The business of big - mini-supercenters - Wal-Mart - Company Profile

DSN Retailing Today, Jan 26, 2004 by Mike Troy

If all the negativity had an effect of the company, it certainly didn't show. Wal-Mart forged ahead with its urban center, expansion plans for its international division and Sam's Clubs and a host of other initiatives intended to improve operations, many of them centered on supply chain issues. As Scott noted a few weeks after the analysts meeting before a gathering of 500 suppliers at the University of Arkansas, he is "absolutely embarrassed" about the stores' in-stock position and lack of inventory turns.

Wal-Mart turns its merchandise nearly seven times a year, but if high-velocity categories such as paper products are backed out of the equation, inventory only turns about four times annually.

"The average piece of merchandise is in the store four months before it sells," Scott said. "With billions of dollars invested in technology and physical distribution centers from [suppliers] and from us, we are no better than that."

He contends Wal-Mart has not even started on the use of infrastructure to change how it does business.

"Wal-Mart will be one of the first retailers to reap the benefits of [radio frequency identification technology] due in large part to the company being the driving force behind its implementation and having a say in product specification early in the development process," said Dana Telsey, Bear Stearns.

The data storage capabilities of Wal-Mart's information system is approaching 300 terabytes of data and is capable of storing two year's worth of transaction data. In addition, cio Linda Dillman said as Wal-Mart's data storage capacity expands, a priority for the information systems group is simplification of the Retail Link system suppliers use to access product movement and inventory information.

Meanwhile, evp of distribution and supply chain Rollin Ford said the logistics group is experimenting with converting Wal-Mart's network of distribution centers to a velocity-based rather than category-based system. Such a change would theoretically improve store in-stock since faster-turning products would be shipped to stores on the same truck.

Wal-Mart has the ability to influence operations and in-stock and subsequently sales and profits by pulling on a variety of levers, but the biggest of these is pricing. As the undisputed pricing leader in study after study, pricing could be one area Wal-Mart turns to in the future to influence profits.

Wal-Mart's stock has been in the doldrums for several years and recently the spread between its sales and profit growth rates has narrowed to the point where net income for the third quarter increased 13.9% on sales growth of 13.1%. The implication is Wal-Mart has not been leveraging its sales growth in the form of higher profits because it has been giving away efficiencies gained in sourcing. Some analysts believe the company will be less aggressive with lowering prices this year, choosing to pass on to consumers a smaller percentage of reduced sourcing costs obtained by its fledgling global procurement group.