The More You Stuff You Sell Through Walmart, The Lower Your Gross Profit Margin

According to a new article in Forbes magazine, stock market investors are starting too look not just at Walmart’s effect on things like low prices vs low wages, but at another troubling trend: Suppliers are increasingly dependent on Walmart to sell their goods… and having all your eggs in one big box store isn’t good for investors. And they’re starting to notice. From Forbes:

To measure the “Wal-Mart effect” on profits across different industries, Forbes analyzed information compiled by Revere to compare the percentage of sales that various firms generated through Wal-Mart in fiscal 2006 to the gross margins those firms produced during the same period, as compiled by FactSet . The survey covered 333 companies in six industry sectors–apparel & accessories, consumer games & electronics, household accessories, food & beverage, personal care and leisure goods–that Revere identified as heavy Wal-Mart sellers and their competitors.

We’ve summarized their results inside.

Here’s the basic idea. The more stuff you sell at Walmart the more dependant your company is on their various whims. The result? The most stuff you sell, the smaller your profit margin is. The gross profit margin is “percentage of profit realized before items like fixed costs and interest expense are considered,”
Forbes also has a nifty slide show showing the “Walmart Effect” on several companies. Yes, we know this isn’t an economics blog, but we thought it was really interesting! —MEGHANN MARCO

The Wal-Mart Squeeze [Forbes]

In Pictures: The Wal-Mart Squeeze [Forbes]