Wal-Mart Stores decision to cut orders it places with suppliers this quarter and next quarter illustrates the need for businesses to have proper trade credit insurance.
In an email to a supplier dated September 17, the ordering manager at the company’s Bentonville, Ark. Headquarters said “We are looking at reducing inventory for Q3 and Q4.” The email reflects the company’s move to address rising inventories that were flagged in last month’s earnings report.
It is a move that was anticipated by Michael Hartsman, the manager of Trade Credit at Firstbrook, Cassie & Anderson Insurance, who pointed to Walmart as a company that clients cite the most when asking about credit insurance in an exclusive interview in the October issue of Insurance Business magazine.
“Walmart is still one of the most asked about companies for insurance,” Hartsman told Insurance Business magazine. “Banks want the insurance on Walmart. For a lot of clients, 60 per cent of their business is Walmart.”
U.S. inventory growth at Walmart have outstripped sales gains in the second quarter at a faster rate than at the retailer’s biggest rivals, as consumers have been spending less freely than Walmart projected. (continued.)
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Making matters worse, the company has forfeited some sales because it doesn’t have enough workers in stores to keep shelves adequately stocked.
U.S. chains are already bracing for a tough holiday season, when sales are projected to rise 2.4 per cent, the smallest gain since 2009, according to ShopperTrak, a Chicago-based firm. Walmart has cut its annual profit forecast after same-store sales fell 0.3 per cent in the second quarter.
Wal-Mart Stores announced that it would be adding 35,000 permanent workers and increasing the hours of an additional 35,000, as well as hiring 55,000 seasonal workers.
Wal-Mart Stores’ order pullback is affecting suppliers in various categories, including general merchandise and apparel, said the supplier, who has worked with Walmart for almost two decades and asked not to be named to protect his relationship with the company. He said he couldn’t recall the retailer ever planning ordering reductions two quarters in advance.
In a telephone interview with Bloomberg News, David Tovar, a Wal-Mart Stores spokesman, said the order pullback isn’t “across the board” and is happening “category by category.”
“In some cases, we’re going to be taking less, in some we’re going to be taking more,” he said.
Hartsman points out that credit insurance is de rigueur for companies that sell to the retail sector.
“Every single industry pretty much credit insures,” says Hartsman. “Every industry qualifies. Manufacturing is big, the computer industry, and companies that sell into retail are big.”
