Wal-Mart suppliers still confounded by new contract terms, experts weigh in

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Since June, retail giant Wal-Mart has been sending out letters in incremental waves to its 10,000 or so suppliers warning them of new payment terms, staple warehousing fees, new store and warehouse allowance with some additional conversation around an allowance to cover defective merchandise.

Local retail consultants held a free webinar hosted by Rapid Training Solutions at noon Wednesday (Oct. 27) to try and dispel some of the myths circulating around these pending changes as well as answer basic supplier questions. The topic remains a hot one among the supplier sector some four months since news first circulated about the new supplier requirements.

More than 200 supplier participants took part in the webcast, more were turned away due to a lack of capacity by the web host. The organizers said they will hold another session next week to address the overflow.

MYTHS DISPELLED
MYTH: If enough suppliers don’t respond, Wal-Mart won’t push it out.

RESPONSE: Experts said that is a major myth and ignoring direct correspondence from Wal-Mart is never a good policy but these topics will come up in future conversations with buyers.

Wal-Mart wouldn’t roll this out if it did not have firm legal standing to do so. Suppliers don’t want their buyer bringing this up and dominating the conversation, those meetings with buyers should be focused on how to grow your business with Wal-Mart. Retail insiders expect the new terms will take effect in fiscal 2017, which begins Feb. 1, 2016. 

MYTH: You can’t tell Wal-Mart no and survive.  

RESPONSE: Suppliers need to respond within the allotted timeframe outlined in the letter, which is 10 to 14 days from receipt. The experts said if a supplier decides to decline the new terms, they need to be prepared to outline their reasons supporting this stance.

Some larger suppliers who have done business with Wal-Mart for 15 years or so have pushed back on some of the allowances such as warehousing or new store fees because there was a time when the retailer asked for net pricing. 

Wal-Mart, unlike some of its competitors, said in years past that it was not interested in having special buckets for certain allowances. The suppliers said their low everyday price to Wal-Mart has already baked in those fees. Some of the suppliers the experts have counseled have told Wal-Mart if you want those fees now, then price adjustment will have to be made upward, because it’s a zero sum game.

MYTH: It’s okay to accept the cash discount on the new payment terms because it’s only 1%. (For instance Wal-Mart is offering a 1% cash discount if they pay in 30 days instead of the contract’s 60 days.)

RESPONSE: Do not offer a cash discount. While in some cases it may only be 1%, when annualized that becomes 12%, which is not a good interest rate. As a best practice it is better to eliminate the cash discount if possible. Set the payment terms and abide by them. However; if your category traditionally honors cash discounts then might have no choice but continue doing so.

MYTH: I have a great relationship with my buyer and they will take care me.

RESPONSE:  Wal-Mart makes it clear that this is on the shared services side of their finance business and the buyers are aligned with this strategy. (Shared services does auditing for retailer and looks for ways to make the retailer more profitable by recovering costs from suppliers.) Making an appeal with the buyer may not be as fruitful because of this alignment to shared services. 

MYTH: Wal-Mart is tweaking the terms of payments which will now be tied to rate of sales just because they can do so.

RESPONSE: Wal-Mart does not want to pay for the merchandise before they sell it. Tying payment to sales rates will help alleviate this negative working capital. Amazon does it all the time and so do lots of other retailers. In certain categories like back-to-school the working capital could be tied up for 90 to 120 days in most cases, the same is true for seasonal holiday merchandise. 

MYTH: If you give Wal-Mart extended dated on payment terms, will this perhaps open the door for other retailers to demand the same?

RESPONSE: Yes, retailers routinely share best practices with one another several times annually through various forums. You can bet if you give extended dating on payment terms to Wal-Mart then other retailers will likely be asking for it as well.

MYTH: There are no hidden concerns in the contract changes which I also need to be aware?

RESPONSE: Please be aware of the “defective allowance” that Wal-Mart mentions in the contract terms. The retailer wants this allowance to accurately reflect the true situation. Please remember that any markdown at the store level could be classified as “defective” so you want to make sure any agreement you make regarding defective losses is done through a true accounting process. You don’t want to end up having retailer shrink issues tacked onto your costs when they should not apply. Defective allowances can range from 0.25% to as high as 3%, depending upon the item. It is a metric that suppliers should benchmark.