By Nandan Mandayam and Siddharth Kaiwale
BENGALURU/NEW YORK, Sept 14 (Reuters) – With 10 weeks left before the start of the crucial holiday shopping season, retail executives are busy weighing how much to meet demand from financially strapped shoppers. And what merchandise to stock.
Walmart’s merchandise mix will depend not entirely on the decisions of retail executives but on software it developed around 2019. Its machine-learning algorithm relies on weather patterns and each store’s past sales data to predict the inventory needs of more than 4,700 U.S. locations. a Walmart technology executive told Reuters.
This software is just one example of new ways retailers are keeping their inventory under control. Excess stock hurt the profits of Walmart, Target, Kohl’s, Macy’s and Gap last year.
Holiday sales in the United States are projected to grow at the slowest pace in five years. Shoppers will face higher interest rates and student loan payments will resume Oct. 1, making retailers’ bets on inventory “very important,” said DA Davidson analyst Michael Baker.
Just a year ago, as inflation soared and supply chain disruptions eased, Walmart had more than $60 billion of inventory, far more than shoppers could demand. This led to a 25% decline in quarterly profits as it offered deep discounts on clothing and general merchandise, reducing its profit margins.
Walmart CEO Doug McMillon said at an investor conference Tuesday that the Bentonville, Arkansas-based retailer’s use of algorithms to forecast demand and its use of robotics helped it “make the adjustments that we needed to make when things “Changed dramatically last year.” ,
Stockpiles are now “in good shape,” he said, and “I think the holiday (season) is going to be very good.”
Overall, Walmart’s goal is to manage its stores so that its operating profits grow at a faster rate than its sales, its executives said.
Of course, rival Amazon has long led in e-commerce technology, said Thomas Hayes, chairman of New York-based equity manager Great Hill Capital, which owns shares of Amazon but not shares of Walmart. For example, Amazon is projected to capture nearly a third of the $1.1 trillion in online purchases in 2022, compared with Walmart’s 6%, according to data research firm Euromonitor.
Walmart officials say it gets help from its large technology team in India, which is spread across three cities and employs 11,500 people. Its Bengaluru office, its largest technology centre, employs 8,000 staff, compared to about 4,000 at US rival Target and 4,300 at Lowe’s in the same city.
Walmart’s Indian team led the development of the software program to solve some of its most challenging U.S. problems, Executive Vice President of Technology Hari Vasudev told Reuters in an interview. This includes excess inventory, which is expensive, and issues with curbside pickup and delivery orders.
The software instructs Walmart employees to use the fastest route when assembling online orders for pickup and delivery, Vasudev said. He said employees in its U.S. stores select items from close-by locations, allowing them to deliver orders in less than two minutes on average.
Compound annual growth of online pickup and delivery orders was 50% over the past three years and has been the largest component of Walmart’s e-commerce growth, the retailer’s chief financial officer said in August.
Vasudev said that the more data fed into its algorithm, the more accurate the predictions will be.
David Klink, senior equity analyst at Hunting Private Bank, said accurate inventory management can lead to higher capital returns for investors. Huntington owns approximately $80 million worth of Walmart shares. (Reporting by Nandan Mandayam in Bengaluru and Siddharth Kavale in New York; Editing by Mark Porter)