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May 25, 2011 / 74

Wal-Mart

A year or so ago, I walked into a Wal-Mart store and noticed something. Now, I’m a guy, and like most guys I’m not so very alert to things around me, so for me to notice something – it has to be kind of radical. This time it was Wal-Mart’s inventory.

The store brand (Old Roy?) was out of several varieties of dog food. No biggie. I just bought something else when I went to a competing grocery store later. Then I went over to the deli to get some of my favorite cheese… yep. They were out of it. Then in rapid succession a couple of other things I had on my list were completely missing from the shelves with only blank space where they belonged. This got my attention.

So I walked around the store and applied my Accountant’s training and started REALLY looking – and noticing that they seemed to be out, or nearly out, of a LOT of inventory items.

So I went elsewhere and got the stuff I wanted. This got me to thinking about just going elsewhere for everything, which I did for a while. Then curiosity got the best of me, and I returned to Wal-Mart for a look-see. Yep – still out of quite a few things.

I asked a “member of store management” if they were having a cash-flow problem and he said, “No.” About 3 or 4 months later, I put the same question to a store manager at a different store, and he confirmed that yes, they had, but it was allll better now. Whether they had a cash flow problem or not, they certainly had an inventory problem. THAT could not be easily denied.

So recently I saw that they were doing the merchandise shuffle – re-arranging almost everything in the store. They put this where that was, and that where something else was. At the time I thought, “Yeah… Good idea. Shuffling things around so people can’t find it anymore will make them buy more of what they can’t find.”

I read or heard somewhere that they were doing it in an attempt to increase sales – the source said something like Target was eating their lunch and they were trying to make their stores look more like Target. My BS meter went off, and I started wondering about the “Why.”

So I was in a Wal-Mart yesterday, trying to find things. found about half the stuff on my list and decided to just not buy the rest as it was becoming a PITA asking people and walking back and forth across the store. As I traversed the width of the store for the third time, it hit me. I think I know why Wal-Mart spent a CRAPload of money hiring people to move stuff around and re-configuring the display shelving.

Wal-Mart is reducing their inventory. To facilitate the changes in inventory levels, they reconfigured their display units so that they took up more space, and required more cart aisles. So the store LOOKED as full as before, but it has a feeling of openness. And talking to a clerk, I commented on what I thought I saw, and she said, “Oh, yeah! They had me moving stuff from one place to another, but there was a problem. I’d take the stuff off of a 24″ deep shelf, and they expected me to fit it all on a 14″ (?) shelf.” So they not only changed the configuration, they changed the available shelf space… which led me to surmise that they were probably reducing inventory levels by between 20 and 40% or more.

Now, if sales are good, and the stores are making money, there are a couple of reasons to reduce inventory.  One is to reduce cash flow – going to a JIT type inventory model. This could be a good move. Another reason would be to reduce carrying costs, and with a well run EOQ inventory system, this too could be a good move.

BUT – both of these inventory models require bottom-up sales data flow and inventory ordering models. Wal-Mart doesn’t have that. I was told by an assistant store manager that Wal-Mart has a strict top-down computerized ordering  system that orders new inventory based on previous sales, and this manager complained that it was not at all flexible. He said when they have a sale, they run out of the sale merchandise, and after the sale, the system orders too MUCH merchandise, so they end up with surpluses.

Another aspect of the new configuration was that as I went from item to item on my list, there was so much room in the aisles, I found myself just cruising along – and NOT looking at the stuff I went by. I passed a lot of end-caps, and could ignore the merchandise in the long aisles… which COMPLETELY ELIMINATED MY IMPULSE BUYING!!! So I’m thinking that within six months to a year, as sales CRASH through the floor and through the floor of the sub-basement, you’ll see another re-arrangement of the Wal-mart sales floor… which will cost them a MINT to hire a REAL retail display expert.

So… to sum it up – Wal-Mart seems to be in the throes of management problems. So… helpful fellow that I am, I have a bit of wisdom for the top management of the chain. Top-down management didn’t work for the USSR, and it won’t work for Wal-mart either.

And of course – I could be all wrong about this…

but IF I owned Wal-Mart stock, I’d be quietly selling every last share.

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2 Comments

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  1. Cyndi Wiley / May 25 2011 20:00

    One problem that I’ve noticed about Walmart lately is that the quality of the merchandise they have had lately has been rapidly deteriorating! We used to buy shoes there often for both us and the kids. But anymore, the shoes are horrible! AJ got a pair of boots for work, wore them a couple nights, and they literally fell apart! Now I know that AJ is destruct-O kid, but this happened to me too. I bought a pair of tennis shoes a few months ago. Normally, a pair of tennis shoes will last me a year or two because I’m just not as hard on shoes as I used to be. But not these tennis shoes. They lasted a month before the glue around the base of the shoe started coming off and the shoe started to fall apart.

    To be blunt, we have decided to stop buying shoes, and many other items, from Walmart because the quality stinks. It’s worth it to spend a few bucks more to go somewhere else when you know the stuff you are buying will last longer than a few weeks.

  2. Steve Picray / May 25 2011 19:41

    I thought I read something recently about how Wal Mart changed their whole philosophy three or so years ago. They started selling more “green” (environmentally friendly) things as well as selling “hip, trendy clothing lines.” In other words, they tried to turn into Target. Only problem with this is that if Wal Mart shoppers wanted to pay $50 for jeans, they’d go to Target or JC Penny’s.

    I was told that Wal Mart reassigned the person responsible for the whole shift in corporate philosophy, and is reverting to their old self, bringing back several thousand items that they stopped carrying.

    I’m having trouble finding the article I read, but some of these facts are verifiable.

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