Most manufacturers factor in a defect / return ratio into their products and either discount the invoice or oversupply quantity. Walmart isn't shipping back returns or defects to manufacturers.
The big brands for sure. This is why Wal-Mart is laden with product from only several massive suppliers for any item category. They may sell products under different brand names but it all comes back to Unilever, Johnson & Johnson, Gilette, Procter & Gamble, and GlaxoSmithKline, and so on, for every department.
Where small retailers excel and will for the foreseeable future is with offering product that the big retailers, even online retailers, don't want to carry or the supplier does not want to bother with the massive orders big organizations place and the great complexities involved in filling them.
Part of our business relies on supplying brick and mortar and online businesses with retail products. The difference in dealing between the two types of establishments is huge, and dealing with big operations is very tricky whether for online or brick and mortar locations. Sometimes it's even not worth the time and effort to supply the big guys due to their demanding procedures.