NEW YORK — Wal-Mart is turning up the pressure to keep its shelves adequately stocked by proposing to tie executive compensation to the issue – and 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 Wal-Mart 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 Wal-Mart’s U.S. stores after previously conducting shelf audits without telling workers what items would be monitored.
The effort Wal-Mart 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.”
On May 16, Wal-Mart reported that same-store sales in the United States 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 had projected $1.29, the average of 24 estimates compiled by Bloomberg.
Wal-Mart submitted the compensation proposal to shareholders in April, to be voted on June 7 at the annual meeting. On-shelf availability would be one of several new metrics by which managers and executives could be judged.
Carol Schumacher, a Wal-Mart vice president of investor relations, said in an analysts’ call last week that on-shelf availability in the first quarter was in the 93 percent to 95 percent range.
“Management is focused on OSA to drive sales,” she said.
It’s not clear how Wal-Mart derived that figure – and that is where the story of the green dots comes in.
Wal-Mart audited its on-shelf availability in-house for years, spokesman David Tovar said. 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.
When Acosta began its Wal-Mart audits in 2011, it conducted them 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 being monitored, according to a copy of Acosta’s rules at the time. They compiled data collected from most of the more than 4,000 Wal-Mart stores in the United States.
Acosta was so committed to secrecy that when some 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.
Wal-Mart seemed pleased with the audits. On an earnings call in February 2012, Bill Simon, chief executive officer of U.S. operations, told investors that the company’s use of weekly “third-party physical audits” allowed executives to “see what customers see in their store.”
He said the company had “made great progress throughout the year” in improving on-shelf availability and was achieving rates in the mid-90 percent range.