By Walmart Inc., like many other retailers, is currently facing the challenge of inventory “shrinkage.” However, CEO Doug McMillon emphasizes that Walmart’s situation differs from that of other major retailers.
As McMillon mentioned during a recent conference call to discuss the company’s second-quarter results, Walmart operates in 19 different countries and also has its subsidiary, Sam’s Club. This breadth of business operations necessitates a unique approach to addressing inventory shrink.
While there are various possible causes for inventory shrinkage, such as damaged items, both theft and organized retail crime have emerged as significant factors, according to industry leaders like Target Corp and Home Depot Inc. Target’s CEO, Brian Cornell, recently expressed concern over the “unacceptable amount” of retail theft and organized retail crime his company is encountering.
In response to this issue, the U.S. government has passed the Integrity, Notification, and Fairness in Online Retail Marketplaces for Consumers Act. This legislation, which became effective on June 27, aims to enhance transparency in online transactions and deter criminals from selling stolen, counterfeit, or unsafe items through online marketplaces. The INFORM Consumers Act mandates that e-commerce sites verify and disclose information about their high-volume third-party sellers.
Walmart remains committed to finding innovative solutions to inventory shrinkage, drawing upon its global presence and diverse business ventures to tackle this challenge effectively in the ever-evolving retail landscape.
Increase in Retail Industry Shrink: Walmart’s Perspective
According to the National Retail Federation (NRF), the retail industry experienced a significant increase in shrink in 2021, amounting to $94.5 billion, compared to $90.8 billion in the previous year. This surge can be largely attributed to external theft, including organized retail crime. The NRF’s National Retail Security Survey, conducted in collaboration with the Loss Prevention Research Council, revealed that retailers observed a 26.5% rise in organized retail crime incidents last year. Moreover, 80% of surveyed retailers reported an increase in violence and aggression associated with these incidents.
Walmart, one of the largest retail corporations, has also addressed the issue of retail theft. During a recent call, Walmart’s CEO, Doug McMillon, expressed his concern and emphasized the need for action to protect people from such crimes, including theft. However, he acknowledged that shrink is not solely attributed to theft but consists of various contributing factors.
The company’s Chief Financial Officer (CFO), John David Rainey, acknowledged a slight increase in shrink this year and noted that it had also risen in the previous year. He pointed out that shrink is not evenly distributed across all markets and varies geographically. Rainey highlighted supply-chain costs and markdowns from the previous year as additional factors influencing inventory shrink. Despite these challenges, Rainey reaffirmed their commitment to closely monitor the situation to prevent further increases in shrink. Price rises due to shrinkage could potentially impact the market.
As a result of these developments, Walmart’s stock experienced a decline of 1.9% on Thursday, surpassing the 0.1% decline of the S&P 500 index.
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