Walmart Has Changed The Supplier/Retailer Relationship And Not For The Better

The economy has a certain fickleness to it that is hard to pinpoint. There are so many variables within the economy so economists spend countless hours trying to predict where the economy is going and how healthy it will be when it gets there. One of the foundations of a healthy economy is the relationship between suppliers and their retail and wholesale customers. That relationship is the core ingredient in product quantities, prices and quality. If there is any kind of glitch in that relationship the economy can falter, according to Christian Broda, the economics professor and director of Duquesne Capital Management in New York City.

Broda on nber.org thinks the dawn of warehouse stores and giant superstores changed the supplier/retail relationship, and the new relationship is not that good for the economy. At first glance people say the big stores have helped move more products, and they make people spend more money, but when the relationship is analyzed by economists they say jobs have been lost, employees are paid low wages, and consumers spend more than they save. All of those things impact the economy. One of the biggest, if not the biggest, culprit of changing the supplier/retail relationship is Walmart.

Walmart has redefined that relationship, and it hasn’t been good for their suppliers. Walmart suppliers have been meeting the price demands of the Bentonville, Arkansas-based giant, for years, and it has taken a toll on the quality and the country of origin of those products. Walmart is notorious for squeezing pennies out of suppliers, and most suppliers agree in order to produce the quantities that Walmart can buy. Some suppliers don’t like doing business with Walmart, but they don’t have a choice once they are lured into the world of multi-million dollar orders.

Walmart recently announced a long-overdue wage increase for their hourly workers. In order to maintain the profit percentage that shareholders expect, Walmart executives decided to squeeze their suppliers once again. Walmart added storage fees to products they put in their warehouse, and they developed a new payment schedule that could delay invoice payments for months. Walmart claims the changes were put in place to simplify their relationship with suppliers, and to keep them competitive. But their suppliers say the new policy is all about Walmart putting more profits on their bottom line and offsetting their employee wage increase at their expense.

In years past, vendors would go along with the changes, but not this time. Several suppliers hired lawyers and have refused to accept the terms. Those vendors are top brands that could hurt Walmart sales if they stop doing business with the profit-hungry retailer. Those suppliers may have enough leverage to negotiate a better arrangement with Walmart. But Walmart has more than 10,000 vendors, and most of them will pay the extra charges, reduce their profit margins and continue to service the Walmart account.

That decision may look like the best decision for consumers at this point, but Broda and other economists say it isn’t. Suppliers already operate on low margins, and now they run the risk of not making any money if Walmart decided to stop buying for them. That will upset the supplier/retailer relationship and will have a negative impact on the economy, according to Broda and other economists.


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