NEW YORK (TheStreet) -- Walmart Stores (WMT) , after years of touting China as one of its best markets, in August said its performance there was among the worst in its major countries. A management shake-up and job cuts have followed, Bloomberg reports.
Although the reversals seem abrupt, cracks in the foundation of Walmart's retail business in China have been developing for years, hidden by questionable accounting and unauthorized sales practices, according to employees and internal documents reviewed by Bloomberg.
The practices, including bulk sales to other retailers and some sales allegedly booked when no merchandise left the shelves, made business appear strong even as retail transactions slowed and unsold inventory piled up, these people and documents say, Bloomberg notes.
Must Read: Warren Buffett's 25 Favorite Stocks
Stores in China continue to make bulk sales, sometimes unprofitably and without required management authorizations, according to employees who've left the company this past month. Concerns about bulk sales, raised as far back as 2011 in an internal report, have been the subject of inquiries in China by Walmart's legal team as recently as May, according to an internal company e-mail and an employee interviewed by lawyers, Bloomberg says.
The report and interviews with current and former employees say Chinese Walmart stores, under pressure to meet earnings targets, resorted to temporary markups of inventory as an accounting move that can burnish profits without any added sales of merchandise, according to Bloomberg.