[Image of: RetailWire Logo and Tagline (for print)]

BUSINESS TIPS

ChannelAdvisor:
Online Selling Strategies
RR Donnelley:
In-Store Marketing
LoyaltyOne:
Enriching Customer Relationships
 
[21 comments]

Does Walmart Have Restocking Problems?

March 1, 2013

There are all kinds of reasons, human and technological, why retailers fail to fill open spaces on shelves. Regardless of the causes, empty shelves can lead to lost sales and that was the concern raised by Bill Simon, CEO of Walmart U.S., in a Feb. 1 meeting of company executives, according to Bloomberg News.

According to notes taken by an executive during the meeting, Mr. Simon called shelf holes "self-inflicted wounds" that need to be corrected.

Last March, Duncan Mac Naughton, chief merchandising and marketing officer for Walmart U.S., estimated the retailer could improve its sales by as much as $5 billion a year through more effective inventory management.

Walmart spokesperson David Tovar told Bloomberg that the news service's reporting of the executive's notes did not reflect the chain's in-stock position. He also took issue with quotes from a department manager at a Walmart Supercenter who said her store should have 72 cameras in stock instead of the 12 it was carrying. Mr. Tovar said the news service was taking an isolated example and presenting it as a problem that is national in scope.

While purely anecdotal, store checks I've conducted at Walmart support Bloomberg's reporting. That being said, I've found similar situations at Target and elsewhere.

FINANCIALS:     [NYSE:WMT] [ ]

Discussion Questions:

What are the most common reasons, technological and/or human, why stores fail to replenish shelves? From your observations, do you believe Walmart's in-stock position is better or worse than its major competitors? Do you believe the chain's out-of-stocks vary considerably from store-to-store and region-to-region?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

Would you blame human or technological deficiencies most for poor in-stock situations at retail?

Comments:

I'm really in no position to make any kind of effective comment on a store-by-store, region-to-region assessment of Walmart's instock position.

That said, the experience I do have tells me that more often than not, plan-o-grams are not followed; in some DSD categories vendors still grab too much space, and that stores often don't pay enough attention to the unique consumer demand curve of their unit and therefore go out-of-stock on fast movers while remaining in stock on items nobody in their trading area buys.

Sometimes it's a systems problem. Sometimes it's a human problem—laziness to improper restocking crew scheduling. Sometimes the customers just get ahead of the staff's ability to keep up with them.

Whatever may or may not be true here, one thing is certain. Out-of-stocks are, in fact, self-inflicted wounds—sometimes fatal ones.

[Image of: View Braintrust Panelist button]
Ryan Mathews, Founder, ceo, Black Monk Consulting

First, I think Walmart's out-of-stock situation is worse, just my opinion. Target is just as bad. I think a lot as to do with labor and human error. I went to two Targets this week looking for manilla envelopes and both stores the shelve space was completely empty. No clue why because I've never seen that product out of stock anywhere. It saddens me to see any retailer have an open gaping hole on a high volume item.

Bottom line, it comes down to human error. If managers are super serious about not having out-of-stocks, they will find a way to keep the shelves stocked.

David Livingston, Principal, DJL Research

All retailers have restocking problems. I don't believe this is a store by store or even a retailer by retailer issue, necessarily. This issue is shared by the manufacturers as well. Some retailers are better than others, but if manufacturers play a proactive role in helping manage inventory, sales can improve significantly. I can walk into a Walmart and see a fully stocked shelf from one cosmetic manufacturer and see the next manufacturers shelf space is half empty.

Mr. MacNaughton is probably correct about being able to increase sales $5 billion if shelves stayed well stocked. When I find a product missing, I might chose a competitive one, but I'm more likely to drive to another store to get the product I like to use.

[Image of: View Braintrust Panelist button]
Janet Dorenkott, VP & Co-owner, Relational Solutions, Inc.

Why are store shelves not adequately replenished? 1. Pressure to keep inventory costs down. 2) The mental distance between HQ and stores. 3) Misused and/or misunderstood use of technological and human capital. 4. And then there are the other reasons.

Not all stores, store managers and store associates are equal. Nor are wants and whims of localized shoppers. Thus there might be some out-of-stock variation from store to store. That's part of what keeps good, diligent retailers on their toes and keeps their stores shelves well stocked. There's no room to blink an eye in retailing.

[Image of: View Braintrust Panelist button]
Gene Hoffman, President/CEO, Corporate Strategies International

No matter how efficient technology becomes, there remains a human element in the execution of most things in retail. Walmart's in-stock position is no exception. While the chain has pioneered systems and technology designed to optimize inventory and create a just-in-time reorder system, without a system that addresses the exceptions that occur every day in retailing, Walmart will continue to miss sales and disappoint shoppers when the item they are looking for is missing.

From a purely observational standpoint, Walmart is not the only mega retailer with this problem. I find Target "consistently" inconsistent when it comes to being in-stock in electronics, small wares and other non-apparel departments. Other chains big and small have similar issues.

The good news is that most out of stocks are avoidable. But the retailer must recognize the opportunity cost they create, as Mr. Simon has evidently done. Once the retailer understands the impact of lost sales and disappointed shoppers, ROI on any investment they make to insure associates are checking stock conditions several times a day should become compelling.

Kudos to Mr. Simon for at least being aware of the issue, which he refers to as a "self-inflicted wound." It will be interesting to see how they move forward to remedy this problem.

[Image of: View Braintrust Panelist button]
Mark Heckman, Principal, Mark Heckman Consulting

I do not have information to be able to comment on a specific store's out-of-stock information. From the data I have seen, out-of-stocks are not normally only the responsibility of the retailer. Normally the problem results from a lack of knowledge (regarding consumer demand, consumer preferences, location of inventory, etc.) and a lack of collaboration within the retailer and between the retailer and supplier. Ignoring these issues does result in out-of-stocks which does harm both the retailer and supplier.

[Image of: View Braintrust Panelist button]
Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Let's be clear—all retailers have trouble keeping shelves stocked. It's not a new problem, and it's really not a supply chain problem. Walmart is the world's best supply chain, but the fact that it has these problems further demonstrates that the major issues with out-of-stocks are in-store. Planograms are not followed, and even if they are, they begin to fall apart as soon as the shelf is set.

Out-of-stocks have been one of the major challenges for brick and mortar stores for generations. Fixing the problem will take more than some short-term tactics like holding store managers accountable. New tools are needed to help stores manage planogram integrity and keep shelves stocked.

Jeff Weidauer, VP Marketing, Vestcom International, Inc.

Bottom line, whether human or technological error, out-of-stocks are lost sales and drive shoppers to pick up items elsewhere. Our research shows that when a shopper is unable to find an item, 50% went to a different store to purchase the item. Multiply this across a number of items and shoppers, and this has a definite impact on sales!

[Image of: View Braintrust Panelist button]
Brian Numainville, Principal, The Retail Feedback Group

I still believe that "management by walking around" would solve most of the problems about stocking short falls. You can only expect what you inspect....

Paul Stanton, V.P.Sales, P.Stanton & associates

Ultimately I think it is a calculation that the additional profits from achieving a low level of out-of-stocks don't justify the labor and other costs of being more adequately stocked.

Perhaps it adversely affects the return on equity metric, but in this low interest environment the costs of holding inventory are certainly exceptionally low. Many years ago in a much higher interest rate environment, I worked for a company where the god of Return on Stockholder Equity (ROSE) was worshiped above all other gods. The cost of holding natural cheese to age was a drag on ROSE so that had to go. Well, I said you can sell the cheese to someone else, and then buy it back at its increased value after they age it and ROSE is unaffected. The bean counters were not impressed. The brand equity built over the years in that line was essentially abandoned, and it had an adverse impact on their processed cheese business as well.

'schindler'

I don't have the exact statistic, but I believe the out-of-stock rate in supermarkets has been about the same for a decade. There are many notable reasons why and suggested remedies, as mentioned in other posts. So there's no point in repeating them here. But consider this: Maybe the products are in the back room waiting to be shelved (so it's an in-store labor issue), or maybe there are just too many products to keep track of (stores need variety, not duplication).

[Image of: View Braintrust Panelist button]
John Karolefski, Editor in Chief, CPGmatters.com

What comes to mind is the old saying, "a good carpenter never blames the tools." Or, for the technologically focused—"Garbage In, Garbage Out." I always default to it being a human first issue. There may be technology issues, but those are typically less the focus than how the humans use the tool.

I (unscientifically) do not get the sense that Walmart is "worse" than other stores. It is an industry issue and they are subject to it as well as others.

[Image of: View Braintrust Panelist button]
David Zahn, Owner, ZAHN Consulting, LLC

It's impossible to assess the real reason on the replenishment issues. Fact is, it's very easy to get into trouble due to human oversight or technological malfunctions. However, most human oversight is easily addressed with training, so I suspect there is more to the public story and new technology is involved. Remember that in a case like this, technology problems arise not only from the retailer but also the suppliers.

The fact that Walmart has publicized the replenishing issue tells all of us that this is worse than major competitors. That every retailer will have empty, or poorly stocked shelves is a fact. At any point, for a variety of reasons a retailer will temporarily be out of stock, but it's a different issue when the CEO states it as a problem.

[Image of: View Braintrust Panelist button]
Carlos Arámbula, Managing Partner, MarcasUSA LLC

I never thought of it as a chain issue. I was under the impression it was a store issue. There have been too many times I have had to go elsewhere to get the product I wanted because the local Walmart shelf was empty. The other problem I have seen is the clerks are not too anxious to go to the stock room to get it for you.

[Image of: View Braintrust Panelist button]
Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

The answer my friend is blowing in the wind, not blowing smoke. It all comes down to managing. Paul Stanton nailed it. "Manage by walking around, and people expect (respect) what you inspect."

I managed stores. Walked the store every morning, during the day, and before I left at night. I had a high-tech yellow legal pad and a pencil (version 2.0) noting the deficiencies, prioritizing then delegating. When the troops know they are going to be called on shortcomings, somehow they tend to respond. Also on that list were the attaboys for clean full departments, display and pricing (tags).

'GMROI'

Does WM have issues of such magnitude that they should be singled out? I don't know (nor do most respondents here, as they have candidly admitted). But let's pretend they do, or at least acknowledge that probably some retailer, somewhere does (even if it's in a galaxy far, far away). You have a model that emphasizes logistical efficiency—i.e. lean inventories/just-in-time delivery—and minimal staffing...would it be surprising if at times the delivery isn't just-in-time, or that the staffing (to restock) is a little too lean?

'notcom'

Walmart's $5B out-of-stock problem is prime evidence of retail's paradox of scale. In brief: The bigger the chain, the greater the distance between headquarters and the shopper.

Centralized replenishment systems are probably the culprit here. Not that the technology is unsophisticated. It's just that they build a time-lag into the reordering process that confounds accuracy. Add in-store implementation breakdowns to that and you wind up with a lot of stubborn holes.

Computer generated ordering that works off of the in-store information loop is inherently more responsive to actual store conditions. We know one grocery chain retailer who consistently succeeds at the 99.4% in-stock level by following this approach.

So, Mr. Simon, it's not unsolvable with the right methodology and appropriately designed tools. There's no reason any retailer should accept lowered expectations.

[Image of: View Braintrust Panelist button]
James Tenser, Principal, VSN Strategies

A story—as a vendor, my company leased access to its analysis platform and almost daily reviewed our store stock situations. We never wanted to be on that "under 95% on-hand stock" report that senior management tasked the buyers over. But we discovered that any store manager could, at his/her discretion, turn off or change the replenishment process. In effect we had stores without goods and a warehouse full of them! So even with their state of the art software, the human element could deter the whole replenishment process.

John Hyman, Overseer of Order, Zen Marketing Inc.

Being in the retail industry for over 30 years and seeing the changes made for in-stock positioning the issues are more in-line than anything else. Plan-O-Grams are great tool to follow, but must be maintained to be effective tools.

As a retail business, we can use these tools as much as we want but store level is where these issues need to be addressed. There just isn't enough qualified help in the stores to keep up with customer demand. We look at the immediate return on payroll savings but not at the long run how much much sales did. We lose those sales and customers that won't come back due to our lack of inventory.

'pittfan'

Retailers need to communicate goals and objectives across functional areas of responsibliity. In large organizations it takes a coordinated team to execute and provide the right product at the right time. If the team is not aligned around the same goals, that is a major problem.

Some large retailers have compartmentalized logistics from merchandising and if proper communication and objectives are not matched with goals, this can lead to controlling sales through inventory rather than selling what the market will bear. The best software in the world cannot overcome poor planning.

'kendailey'

Their in-stock store shelf replenishment position is far worse than other big boxes, including Kmart. Even their online stock availability position is terrible. I ordered seven of one kind of product online, and I received THREE separate shipments.

'weo'

Search RetailWire
Follow Us...
[Image of:  Twitter Icon] [Image of:  Facebook Icon] [Image of:  LinkedIn Icon] [Image of:  RSS Icon]

RetailWire's
Getting Started video!

View this quick tutorial and learn all the essentials...

RetailWire Newsletters