Two-thirds of Americans shop

Abstract

Walmart’s U.S. Chief Executive Officer Bill Simon stated
that Walmart was “getting worse” at stocking shelves, and its “self-inflicted
wounds” were Walmart’s “biggest risk” because they correlated positively
with slowing sales growth. The “vicious cycle” of understaffing has led to
operational problems at Walmart.

Today Walmart has an average of 301 employees per store
compared to 343 employees per store in 2008, with the averages based on total
U.S. employee and store count, including Sam’s Club and headquarters staff.
Adding five full-time employees to Walmart’s U.S. supercenters and discount
stores, for example, would cost the retailer about $448 million a year,
assuming those workers earned the federal minimum wage and industry standards
for health benefits. Such changes would add about a half-percentage point to
Walmart’s selling, general, and administrative expenses.

From an operations management perspective, a thinly spread
workforce has other consequences: longer checkout lines, less help throughout
the store, and disorganization.

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Margaret Hancock long considered her
local Walmart superstore her one-stop shopping destination. But during recent
visits, the retired accountant from Newark, Del., says she failed to find more
than a dozen items, including certain types of face cream, cold medicine,
mouthwash, bandages, and hangers. Walmart’s loss was a gain for Kohl’s (.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=KSS”>KSS), Safeway (.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=SWY”>SWY), Target (.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=TGT”>TGT), and Walgreens (.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=WAG”>WAG)—the chains Hancock visited for the unavailable items. “If
it’s not on the shelf, I can’t buy it,” she explains. “You hate to see a
company self-destruct, but there are other places to go.”

Wal-Mart Stores (.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=WMT”>WMT) has been cutting staff since the recession—and pallets of
merchandise are piling up in its stockrooms as shelves go unfilled. 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.

A thinly spread workforce has other
consequences: longer checkout lines, less help throughout the store, and
disorganization. Last month, Walmart placed last among department and discount
stores in the American Customer Satisfaction Index, the sixth year in a row the
company has either tied or taken the last spot. The dwindling level of customer
service comes as Walmart has touted its in-store experience to lure financially
strained shoppers and to counter the threat from online rivals such as
Amazon.com (.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=AMZN”>AMZN).

The retailer says reports of
stocking problems are overblown. “Our in-stock levels are up significantly in
the last few years, so the premise of this story, which is based on the
comments of a handful of people, is inaccurate and not representative of what
is happening in our stores across the country,” Brooke Buchanan, a Walmart
spokeswoman, said in an e-mailed statement. “Two-thirds of Americans shop in
our stores each month because they know they can find the products they are
looking for at low prices.”

At a Feb. 1 gathering of Walmart
managers, U.S. Chief Executive Officer Bill Simon said Walmart was “getting
worse” at stocking shelves, according to minutes of the meeting obtained by
Bloomberg News. Simon said “self-inflicted wounds” were Walmart’s “biggest
risk” and that an executive vice president had been appointed to fix the
restocking problem, according to the minutes.

The stocking challenge coincides
with slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending
April 26 will be little changed, Simon said during a Feb. 21 earnings call for
investors. “When times were good and people were still shopping, the lack of
excellence was OK,” says Zeynep Ton, a retail researcher and associate
professor of operations management at the MIT Sloan School of Management.
“Their view has been that they have the lowest prices so customers keep coming
anyway.” Ton says Walmart shoppers are “mad about the way they were treated or
how much time they wasted looking for items that aren’t there.”

Retailers consider labor—usually
their largest controllable expense—as an easy target for cost-cutting. That’s
what happened at Home Depot (.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=HD”>HD) in the early 2000s, when it tried to trim expenses and
boost profits by cutting staff and relying more on part-time workers.
Eventually customer service and satisfaction deteriorated, and sales growth at
established stores fell. “When you tell retailers they have to invest in
people, the typical response is, ‘It’s just too expensive,’” Ton says.

MGMT455 discussion 2.jpg” alt=”Averages based on total u.s. employee and store count, including sam’s club and headquarters staff”>Averages
based on total U.S. employee and store count, including Sam’s Club and
headquarters staff

Adding five full-time employees to
Walmart’s U.S. supercenters and discount stores, for example, would cost the
retailer about $448 million a year, assuming those workers earned the federal
minimum wage and industry standards for health benefits, according to an
analysis by Poonam Goyal, a Bloomberg Industries senior analyst. That would add
about a half-percentage point to Walmart’s selling, general, and administrative
expenses, which were about $88.9 billion last year.

At the Kenosha (Wis.) Walmart where
Mary Pat Tifft has worked for nearly a quarter-century, merchandise ready for
the sales floor remains on pallets and in steel bins lining the floor of the
back room—an area so full that “no passable aisles” remain, she says. “There’s
no manpower in the store to get the merchandise moving,” says Tifft, who
oversees grocery deliveries and is a member of OUR Walmart, a union-backed
group seeking to improve working conditions at the chain. “Customers come in,
they can’t find what they’re looking for, and they’re leaving.”

At the Walmart store in Erie, Pa.,
26-year-old meat and dairy stocker Anthony Falletta faces a similar
predicament. “The merchandise is in the store; it just can’t make the jump from
the shelf in the back to the one in the front. There’s not the people to do
it.”

QUICK QUOTE

Approximately 250 words