With Sales Falling, Walmart Wises Up and Boosts Inventory

It's hard to slim down inventory when you're known as the store with everything. After sales and traffic fell in the chain's most recent quarter, Walmart (WMT) announced it would bring back many of the items it cut in an efficiency move last year. The retail giant is smart to give up a little gross margin to keep its reputation with customers as the best one-stop shopping store.

Though the company claimed the restocking move wasn't related to its dipping sales, at least one analyst concluded that "Walmart cut too deep" last year with a 7.6 percent reduction in the number of items it carries. For 2009 overall, sales were still up slightly, giving Walmart better margins, but the fall in sales and customer traffic in the key holiday quarter seems to have made managers reconsider.

Walmart has been striving to reduce its inventory since 2006, as fewer vendors and fewer items carried reduces administrative overhead. Last year's inventory cuts resulted in a nearly 1 percent gain in gross margin -- a seemingly small number that adds up to meaningful savings given Walmart's enormous sales volume.

The company hasn't said how many items will return to store shelves, but did say the merchandise categories will include health and beauty supplies, soda, laundry soap, pet items and cereal. Translation: a lot of items are coming back. Walmart spokeswoman Linda Blakley said the chain was listening to customers about which items to stock again.

After watching some customers vote with their feet and go elsewhere in recent months, that's a wise move. If they want to maximize the customer-relations value of the move, they'll weave the inventory-restocking theme into their advertising.

Photo via Flickr user abbybatchelder