Wal-Mart Stores, Inc. (NYSE:WMT) announced earlier this year it would increase the minimum wage for 500,000 of its U.S. workers. In order to offset rising labor costs, the discount retail giant said it would start to charge fees to nearly all vendors for stocking items in its new stores and for warehousing suppliers’ inventory.
Wal-Mart’s Higher Costs from Higher Wages
The new agreements will affect approximately 10,000 suppliers to its chain of American stores. This means that a growing number of vendors will pay the fees but then pass on the costs.
Wal-Mart confirmed last week that it has begun contacting suppliers about the new fees and other changes to supplier agreements.
In a letter obtained by Reuters, Wal-Mart noted that these latest changes are meant to generate “consistency to the collection of allowances related to the growth of our business and suppliers’ use of the Walmart supply network.”
The news outlet also obtained a copy of the adjusted terms. According to the document, a food supplier could be charged 10 percent of the value of inventory shipped to new stores and warehouses. However, a one percent fee of the value of inventory would be charged in current warehouses.
Many other details of the new arrangement remain unclear. Which suppliers will be given what charges? How much will they pay? How much money will Wal-Mart be receiving? Spokesperson for the retailer, Deisha Barnett, said these types of fees have not been introduced altogether in the past, but some vendors were indeed charged.
Barnett added that this move will allow Wal-Mart to grow the company and keep prices low. “The changes we have outlined will help us ensure that we are operating at everyday low costs that yield everyday low prices.”
A Look at Wal-Mart Finances
Wal-Mart’s finances have been a mixed bag so far this year.
Year-to-date, Wal-Mart shares have fallen about 15 percent from around $90 to $70. However, the company has reported three consecutive quarters of same-store sales growth within the U.S. Its margins, though, have been down because of its large investments in its e-commerce operations and rising labor costs.
As of April, all hourly associates would be paid a minimum wage of $9 per hour, which would then rise to $10 beginning early 2016. Department managers would also see a wage hike. They are now paid a minimum wage of $13, which would then spike to $15 by early next year.
Wal-Mart has been facing a number of controversies this past month.
Not only is the retail juggernaut accused of corruption and tax evasion, a new consumer report found that it deceived consumers over product labeling. It was discovered that hundreds of products on its website were labeled “Made in the USA” but were actually “Made in China” or “Made in Germany.”