Inflation "eats up" profits! But Walmart's problems don't end there!

Walmart has recently confirmed that it has begun laying off employees, according to foreign media reports. In a statement, the retail giant described layoffs as a way to "better position the company for a strong future."

In recent weeks, there have been more and more news about layoffs from US retail giants. Previously, Target and 7-Eleven also announced layoffs. So why did Walmart lay off employees? What challenges is the retail giant facing?

1. Inflation

Data showed that the U.S. inflation rate rose 9.1% year-on-year in June, higher than market expectations and breaking the record in nearly 40 years. Rising prices have increased the cost of living pressure for Americans, and consumers have begun to look for retailers that can offer discounts and offers.

The continuous rise in prices has led to a decrease in the purchasing budget of Walmart buyers and a change in their consumption behavior, that is, focusing on the grocery category and avoiding spending on other categories.

Walmart CEO Doug McMillon said in a statement: "Soaring prices for products such as food and fuel are changing people's consumption habits. We expect to face greater pressure in the second half of the year." At the same time, Walmart also lowered its operating profit expectations for the second quarter and fiscal 2023.

2. Inventory backlog

As consumers stopped flocking to buy clothing, home goods, appliances and kitchenware, Walmart's inventory surged. In May, the company reported a 32% increase in first-quarter inventory, with total inventory valued at more than $60 billion at the end of the quarter.

Previously, American media reported on the situation in Walmart warehouses: goods piled up in the warehouses, making it impossible for workers to walk normally; huge boxes blocked the access to private nursing rooms and bathrooms, and outdoor trailers were filled with excess inventory.

It is learned that Walmart is currently taking a series of measures to digest excess inventory, including announcing a significant price reduction for clothing products and allowing stores to shut down their automatic inventory ordering (ISA) system.

3. Overstocking

Like other retailers, Walmart has also carried out large-scale hiring in 2021 to make up for staff shortages caused by the outbreak. But in May, Doug McMillon said at an earnings conference that weeks of overstaffing eroded Walmart's profits, causing the company's first-quarter profits to fall 24.8% from the same period last year.

According to Bloomberg, Walmart is laying off about 200 employees due to rising costs, bloated inventory, and weak demand for goods. The layoffs include employees in "last mile transportation" and "goods sales." Walmart confirmed the news on August 4.

Editor ✎ Nicole/

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