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Thursday, September 26, 2013 12:50 PM

Unsold Merchandise Piles Up at Wal-Mart; Cuts in Orders Will Follow

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What happens at Wal-Mart this holiday season will likely happen at many prominent retailers.

The Wal-Mart story is not pretty: Wal-Mart Cutting Orders as Unsold Merchandise Piles Up.

Wal-Mart Stores Inc. (WMT) is cutting orders it places with suppliers this quarter and next to address rising inventory the company flagged in last month’s earnings report.

Last week, an ordering manager at the company’s Bentonville, Arkansas, headquarters described the pullback in an e-mail to a supplier, who said others got similar messages. “We are looking at reducing inventory for Q3 and Q4,” said the Sept. 17 e-mail, which was reviewed by Bloomberg News.

Inventory Goal

Wal-Mart has said in filings that its “corporate goal” is “growing inventory at or less than the rate of net sales growth.” For its U.S. segment, the company has hit that goal only twice in the past 10 quarters, according to data compiled by Bloomberg News. The last time was four quarters ago.

In the second quarter, U.S. inventory grew at 6.9 percent and U.S. sales grew at about 2 percent. In the same quarter a year earlier, inventory increased 3.6 percent while sales rose 3.8 percent. Target Corp. (TGT) stores and Dollar General Corp. (DG) held their second-quarter inventory gains to about twice the rate of sales growth versus triple the pace at Wal-Mart.

Inventory Increase

Bill Simon, chief executive officer of Wal-Mart’s U.S. division, said last month that inventory increased due to “softer than anticipated sales trends, the delay in summer weather and timing shifts in the receipt of merchandise for back-to-school and the upcoming holiday season.”

Even as Wal-Mart seeks to clear its inventory, holiday merchandise is showing up early at stores in states including Illinois, Texas, California and Colorado, according to workers at those locations. Some of them said there is already insufficient room for existing merchandise, forcing them to put the seasonal goods out as soon as they arrive -- about a month earlier than usual.

At a store in Boothwyn, Pennsylvania, on Sept. 14, pallets of Christmas tree lights sat in the middle of an aisle beside dozens of unopened cardboard boxes of Halloween decorations. A 28-inch light-up penguin was being sold for $19.98 beside plastic jack-o-lanterns selling for $1.

It’s a similar scene in Hurst, Texas, said Donna Kennedy-Medford, who has worked at the store for two years.

“This year, there’s more earlier than last year,” she said of the Christmas items. “We have some of it in the back, and some of it has been put out on the floor in a haphazard fashion.”

Wal-Mart is already struggling to keep shelves stocked, in part because stores lack the manpower to move items to sales floors from back rooms and shipping containers in parking lots. The U.S. workforce at Wal-Mart’s namesake and Sam’s Club warehouse chains fell by about 120,000 employees in the past five years, to about 1.3 million, according to regulatory filings. In that time, the company has added more than 500 U.S. stores through July 31.

Seasonal Merchandise

Because back rooms are often full, seasonal merchandise such as Christmas decorations sometimes must be moved directly to the sales floor, said Barbara Gertz, who has worked as an overnight stocker at the Wal-Mart store in Aurora, Colorado, for almost five years.

“The aisles in the back room are so backed up with stuff,” she said. “We brought three pallets of Christmas trees out to the garden center. We usually do that in mid-October. We’re filling it up pretty quick for only being mid-September.”

Unloading Sweatpants

That’s the case at Kennedy-Medford’s store in Texas, where kids’ clothes have sold for as little as 25 cents, she said.

“Just to get rid of things, a lot of stuff is going for a dollar,” she said. “Sweatpants that used to be $8.96 are going for $2 just so we can unload them.”
Other Issues

Wal-Mart clearly has issues beyond inventory control.

You can't help but laugh at this: "A 28-inch light-up penguin was being sold for $19.98 beside plastic jack-o-lanterns selling for $1."

Rather than send a message "penguins will go for $1.00 in January", Wal-Mart would be better of dumping them in the trash bin (where they arguably belonged even in October).

Nonetheless, Wal-Mart said it was adding 35,000 permanent workers and increasing the hours of an additional 35,000, as well as hiring 55,000 seasonal workers.

That seems like a lot of hiring for a company struggling with sales.

Some of Wal-Mart's problems are undoubtedly related to under-staffing, but most of the problems appear to be weak sales. And that problem can hardly be unique to Walmart.

Tough Holiday Season?

Here's the curious statement "U.S. chains are already bracing for a tough holiday season, when sales are projected to rise 2.4 percent, the smallest gain since 2009, according to ShopperTrak"

An allegedly "tough" holiday season is supposed to have 2.4% growth?!

I will take the under. But if sales do go up by that much, then massive as well as profitless unloading of junk at bargain prices will be the reason.

Mike "Mish" Shedlock

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