Wishing For The Leverage To Say ‘No’

The holiday season must be approaching, because retailers are adding items to their wish lists.

I don’t mean the products expected to be big sellers during the fourth quarter. I’m referring to new demands by retailers to their suppliers for fees, price allowances and other hands-tying arrangements.

Rejection Notice

Take three recent examples: 

• Walmart, which historically has forsaken widespread supplier fees to keep the emphasis on getting lower prices, announced earlier this year it would implement warehouse and in-store storage fees. Many observers believe Walmart is doing this to offset increased store worker wages and to otherwise beef up margins. Some big suppliers, however, are testing their leverage by rejecting the new terms, and others are considering legal action against Walmart, according to a recent Bloomberg report. 

• A number of housewares suppliers called me to say some retailer customers wanted price allowances on this season’s orders in the immediate wake of China’s recent RMB devaluation. The retailers didn’t care to hear, I was told, that imminent shipments from China were negotiated earlier this year in U.S. dollars and were built and placed into the pipeline before the devaluation. 

Next year’s pricing is fair game if the RMB devaluation holds. Still, one supplier pondered, “Do you think my customers would give back the difference if the exchange rate went the other way?” 

Reasonable Request

• Crate & Barrel recently sent a letter to vendors asking them not to sign an exclusivity agreement said to be circulating from an unnamed major retailer. “The agreement we saw listed a number of international retailers (including various U.S. retailers) as competitors and, if signed, would prevent the supplier from doing business with those companies,” the Crate & Barrel letter stated.

Crate & Barrel’s request, in this case, is reasonable. If it’s true the unnamed retailer thinks it can secure signed total exclusivity agreements (I can’t imagine who among established suppliers would actually sign it?), would that retailer, in turn, sign agreements with suppliers guaranteeing long-term business and not to buy competitive products? 

Most housewares suppliers don’t have the leverage to push back hard against retailers. This weakens the supplier base, yet the demands keep mounting.

Hold Their Ground

One can only wonder if retailer leverage will remain so intimidating, especially as fast-gaining digital commerce serves up a meaningful volume outlet for suppliers; and, if more suppliers will find the nerve to say ‘no’ and hold their ground. 

Wishful thinking, perhaps, as the holiday season approaches.