story by Kim Souza
ksouza@thecitywire.com
Greg Foran has had an “unvarnished” view of store operations at Walmart U.S., and he said restoring balance between inventory and sales is needed to improve lackluster margins. He admitted that such balance will take a lot of work, and it won’t be easy.
Foran is just 100 days into his job as the new Walmart U.S. CEO. The New Zealander and retail veteran replaced Bill Simon with an edict from Wal-Mart Stores CEO Doug McMillon to grow top line sales at Walmart U.S.
Foran has spent most of the last three months in the stores surveying the army of 1.2 million employees on their ideas for how the laggard segment can improve store performance, grow top line sales while staying focused on the changing needs of consumers.
Walmart U.S. has reported flat to negative same-store sales for the past several quarters. Foran said the problem can be fixed by better store operations as well as home office and logistics dialing into the details which is the heart and secret sauce for retail. He said past cuts did more harm than good.
‘A LOT OF WORK TO DO’
“We have cut muscle instead of fat. I have gotten some 3,000 emails around 260 a day from my teams in the field. I can sense new energy because they have a voice they want to share and I have learned tons,” Foran said. “It’s been an unvarnished appraisal, a diagnostic review of our business from Springfield to Dallas, Atlanta to Grand Rapids and Detroit this past Sunday.”
An operator at heart, Foran said began his career in retail at age 15 as a night stocker and managed his first store by 19.
“Retail is detail. ... We’ve got a lot of work to do, one store at a time,” he added.
One of the first moves by Foran was setting the meeting cadence which is he said critical in retail. He said it goes back to the days of Sam Walton, with operational management meetings on Friday to make sure they are ready to maximize sales on Saturday and Sunday which will be reviewed on Monday.
“It reminds us each week about the urgency of every weekend. Sales have got to come up and traffic must also improve,” Foran said.
THE INVENTORY PROBLEM
In the first half of this year net sales were up 2.3% or $3.2 billion, but operating income fell 3.3% He said the focus has been on improving store standards and service offerings. An area he intends to analyze is the 5% increase in inventory levels.
“Inventory has been growing at twice the rate of sales. ... In some cases stores may only have room for 80 items and we are sending them 120. More stock is coming in than what is going out. We are over-SKU’d in some cases,” Foran said. “Simplifying the inventory management process actions were started this year but it has continued to grow. I have a cross-functional team working on it.”
A backroom manager in mid-Tennessee told The City Wire in June that his store was continually over-shipped on every thing from fishing poles to school supplies. He said the problem was growing worse in each of the past three years and negatively impacting that store’s profitability. Foran said Wednesday that these are the kinds of issues he has witnessed in his 100-day cross country store tour.
‘FRESH’ CLUTTER
Duncan Mac Naughton, chief merchandising officer for Walmart U.S., said possible port issues on the West Coast caused retailers to order earlier and store longer, which is requiring additional containers. He said new stores are responsible for about half of the overall increase. Foran believes inventory can be managed better. He said there is not enough enough discipline involved in accurately counting the inventory.
“There are opportunities upstream and downstream – it takes time, it’s not easy
but we do know how to do it,” Foran said.
Veteran store management has responded to Foran’s call for advice and he has put together about 40 tasks including work in competitive pricing, more private label offerings, and returning store labor where it’s needed and trimming areas where it’s not.
“We can do more. On my tour it looks like we might be getting somewhat cluttered in ‘fresh.’ There is great opportunity here, but the last thing a shopper wants to do is trip over two pallets of Coca Cola or a display of Halloween candy in order to get to the fresh apples. We have done a pretty good job with fruit, but we need to work on our vegetables. ... I think we may be carrying one, two or three days too much product in produce,” Foran said.
He said competencies in “fresh” take time to develop, something he intends to do along with better meat and deli offerings. Wal-Mart said its most loyal customer only spends 40% of their fresh grocery budget there each week, and that’s an opportunity store officials are exploring.
Mac Naughton said the retailer is resurrecting the “Would I buy it” training program around selecting fresh produce. They are also working with suppliers to get fresher products with longer shelf lives in the stores at competitive prices with a “Guaranteed by me” label.
“We have to do a better job with customer service which is why we are adding 60,000 seasonal workers this holiday,” said Gisel Ruiz, chief operating officer for Walmart U.S.
She said in-stock issues continue to be high on the list for the retailer. She said in recent months, 20 million man hours have been repurposed to stock products after the company simplified the procedures this spring.
‘GOLDEN NUGGETS’
Foran acknowledged that prior efforts had barely moved the needle in reducing in-stocks across the company. He said in-stock issues, mark downs, inventory damages, outlier stores and merchandise returns were all weighing on margins.
When asked how he will reverse the trend, Foran said the answer lies in lots of little things done better in stores all across the nation. He said his tour across the country also unveiled several “golden nuggets” within the business, namely in the expertise he intends to tap out in the trenches.
“I don’t underestimate for one moment that army that is Walmart. We must get them to march in sync,” Foran said. “The supercenter, well managed and well run, is a great growth driver.”
Ruiz said about half of the 500 discount stores evaluated over the past year have plans for updates or expansions.
Wal-Mart also talked about the upcoming holiday season but deferred any sales guidance until the November earnings call. That said, the retailer did update its overall fiscal 2015 sales guidance by trimming the expected gains to between 2% and 3% from the 3% to 5% forecast in October 2013.
Topline revenue is forecast to grow between 2.5% and 3.5% this year and next from the $483 billion recorded last year. Operating income is expected to remain flat at $28 billion through next year. Walmart U.S. is roughly 58% of the total sales for the global retailer. Last year those sales totaled $279 billion, with a 3% gain estimated this year.