Suppliers that produce goods in China are benefitting from the yuan’s devaluation and Walmart has no intention of going without its share of the savings.
The retail giant reached out to more than 10,000 of its suppliers that have manufacturing facilities in China asking for 2 to 6 percent costs reductions, Reuters reported citing a consultant who advised Walmart on the matter but requested anonymity to protect the relationship.
China devalued its yuan in August, taking the world by surprise and causing ripples across global markets. So far this year, the currency is down nearly 3 percent against the dollar, which makes the country’s exports cheaper when purchased in dollars as they most often are.
Walmart wants the cost cuts mainly for general merchandise, like apparel, home furnishings, health and beauty products, appliances, electronics and toys.
According to Reuters, Walmart told suppliers they should pass on the savings realized from the yuan’s devaluation so that the retailer can uphold its “everyday low cost.” Two suppliers Walmart reached out to for reductions in the 2 to 4 percent range said they intend to negotiate a reduction to the proposed cuts.
The sheer size of orders Walmart places with suppliers will likely mean most will have to concede to some level of reduction or risk jeopardizing their relationship with the retailer.
Walmart has yet to publicly comment on the requests for price cuts on China-made goods.
The retailer’s move comes amid other efforts to increase its profit margins in the wake of its recent investment in increasing wages for its workers. In April, Walmart workers started earning entry wages of $9 an hour and by February, the retailer said all current associates will be making at least $10 an hour.
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For the second quarter ended July 31, Walmart said its earnings were pressured by currency fluctuations, lower margins for Walmart U.S. and investments in the customer experience. The company’s operating income dipped 10 percent and total revenue compared to the previous year quarter was down $4.2 billion to $120.1 billion.
In June, Walmart said it would offset some of its higher costs by passing charges onto suppliers. Nearly all of its vendors will be subject to fees for stocking their items in new stores and for warehousing inventory. Some vendors had already been paying similar fees, but more will pay them now as Walmart said it wants to apply the fees more uniformly and bring consistency to suppliers’ use of its network.
Walmart may be the biggest retailer to request reductions due to the currency’s decline, but it isn’t the first. An official from Toys R Us told Reuters in August that it was working with suppliers to improve terms and Home Depot has made similar mentions. Analysts expect more retailers will start looking for cost concessions on Chinese goods because of the currency devaluation.