Walmart Inc (WMT)

[big-yank]

Tom, you are right but don't seem to grasp the Walmart system. Controlling "outs" in Walmart parlance is at the top of the business plan strategic pecking order. However, keeping the empty slots empty is critical to getting them refilled. That is because Department Managers are required to scan the shelf tags with a Gemini handheld for every empty slot and zero out the inventory quantity so that a replenishment is automatically scheduled for the next delivery to that store. The holes are supposed to be scanned daily, but often get done more like once a week. The MOD is set, monthly, but Department Managers get a daily e-mail with changes to correct outages from vendor issues which are frequent since so much of the merchandise is sourced from overseas.

Other retailers like Target simply infill the empty retail slot with some other product. Four facings for Corn Flakes become eight facings to cover up the fact that Raisin Bran is on backorder or the computed inventory count is off because some boxes were damaged or stolen. That's great for shelf appeal, but the assortment gets trashed because the consumer does not have the choices that they expect. Walmart red-flags the out, and either refills it or replaces it with an alternate product instead of just prettying up the shelf with zero net gain to the sales line.

The Walmart system is actually very efficient.