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Walmart to Pass Charges onto Suppliers as its Costs Rise

Worldwide wage hikes have hit stores hard and Walmart is offsetting the cost of its own recent investment in wages by passing some of it onto suppliers.

According to Reuters, the world’s largest retailer said it will start charging fees to nearly all of its vendors for stocking their items in new stores and for warehousing inventory. The changes, which include amended payment terms, are expected to affect 10,000 suppliers to Walmart’s U.S. stores.

A company spokesperson said similar fees have been imposed in the past, though they weren’t applied uniformly—some suppliers were charged and others weren’t.

The changes are designed to bring “consistency to the collection of allowances related to the growth of our business and suppliers’ use of the Walmart supply network,” the company noted in a letter to suppliers, Reuters reported.

More vendors will now be paying fees and many will likely start passing those imposed costs onto their suppliers.

In one case, Walmart is charging a food supplier a one-time fee of 10 percent of the value of inventory shipped to new stores and warehouses and asking for 1 percent to hold inventory in existing warehouses, Reuters reported, noting that it was unclear whether the one-time charges only apply to initial shipments or cover a certain period of time.

At present, suppliers aren’t charged anything for those services.

Talk of potential fees had been brewing since Greg Foran, head of the U.S. division told analysts in April that the company was looking at the supplier relationship to uncover areas to squeeze costs.

The company posted a 3.5% net sales gain in what president and CEO of Walmart stores Doug McMillion called a “solid first quarter” ended May 1, 2015. Walmart has seen three straight quarters of same-store sales growth in the U.S. but its big investments like increasing wage rates, improving store structure and adding department managers weighed on margins.

Walmart says the new fees are a way of “sharing the costs of growth and keeping prices low.” Spokesperson 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,” according to Reuters.

A consultant who has discussed the charges with various vendor clients said speaking on condition of anonymity that Walmart was able to keep costs low because it didn’t impose fees like this.

“You can’t increase the cost of doing business and expect to get the best cost,” the consultant told Reuters.