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Supply Chain Trends and Issues: Our Weekly Feature Article on Important Trends and Developments in Supply Chain Strategy, Research, Best Practices, Technology and Other Supply Chain and Logistics Issues  

 
- Oct. 8, 2013 -  

Supply Chain News: Amidst Rising Inventories, Walmart is Cutting Back Supplier Orders - Or Maybe It Isn't

Bloomberg Reports Inventories Rising at Walmart, Company Says Email Source "Misleading"; Too Much and Too Little Inventory?

 
   
   
by SCDigest Editorial Staff  
   

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.

SCDigest Says:
The sharp cutbacks in inventory could of course also further reduce sales due to even more out-of-stocks and fewer promotional displays on the floor.

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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)


 

 
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Cleveland Research also said that Walmart's inventory growth has outpaced sales growth by a wide margin for all of 2013.


However, the sharp cutbacks in inventory could of course also further reduce sales due to even more out-of-stocks and fewer promotional displays on the floor.

"We believe one of the key issues leading to heavy inventory is the lack of labor in the stores to get the inventory out of the back rooms and onto the sales floor,” the Cleveland Research analysts noted.

 

Walmart is also said to be bringing in holiday merchandise earlier than ever this year, probably in the hopes of juicing flagging sales but adding to the challenges.

The reduced orders for general merchandise and other categories may also be part of an effort to clear out inventories in store to make room for holiday displays.

"The aisles in the back room are so backed up with stuff," Walmart store worker Barbara Gertz told Bloomberg. "We brought three pallets of Christmas trees out to the garden center. We usually do that in mid-October. We're filling it up pretty quick for only being mid-September.” Gertz, it should be noted, is a member of OUR Walmart, a union-backed group seeking to improve working conditions at the chain.

One ex-Walmart workers told Bloomberg that several shipping containers of early or excess merchandise were sitting in the parking lot of a Walmart store in Crawfordsville, IN in mid-September.

 

What's your take on these Walmart inventory stories? Let us know your thoughts at the Feedback section below.

 


 

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