business news in context, analysis with attitude

Reuters reports that the vendor fees, rebates, discounts and assorted other allowances that have contributed to scandals and investigations to varying degrees at companies like Fleming, Kmart, Ahold, and Nash Finch, remain difficult to track and harder to pinpoint.

And critics of the current system tell Reuters that there is no immediate sign of change, despite the fact that the spotlight of public attention has been trained on a number of companies, raising questions about exactly how high their sales and profits are. And if sales and profits cannot be ascertained, that means the shareholders also may be making decisions based on questionable information.

“Most retailers and their suppliers offer investors little information about deals on rebates and discounts they strike, partly because they are not required to and partly because it is considered a competitive secret,” according to the Reuters report.
KC's View:
To this point there may not have been enormous pressure to come clean about vendor allowances, but stories like the Reuters piece -- which conceivable could be reprinted and amplified upon in every newspaper in the country -- are likely to change that. Retailers need to have an answer when a local reporter calls up and asks how vendor allowances affect the cost of merchandise sold to consumers. (That’s just the opening question that could come…just imagine the follow-up questions that could come…)

Keep in mind that questions about vendor allowances could take on a bit of a political coloring because in companies where there are questions about allowances and accounting practices, there generally are people getting laid off and issues being raised about corporate governance. All of which can provide some politicians with an issue they can take to the bank…so to speak.

And that’s just the public relations side of the question. There are still the simple business questions that have to be asked and answered:

    How smart is it for the American supermarket industry to be dominated by companies that are making their money on the ‘buy’ and not on the ‘sell’?

    Does this practice encourage innovation and creativity in the industry, or does it inhibit many within the industry from being as resourceful and competitive as they need to be to successfully do battle in the existing environment?

As we write these words, it occurs to us that we don’t think we’ve ever heard anyone make the argument that the existing economic climate is good for anything other than the bottom line.

Which raises another question. If these practices are only good for the bottom line, and they are creating an environment in which the integrity of companies and the industry can be questioned, are they really good for the bottom line?

Maybe we need to re-think what the bottom line really is.