Wal-Mart Offers Suppliers Financing Option

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November 19, 2009

This month Wal-Mart told more than 1,000 suppliers they could get credit support and payment within 10 to 15 days for goods delivered instead of having to wait the usual 60 to 90 days.

Select suppliers were notified about the new "Supplier Alliance Program," in a letter dated Nov. 2, according to the Wall Street Journal, shortly after CIT Group Inc., a major retail lender, filed for Chapter 11 bankruptcy protection.

CIT’s deep debt and financial problems leaves many retailers such as Wal-Mart concerned about their suppliers’ ability to secure financing to fulfill orders.

The Wall Street Journal wrote: “The move could give the world's largest retailer by revenue more power over its suppliers in the wake of the bankruptcy filing by lender CIT Group Inc.”

The new plan allows vendors to sell their Wal-Mart invoices to the retailer's partner banks, including Wells Fargo & Co. and Citigroup Inc., at interest rates based partly on Wal-Mart's credit rating, according to the Wall Street Journal. “In traditional factoring, lenders give manufacturers cash for their receivables and collect payments on those invoices,” the Wall Street Journal wrote.

This marks the first time Wal-Mart has offered vendors such payment options, which so far is only being offered to apparel suppliers, according to an Associated Press report.

“It provides an extension of our financial strength to our suppliers," spokesman John Simley told the Associated Press. “It has been very well received. It works out very well because it provides us with greater surety in our supply chain that the products we order, we will get.

All told, Wal-Mart has upwards of 60,000 suppliers. So far there has been no indication this program will be extended to other category vendors, according to published reports. 

SBD Views: While Wal-Mart’s recently announced “Supplier Alliance Program” currently focuses on apparel vendors, it sets an interesting precedent that may eventually effect store brand suppliers. Wal-Mart’s scale makes them dependant on healthy suppliers to sustain a steady flow of inventory to their shelves. In response to that dependence, Wal-Mart has now said they are willing to provide financing when necessary to ensure that flow of inventory. So what does that have to do with store brands? Wal-Mart’s stated ambition to achieve store brand penetration of 40 percent means they plan on adding at least $40 billion in incremental store brand volume. Where will that capacity come from? One way is if an increasing number of national brand suppliers begin manufacturing store brands for Wal-Mart. However, if the capacity comes from smaller store brand manufacturers and displaced production from defunct B and C tier brands, watch for Wal-Mart to consider similar “Alliance Programs” to ensure a steady flow of store brands inventory. As other retailers have launched similar supply chain finance programs this more complex relationship between retailer and supplier may impact the store brands market. Whether this is good or bad for the industry remains to be seen.

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