Shares of Walmart (NYSE:WMT) are on watch in the wake of a CNBC report alleging that the retail giant’s lax vetting process for third-party merchants has resulted in a proliferation of counterfeit products on its website.
A CNBC investigation into Walmart’s (NYSE:WMT) marketplace uncovered “dozens” of third-party sellers who had stolen the identity of another business,” and subsequently sold fake health and beauty products online.
The network included an interview with a Walmart employee responsible for approving third-party applications. According to the employee, Walmart (NYSE:WMT) was initially strict on third-party applications, but over time pressured employees to relax their standards and approve more sellers due to increased competition from Amazon (AMZN).
She added that sellers who were frustrated with Amazon’s (AMZN) rigorous screening moved to Walmart (NYSE:WMT), which allowed them to list their products more easily. Data compiled by Marketplace Pulse found that during the period between 2019 and 2024, the number of sellers on Walmart’s marketplace exploded by 900%, overlapping with a period in which Amazon (AMZN) increased security controls and banned many sellers for selling counterfeits.
By accepting more risks, Walmart’s (WMT) U.S. e-commerce business has swelled to nearly $100B in annual sales, CNBC claims. “They wanted the business, so they were willing to take a chance on it,” the employee said to CNBC.
In a statement to CNBC, Walmart (WMT) said it enforces a “zero-tolerance policy for prohibited or noncompliant products and continues to invest in new tools and technologies to help ensure only trusted, legitimate items reach our customers.”
However, as part of its investigation into Walmart (WMT) and Amazon’s (AMZN) seller applications, CNBC found that Walmart (WMT) required less documentation and vetting to sign up for its marketplace and imposed fewer restrictions on the types of products that could be sold compared to its competitors like Amazon (AMZN). The network tested the authenticity of 20 items offered by third-party sellers that were impersonating legitimate businesses and found all 20 were counterfeit.
Shares of Walmart (WMT) are down nearly 1% matching a move across the consumer staples sector (XLP). ETFs with an exposure to Walmart (WMT) include iShares Global Consumer Staples (KXI), Global X Purecap MSCI Consumer Staples (GXPS), and Vanguard Consumer Staples Index Fund (VDC).
Walmart (WMT) has not yet responded to Seeking Alpha’s request for comment.