Major retailers have a lot of power over vendors. A chain like Walmart (NYSE: WMT) can, for example, go to a medium-sized vendor and ask it to cut prices by 2% or lose some of its shelf space.
That's typical and it helps keeps prices low for consumers. It's also challenging to keep track of for a company operating on the scale Walmart does. To help with that, the retail giant has reached a deal to pilot technology from Pactum to help it negotiate contracts with some of its vendors.
What is Walmart doing?
Essentially, Walmart is acknowledging that it's tough, if not impossible, to negotiate the best possible terms with its hundreds of thousands of vendors. That's a problem it will use Pactum's artificial intelligence-based product to address.
"Inefficient contracting has been estimated to cause firms to lose between 17% to 40% of the value on a given deal, depending on circumstances, according to research by KPMG," Pactum CEO Martin Rand said in a press release.
What does this mean for consumers?
In theory, this technology will help Walmart negotiate the best deals possible with more suppliers. That forces its vendors to lower prices, and some portion of that gets passed on to consumers.
It's not, of course, as simple as it sounds. Walmart gets to decide what its margins are and it's not obligated to share the savings with customers. The chain, however, does operate in a crowded space against rivals that are also doing their best to offer value to shoppers.
That suggests that whatever Walmart can save by using AI should be at least partly passed on to its customers.
10 stocks we like better than Walmart Inc.
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.
*Stock Advisor returns as of March 18, 2020
Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.