Customers Flee Wal-Mart Empty Shelves for Target, Costco

By Renee Dudley | Bloomberg – Tue, Mar 26, 2013

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  Reuters - People walk past a Wal-Mart sign in Rogers, Arkansas June 4, 2009. REUTERS/Jessica Rinaldi                  http://finance.yahoo.com/news/customers-flee-wal-mart-empty-134747752.html

Margaret Hancock has long considered the local Wal-Mart Stores Inc. (WMT) superstore her one- stop shopping destination. No longer.
During recent visits, the retired accountant from Newark, Delaware, says she failed to find more than a dozen basic items, including certain types of face cream, cold medicine, bandages, mouthwash, hangers, lamps and fabrics.
The cosmetics section "looked like someone raided it," said Hancock, 63.

Wal-Mart's loss was a gain for Kohl's Corp. (KSS), Safeway Inc. (SWY), Target Corp. (TGT) and Walgreen Co. (WAG) -- the chains Hancock hit for the items she couldn't find at Wal-Mart.

"If it's not on the shelf, I can't buy it," she said. "You hate to see a company self-destruct, but there are other places to go."
It's not as though the merchandise isn't there. It's piling up in aisles and in the back of stores because Wal-Mart doesn't have enough bodies to restock the shelves, according to interviews with store workers. In the past five years, the world's largest retailer added 455 U.S. Wal-Mart stores, a 13 percent increase, according to filings and the company's website. In the same period, its total U.S. workforce, which includes Sam's Club employees, dropped by about 20,000, or 1.4 percent. Wal-Mart employs about 1.4 million U.S. workers.
Disorganized Stores
A thinly spread workforce has other consequences: Longer check-out lines, less help with electronics and jewelry and more disorganized stores, according to Hancock, other shoppers and store workers. Last month, Wal-Mart placed last among department and discount stores in the American Customer Satisfaction Index, the sixth year in a row the company had either tied or taken the last spot. The dwindling level of customer service comes as Wal-Mart has touted its in-store experience to lure shoppers and counter rival Amazon.com Inc.
Wal-Mart traded at a 1.4 percent discount to Target last week on a price-to-earnings basis after averaging a 5.9 percent premium to its smaller rival in the past two years. Wal-Mart traded as high as a 22 percent premium to Target in January 2012. Wal-Mart rose 0.3 percent to $75.05 at 9:45 a.m. in New York.
"Our in stock levels are up significantly in the last few years, so the premise of this story, which is based on the comments of a handful of people, is inaccurate and not representative of what is happening in our stores across the country," Brooke Buchanan, a Wal-Mart spokeswoman, said in an e-mailed statement. "Two-thirds of Americans shop in our stores each month because they know they can find the products they are looking for at low prices."

‘Getting Worse'
Last month, Bloomberg News reported that Wal-Mart was "getting worse" at stocking shelves, according to minutes of an officers' meeting. An executive vice president had been appointed to work on the restocking issue, according to the document.
At the supercenter across the street from Wal-Mart's Bentonville, Arkansas, home office, salespeople on March 14 handed out samples of Chobani yogurt and Clif Bars. Thirteen of 20 registers were manned -- with no lines -- and the shelves were fully stocked.
Three days earlier, about 10 people waited in a customer service line at a Wal-Mart in Secaucus, New Jersey, across the Hudson River from New York, the nation's largest city. Twelve of 30 registers were open and the lines were about five deep. There were empty spaces on shelves large enough for a grown man to lie down, and a woman wandered around vainly seeking a frying pan.
Wal-Mart's restocking challenge coincides with slowing sales growth. Same-store sales in the U.S. for the 13 weeks ending April 26 will be little changed, Bill Simon, the company's U.S. chief executive officer, said in a Feb. 21 earnings call.

Target Premium
"When times were good and people were still shopping, the lack of excellence was OK," said Zeynep Ton, a retail researcher and associate professor of operations management at the MIT Sloan School of Management in Cambridge, Massachusetts. "Their view has been that they have the lowest prices so customers keep coming anyway. You don't see that so much anymore."
Shoppers are "so sick of this," said Ton, whose research, published in Harvard Business Review, examines how retailers benefit from offering good wages and benefits to all employees. "They're mad about the way they were treated or how much time they wasted looking for items that aren't there."
Retailers consider labor -- usually their largest controllable expense -- an easy cost-cutting target, Ton said. That's what happened at Home Depot Inc. (HD) in the early 2000s, when Robert Nardelli, then chief executive officer, cut staffing levels and increased the percentage of part-time workers to trim expenses and boost profit. Eventually, customer service and customer satisfaction deteriorated and same-store sales growth dropped, Ton said.

‘Too Expensive'
"When you tell retailers they have to invest in people, the typical response is: ‘It's just too expensive,'" Ton said.
Adding five full-time employees to Wal-Mart's U.S. supercenters and discount stores would add about a half- percentage point to selling, general and administrative expenses, according to an analysis by Poonam Goyal, a Bloomberg Industries senior analyst based in Skillman, New Jersey. Assuming the workers earned the federal minimum wage and industry standards for health benefits, the added costs would amount to about $448 million a year, she said. In the year ended Jan. 31, Wal-Mart generated $17 billion in profit on revenue of $469.2 billion.

Barren Landscape
At the Kenosha, Wisconsin, Wal-Mart where Mary Pat Tifft has worked for nearly a quarter-century, merchandise ready for the sales floor remains on pallets and in steel bins lining the floor of the back room -- an area so full that "no passable aisles" remain, she said. Meanwhile, the front of the store is increasingly barren, Tifft said. That landscape has worsened over the past several years as workers who leave aren't replaced, she said.
"There's a lot of voids out there, a lot of voids," said Tifft, 58, who oversees grocery deliveries and is a member of OUR Walmart, a union-backed group seeking to improve working conditions at the discount chain. "Customers come in, they can't find what they're looking for, and they're leaving."
Years ago, supervisors drilled a message into employees' heads: "In the door and to the floor," Tifft said. That mantra now seems impossible to execute.

‘No Manpower'
"There's no manpower in the store to get the merchandise moving," she said.
At the Wal-Mart store in Erie, Pennsylvania, 26-year-old meat and dairy stocker Anthony Falletta faces a similar predicament.
"The merchandise is in the store, it just can't make the jump from the shelf in the back to the one in the front," said Falletta, who works the second shift. "There's not the people to do it."
In both stores, departments have merged, leaving some areas with limited or no staff coverage, they said, and workers rarely have time to finish all their tasks by the end of the day. In the morning, employees scramble to set out new merchandise, put returns back on shelves and handle customer inquires, they said.
"There is definitely some links broken in the chain, and I don't know how long they're going to go on like this," Tifft said.

Vicious Cycle
Wal-Mart is entangled in what Ton calls the "vicious cycle" of under-staffing. Too few workers leads to operational problems. Those problems lead to poor store sales, which lead to lower labor budgets.
"It requires a wake-UNNp call at a higher level," she said of the decision to hire more workers.
Falletta, the meat and dairy stocker in Erie, said his weekly hours are unpredictable. He would like to work a full 40 hours and sometimes gets only 25. Falletta and others interviewed for this story said management bonuses are based partly on minimizing store payroll.
According to Rochelle Jackson, who works at the jewelry counter at a store in Springfield, Missouri, a supervisor recently explained the number of hours available to schedule employees corresponds to sales performance: The worse the sales number, the fewer hours available.
"We're not getting as many sales because there's simply no one to help the customers throughout the stores," said Jackson, 24, who has worked at two Wal-Mart stores since 2009. "I asked, ‘Why can't we have enough hours to make the store work?' They said, ‘It's orders from Home Office,'" she said.

Cutting Hours
Jackson said her store began cutting hours a year ago, adding that "it hasn't been really bad until this year."
Staff shortages at cash registers during peak hours require Jackson and her co-workers on the sales floor to check shoppers out "while we are trying to restock the shelves, help customers and do other assigned projects," she said. The so-called Code 7 to the registers leaves a vacuum across the store's departments, she said.
Customers looking for groceries ask salespeople in the shoe department for help because they can't find what they're looking for, Jackson said.
In the fall, Tim White, a 36-year-old attorney, tried to buy wall paint at the Wal-Mart near his home in Santee, California.
"You wait 20, 25 minutes for someone to help you, then the person was not trained on mixing paint," White said. "It was like, you have to help them help you."

‘Maddening Inability'
White, who has six children, said while long checkout lines irritated him, "the number-one reason we gave up on Wal-Mart was its prolonged, horrible, maddening inability to keep items in stock."
The store would go weeks without products he wanted to buy, such as men's dress shirts, which he found only in very large or small sizes and unpopular colors, he said.
"Pretty soon, they were even out of those," White said. "I would literally check every so often at different Wal-Marts. They would go two or three months with the shelves looking exactly the same."
When Wal-Mart was out of stock of his preferred types of shaving lotion or razors, White would "drive next door to Target where they had it in stock all the time," he said.
The White family's visits to Wal-Mart -- which had been a several times a week occurrence -- became less and less frequent until they stopped this year. The eight-member clan now shops at Target and Costco Wholesale Corp (COST).
"Things might be a little bit more expensive, but not so much so that it would keep me away," he said.

Costco Productivity
Ton's research has centered on retailers that include discount club Costco, whose chief executive officer, Craig Jelinek, offered his support publicly earlier this month for legislation to raise the federal minimum wage.
Costco, which offers a starting hourly wage of $11.50 in all states and employee schedules that are generally predictable, has higher worker productivity and a lower rate of turnover than its competitors, Ton found.
Hancock, the retired CPA in Delaware, said she hasn't abandoned Wal-Mart altogether because she likes the low prices on the items she can find in stock. White, the shopper in California, said those low prices were crucial to his family as he started out his career.
"When I was in law school, it really helped us out," White said.
Wal-Mart shoppers for more than a decade, White's family continued to shop there even once he started earning more money.
"I was pro-Wal-Mart even when our friends rolled their eyes," he said. "I don't defend them anymore."
He added a caveat: "They could get us back if they fixed these problems."
To contact the reporter on this story: Renee Dudley in New York at rdudley6@bloomberg.net
To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net