Who’s Restocking?

Who’s Restocking?

Everyone in transportation is talking about retail inventories these days, but what’s clear from the latest earnings reports from the nation’s largest retailers is that the companies are actually doing something about it.

They’ve been moving plenty of inventory, of course, as anyone on the docks in Shenzhen, railyards in Chicago and truck terminals in Ohio can see. But what’s especially significant about the new reports from retailers such as Wal-Mart, Lowe’s and Home Depot is that the supply chain is absolutely central to store strategies, sitting alongside the merchandizing and sales measurements as part of the core business model.

For the transportation providers serving those supply chains, the reports provide a window not only on the opportunities they have to bring efficiencies to those retailers but also to the challenges they may face to their own operations. Better efficiency, after all, often means fewer goods in the pipeline.

By The Numbers: U.S. Retail Inventory to Sales Ratio.

In talking about their own operations, many retailers sound more like the shipping lines, railroads and trucking companies that are, after all, trying to manage their own inventory of capacity.

Craig Menear, Home Depot’s executive vice president for merchandising, says the combination of better forecasting, shorter lead times and faster turns means the company is better able to get “the right product in the right place.” That means fewer markdowns, something transportation providers can respect after their own battles with profit-killing discounting.

Home Depot actually reduced its inventory about 0.4 percent from August last year to Aug. 1 this year, although that included a sharp pullback in inventory last fall. More recently, the home improvement retailing giant expanded inventory 5.6 percent in the six months ending Aug. 1, an apparent result of the restocking that filled transportation channels earlier this year.

More important to Home Depot is a long-term strategy to manage inventory more closely and use stronger logistics operations and better forecasting technology. The operations improvement is focused on a network of rapid deployment centers that will cover all of Home Depot’s U.S. stores by the end of its current fiscal year. The company opened its 16th center just last week.

The result was that inventory turns increased from 4.3 times to 4.4 times per year, a strong measure of improved efficiency. “For the third quarter in a row, our inventory turns have improved,” Home Depot Chairman and CEO Frank Blake told investment analysts after the company reported improved second quarter earnings on a 1.8 percent increase in sales. “This is something we haven’t achieved in almost a decade.”

Wal-Mart, meanwhile, says its inventory grew 4.3 percent in the second quarter compared to a year earlier, faster than a 2.8 percent increase in sales. But the company had pulled some $1.4 billion in inventory from its books last year, and the world’s largest retailer says its inventory remains below 2007 and 2008 levels as it focuses on tighter management of those goods.

“We have improved our ability to measure inventory at more granular levels,” Carol Schumacher, Wal-Mart’s vice president for investor relations, said after the latest earnings report.

It sounds like retailers and transportation companies may have some common ground, after all.

Paul Page is executive director of The Journal of Commerce. He can be contacted at 202-355-1170, or at ppage@joc.com. Follow Paul Page on Twitter, www.twitter.com/paulpage