The supplier community is all too familiar with the changes in terms and conditions that took place at Walmart two years ago: Walmart now takes a larger cash discount while taking longer to pay.
Enforcement of a similar policy at Target has now begun. Cash discount is now 2% cash discount for invoices paid within 30 days, including in some categories that previously never assessed a cash discount. These types of cost shifts only benefit the retailer. It drives up the cost of doing business and can create cash flow issues for smaller suppliers. And, in the end, consumers pay more.
Enhanced margins may be the next ripple.
In its most recent quarterly financial results, Walmart’s margins fell a half percent and profits were lower. We’ve seen a growing trend of margin audits in our practice over the past several months, with six- and seven-figure demands being made of Walmart suppliers when it believes it didn’t make enough money selling a supplier’s merchandise — despite the fact retailers control the selling price. It’s almost as though they seek a guaranteed margin, which defies “The Entrepreneur’s Creed” published under Sam Walton’s photo in some stores, which reads: “I prefer the challenges of life to the guaranteed existence.”
Perhaps nothing underscores the growing fixation on margin more the prevalence of private label products on store shelves. Today’s store experience echoes the narrowed product selection of the failed “Project Impact,” which resulted in lost sales when customers sought out their favorite products at other grocers.
Private label brands typically have greater margins. Walmart has increased its innovation in this space, however private brands are still often manufactured by a brand-name company, which dilutes the supplier’s own brand as affinity for the off-brand product grows. And, many private labels are being merchandised at eye level, relegating the name brands to fewer facings and in less visible slots.
A few examples from visits to the supercenter and a Neighborhood Market in Bentonville:
• Neither store offers Green Giant canned vegetables. They can be ordered online, but they aren’t available in the stores.
• There were 107 facings for Great Value bottled fruit juice, in any size or flavor, at the supercenter, exactly the same number of facings provided for Ocean Spray and Welch’s combined.
• There were two full doors in the freezer aisle for Great Value ice cream. Blue Bell had the next greatest number of facings, with just more than one door. No other brand came close.
• For bags of skinless chicken, there were more than three times as many facings of Great Value as Tyson Foods-branded product in both formats. Given Tyson Foods is the largest commercial producer of chicken, it’s a good bet they are competing against themselves here to some degree.
This trend also shows up in Walmart’s advertising circular, which made a big splash featuring house brands earlier this month.
Walmart and other retailers are diligently mining for new sources of revenue. We expect margins to continue to be a major point of emphasis, with auditors anxiously trying to bolster companies’ bottom lines.
As retailers continue to shift more costs to their suppliers, we recommend suppliers proactively review all of their agreements and correspondence with their customers to look for potential audit risk, especially where margin is stated or implied.
Boyd Evert is the president of Bentonville-based Harvest Revenue Group, a deduction management firm that helps retail suppliers manage and solve pricing, defective, shortage, post audit, on-time shipping and other types of claims with their customers. The opinions expressed are those of the author.