Wal-Mart new policy for suppliers

Sep 26, 2013

Wal-Mart Stores Inc. is cutting orders it places with suppliers this quarter and next to address rising inventories 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.

U.S. inventory growth at Wal-Mart outstripped sales gains in the second quarter at a faster rate than at the retailer’s biggest rivals. Merchandise has been piling up because consumers have been spending less freely than Wal-Mart projected, and the company has forfeited some sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.

“Wal-Mart’s inventory is well above their goal,” said Poonam Goyal, an analyst at Bloomberg Industries. “Most of the inventory increase was because of missed sales.”

Wal-Mart fell 2.1% to US$74.17 at 1:45 p.m. in New York and earlier slid as much as 2.9% for the biggest intraday decline since Aug. 15. At 2:20 p.m. shares were down  1.5% to US$74.61. The Dow Jones Industrial Average slid 0.5% after rising as much as 0.2% earlier in the day.

U.S. chains are already bracing for a tough holiday season, when sales are projected to rise 2.4%, the smallest gain since 2009, according to ShopperTrak, a Chicago-based firm. Wal- Mart cut its annual profit forecast after same-store sales fell 0.3% in the second quarter. This week the company 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.

Canceled Orders

Wal-Mart’s order pullback is affecting suppliers in various categories, including general merchandise and apparel, said the supplier, who has worked with Wal-Mart for almost two decades and asked not to be named to protect his relationship with the company. He said he couldn’t recall the retailer ever planning ordering reductions two quarters in advance.

In a telephone interview, David Tovar, a Wal-Mart spokesman, said the order pullback isn’t “across the board” and is happening “category by category.”

“In some cases, we’re going to be taking less, in some we’re going to be taking more,” he said.

Wal-Mart says the report is “misleading,” according to Business Insider, saying the emails cited are part of a normal discussion between buyers and suppliers.

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.

Source: FINANCIAL POST