It has long been a practice of consumer products companies to pay an up-front fee to retailers for the privilege of having retailers carry their products. This fee, referred to as a slotting fee, is typically grouped with other marketing costs for purposes of representation on financial statements.
The Financial Accounting Standards Board has taken notice of this practice and has determined that slotting fees should be considered a cost of sales expense and thus should affect the gross profit of a company that pays such fees.
Beginning in the first quarter of 2002, companies will have to deduct the amount they pay in slotting fees from revenue and will no longer be able to include the expense as a marketing expense. Furthermore, companies will be required to revised old financial statements to reflect past amounts spent on slotting fees.
Regulators at the Federal Trade Commission support the reporting change, claiming that the slotting fees have stifled competition with smaller companies that may not be able to afford the expense. Slotting fees may never go away, but at least the secretive nature of the fees will now have to be disclosed, and the profits reported by manufacturing companies that pay these fees may reflect a truer image of the companies' performance.