The Supply Side: Wal-Mart’s Open Call invitation for online suppliers isn’t without challenges

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.
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When retail giant Wal-Mart made headlines in June by saying “yes” to online access to nearly all the 450 suppliers who pitched products at the annual Open Call event in Bentonville, little did some suppliers know the challenges they would face in trying to get their products uploaded to Walmart.com.

One supplier out of New York is still waiting to connect with an online buyer because of Wal-Mart personnel turnover. Without a vendor number the new supplier is in limbo. Suppliers already selling products online seek a review with the buyers they met in June, but a new phone system – with different phone extensions – at Wal-Mart corporate offices has complicated the process. This leaves only email connections, a cumbersome process given the hundreds of emails a buyer receives in a week.

Consultants who represented clients to Wal-Mart have told Talk Business & Politics that in the exuberance of hearing “yes” there were many details that were not made clear to the first-timers. And once it became clear what would be required to sell online for Walmart.com, the cost became prohibitive for some of the suppliers offering salsa, mac and cheese and pet foods. The cost is high given the product is not in physical stores.

Wal-Mart makes no secret of its requirements for suppliers which are published on the retailer’s website. All suppliers have to get a Dun & Bradstreet credit rating, and in many cases with foods and other consumables liability insurance is required should a customer get sick. The costs associated with being a Wal-Mart supplier are higher than in past years given the warehousing fees which were added this year and 90- to 120-day payment windows common in contracts. There also is a 2% damage fee which can be assessed by the retailer.

Consultants said it doesn’t necessarily make sense to spend as much as $5,000 to get set up as an online supplier and then take a loss by individually shipping low-cost items. That is particularly true for suppliers that just have one item to sell.

There is also a wealth of competition online for small mom and pop operations trying to sell general merchandise through Walmart.com. A search for a plumbing snake on Walmart.com indicated 54 items, 46 of which were offered by third-party markets such as Build.com and Affordable Tools.

Consultants said small suppliers who have their hearts set on selling at Walmart.com often must be willing to ramp up production and then go as long as four or five months without payment. For the online sales there is also the cost of shipping single items like a jar of jelly or salsa, which is often cost prohibitive for mom and pop suppliers. Heavy items like a bag of pet food are also not economical to ship.

While it can be expensive to ship single items, a search for salsa on Walmart.com indicated 1,261 items with Pace, Tostitos and Great Value brands popping up first. Local brands like My Brothers Salsa are sold on Walmart.com, but My Brothers Salsa also is sold in hundreds of stores.

Supplier consultants say small suppliers can get through the first order using cash reserves, but it’s the second and third production run that can sink them given the 90- to 120-day payment terms from Wal-Mart. The experts said many small inventors and business owners are typically not finance people and managing cash flow is crucial for small suppliers. Navigating through item set up, shipments and then replenishments can be daunting, While there is no shortage of brokers scavenging the ranks to offer help, those services also come at a cost which can further erode supplier margins.

It remains to be seen if Wal-Mart will continue to hold its Open Call for suppliers in the absence of Michelle Gloeckler, who oversaw the event for the past three years. Gloeckler will begin working at Academy Sports and Outdoors on Aug. 29. Wal-Mart’s commitment to source $250 billion in additional U.S. made products by 2023 remains on track, according to corporate spokesman Lorenzo Lopez. He said there will be another executive placed over the U.S. Manufacturing Initiative.

While Wal-Mart made the verbal offer to suppliers to sell online in early June, the retailer has not said how many of the suppliers have done so in the past 75 days. Wal-Mart did have a team onsite in June to help suppliers begin the process. The retailer declined to share how many, if any, of the suppliers who presented at Open Call got an offer to sell inside physical stores.

When pressed on the issue, the retailer said merely the focus of this year’s event was to say “yes” to the online sales.