Walmart cancels billions in orders to align inventory with plummeting consumer demand

08/19/2022 / By Mary Villareal

Retail giant Walmart Inc. said on Tuesday, August 16, that it canceled billions of dollars in orders as part of a continued effort to align inventory levels with projected demand as well as reduce exposure to products that do not align with its budget-conscious consumers.

The company said its U.S. division reported a 26 percent increase in fiscal second-quarter 2023 inventory levels compared with the same period in fiscal 2022. This was a 750-basis-point improvement over a nightmarish fiscal 2023 first quarter when they got blindsided by the combination of rapidly rising costs and high-end inventory that consumers passed over to cope with the rapidly rising inflation.

Part of its move to move inventory was to cut prices on clothing and non-food items as food inflation has already affected its customers’ ability to spend on general merchandise.

The inventory markdowns also helped reduce storage costs associated with a backlog of shipping containers. (Related: More high-income Americans are shopping at discount stores due to unrelenting inflation.)

“The increasing levels of food and fuel inflation are affecting how customers spend, and while we’ve made good progress clearing hardline categories, apparel in Walmart U.S. is requiring more markdown dollars,” Doug McMillon, Walmart Inc. president and the chief executive officer, said back in July.

Company executives said the company has cleared out most of its summer seasonal inventory ahead of the back-to-school season, which has already begun in large parts of the South, as well as the upcoming holiday period. They also said the company is now making progress in right-sizing its inventories, but will need at least a couple more quarters to wring out the imbalances of its network.

“We feel much better about the back half of the year,” said John Furner, Walmart U.S. president and CEO. “We still have the inventory to work through and ingest from the backlogs, as we said. So we need a couple of quarters to do that.”

Furner also said that clearing out apparel excesses was “urgent” in the second quarter, given that some of these items are seasonal and will be less relevant for the third quarter.

Walmart reported fiscal second-quarter results that were more palatable than the first-quarter disaster. Adjusted earnings per share of $1.77 were well ahead of the $1.60-per-share consensus and the revenue of $152.9 billion was at an 8.4 percent year-over-year increase when adjusted for currency fluctuations. Their operating income of $6.9 billion was also 6.8 percent below the same period a year ago.

The company projected a five percent year-on-year increase in net sales for the third fiscal quarter, as well as an eight to 10 percent year-on-year decline in operating income and a nine to 11 percent drop in adjusted earnings per share.

Canceled orders prompted by lesser foot traffic, thanks to inflation

Walmart’s decision to cancel orders had been driven by diminished foot traffic in its stores, coinciding with record inflation.

According to a Reuters report, foot traffic in all U.S. Walmart locations – including 3,573 supercenters and 370 discount stores fell 2.7 percent on average from June 1 through July 25 versus a year earlier.

In contrast, foot traffic in its competitors rose as their convenient location made them an ideal stop for Americans looking to save on gas money.

German-owned discount grocer Aldi saw an 11.5 percent rise in foot traffic, while Dollar General saw a 4.1 percent increase in visits.

McMillon defended his company, saying that the big-box grocery chain was an “inflation-fighter” and a prime destination for shoppers during a recession.

The same Reuters report, however, begged to differ. It stated that Walmart’s share as the first choice from groceries dropped by almost two percent. From 27.4 percent in June 2022, it fell to just 25.5 percent in July.

Visit SupplyChainWarning.com for more stories about how inflation is affecting companies like Walmart.

Watch this Fox Business report for more information on the supply chain crisis in the United States.

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