Wal-Mart Stores Inc., once a case study in moving and selling goods, is now turning to consultants for help with the most basic of retail tasks: Keeping its shelves stocked.
The retailer has hired firms including Acosta Inc. in the U.S. and Retail Insight in the U.K. to walk the aisles and track whether hundreds of items are in stock. Products are missing as a plan to add thousands of items to stores this year crowds storage space and tighter labor budgets leave workers less time to stock shelves.
“You cannot keep cutting labor hours and expect the shelves to get filled, especially when you have more products to be replenished,” Colin McGranahan, an analyst with Sanford C. Bernstein in New York, said in an interview. “Store-level execution is coming down. There are only a few ways to cut corners without unintended repercussions, and that’s what is happening at Wal-Mart.”
Wal-Mart’s reputation as the most efficient and cheapest merchant has eroded amid nine straight quarters of declining U.S. same-store sales. Pressured by unemployment and rising fuel costs, Wal-Mart shoppers are making fewer trips and visiting other stores more often, according to a study from WSL Strategic Retail.
David Tovar, a Wal-Mart spokesman, said yesterday in an interview that the company’s in-stock levels have continued to improve and now are at “historical highs.” He declined to disclose what those historical highs are.
“We’re pleased with the progress we’ve made,” he said.
Still, one Wal-Mart supplier said in-stock levels are worse today than in the past. During the summer, less than 90 percent of items in a typical basket of goods were available for shoppers, said the supplier, who declined to be named because his discussions with Wal-Mart are private.
Keeping shelves full is a focus for Wal-Mart, and the retailer is asking for support to keep stores stocked up, the supplier said.
Wal-Mart always excelled at getting products to the right place at the right time. Co-founder Sam Walton revolutionized retail distribution, moving goods from factories to shipping centers to stores faster and cheaper than rivals, said Nelson Lichtenstein, a professor at The University of California, Santa Barbara and author of “The Retail Revolution: How Wal-Mart Created a Brave New World of Business.”
The retailer’s supply chain practices are now studied by others, and Chief Executive Officer Mike Duke and his predecessor, Lee Scott, both rose through Wal-Mart’s logistics department.
Today’s retail environment is different from the one Walton faced. In addition to Target Corp. and Kroger Co., Wal-Mart today is battling foes such as online merchant Amazon.com Inc. and Germany’s Aldi deep-discount chain, which has more than 1,100 U.S. stores.
Consumers said Aldi was the most affordable supermarket in a March survey by consulting firm Market Force Information. Amazon offers 80 times as many products as Walmart.com, at lower prices, according to Wells Fargo analyst Matt Nemer.
Only half of Wal-Mart’s shoppers now say it has the lowest prices, the WSL survey of 1,500 consumers found.
Wal-Mart’s response was a guarantee to match rivals’ prices to lure households making less than $70,000 a year, which account for two-thirds of Wal-Mart’s U.S. business while doing only about one-fifth of their shopping there.
“We’ve got to deliver on these principles that had made us a trusted retailer -- that we’ll save them money and have what they need,” Bill Simon, Wal-Mart's top U.S. executive, has told investors.
The return of about 8,500 items to stores, which will continue throughout the year, has boosted Wal-Mart’s inventory more quickly than sales for five consecutive quarters.
Simon told investors in June that the inventory increase was intentional and a result of returning the items to shelves and sourcing more products directly from Asian manufacturers. At an investor conference later that month, Simon said he was focused on improving in-stock levels.
“The only thing that really matters to us is whether the product is on the shelf or not,” he said.
Wal-Mart’s shelves are pockmarked with empty spaces because employees can’t find products in storerooms fast enough, said Vic Gallese, an independent retail consultant based in Fort Worth, Texas.
While the world’s largest retailer has computer systems to manage its ordering and flow of goods, at the store level, “you’re trusting your inventory to a person, and that takes skill and hours of labor,” said Gallese, who works with retailers to improve in-stock levels.
For example, a product like salsa could be missing from the shelf while there is a full case of it that has been misplaced in the back room due to a lack of space, Gallese said.
“Once your backroom gets out of control with inventory, things can circle the drain in a hurry for you,” Gallese said.
Out-of-stock items lead to lost sales and customers, according to a 1991 study of about 3,000 consumers in the Journal of Retailing. When faced with an unavailable item, 14 percent of respondents said they would go to another store rather than choose a different brand or size.
“The original retailer may not only lose that consumer for the exact item they were out of that day, they may lose the consumer entirely,” Stanley E. Griffis, an associate professor of logistics at Michigan State University’s Broad School of Business, said in an interview. “Until someone invents the Replicator device from ‘Star Trek,’ there will always be out-of-stock experiences.”