[News] Walmart is going to start charging fees to vendors... (What?)

gkarris

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Dec 31, 2004
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"No escape from Reality..."
What?

A store to start charging its VENDORS for storing and selling their product?

That's a new one...

http://www.businessinsider.com/r-wal-mart-to-impose-charges-on-suppliers-as-its-costs-mount-2015-6

Walmart is going to start charging fees to vendors to battle costs from wage hikes
Reuters
NATHAN LAYNE, REUTERS
JUN. 23, 2015, 9:24 PM

(Reuters) - Wal-Mart Stores will begin charging fees to almost all vendors for stocking their items in new stores and for warehousing inventory, raising pressure on suppliers as the world’s largest retailer battles higher costs from wage hikes.

The company said it started informing suppliers about the fees and other changes to supplier agreements last week. The changes, which also include amended payment terms, will affect 10,000 suppliers to its U.S. stores.

While the chain has sometimes imposed such fees in the past, they were not applied uniformly. Some but not all suppliers were charged, spokeswoman Molly Blakeman said without providing details.

The changes are aimed at bringing "consistency to the collection of allowances related to the growth of our business and suppliers' use of the Walmart supply network," it said in a letter to suppliers, a copy of which was seen by Reuters.

The new agreements mean a larger number of vendors will likely start paying fees, passing some of the retailer's costs onto suppliers, analysts said. It was unclear how much money Wal-Mart would receive as a result of the changes.

For instance, Wal-Mart is seeking to charge a food supplier 10 percent of the value of inventory shipped to new stores and to new warehouses, both one-time charges, and 1 percent to hold inventory in existing warehouses, according to a copy of amended terms seen by Reuters.

It is not clear from the document whether the one-time charges apply only to the initial shipment or cover a certain period of time. Currently, the supplier is not charged anything, the document shows.

The move marks a shift of sorts by Wal-Mart, which unlike other retailers has sought to limit such fees in return for demanding suppliers give it the lowest price, said Kurt Jetta, head of consumer and retail analytics firm Tabs Group Inc.

"It is not the way Walmart has done business in the past," Jetta said. "This approach suggests that they are seeking areas to offset their increased investment in wages, as well as offset their lack of organic revenue growth."

The fees for new stores and for warehousing goods are a way of sharing the costs of growth and keeping prices low, Wal-Mart spokeswoman Deisha Barnett said: "The changes we have outlined will help us ensure that we are operating at everyday low costs that yield everyday low prices."

The company said late last year it planned to open between 260 and 290 new stores in the fiscal year to January 2016.

COST CONSIDERATIONS
Wal-Mart executives have indicated changes were coming. In April, U.S. division head Greg Foran told analysts that the company was looking at investments in marketing and other areas of the supplier relationship to squeeze costs.

While Wal-Mart has achieved three straight quarters of same-store sales growth in the United States, its margins have been weighed down by big investments in its e-commerce operations and a move to increase wages for half a million workers earlier this year.

Charges like the new-store and warehouse fees are common in the retail industry but their broad application across all suppliers is a new step for Wal-Mart, said a consultant who has talked with multiple vendor clients about the changes.

"Not doing these things has helped Walmart get the lowest cost from vendors historically," said the consultant, speaking on condition of anonymity so as not to harm relations with the company. "You can't increase the cost of doing business and expect to get the best cost."

In the letter Wal-Mart said the changes are aimed at working with suppliers to serve "shared customers" and achieve the low prices "they expect and deserve."

(Editing by Cynthia Osterman)

Read the original article on Reuters. Copyright 2015. Follow Reuters on Twitter.



Read more: http://www.businessinsider.com/r-wal-mart-to-impose-charges-on-suppliers-as-its-costs-mount-2015-6
 

iBlazed

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I wonder how this decision will impact them in the long term. I expect selection to decrease tremendously. That's a huge part of their appeal. Their prices aren't THAT much lower on many items.
 

zin

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(Reuters) - Wal-Mart Stores will begin charging fees to almost all vendors for stocking their items in new stores and for warehousing inventory, raising pressure on suppliers as the world’s largest retailer battles higher costs from wage hikes.
Walmart generated over $16 billion in profit last year, not to mention over $200 billion in registered assets. They could absorb the costs due to wage rises.

Nah, never mind. It sounds crazy when I actually write it out. :rolleyes:
 
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Gav2k

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They already to this to 20-30% of the vendors so it's not something new
 

0007776

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The article says
Charges like the new-store and warehouse fees are common in the retail industry but their broad application across all suppliers is a new step for Wal-Mart, said a consultant who has talked with multiple vendor clients about the changes.
If it is a common thing I don't see a problem with it. It's better than the costs being passed on to consumers, the companies that supply the goods can afford it (So can Walmart, but you know they want to keep making big profits).
 

rdowns

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Jul 11, 2003
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I wonder how this decision will impact them in the long term. I expect selection to decrease tremendously. That's a huge part of their appeal. Their prices aren't THAT much lower on many items.
When Walmart can dictate terms to the likes of Proctor & Gamble or Coca-Cola, the smaller guys have no chance. If they don't sell through Walmart, they go out of business.
 

vrDrew

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Grocery stores have been doing similar things for years: So-called "slotting fees" for the privilege of having your merchandise on the shelves.

Companies large and small have struggled with the question of whether - and how - to do business with Wal-Mart for years. Just as the people at Vlasic Pickles and Levis jeans how that worked out for them.

as Vlasic discovered, the real story of Wal-Mart, the story that never gets told, is the story of the pressure the biggest retailer relentlessly applies to its suppliers in the name of bringing us "every day low prices."
On the positive side, selling at Wal-Mart means your products will find a ready-made market and distribution system that reaches hundreds of millions of people.

Frankly, smaller manufacturers shouldn't even try to sell through Wal-Mart. They are much better off selling direct, via the Web, or through Amazon and similar marketplaces. But even doing business through Amazon is no picnic.
 

gkarris

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The article says
If it is a common thing I don't see a problem with it. It's better than the costs being passed on to consumers, the companies that supply the goods can afford it (So can Walmart, but you know they want to keep making big profits).
Cost is ALWAYS passed on to the Consumers one way or another. Do you think the Retailer or Manufacturer/Supplier is going to pay?

Consumers will see it in higher prices, or prices that may not fall as quickly (for technology items), or cheaper builds/components used.

This may go even as far as the suppliers cutting wage earners' pay/raises/benefits or maybe even outsourcing (though changes to small to be publicized).
 

Praxis91

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Mar 15, 2011
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Walmart generated over $16 billion in profit last year, not to mention over $200 billion in registered assets. They could absorb the costs due to wage rises.

Nah, never mind. It sounds crazy when I actually write it out. :rolleyes:
Whenever someone complains/whines/whatever about another company's profit, they never mention that same company's profit margin.
 

Renzatic

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Whenever someone complains/whines/whatever about another company's profit, they never mention that same company's profit margin.
They made $16 billion last year. If their profit margin is 1% or 50%, they still made 16 billion dollars.

Though it does bring up a good point. What are the profit margins on 3rd party goods sold through Wal-Mart? They're obviously making a ton of money. Are their suppliers doing the same, or is Wal-Mart using their size to leech off them for their own ends?
 

Praxis91

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They made $16 billion last year. If their profit margin is 1% or 50%, they still made 16 billion dollars.
If they made $16 billion and their profit margin was 1%, they would only end up with 1% of that $16 billion. LOL

The profit margin is the important number, not the actual profit.. just like with oil companies.. sure they deal with lots of volume, but their margin is in the single digits.

Apple enjoys a margin in the 30%+ range.
 

chown33

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If they made $16 billion and their profit margin was 1%, they would only end up with 1% of that $16 billion. LOL
...
As stated, the profit was $16 billion .

If the margin was 1%, then the total revenue was $16 billion / 0.01 = $1.6 trillion.

In other words, what was the total revenue such that 1% of it is equal to $16 billion?


According to this:
https://en.wikipedia.org/wiki/Walmart

FY 2015 revenue: $485.651 billion. Net income $16.363 billion.

Calculation of the overall margin is left as an exercise for the reader.
 

zin

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If they made $16 billion and their profit margin was 1%, they would only end up with 1% of that $16 billion. LOL

The profit margin is the important number, not the actual profit.. just like with oil companies.. sure they deal with lots of volume, but their margin is in the single digits.

Apple enjoys a margin in the 30%+ range.
Their net profit was $16 billion. That is after operating expenses, interest, and taxes. Their revenue was $485 billion.

Regardless of their profit margin, that $16 billion remains an actual value of cash, just like the $200 billion in assets. Walmart has 2.2 million employees. Even if they set aside "just" $3 billion of that, each Walmart employee would be better off by $1,400 per year. Assuming their revenues continue to grow for subsequent years, as it has done, this cost would further be marginalised.

Yes, Apple enjoys a much bigger profit margin. Shame most of their employees don't get to enjoy more of the fruits of it.
 

jnpy!$4g3cwk

macrumors 65816
Feb 11, 2010
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What?

A store to start charging its VENDORS for storing and selling their product?

That's a new one...
This practice dates back a long time.

In any case, it won't affect me, since, I would rather walk on hot coals than shop at Walmart.
 

rdowns

macrumors Penryn
Jul 11, 2003
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If they made $16 billion and their profit margin was 1%, they would only end up with 1% of that $16 billion. LOL

The profit margin is the important number, not the actual profit.. just like with oil companies.. sure they deal with lots of volume, but their margin is in the single digits.

Apple enjoys a margin in the 30%+ range.
Me thinks a remedial economics course might help here.
 
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Praxis91

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Me thinks a remedial economics course might help here.
I was mistaken on the $16 billion being their net. They generated almost $500 billion in sales ($473 billion) in 2013 and ended up with $16 billion. That doesn't excite me as a potential shareholder with a measly 3.3% profit margin.
 

chown33

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I was mistaken on the $16 billion being their net. They generated almost $500 billion in sales in 2013 and ended up with $16 billion. That doesn't excite me as a potential shareholder.
That's roughly the same 30% margin you cited for Apple. Or is Apple not exciting either?
 

Praxis91

macrumors regular
Mar 15, 2011
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That's roughly the same 30% margin you cited for Apple. Or is Apple not exciting either?
No.... $16 billion out of $473 billion is 3.3% not like Apple's 30%. If it was 30%, Walmart would have $142 billion instead of $16 billion.

Btw, I am an Apple shareholder and not a Walmart shareholder.
 

rdowns

macrumors Penryn
Jul 11, 2003
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I was mistaken on the $16 billion being their net. They generated almost $500 billion in sales ($473 billion) in 2013 and ended up with $16 billion. That doesn't excite me as a potential shareholder with a measly 3.3% profit margin.
That's a great profit margin for a retailer of commodity goods. Supermarkets have margins half that.
 

Praxis91

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Mar 15, 2011
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That's a great profit margin for a retailer of commodity goods. Supermarkets have margins half that.
Sure, and they do deal in volume like gas companies, but I prefer larger dividends for my hard-earned investment dollars. :)