Walmart faces inflation, overstock and overstaffing

  • Walmart has cut hundreds of corporate roles.
  • The company has repeatedly sounded the alarm about inflation and economic uncertainty.
  • Given Walmart’s influence and reach, its struggles could point to industry-wide struggles for retailers.

Walmart caused a stir on Monday by laying off around 200 company employees – a move that indicates the retail giant is pivoting to deal with falling profits and an uncertain economic climate.

But that wasn’t the first sign of recent trouble for Walmart. From inflation to overstocking to overhiring, the world’s largest employer has been hot on its heels throughout 2022 after riding nearly two years from a pandemic high.

“A cut of 200 positions is not meaningful in the context of a giant employer like Walmart,” John Zolidis, chairman of Quo Vadis Capital, told Insider. “However, the action does not send a feel-good message about the business. Nor does it suggest doubling down on the kind of additional investment needed to build capacity and drive growth.”

As the largest brick-and-mortar retailer in the United States, Walmart holds significant influence in the industry. It looks like the Arkansas-based retailer isn’t alone in its current struggles. Big-box competitor Target also said it would rely on steep discounts to shed excess inventory, loungewear, household goods and electronics. And convenience store chain 7-Eleven also recently cut at least 900 corporate jobs.

Here are three factors that have plagued Walmart throughout the year leading up to the company’s layoffs.

Inflation

Earlier in the pandemic, inflation proved to be a boon for big business. Rising prices across the country have pushed shoppers to favor discount and value-oriented retailers like Walmart.

Philip Melson, client partner at Fractal Analytics, told Insider in November 2021 that Walmart “appears to be confident that it has the scale to absorb inflation well enough not to pass on significant price increases to its customers.” .

But prices have continued to climb to such an extent that Walmart customers are cutting their budgets to the bone, focusing only on basic groceries. The need for grocery spending coupled with high gas prices has led Walmart customers to avoid spending on general merchandise at the retailer.

“Rising levels of food and fuel inflation are affecting how customers spend,” Walmart CEO Doug McMillon said in a statement in late July, as Walmart cut its profit forecast.

Overstock

Rising prices and supply chain issues have forced Walmart to carry far too many products that the company cannot sell quickly enough.

After the retail giant reported a 32% increase in inventory at the end of the last quarter, store workers told Insider horror stories from their back rooms – including a myriad of pallets making floors impassable, towering boxes that blocked access to nursing rooms and private bathrooms, and outdoor trailers crammed with overstock.

Behind the scenes, the Walmart business has been scrambling to manage this overstock, especially ahead of the holiday season. An internal memo to store managers in late July said Walmart was allowing stores to turn off their automatic inventory ordering systems to help mitigate excess inventory.

And when Walmart announced its change to its earnings forecast, the company ordered store managers to clean up inventory bloated by write-offs and markdowns.

Overstaffing

Other strategic decisions that benefited the retailer early in the pandemic also proved problematic in 2022.

Like its competitors, Walmart has embarked on a massive hiring drive to cover COVID-19-related staffing shortages at the end of 2021. During the company’s earnings call in May, McMillon announced that these ” weeks of overstaffing” hurt the chain’s bottom line.

“While the number of Omicron variant cases declined rapidly in the first half of the quarter, more of our associates who were on Covid leave returned to work faster than expected,” he said. “We hired more associates at the end of last year to replace people on leave, so we ended up with weeks of overstaffing. This issue was resolved during the quarter primarily through attrition.

In the general business world, several large corporations have flagged “overstaffing” as a problem and have made layoffs to correct the problem.

Are you a Walmart employee who has been terminated or do you know someone who has? Email acain@insider.com or btobin@insider.com or contact via the Signal +1 (703) 498-9171 encrypted messaging app.

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