Is Walmart Violating the FTC Act?

Walmart has been telling its suppliers that they think they're entitled to the share of each supplier's marketing budget that they represent of the supplier's sales. That is, if Walmart accounts for 30% of your sales, you should give them 30% of your marketing budget. Reasonable enough, if we are discussing your trade promotion budget – this is, in fact, approximately what the Robinson-Patman Act says you are supposed to do. But Walmart is referring to your entire marketing budget – trade promo, consumer promo, national advertising, online … whatever.

By coincidence, these demands are coming at the same time that Walmart is conducting a SKU rationalization program intended to reduce the number of products on their shelves by 15%. Some might conclude that suppliers who are told that they face banishment might be likely to give in to Walmart's demands.

However, for a supplier to do what Walmart is asking would mean that they would have two choices:

1. Turn their entire marketing budget over to their retailers, or
2. Violate the aforementioned Robinson-Patman Act

Since R-P requires that suppliers give funding on proportionally equal terms to all their customers, if they are giving Walmart a share of their whole marketing based on Walmart's share of sales, then they would have to give every other retailer the same treatment, thus parceling out their entire budget. Therefore, we come to two more possibilities – if a supplier to Walmart is spending any money on advertising or promotion of their own, they are either:

1. Not complying with Walmart's demands, or
2. Violating the Robinson-Patman Act

But what about Walmart? Are they violating any laws here?

First, the obligatory disclaimer: I am not a lawyer. But the law seems fairly clear on this (at least to an amateur). R-P is specifically written to address suppliers, not retailers, so they aren't violating R-P. But the FTC Guidelines on trade promo spending contain the following wording in regard to retailers: "…the Commission may proceed under section 5 of the Federal Trade Commission Act against a customer who knows, or should know, that it is receiving a discriminatory price through services or allowances not made available on proportionally equal terms to its competitors…" It goes on to cite an example that seems to be exactly what Walmart is doing:

Example 1: A customer should not induce or receive advertising allowances for special promotion of the seller's product … when the customer knows or should know that such allowances, or suitable alternatives, are not available on proportionally equal terms to all other customers competing with it in the distribution of the seller's product.

Whatever we may say about Walmart, we would never call them stupid, so I think it's reasonable to assume that they know (or certainly should know) that suppliers are not making similar allowances available to Walmart's competitors, and in fact could not possibly do so without ceasing all other marketing efforts. Therefore, asking for such allowances would appear to be a violation of the FTC Act, as defined in the Guidelines.

OK, enough amateur lawyering – is it likely that the FTC is going to go after Walmart on this? Given that the last time the FTC enforced any rules related to trade promo (a minimum advertised price consent decree against music distributors) was in May 2000 (perhaps we should plan a tenth anniversary party), it seems unlikely.

Still, the violation seems fairly clear, and the violator fairly prominent (to put it mildly), so it seems an excellent opportunity for an Administration that talks about "change" to very visibly indicate that it is interested in changing the way the largest of businesses operate.

Just don't hold your breath.