The Supply Side: Wal-Mart seeks price protection on layaway items

Suppliers to Wal-Mart Stores are receiving notice from the retail giant of a cost shift requiring product suppliers to provide price protection for items such as electronics, apparel and toys that are bought and placed in holiday layaway.

Talk Business & Politics obtained a copy of this notice sent from Walmart Global Business Services to certain suppliers.

The retailer is asking suppliers to cover the cost on all inventory when there is a price drop such as year-end closeouts or holiday promotions. For example, if a customer buys a television for $800 and puts that item in layaway ahead of Christmas, but the manufacturer lowers the cost to $725 to help clear inventory by year-end, Wal-Mart will expect the supplier to cover the $75 price differential per item in the retailer’s inventory, which includes layaway.

Wal-Mart said it doesn’t record the layaway sale until the item is picked up, so it’s still considered inventory. The retail giant said it previously didn’t have visibility to items once they are put in layaway because layaway merchandise is pulled from store inventory and placed in “layaway liability.” Wal-Mart said inventory in layaway liability mode at the time of a price cost decrease is picked up by customers at the new lower cost. In other words, the retailer said it’s passing the lower cost on the customer at the expense of the supplier.

Boyd Evert, president of Harvest Revenue Group, said his firm is working multiple six-figure chargeback claims from last holiday season from suppliers related to price drops during the holiday season, which also happens to be year-end. One frustration Evert said suppliers have with this policy is a lack of transparency and visibility to know if the customer really pays the lower price. He said suppliers want to know if customers are getting the lower price and there now is no evidence of that from Wal-Mart.

Evert said the claims coming from this policy are increasing because suppliers are not protecting themselves in their contract negotiations with Wal-Mart. His advice for suppliers is to specifically spell out in the contract the manufacturer will not provide price protection for items sold into layaway.

“Suppliers who made that stipulation last year avoided claims and those who got claims had them canceled within hours of receipt. It’s an incredibly cumbersome process for suppliers to try and follow the money. They can back into the math and get pretty close by using Retail Link and replenishment data and taking out the inventory numbers in stores from the items shipped per store to try and estimate how many units are in sold into layaway. It’s a store-by-store accounting which is tedious for suppliers in 4,000 stores,” Evert said.

He said suppliers at the most risk for chargebacks are those who sell toys, electronics, apparel and other seasonal merchandise frequently placed into layaway. Those are also often the items that receive holiday promotions that lower prices between early September and mid-December, the timeframe of Wal-Mart’s layaway program.

Deloitte reported just 14% of consumers used layaway for the holidays last year. The same report found despite some early pre-Thanksgiving promotions and layaway to help them stretch out the payments of large ticket items, 40% of consumers waited until December to start their shopping. Just 5% began shopping in October and 9% did majority of holiday shopping on Black Friday, while 6% made major purchases on Cyber Monday.

Evert said clients he represents against retail chargebacks have seen six- and seven-figure claims related to holiday price drops and it’s likely to happen again unless suppliers take a proactive approach in contract negotiations to exempt layaway price protections.
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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.