Understaffing and in-stock problems lead to Walmart downgrade

The breakdown of Walmart’s “productivity loop” is catching up to the company again, as equities research firm Wolfe Research cited the effect of persistent understaffing among three reasons behind its downgrade of Walmart from “market perform” to “underperform” in a research report this week.

ThinkProgress reports:

While cutting fixed costs, like the number of employees, as an attempt to get more from less can work for some businesses, the researchers note that this isn’t having a good impact for the company. “Walmart U.S.’s relentless focus on costs does seem to have taken some toll on in-store conditions and stock levels,” the note says in regards to understaffing. “[O]ur store visits over the last six months show a repeating pattern of stocking issues in many departments in the store.” When products aren’t on the shelves, that means Walmart can’t sell them, depressing overall sales. And if the shelves are empty and the lines are long, there may not be a reason for consumers to frequent the stores.

Recall that Walmart was supposed to have fixed this problem last fall, when it announced that it would add staff at its stores in an effort to improve in-stocks and customer service. COO Gisel Ruiz even asserted in October that Walmart was “serious about in-stock” and “making progress” on inventory issues. But reports from the holiday season about sloppy, disorganized stores with empty shelves, plus more recent reports of the same, indicate that Walmart’s staffing measures were either completely insufficient or just an PR stunt intended to assuage investor, media, and employee concerns about staffing and the conditions of the stores.

A Walmart store in Illinois turned a garden center into a disorganized clothing clearance rack. Photo by Belus Capital.

A Walmart store in Illinois turned a garden center into a disorganized clothing clearance rack. Photo by Belus Capital.

Wolfe Research also downgraded Walmart because of costs related to the mounting pressure from Walmart associates who are calling for the company to publicly commit to better wages and benefits, including legal costs connected to the National Labor Relations Board’s largest-ever complaint against the company. In addition, Walmart is losing its price advantage over competitors—including high-road competitors who offer better wages and benefits to employees.

All of this helps explain Walmart’s earnings reports haven’t been so hot in recent quarters, and why the outlook for the Feb. 20 Q4 earnings report is gloomy. The company’s traditional approach clearly isn’t working any more—when will Walmart leaders decide to make a real change?

 

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