Wal-Mart Acknowledges Inventory Woes In U.S. Stores, Seeks ‘Fresh’ Fix

Inventory issues continue to plague the nation’s largest retailer with some Wal-Mart stores carrying too much product while shelves are empty in other regions. The retailer has acknowledged its out-of-stocks as a $3 billion problem, but more recently top management vowed to address inventory overages.

“Inventory is an obvious problem in our stores. It’s growing too quickly. It’s like you’ve fit 4 pounds of sugar in a 2-pound bag when you walk our stores,” Walmart U.S. CEO Greg Foran told suppliers at the retailer’s recent Year Beginning Meeting held in Orlando (Feb 5-7).

Foran, who is new to the job and the U.S., said he doesn’t profess to know the landscape or cultural differences of various geographical regions, but he does know there is plenty of work to do in what he considers a long journey to right the course of Walmart’s biggest sector.

“I have visited about 70 stores over the past four months. Inventory is an issue, shrinkage has created challenges and we are leaning into this in a meaningful way. We can’t fix it all in five minutes. It’s going to take time but Judith (McKenna, chief operating officer for Walmart U.S.) and the team are working on it,” Foran said during the meeting.

Foran said in October that the company’s inventory has been growing at twice the rate of sales, and in some cases stores may only have room for 80 types of products and they are sent 120.

“More stock is coming in than what is going out. We are over-SKU’d in some cases,” Foran said. “Simplifying the inventory management process actions were started this year but it has continued to grow. I have a cross-functional team working on it.”

A backroom manager in mid-Tennessee told The City Wire in June 2014 that his store was continually over-shipped on every thing from fishing poles to school supplies. He said the problem was growing worse in each of the past three years and negatively impacting that store’s profitability. Foran said these are the kinds of issues he has witnessed as he’s sprinted through dozens of stores across the country.

FORECASTING HITCHES
Supplier consultants with VendorMasters said some of the inventory problems are a result of problems with forecasting demand. They add that the new Retail Link 2.0 version now being tested does not fix the problem. Under the Informa system of Retail Link 1.0 there were ways to adjust quantities down to the store level. The new system uses historical sales data as its guide to replenishment, but for new products that have no historical sales data, and that’s a problem.

The new system also seeks to serve 40 stores out of one distribution center, sending the same number of items to each of the stores, when some of the stores will sell more than others. Consultants say this leaves shelves empty in one store yet overstocked across town. Wal-Mart has not disclosed the number of suppliers now using the 2.0 Retail Link version, but they did say larger suppliers began testing it first.

In one case, a large food company with offices in Northwest Arkansas, had to place one of its replenishment managers inside Wal-Mart for six months to work out the kinks, which has caused some concern for smaller suppliers without those resources. Wal-Mart has been quiet with the media on the rollout of Retail Link 2.0 only to say it will be released slowly in clusters throughout this year.

VenderMasters said suppliers are also concerned by new fines related to stricter “Must Arrive By Dates” that are imposed once a version to Retail Link 2.0 happens. Scott Crossett, a corporate recruiter with Cameron Smith & Associates, seconded that concern by suppliers noting that the added pressure has meant more turnover in replenishment manager jobs in the supplier community. He said that is now the job in most demand among the 80 to 90 openings his company sees daily.

FRESH FIX
Growing comp-store sales is the number one priority according to Wal-Mart Stores CEO Doug McMillion, but Foran said that starts with “fixing the shopping experience,” something on which he has told his managers to focus. He said that includes all aspects that go into a shopping experience.

Foran believes too many shoppers are not enticed to spend more time shopping in the fresh foods (produce) area, and he’s intent on fixing that part of grocery sales.

“It looks like we might be getting somewhat cluttered in ‘fresh.’ There is great opportunity here, but the last thing a shopper wants to do is trip over two pallets of Coca Cola or a display of Halloween candy in order to get to the fresh apples,” Foran said in October. “We have done a pretty good job with fruit, but we need to work on our vegetables. … I think we may be carrying one, two or three days too much product in produce.”

He also wants the stores to provide better meat and deli offerings. Wal-Mart said its most loyal customer only spends 40% of a fresh grocery budget with Walmart, and they want to capture more of that budget. Foran is working with David Cheesewright, CEO of Walmart International, on the best shared practices that could perhaps speed up the time it takes to “fix the shopping experience.”

All eyes are watching as Wal-Mart Stores will release its fourth quarter and fiscal 2015 earnings before the equity markets open on Thursday (Feb. 19.)