story by Kim Souza
ksouza@thecitywire.com
Editor’s note: The Supply Side section of The City Wire focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by The City Wire and sponsored by Propak Logistics.
Retail giant Wal-Mart has issued notices since June in several waves to its 10,000-plus suppliers warning them of new payment terms, warehousing fees, a new store and warehouse allowance with additional conversation around charges to cover defective merchandise.
Local retail consultants held a free webinar hosted by Rapid Training Solutions at noon Wednesday (Oct. 27) to review some of the “myths” and legitimate concerns about the pending changes as well as answer basic supplier questions.
More than 200 supplier participants took part in the webcast, with more were turned away because of a lack of capacity by the web host. The organizers said they will hold another session next week to address the overflow.
Following are some of the issues addressed during the webinar.
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, and the changes will come up in future conversations with buyers.
Wal-Mart wouldn’t roll out the changes without a firm legal standing to do so. Suppliers don’t want a Wal-Mart buyer discussing the terms when such meetings should be focused on how to grow the 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 longer 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 suppliers have told Wal-Mart that if they now want fees, then the supplier will have to charge more.
MYTH: It’s okay to accept the cash discount on the new payment terms because it’s only 1%. For example, 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 best to eliminate the cash discount if possible. Set the payment terms and abide by them. However, ithe supplier’s category traditionally honors cash discounts then the supplier might have no choice but continue doing so.
MYTH: If a supplier has a great relationship with the buyer, then the buyer will take care of them.
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 is not likely to help 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 and so do many other retailers. In certain categories, like back-to-school, the working capital could be tied up for 90 to 120 days in most cases, and the same is true for seasonal holiday merchandise.
MYTH: If providing Wal-Mart extended dates on payment terms, will this 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. It’s a safe bet that giving extended dates on payment terms to Wal-Mart then other retailers will likely ask for it as well.