Wal-Mart to impose charges on suppliers as its costs mount

By Nathan Layne

Shelves are stacked with merchandise at a Wal-Mart Stores Inc company distribution center in Bentonville, Arkansas June 6, 2013.

Reuters/Rick Wilking

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.

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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."