Why Wal-Mart is putting the focus on inventory management

 It’s not just the UK where food retailers are facing tough markets. Walmart’s second quarter results highlight not just the competitive nature of the grocery business in the US, but also how the retailer is focusing on inventory management as part of its response.

In the US, Walmart reported a 4.8 per cent rise in revenue to $74 billion in the second quarter but operating income was down by 8.2 per cent to £4.8 billion.

And Greg Foran, president & CEO of Walmart US, pointed out that it was meeting its goal to grow inventory more slowly than sales.

The company has been investing in operational improvements. “In the second quarter, we began an overhaul of our inventory management systems, routines and schedules,” said Foran.

In the second quarter, total inventory grew slower than the rate of sales, at 2.2 per cent. Comparable store inventory declined by 2.4 per cent versus last year.

“The majority of this improvement came from decisions we made regarding replenishment strategies whereby we strategically moved inventory for certain items upstream from our store back rooms to our distribution centres,” said Foran.

“Additionally, we continued our focus on clearing our back rooms of excess inventory, improving operational efficiency in the stores. These actions, along with better management of seasonal inventory and reducing modular changes and feature shipments to the stores, allowed us to reduce comparable store inventory, while improving both in-stock levels and sales.”

This has to be seen in the context of the vision outlined by Doug McMillon, the group’s president and CEO, just a couple of months ago.

“I want us to stop talking about digital and physical retail as if they’re two separate things. The customer doesn’t think of it that way, and we can’t either. Customers just want us to solve their everyday problems with an easy, seamless shopping experience,” he told 14,000 Wal-Mart associates and shareholders at the company’s annual meeting in Fayetteville, Arkansas in June.

Walmart’s online business is growing rapidly in the US. It opened two automated online fulfilment centres, each bigger than 20 football fields, in the second quarter, and it has two more coming this quarter.

But this all increases the pressure to manage stock more efficiently across the group. No wonder that last week Foran emphasised that “inventory management will continue to be an on-going focus for us”.