What Good Are Low Prices If the
\nShelves Are Empty–Walmart Faces the
\nCost of Cost-Cutting: Empty Shelves<\/p>\n
Abstract
\nWalmart\u00e2\u0080\u0099s U.S. Chief Executive Officer Bill Simon stated
\nthat Walmart was \u00e2\u0080\u009cgetting worse\u00e2\u0080\u009d at stocking shelves, and its \u00e2\u0080\u009cself-inflicted
\nwounds\u00e2\u0080\u009d were Walmart\u00e2\u0080\u0099s \u00e2\u0080\u009cbiggest risk\u00e2\u0080\u009d because they correlated positively
\nwith slowing sales growth. The \u00e2\u0080\u009cvicious cycle\u00e2\u0080\u009d of understaffing has led to
\noperational problems at Walmart.
\nToday Walmart has an average of 301 employees per store
\ncompared to 343 employees per store in 2008, with the averages based on total
\nU.S. employee and store count, including Sam\u00e2\u0080\u0099s Club and headquarters staff.
\nAdding five full-time employees to Walmart\u00e2\u0080\u0099s U.S. supercenters and discount
\nstores, for example, would cost the retailer about $448 million a year,
\nassuming those workers earned the federal minimum wage and industry standards
\nfor health benefits. Such changes would add about a half-percentage point to
\nWalmart\u00e2\u0080\u0099s selling, general, and administrative expenses.
\nFrom an operations management perspective, a thinly spread
\nworkforce has other consequences: longer checkout lines, less help throughout
\nthe store, and disorganization.
\n——————————————————————————————————————————————
\nMargaret Hancock long considered her
\nlocal Walmart superstore her one-stop shopping destination. But during recent
\nvisits, the retired accountant from Newark, Del., says she failed to find more
\nthan a dozen items, including certain types of face cream, cold medicine,
\nmouthwash, bandages, and hangers. Walmart\u00e2\u0080\u0099s loss was a gain for Kohl\u00e2\u0080\u0099s (.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)\u00e2\u0080\u0094the chains Hancock visited for the unavailable items. \u00e2\u0080\u009cIf
\nit\u00e2\u0080\u0099s not on the shelf, I can\u00e2\u0080\u0099t buy it,\u00e2\u0080\u009d she explains. \u00e2\u0080\u009cYou hate to see a
\ncompany self-destruct, but there are other places to go.\u00e2\u0080\u009d
\nWal-Mart Stores (.businessweek.com\/research\/stocks\/snapshot\/snapshot.asp?ticker=WMT”>WMT) has been cutting staff since the recession\u00e2\u0080\u0094and pallets of
\nmerchandise are piling up in its stockrooms as shelves go unfilled. In the past
\nfive years the world\u00e2\u0080\u0099s largest retailer added 455 U.S. Walmart stores, a 13
\npercent increase, according to company filings in late January. In the same
\nperiod its total U.S. workforce, which includes employees at its Sam\u00e2\u0080\u0099s Club
\nwarehouse stores, dropped by about 20,000, or 1.4 percent.
\nA thinly spread workforce has other
\nconsequences: longer checkout lines, less help throughout the store, and
\ndisorganization. Last month, Walmart placed last among department and discount
\nstores in the American Customer Satisfaction Index, the sixth year in a row the
\ncompany has either tied or taken the last spot. The dwindling level of customer
\nservice comes as Walmart has touted its in-store experience to lure financially
\nstrained shoppers and to counter the threat from online rivals such as
\nAmazon.com (.businessweek.com\/research\/stocks\/snapshot\/snapshot.asp?ticker=AMZN”>AMZN).
\nThe retailer says reports of
\nstocking problems are overblown. \u00e2\u0080\u009cOur in-stock levels are up significantly in
\nthe last few years, so the premise of this story, which is based on the
\ncomments of a handful of people, is inaccurate and not representative of what
\nis happening in our stores across the country,\u00e2\u0080\u009d Brooke Buchanan, a Walmart
\nspokeswoman, said in an e-mailed statement. \u00e2\u0080\u009cTwo-thirds of Americans shop in
\nour stores each month because they know they can find the products they are
\nlooking for at low prices.\u00e2\u0080\u009d
\nAt a Feb. 1 gathering of Walmart
\nmanagers, U.S. Chief Executive Officer Bill Simon said Walmart was \u00e2\u0080\u009cgetting
\nworse\u00e2\u0080\u009d at stocking shelves, according to minutes of the meeting obtained by
\nBloomberg News. Simon said \u00e2\u0080\u009cself-inflicted wounds\u00e2\u0080\u009d were Walmart\u00e2\u0080\u0099s \u00e2\u0080\u009cbiggest
\nrisk\u00e2\u0080\u009d and that an executive vice president had been appointed to fix the
\nrestocking problem, according to the minutes.
\nThe stocking challenge coincides
\nwith slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending
\nApril 26 will be little changed, Simon said during a Feb. 21 earnings call for
\ninvestors. \u00e2\u0080\u009cWhen times were good and people were still shopping, the lack of
\nexcellence was OK,\u00e2\u0080\u009d says Zeynep Ton, a retail researcher and associate
\nprofessor of operations management at the MIT Sloan School of Management.
\n\u00e2\u0080\u009cTheir view has been that they have the lowest prices so customers keep coming
\nanyway.\u00e2\u0080\u009d Ton says Walmart shoppers are \u00e2\u0080\u009cmad about the way they were treated or
\nhow much time they wasted looking for items that aren\u00e2\u0080\u0099t there.\u00e2\u0080\u009d
\nRetailers consider labor\u00e2\u0080\u0094usually
\ntheir largest controllable expense\u00e2\u0080\u0094as an easy target for cost-cutting. That\u00e2\u0080\u0099s
\nwhat 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
\nboost profits by cutting staff and relying more on part-time workers.
\nEventually customer service and satisfaction deteriorated, and sales growth at
\nestablished stores fell. \u00e2\u0080\u009cWhen you tell retailers they have to invest in
\npeople, the typical response is, \u00e2\u0080\u0098It\u00e2\u0080\u0099s just too expensive,\u00e2\u0080\u0099\u00e2\u0080\u009d Ton says.
\n.jpg” alt=”Averages based on total u.s. employee and store count, including sam\u00e2\u0080\u0099s club and headquarters staff”>Averages
\nbased on total U.S. employee and store count, including Sam\u00e2\u0080\u0099s Club and
\nheadquarters staff
\nAdding five full-time employees to
\nWalmart\u00e2\u0080\u0099s U.S. supercenters and discount stores, for example, would cost the
\nretailer about $448 million a year, assuming those workers earned the federal
\nminimum wage and industry standards for health benefits, according to an
\nanalysis by Poonam Goyal, a Bloomberg Industries senior analyst. That would add
\nabout a half-percentage point to Walmart\u00e2\u0080\u0099s selling, general, and administrative
\nexpenses, which were about $88.9 billion last year.
\nAt the Kenosha (Wis.) Walmart where
\nMary Pat Tifft has worked for nearly a quarter-century, merchandise ready for
\nthe sales floor remains on pallets and in steel bins lining the floor of the
\nback room\u00e2\u0080\u0094an area so full that \u00e2\u0080\u009cno passable aisles\u00e2\u0080\u009d remain, she says. \u00e2\u0080\u009cThere\u00e2\u0080\u0099s
\nno manpower in the store to get the merchandise moving,\u00e2\u0080\u009d says Tifft, who
\noversees grocery deliveries and is a member of OUR Walmart, a union-backed
\ngroup seeking to improve working conditions at the chain. \u00e2\u0080\u009cCustomers come in,
\nthey can\u00e2\u0080\u0099t find what they\u00e2\u0080\u0099re looking for, and they\u00e2\u0080\u0099re leaving.\u00e2\u0080\u009d
\nAt the Walmart store in Erie, Pa.,
\n26-year-old meat and dairy stocker Anthony Falletta faces a similar
\npredicament. \u00e2\u0080\u009cThe merchandise is in the store; it just can\u00e2\u0080\u0099t make the jump from
\nthe shelf in the back to the one in the front. There\u00e2\u0080\u0099s not the people to do
\nit.\u00e2\u0080\u009d
\nWalmart is entangled in what Ton
\ncalls the \u00e2\u0080\u009cvicious cycle\u00e2\u0080\u009d of understaffing. Too few workers leads to
\noperational problems. Those problems lead to poor store sales, which lead to
\nlower labor budgets. The decision to hire more workers \u00e2\u0080\u009crequires a wake-up call
\nat a higher level,\u00e2\u0080\u009d Ton says.
\nRochelle Jackson, who works at the
\njewelry counter at a Walmart store in Springfield, Mo., says a supervisor
\nrecently told her the number of hours available to schedule employees is linked
\nto sales performance: The worse the sales number, the fewer hours available. \u00e2\u0080\u009cI
\nasked, \u00e2\u0080\u0098Why can\u00e2\u0080\u0099t we have enough hours to make the store work?\u00e2\u0080\u0099?\u00e2\u0080\u009d recalls
\nJackson, who has worked at two Walmart stores since 2009. \u00e2\u0080\u009cThey said, \u00e2\u0080\u0098It\u00e2\u0080\u0099s
\norders from home office.\u00e2\u0080\u0099?\u00e2\u0080\u009d
\nStaff shortages at cash registers
\nduring peak hours require Jackson and her co-workers on the sales floor to help
\ncheck shoppers out \u00e2\u0080\u009cwhile we are trying to restock the shelves, help customers,
\nand do other assigned project ( help with nursing paper writing from experts with MSN & DNP degrees)s,\u00e2\u0080\u009d she says. That leaves a service vacuum across
\nthe store\u00e2\u0080\u0099s departments. \u00e2\u0080\u009cCustomers come back to shoes for help to find
\nsomething in grocery because they can\u00e2\u0080\u0099t find someone in grocery,\u00e2\u0080\u009d Jackson says.
\nTim White, an attorney, recalled
\ntrying to buy wall paint at the Walmart near his home in Santee, Calif.: \u00e2\u0080\u009cYou
\nwait 20, 25 minutes for someone to help you, then the person was not trained on
\nmixing paint. It was like, you have to help them help you.\u00e2\u0080\u009d White says that
\nwhile long checkout lines irritated him, \u00e2\u0080\u009cthe No.?1 reason we gave up on
\nWalmart was its prolonged, horrible, maddening inability to keep items in
\nstock.\u00e2\u0080\u009d The White family\u00e2\u0080\u0099s visits to Walmart\u00e2\u0080\u0094which had been a several times a
\nweek occurrence several years ago\u00e2\u0080\u0094became less and less frequent until they
\nstopped in the past year. The eight-member clan now shops at Target and Costco
\nWholesale (.businessweek.com\/research\/stocks\/snapshot\/snapshot.asp?ticker=COST”>COST). \u00e2\u0080\u009cThings might be a little bit more expensive,\u00e2\u0080\u009d he says,
\n\u00e2\u0080\u009cbut not so much so that it would keep me away.\u00e2\u0080\u009d
\nThe bottom
\nline: Some
\nemployees say staff reductions have hurt Walmart\u00e2\u0080\u0099s ability to keep shelves
\nstocked at its more than 4,600 U.S. stores.<\/p>\n
Discussion Questions
\n1. Discuss the \u00e2\u0080\u009cvicious cycle\u00e2\u0080\u009d of understaffing that has
\nled to operational problems at Walmart in the retail industry.
\n2. From an operations management perspective, retailers
\nconsider labor (usually their largest controllable expense) as an easy target
\nfor cost-cutting. Discuss the effectiveness (or lack thereof) of this
\noperations strategy.
\n3. Walmart\u00e2\u0080\u0099s U.S. Chief Executive Officer Bill Simon stated
\nthat Walmart was \u00e2\u0080\u009cgetting worse\u00e2\u0080\u009d at stocking shelves, and its \u00e2\u0080\u009cself-inflicted
\nwounds\u00e2\u0080\u009d were Walmart\u00e2\u0080\u0099s \u00e2\u0080\u009cbiggest risk.\u00e2\u0080\u009d What would you suggest and why if you
\nwere appointed to fix the restocking problem?
\n4. Some employees say staff reductions have hurt Walmart\u00e2\u0080\u0099s
\nability to keep shelves stocked at its more than 4,600 U.S. stores. How should
\nthe operations management strategy be aligned with the strategic management
\nstrategy?<\/p>\n","protected":false},"excerpt":{"rendered":"
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