Those shelves won’t stock themselves

Another day, another Wal-Mart story. This one is from Businessweek and deals with troubles Wal-Mart is reportedly having getting goods on the shelves (Walmart Faces the Cost of Cost-Cutting: Empty Shelves, Mar 28).

Wal-Mart Stores (WMT) has been cutting staff since the recession—and pallets of merchandise are piling up in its stockrooms as shelves go unfilled. In the past five years the world’s largest retailer added 455 U.S. Walmart stores, a 13 percent increase, according to company filings in late January. In the same period its total U.S. workforce, which includes employees at its Sam’s Club warehouse stores, dropped by about 20,000, or 1.4 percent. …

At a Feb. 1 gathering of Walmart managers, U.S. Chief Executive Officer Bill Simon said Walmart was “getting worse” at stocking shelves, according to minutes of the meeting obtained by Bloomberg News. Simon said “self-inflicted wounds” were Walmart’s “biggest risk” and that an executive vice president had been appointed to fix the restocking problem, according to the minutes.

Note that this is not a supply chain issue. Rather it is a store operations problem. The goods are getting to the stores; they are just not getting out to the shelves.

At the Kenosha (Wis.) Walmart where Mary Pat Tifft has worked for nearly a quarter-century, merchandise ready for the sales floor remains on pallets and in steel bins lining the floor of the back room—an area so full that “no passable aisles” remain, she says. “There’s no manpower in the store to get the merchandise moving,” says Tifft, who oversees grocery deliveries and is a member of OUR Walmart, a union-backed group seeking to improve working conditions at the chain. “Customers come in, they can’t find what they’re looking for, and they’re leaving.”

There are a couple of interesting issues here. First, there is the question of how a sophisticated operator like Wal-Mart gets into such a predicament. Our colleague Zeynep Ton gets quoted in the article and has written quite a bit on store operations and particular about store staffing. (Check out her HBR article Why “Good Jobs” Are Good for Retailers.) Her argument goes that stores try to reduce staffing costs because, like Willie Sutton, they look for where the money is. Labor is usually the largest controllable expense a retailer has. However, retailers can underestimate the positive benefits that employees have. That is, they are prone to reducing staffing to the  point that the costs due to lost sales or customer dissatisfaction exceed what is being saved in staffing costs. Typical staffing systems feed into the problem. If a store’s labor budget is tied to its sales volume, a vicious cycle ensues. Labor cuts lead to a drop in sales which leads to further labor cuts. So put another way, Wal-Mart may be treading the same path that many other firms have followed.

So are there any solutions? One may be to rethink how some of the more mundane activities are carried out. In-store retail operations can be broken down between customer-focused service activities such as checking out customers or helping them find an item and task-oriented work such as restocking shelves that does not directly involve customers. While the focus is often on the former, the latter is also important; consistently failing at the mundane tasks will undermine the customer-facing work. It may be possible to re-think how these mundane tasks get done. Office Depot claims to have saved 80 hours per week in labor by carefully studying how workers stock shelves and such.

Now it may be that Wal-Mart has already optimized what can be optimized. One should also acknowledge that they face challenges that other more focused retailers do not (e.g., Office Depot does not typically stock perishable produce or operate 24 hour stores). Then it may really be a question of needing more staff, which gets to be an expensive proposition.