The Supply Side: SupplyPike report details Walmart’s 2020 inventory issues

by Kim Souza ([email protected]) 4,758 views 

The COVID-19 pandemic put enormous pressure on the retail supply chain, and the impact is still being felt at Walmart and other big retailers. That’s according to a report from Fayetteville-based SupplyPike, a suite of applications that helps consumer packaged goods (CPG) companies manage their supply chain. The report analyzed data from more than 200 suppliers to Walmart throughout 2020.

The report examined the rise and fall of Walmart’s suppliers’ sales and in-stocks (product on the shelf) in 2020 and created a timeline of coronavirus impacts on retail. Stacy Tan, senior director of retail strategy at SupplyPike, said the report’s focus was on three of Walmart’s top business units amid the pandemic: general merchandise, consumables and food. All units saw growth in 2020 despite high out-of-stock rates through much of the year.

Tan said general merchandise sales grew by 18.87% last year, consumables grew 14.31% and food sales rose 15.41%. Across all departments, sales rose 17.21% from the prior year.

During the height of the stay-at-home orders, general merchandise category sales rose 60% by late May and early June, led by unprecedented demand for fabrics, crafts, media and gaming, lawn and garden, paint and accessories, and furniture.

Walmart CEO Doug McMillon recently told the investment community that never in his lifetime did he think Walmart would ever sell out of fabric or adult bicycles that were out-of-stock for months during 2020.

“We were hit hard from an in-stock point of view,” he said. “Normally, it’s a great thing to have inventory turns, and we were managing our supply chain well, but we didn’t have these huge stockpiles sitting to the side for the surges that we saw on things like consumables. So, I’d never seen anything like what happened in our stores as we went through the year. And it was a real challenge.”

SupplyPike found the sales trends for general merchandise took wide swings last year. Sales fell from the start of 2020 until early April that year, when the pandemic began to grip the nation. Demand pushed sales up 60%, only to go flat by early June. In the fall, as COVID-19 cases again spiked, demand for general merchandise surged again in November before falling off in December.

Consumables like toilet paper and aspirin spiked about 20% in late March 2020, and demand kept sales steady with slight increases through November before falling flat in December. Most of the year, food sales were elevated, spiking 40% in late March 2020 before leveling off at about 10% during the summer. Food sales rose 20% by November before falling flat by year-end.

Walmart has said consumers stocked up early in the pandemic to the point of hoarding some items, which kept out-of-stocks problematic during 2020. McMillon has said Walmart’s lean inventory positioning going into the pandemic worked against it as demand soared and shelves stayed empty. He said there was no way to forecast consumers hoarding items such as canned soup or toilet paper.

SupplyPike said panic buying and the rise of virtual offices and classrooms also caused massive out-of-stocks. Tan said combing through mounds of data from more than 200 Walmart suppliers indicated prolonged periods of in-stock levels at 85% or below.

Ahead of the pandemic, Walmart was already below 85% in-stock in sporting goods, hardware, lawn and gardens. By March 2020 when U.S. COVID-19 cases began to spread, Walmart saw its in-stock levels for dairy, frozen food, dry grocery, fresh/frozen meat, produce, snacks and beverages, paper goods, liquor and packaged deli reach in-stock levels below 85%.

Tan said some stores remained out-of-stock for weeks, and the report reflects inventory in all of Walmart’s 4,400 stores. Grocery/food in-stocks were below 85% through March 2020, rising slightly during the entire summer before catching up to roughly 98% in-stocks by October. Paper product consumables inventories were challenged through June until suppliers were able to meet demand. Through late summer, suppliers were above 98% in-stock but would go short again in December as COVID cases again began to spike.

Tan said pet adoption rose dramatically amid the pandemic and that pressured inventory from May through October, with the deepest out-of-stocks occurring from July to October. She said paint and supplies ran short in May, and inventory stayed below 90% most of the summer and fell below 85% by September.

Household cleaning supplies were below 85% in-stocks from May to October. Lawn and garden is typically a seasonal business, and Walmart was below 85% in-stocks during the summer.

In May, the report indicates that Walmart was below 90% in-stocks in 11 of the critical departments of typically fast-turning items. The report reviewed 53 Walmart category departments, and in June, not a single department was at 98% in-stock levels. Health & beauty and media gaming were the only two departments remotely close to 98% in-stocks in June.

In July, the majority of departments were below 85% in-stocks, according to the report. By August, out-of-stocks were among the highest of the year in most departments. The exception was ladies’ wear with 98% in-stocks. September was much of the same for insufficient in-stock levels at Walmart, leaving high demand categories like pets below 85% in-stock levels for four consecutive months and not improving until November.

Tan said suppliers who participated in the report said they were negatively impacted when factories in China stopped production for the U.S. to focus on domestic consumption. She said without parts for things like bicycles assembled in the U.S., plants were forced to close or curb production.

Tan said a perfect storm hit the supply chain when consumers began hoarding, imports stopped, and Walmart was already working with a lean inventory. She said the supply chain is resilient and gives Walmart praise for restoring in-stocks by the fourth quarter.

Supply chain expert Greg Forbis, executive vice president of strategy and development at logistics provider RJW, said it’s doubtful Walmart will beef up its inventory. Still, there will be added pressure on suppliers to deliver complete orders. Forbis said Walmart lost some market share in the height of the pandemic because of low in-stock levels, and some of that was unavoidable. Still, now that suppliers in most categories have caught up with production, there is little tolerance for not meeting the on-time, in-full (OTIF) protocol.

“You are also seeing some suppliers like Clorox even add production capacity because of the pandemic-induced consumer behaviors that are expected to stick beyond the health crisis,” Forbis 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.