delivering everyday low costs to enable our promise of everyday low prices."

(Supply Chain Trends and Issues Article - Continued Below)



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Some Walmart observers find this DC handling charge surprising, as founder Sam Walton was adamantly against slotting fees and other tack on charges related to stocking products used by other retailers.

Obviously, the impact of all these changes will put a hit to bottom lines of thousands of Walmart suppliers - though it may just lead to higher prices to Walmart for the merchandise in the end.

"Honestly the increase in [charges] will eventually just go towards the cost of goods because suppliers will have to address the impact to their bottom line. It will be a challenge to absorb for many. Cash is king and the flow must be in sync with agreements that were already in place before this change," said Jami Dennis, a consultant to consumer goods companies.

While Walmart's revenue line as has been decent in recent quarters, its bottom line has been pressured by huge investments in support of omnichannel commerce, and the costs of increasing worker wages. Walmart's stock is near its 52-week low of $70.78, after having been as high as almost $92 in January.

Any reaction to these Walmart changes? Do you expect other retailers to jump on this inventory carrying charge idea? Please let us know your thoughts at the Feedback section (email) or button below.

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