NEW YORK – Walmart is turning up the pressure to keep its shelves adequately stocked by proposing to tie executive compensation to the issue – and it has asked an outside auditor to alert workers which items to focus on by plastering U.S. stores with neon green dots.
Earlier this year, Bloomberg News reported that Walmart had trouble keeping its stores stocked as it cut back on workers per store. That has cost sales and driven away frustrated shoppers. In April, Acosta, a Jacksonville, Fla.-based consulting firm, began the green-dot program in Walmart’s U.S. stores after previously conducting shelf audits without telling workers what items would be monitored.
The effort Walmart is expending to fix its stocking issues is notable for a chain that became the world’s largest retailer in part by gaining mastery over its supply chain and logistics.
“It’s like Tiffany’s falling down on quality,” said Wallace Hopp, associate dean of faculty and research at the Stephen M. Ross School of Business at the University of Michigan. “It’s the core of their essence. If you can’t manage inventory in retail, then you can’t manage retail.”
This month, Walmart reported that same-store sales in the U.S. fell 1.4 percent, the first drop after six straight gains. The Bentonville, Ark.-based company also said second-quarter earnings per share will be $1.22 to $1.27. Analysts projected $1.29, the average of 24 estimates compiled by Bloomberg.
Walmart submitted the compensation proposal to shareholders in April to be voted on at the company’s annual meeting June 7. On-shelf availability – known as OSA – would be one of several new metrics by which managers and executives could be judged.
The Acosta audits focus on about 700 important items, making it easier to achieve a higher percentage of in-stock merchandise than if the whole store were counted. Walmart supercenters carry about 142,000 items, according to the company’s website, so a typical Acosta audit represents about one half of 1 percent of a store.
Carol Schumacher, a Walmart vice president of investor relations, said in an analysts’ call this month that on-shelf availability in the first quarter was in the 93 to 95 percent range.
“Management is focused on OSA to drive sales,” she said.
It’s not clear how Walmart derived that figure – and that is where the story of the green dots comes in.
Walmart audited its on-shelf availability in-house for years, said David Tovar, a company spokesman. In 2011, it hired Acosta to do the job.
Keeping shelves stocked can boost sales significantly, according to Acosta, whose clients have included Target, Whole Foods Market and ConAgra.
“In a superstore, if we fix a void at the beginning of the month, one single SKU in oral care translates to about $360,000 in sales at the end of the month,” Erick Kritsky, Acosta’s director of application development, said in a 2012 study. He didn’t specify a particular item.
When Acosta began its Walmart audits in 2011, it conducted them secretly, without telling store managers which items were being monitored or when. Each week, Acosta field auditors searched for a random list of 300 items out of 700, according to a copy of Acosta’s rules at the time. They compiled data collected from most of the more than 4,000 Walmart stores in the U.S.
Acosta was so committed to secrecy that when some Walmart managers tried to influence the results by finding out what items were being monitored, Acosta managers told their employees to rebuff them and report such incidents, according to internal emails.
Acosta’s standard secret audit was almost under way when plans changed suddenly. Tovar, the company spokesman, said Walmart decided that, in this case, it would be better to have Acosta mark the items to be monitored with neon green stickers next to the prices on shelves.
“We thought by not letting the stores know, that we would get a clearer picture, but that wasn’t the case,” Tovar said. “What we learned is it’s actually better to have transparency with stores so they know the key items that particular time of year.”
Walmart prepared a spreadsheet of more than 800 items – merchandise that included peanut M&Ms, Hanes boxer briefs, Covergirl mascara and Crest toothpaste – that needed “stickering.” The circle stickers would indicate to Walmart workers which items Acosta would be searching for during its audits.
Tovar said the most recent round of auditing was “the first time the green dots were in place.”
He added: “The reason we went to the green sticker process is because we think this is going to help the store associates do a better job of being in stock in key items. Those are the most important items to be in stock on.”
Counting just the key items generates an incomplete picture, Hopp said.
“If they green-dotted for the purposes of the audit, that’s short-sighted,” he said. “They should be much more concerned about having stuff in stock in the whole store.”
In a telephone interview May 17, Matt Davis, who works as a cashier at the Walmart in Putnam, Conn., said most of the items that have green stickers “were in stock, or overstocked, while shelves were empty around them.”