Re: Guitar Center is Doomed
While it's a very different game, this is how I understand Walmart's business model. If a product doesn't sell fast enough they discontinue the sku and send the remaining product back to the manufacturer. And since they don't pay for the inventory until it sells, they don't have to wait for a credit from the manufacturer. Of course, I'm prepared to be told I'm wrong on this point.
I sold my Walmart stock a while ago, but they are very sharp pencil managers. Walmart probably has thousands of different vendors, and likely different deals with the different vendors depending on relative strength.
As I mentioned Walmart probably closely monitors their inventory turns ratio, and does not tolerate slow/non moving inventory. Wether a manufacturer is willing to buy back inventory depends on the quid pro quo. I can imagine Proctor and Gamble might buy back some slow selling toothpaste so they can sell more razor blades. I can also image some new company accepting such an unfavorable deal just to get their foot in the door and win some precious shelf space. You can't sell truckloads until you get your product in the store. Walmart probably has a parade of hungry vendors willing to take such a deal.
I do not know for a fact what contractual arrangements Walmart has with their vendors but expect them to vary.
An interesting dynamic for Walmart is how some of these brand name commodity type products they sell are now being warehoused by Amazon or whatever big click merchant, for faster order fulfillment. Even Walmart is being challenged by the bricks-to-clicks evolution.
If Amazon can bundle several small purchases together to reduce shipping cost, and offer more brand name spoo, they could erode even Walmart's business model.
Walmart also has an opportunity to leverage their store stocking distribution infrastructure to fulfill web sales to customers in smaller stores/markets, to make more SKUs available that are not stocked and on the shelves in small market stores. For many small items, shipping can cost more than the item, so this will become another battlefield or pressure point in the bricks vs clicks conflict.
Interesting times.
About the only company I know of that enjoyed being paid for finished goods before paying for manufacturing them was the old Dell computer business model. They would accept pre-paid web orders and then build the computers to order in their closely aligned manufacturing centers. This was very good for Dell for a long time, as growth was literally fully funded internally by sales, but even the best plan eventually runs it's course.
JR
PS: An interesting tidbit about time value of money, I saw a news report about regulators investigating the float that banks build into money transfers. While checks now clear electronically and very quickly, the banks are still slow to release their grip on the actual cash.
