The inventory stories out of Walmart over the past year have been strange and somewhat contradictory - but that doesn't make them less than interesting.
Last month, Bloomberg once again, as it has done in the past, received a copy of an internal Walmart email, this time sent from a buyer who told a vendor that "We are looking at reducing inventory for Q3 and Q4."
The reason? Once again, inventories have been growing faster than sales, a phenomenon Walmart experience rather severely in the mid-2000s.
Walmart has stated in various documents that it has a corporate goal to limit inventory growth to no more than its rate of net sales growth. For its US segment, the company has hit that goal only twice in the past 10 quarters, according to data compiled by Bloomberg News. The last time was four quarters ago.
In Q2, US inventories grew at 6.9% and U.S. sales grew at about 2%. In Q2 2012, inventory increased 3.6% while sales rose 3.8%
Bloomberg obtained the email from a Walmart supplier. The source, who naturally didn't want to be identified, said the slowdown in orders is affecting suppliers in various categories, including general merchandise, food and apparel. He told Bloomberg that said he couldn't recall Walmart ever planning ordering reductions two quarters in advance.
Walmart spokesman David Tovar called the story "misleading," and said that the email was taken out of context. Tovar noted that Walmart has hundreds of inventory categories and that it is constantly managing inventory levels based on consumer demand in different markets.
However, the aggressiveness with which Walmart has cut inventory over the past 60 days has been greater than anything seen out of the retailer in recent years, according to analysts with Cleveland Research Company.
The story is especially interesting because earlier this year, Bill Simon, Walmart's US CEO, said that a two-year problem with keeping store shelves stocked is "getting worse," and a major threat to its operations.
"We run out quickly and the new stuff doesn't come in," Simon said at a company meeting in February.
So, Walmart seems to have both too much and too little inventory. Wall Street observers are primarily linking the rise in inventories to a slow down in sales, as ordering patterns haven't caught up with a drop in consumer demand - though that drop could be coming in part because of Walmart's trouble keeping items in stock on the shelf.
Same store sales at Walmart fell .3% in Q2, though overall US sales were up 2%. Still, with those numbers, it is easy to see how inventories could have risen faster than sales.
(Supply Chain Trends and Issues Article - Continued Below)