Walmart's (WMT) Haunting Empty Shelf Problem Returns to Wreak Havoc on Sales - TheStreet

Beginning in 2013, reports began circulating that Walmart Stores Inc. (WMT) - Get Report was dealing with an out-of-stock issue at its stores nationwide.

At the time, Walmart attributed the problem to a reduction in employees as it worked to cut costs. Fast forward to 2017, and the issue appears to be resurfacing.

"While Walmart is certainly far from alone in seeing an increase in store execution challenges as finding and keeping qualified labor has become an issue in many markets, we do believe Walmart's U.S. business is feeling the impact of self-imposed strains," Wolfe Research analysts Scott Mushkin and Michael Otway wrote in a note on Tuesday, July 11.

In June, Mushkin and Otway first observed a reduction in Walmart's staff at certain of its Houston locations. The analysts noticed there, too, that Walmart's shelves in its fresh food departments were poorly stocked.

Now, Mushkin and Otway said they are starting to see stocking issues spread "around the country" and in other departments such as in general merchandise and health and beauty care.

"As Walmart tries to thread the needle of growing sales to help leverage its cost structure while also investing in the business and not see too much erosion in earnings, we can't help but remember just a short time ago where efforts to too tightly control costs (as profits were needed to fund other endeavors i.e. e-commerce) resulted in out-of-stock challenges," Mushkin and Otway said.

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Walmart has been particularly focused on expanding its e-commerce business after acquiring for $3.3 billion last August. Recent initiatives include using its employees to deliver packages to customer's homes, offering a discount to customers who order online but pickup in store and launching a free, two-day home shipping service.

For its part, Walmart has developed better technology for its employees and initiated several programs since 2013 to ensure its shelves are properly stocked. One example of that is "top stock," through which Walmart started placing bins on the top of each shelf with extra items so employees can quickly restock from them instead of making runs to back storage areas.

Wolfe warned that Walmart's out-of-stock issue needs to be "addressed and reversed" soon or sales will begin to be negatively impacted.

Walmart's shares rose 1.4% to $74.00 early Thursday afternoon.

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