Friday, August 16, 2013

Wal-Mart Blunders and Consumers Take the Fall

imageReuters reports on Aug 15, “Wal-Mart Stores Inc (WMT.N) reported a surprise decline in quarterly same-store sales in the United States, its biggest market, after shoppers came in less often because higher taxes and gasoline prices were leaving them with less spending money. The world's largest retailer also cut its revenue and profit forecasts for its fiscal year, raising concerns about retail spending as the all-important holiday season nears. It cited weak results from the United States, as well as …..”

However the U.S. Department of commerce numbers tell a different story. Who is losing steam, economy or Wal-Mart?

Here is the picture based on retail numbers from the U.S. Department of Commerce. I added the red doted line showing the forecast trend just to emphasize the point. This is what the current long term trend looks like: steadily moving up. So why is Wal-Mart losing shoppers?

imageIn March this year, I had written an article based on a Bloomberg report on how Wal-Mart is actively cutting staff in its stores. Quoting from that report: “In the past five years the world’s largest retailer added 455 U.S. Walmart stores, a 13 percent increase, according to company filings in late January. In the same period its total U.S. workforce, which includes employees at its Sam’s Club warehouse stores, dropped by about 20,000, or 1.4 percent.” In 2008, Wal-Mart had an average of 343 employees per store. The number declined to 301 in 2013. 

All that adds up and eventually shows up: As empty shelves, longer wait-time in check-out lines, piled-up inventory (that cant be sold) in backrooms, and missed earnings. While Wal-Mart has been the pioneer in leveraging technology to squeeze costs out of its operations and has done that for an impressively long time without affecting its customers, the problem seems to be our inability to accept that technology and process improvements do have an upper limit beyond which efficiency improvements just can’t be realized. The fact remains that there is an optimal point for costs (inventory, staff, and so on) and service (availability of merchandise at the right time, full shelves, quick check-out and so on) and the trick is to find that point and remain there rather than chasing the phantom of ever reducing costs and ever increasing service – which does not, can not, exist! The fact also remains that consumers cannot buy what is not on the store shelves and don’t care to return if they consistently cannot find what they came for or have to deal with check-out lines that never end, or customer service that is below par…

Of course, reports about empty Wal-Mart shelves and poor customer service have been doing the rounds on the web for some time. Is it time for Wal-Mart to review its own operational policies and set realistic expectations about costs to run a healthy retail business rather than pointing to disappearing consumers when retail as a sector seems to be doing just fine?

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© Vivek Sehgal, 2013, All Rights Reserved.

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