The Supply Side: Walmart seeking to reinvent role of merchants to be more efficient

Merchants, also known as buyers, are at the core of Walmart’s retail operation.

Sam Walton was a merchant at heart, as are president and CEO Doug McMillon and Walmart U.S. CEO John Furner. Much of a buyer’s job is still hands-on, according to Rick Lockton, vice president of digital product management and merchandising at Walmart.

Lockton’s team at Walmart is trying to reinvent the role of merchants to include more automation and become more efficient. He spoke recently at the Greater Bentonville Area Chamber of Commerce Wal-Street Breakfast event for suppliers. He opened his talk with a video from McMillon, who has made it a mission to transform the retailer into a digital enterprise.

“The way we win is becoming clearer,” McMillon said in the video. “I am confident we are figuring out how to compete in the new world. Make no mistake. It is a new world, requiring new tools and new ways of thinking at a different pace with more creativity. The importance of Walmart becoming a digital company can’t be underestimated.”

Lockton said having support from the top down is key in the arduous process.

“My team is working on trying to give merchants better visibility into how the business is performing and getting them focused on root causes of problems and what actions they can take to fix the business,” he said.

Walmart buyers play a critical role in serving the customers, Lockton said. They “own” their categories and must decide which items to carry, how much to buy and which stores and warehouses will get the product. They must decide when a private brand is necessary to round out the assortment and figure out what is the lowest cost the retailer can afford to sell the item and not have to make regular adjustments. They must try to achieve the best costs through supply chain efficiencies or shelf-ready packaging that saves on store labor. They must also manage their profits and loss statements to hit their sales targets, Lockton said.

“It’s a very big job for the buyers and their team of five or six that they also manage,” Lockton added. “Buyers still walk around with 20 more reports every day. This part of the business is still quite manual. It’s still old school. My team is working on five different issues that deal with functions of the buyer’s work.”

At the highest level, Lockton said his team is trying to reduce the time it takes to do assortment changes in a store. He said with 5,000 stores, Walmart does not have good visibility into the inventory at the local level.

“We literally cannot draw modulars that show us how products show up in the store, by 5,000 stores. We are not able to do it. We would love to get more streamlined on this,” he said.

He shared two areas where his team has been working to automate problem areas within the business. He said stores have been able to self-order products for their local features, and that had ramifications. For instance, if a store ordered 1,600 cans of green beans for the feature, that would pull product out of the distribution center for other stores. That impacts in-stock levels in all those stores. He said labor would be there ready to set inventory that didn’t arrive. That caused confusion about what should be on the floor.

His team built the digital SWAS (Store Within a Store) app to help stores automate their ordering process. He said former Walmart U.S. CEO Greg Foran had a mission to clean up clutter in stores and back rooms and reduce inventory. They had to try to find the root causes for the excess inventory and the need for trailers to be parked behind stores to hold inventory that could not be sold.

“What we found was merchants were really good at sending promotional products out to stores for the action alley space [which are the long, wide aisles that go around the store perimeter],” he said. “Merchants can drive sales by sending products and there were no restrictions. The back rooms [were being] cluttered with inventory excesses.”

The solution was to map out how much space was available in every store, then restrict how much space every category merchant was allowed to fill. That strategy went a long way in reducing inventory levels. But it created a new host of problems until restrictions were also placed on the amount of product stores could order for local promotions. He said the next version of the tool gives stores and merchants increased visibility into promotional orders and lets them do it in a way that doesn’t negatively impact other store in-stocks.

Automating price markdowns is another area Lockton’s team is working to improve. Lockton said his team works with up to 200 stores to test the boundaries of manual processes that merchants have done for years to see if any of them can be automated without wreaking havoc in the stores or on the financials. He said his team has to be quick to resolve any issue that arises from the tests.

“Today, we send the same markdowns to every single store when we are phasing out a product to make room for a new one. This is archaic,” Lockton said.

There could be one store that sells 30 of the items each day. That store would be out of stock soon and never needed to mark down the product. Another store might have 20 items and sells one a month. They would have to go straight to 90% to get rid of the items in a timely fashion, he explained.

“We don’t have the technology to figure out the appropriate markdown by store so we just send out a blanket email to mark the product down 50% or so, and we end up with some stores with empty shelves for three weeks before the new item comes and other stores with overcrowded clearance aisles,” Lockton said.

His team used data science to examine individual store velocity of how fast items sell and to see when the new item is coming, then check to see how much inventory remains in each store. The app will automatically decide how much of a markdown is needed for each store to sell the inventory. The entire process involves no human interaction, he said.

Lockton said the initial response from stores and merchants was skeptical. But after about three months of trying and testing, “we pretty much have our hands completely off the wheel for clearance markdowns,” he said.

Lockton said all clearance markdowns will soon be automated. He said the program sends the markdown to each store intended to sell out of product an hour before the new product arrives.

It’s smart technology, he said, that will keep learning over time and get better.

“We increased our sell-through rate by 14% in the first couple of months of this test, [and] we expect that number will keep going up,” Lockton said.

Editor’s note: The Supply Side section of Talk Business & Politics focuses on the companies, organizations, issues and individuals engaged in providing products and services to retailers. The Supply Side is managed by Talk Business & Politics and sponsored by Propak Logistics.