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OM in the News: Wal-Mart Shrinks Its Inventory

October 29, 2015
Wal-Mart's CEO states: "We are trying to fit 4 pounds of sugar into a 2 pound bag"

Wal-Mart’s CEO states: “We are trying to fit 4 pounds of sugar into a 2 pound bag”

“The average Wal-Mart supercenter—home to 120,000 products—has about 2,500 fewer items than a year ago,” writes The Wall Street Journal (Oct. 26, 2015).  Some of the changes have put Wal-Mart at loggerheads with vendors who worry they will result in tens of millions of dollars in lost sales. The moves are part of a high-stakes pivot to tame the company’s sprawling empire, organize unruly systems for managing inventory and keep stores neat and better stocked—retail basics that Wal-Mart fumbled recently. Wal-Mart is using more and better data to decide which products stay on shelves and where to remove clutter.

Part of the retread involves culling inventory from backrooms, and dropping some products altogether. In a key move that will change the look of the chain’s stores, Wal-Mart is more than doubling the width of aisles—to 10 feet from 4 feet, making it more navigable for multiple carts. The company is making significant changes to how inventory flows through its stores. Employees are starting to restock during the day, when customers are most likely to complain about missing items, rather than late at night.

“It’s the objective of every retailer to grow their inventory slower than sales,” says CEO Greg Foran. “We just carry too much inventory. And so we do have lots of work under way to get that sorted.” Wal-Mart is also experimenting with lowering shelves by about a foot to make it easier for shoppers to see around the store. The subtle change would wipe out hundreds of millions of dollars in annual sales of gum, candy and magazines. Behind the scenes, Wal-Mart is also aggressively pressuring suppliers to spend more money to earn a spot on shelves. Contract renegotiation letters to suppliers are asking many to pay additional fees to store their products in warehouses, as well as give the retailer more time to pay for the goods.

Classroom discussion questions:

  1. What are the changes inventory policies Wal-Mart is pursuing? Why?
  2. What are the layout changes involved?

 

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