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Comment by nradov | Hacker News Reader

Walmart focuses on fast inventory turnover in their stores. They get paid by customers at point of sale, but pay suppliers months later. During that interval they can invest the float and earn interest. So to a limited extent they literally can lose money on every sale but make it up in volume.

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Holy cow. That saying of "make it up in volume" finally makes sense in so many places it previously seemed infeasible.

Its not purely cashIn-cashOut, there is a time property as well, and various forms of investment can make cash_t1>cash_t0

Yep. Some companies plan this way from the start, but almost all do it once they get mature enough where these type of financial engineering optimizations can really make sense to spend time and expertise on.

I have read that something like 5% of Starbucks' accounting liabilities are gift cards that have not yet been redeemed. So again in a simplified financial view, that is a loan at 0% interest, and some percentage of that "loan" will never get called in.

I guarantee you they have models about what percent and at what rate over time that "loan" actually gets "called in" (redeemed for coffee and store employees' time).

Of course, it costs money to create these cards, build out the tech stack behind them, deal with fraud monitoring, etc. I am sure many millions were spent on this and continues to be spent on it, yet the gift card is free. You don't need to pay an extra penny to use the card. That's paid for by people who don't redeem all the value on the cards as well as the spread between payment and redemption, so someone must have run the numbers and decided whether building this infrastructure is worth it.

It's probably paid for by the better fee structure on payment processing: credit card processing is generally a base fee + a percent of the purchase. By having people put $20 on a Starbucks card once rather than making 5 different $4 transactions, they reduce the fixed charge they incur by 80%.

That's another good point, I didn't think of that cost reduction.

Wal-Mart most certainly does not lose money on every sale. Its gross margins have been very stable at around 24-25% every quarter for the past 10 years, including the pandemic. The interest it makes on the float, while significant to you or I, is mostly a rounding error in the interest-rate environment we're currently in.

https://ycharts.com/companies/WMT/gross_profit_margin

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