Does Walgreens Have An Out-of-Stock Problem?
Full Disclosure: I’m kind of ticked off at my local Walgreens. Twice over the past year I’ve gone to the store (the closest to my home) for needed over-the-counter medications only to have to go elsewhere after finding holes on the shelf.
My disclosure is prompted by a new report from Change to Win, a union-backed adversary of Walgreens, which claims out-of-stocks are out of control at the chain’s stores.
According to the report, Off Balance: Out of Stock and Mislabeled Sale Items at Walgreens, researchers conducted store checks at 200 Walgreens in Los Angeles, Miami, New York and St. Louis during March and April. Each store was visited three times and persistent out-of-stocks were found in the vast majority of locations.
Out-of-stocks during sales promotions were identified as a major challenge. "Seventy-six percent of stores were out of stock of at least one surveyed sale item during every visit. 
More than one in five stores were out of stock on three or more surveyed sale items during every visit." Labeling was also an issue during sales periods where at least one item was not identified as such at 94 percent of stores.
Walgreens reported a decrease of 1.6 percent in front-end sales during its Q2 earnings call. This marked the fourth consecutive quarter where the drugstore chain reported negative comparable store sales. Walgreens’ chief drugstore rivals, CVS and Rite Aid, achieved positive front-end comp sales for the same quarters.
The report cites a number of possible contributing factors that may be affecting Walgreens’ in-stock positions, including reduced staff levels, inadequate inventory, and a lack of focus on domestic operations as the company pursues global expansion.
- Off Balance: Out of Stock and Mislabeled Sale Items at Walgreens – Change to Win
- Walgreens not fully stocked, but stock soars – Crain’s New York Business
- Walgreen’s CEO Discusses F2Q13 Results (Earnings Call Transcript) – Seeking Alpha
- Walgreen Co. Second Quarter 2013 Earnings Conference Call – Walgreen Co.
Discussion Questions
Do you think Walgreens has out-of-stock issues? What do you think are the most likely reasons behind its inventory issues (if they exist) and what will it take to correct the problem?
They do have a problem, but it is really no different that what every other major retailer experiences. It can’t and won’t be corrected, just like it won’t be corrected at their competitors. The reasons for out-of-stocks are endless and nearly every retailer experiences the same issues.
This is neither specific to Walgreens, nor any other identifiable retailer, but in general I often find that once the bean counters get overly involved, results become ironic; the company saves money by cutting back in personnel and other matters, then loses money in the long term due to out-of-stocks, lost sales, and sometimes even losing customers.
Many retailers seem to be having more holes on the shelves than any time in the recent past. This is happening even with retailers that once were known for having full shelves. I think there are a number of possible reasons; cut backs in staff, too much reliance on systems and not enough hands-on monitoring, and even the reality that some retailers are not replenishing in line with forecasts.
I do not know the numbers on how often out-of-stocks appear at Walgreens. However, they will continue to have lower sales if the right product is not on the shelf when consumers are ready to buy.
Every chain has out-of-stock issues and every chain should be looking to see if the issue is severe and what it takes to fix it. It does make you wonder whether this report, coming from a union-backed organization, has a bias? May or may not.
From reading the article, it definitely sounds as if Walgreens has an out-of-stock issue. If low expectations or poor forecasting is the cause of these numbers, it’s obvious that the company needs to enact some swift management changes, permeating to the store level, to turn it around.
Walgreen not only has out-of stock issues, but grimicky pricing issues too. Walgreen appears to be placing its emphasis on their “me-too points” program and inventory control at the expense keeping in stock.
To correct their issues, Walgreen should return to what Walgreen was before it adopted its current retail and promotional strategies.
For how many years now has CtW been using this tactic to harass major retailers? The upside to out-of-stocks is that the retailer is selling a lot of product. The downside can be attributable to many different things, from organized retail crime to petty shoplifting to obfuscation by groups like Change to Win.
My question is about why a group with such an obvious axe to grind gets so much help from the media in poisoning consumers’ minds against the retailer at issue that day or week.
Let’s face it. When you have a staffing problem you are going to have a shelving problem. Just like the Walmart discussion today, the same problems exist at Walgreens. Low-wage earners tend to be lower performers, thus you have a stocking problem.
How long have we been reading about food and drug retailers dealing with out-of-stocks? Decades? New solutions and procedures come and go, massive studies by trade associations and universities are launched, conferences are held—and yet the issue remains to some degree.
Obviously, OOS can never be eliminated in chain stores. Minimized? Yes, depending upon the aggressiveness and long-term dedication of the retailer.
There’s enough industry experience to show that retailers who commit to computer-assisted ordering processes can and do drive down OOS levels. Look at supermarket operators Sobeys (cited this week for an SN Technology Excellence Award) and Price Chopper for two stellar examples.
It’s also well understood that out-of-stocks are a far bigger problem for promoted items. Then again, selling through on display promotions is not all bad—it saves the labor cost of relocating the goods afterwards.
Good service levels are tantamount to shopper success. Saving inventory carrying costs at the expense of shopper success is bad policy. Reports published by interest groups with an axe to grind are naturally suspect. Walgreen can certainly perform better on this front.
I’ve personally run into the Walgreens out-of-stock situation three times in just the last eleven days. All three cases involved advertised sale items. In one instance the product was located in the stockroom and brought out to me on the floor with an apology. Since I live in a large metro area with Walgreens all over the place, I was able to find the other two out-of-stock items in separate trips to Walgreens stores in other locations.
Whatever the cause I do think this specific problem with what’s not on Walgreens’ shelves has gotten worse lately. It’s bad for Walgreens to get that reputation. Many consumers simply do not have the luxury of time to go hunting for products and resent it when they have to go to a second store to get what they need—sale price or not.
The answer is simple any retailer that continues to make margin by shaving labor hours is going to end up with stock outages.
Is Walgreen worse than anyone else? I don’t know. But I do think its an industry issue, not a corporation issue.
The chain retail stores often look like they’ve been ransacked! The reasons for this is “penny pinching-pound foolish” way of doing things and mentality. This is NOT a smart way of doing business at all!
They also don’t invest in their employees in the form of paying them above industry average and so have a revolving door of new workers coming and going constantly which is NOT good for business at all! I can go on and on, but I think we all know there’s more to this than what I’ve just mentioned here. Oh yeah, of course these things are causes of lost volume sales and contributors to product “shrinkage” and losses.