Walmart and other retailers are canceling billions of dollars in orders

Photo: Walmart
Sep 14, 2022

Walmart, Target, Macy’s and Kohl’s are among retailers that have recently said they are canceling some orders to better balance inventory levels, a replay of a strategy used at the start of the pandemic.

Other steps retailers are using to clear inventories as spending has slowed on some non-discretionary categories are employing markdowns and packing away products for the following year. The elevated inventory levels also reflect intentional over-buying to mitigate shortages and the easing of supply chain constraints.

One risk of canceling orders is straining or damaging relationships with trading partners. After the pandemic arrived, many retailers were called out for not honoring their contracts to pay in full for goods that were in production as well as for requests for postponements, discounts or delays in payment. Several issued statements assuring their commitments, with Levi’s and Gap offering low-cost financing to factories to weather payment delays.

The other risk is not having enough inventory to meet demand. Many retailers and brands indicated they missed sales opportunities during the 2020 holiday season due to overly-lean inventories as demand recovered more quickly than expected.

Second-quarter analyst calls found retailers aware of potential inventory shortfall risks from overly aggressive actions.

Christina Hennington, Target’s EVP and chief growth officer, said steps being taken by the discounter’s buying team include “rigorously reforecasting expectations for the balance of the year and beyond and determining where to reduce future receipts and orders. In some cases, it meant working with vendor partners to reduce our fall receipts in light of our updated expectations. It also meant quickly building compelling promotional plans to drive unit velocity for product we already owned, all with a focus on providing great value and generating excitement for our guests.”

John David Rainey, Walmart’s EVP and CFO, said it had cleared most summer inventory, was reducing exposure in electronics, home and sporting goods, and canceled “billions of dollars in orders” to realign inventories. He said, “Our actions in Q3 will allow us to make significant progress toward rationalizing absolute levels and mix, which will enable our stores to be well positioned ahead of the holiday season.”

DISCUSSION QUESTIONS: Should order cancellations be a rare, last-resort option or regularly used as a tool for rebalancing inventories? What lessons, if any, should the order cancellations at the start of the pandemic offer?

Please practice The RetailWire Golden Rule when submitting your comments.
"Using continuous, collaborative forecasting methods can help retailers avoid the need to cancel orders and disrupt suppliers."
"If anything was learned at the top of the pandemic, I’d say it’s understanding the importance (and shortcomings) of inventory optimization and demand forecasting solutions."
"The solution lies on shortening order placement lead times, not lengthening them. But then an order is an order. It’s not cancellable … period."

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27 Comments on "Walmart and other retailers are canceling billions of dollars in orders"

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Richard Hernandez
Richard Hernandez
Director of Commerce
13 days 22 hours ago

Join the club. I believe that most retailers are doing everything they can to get out from under the inventory levels they are facing in their stores. The unpredictability of the supply chain was a big factor – retailers tried to stay ahead of it but we still ended up on the wrong side of this situation. Regardless, retailers are doing their due diligence in rectifying this issue.

Lisa Goller

Order cancellations strain supply chain relationships by slamming on the brakes. They should be rare.

Using continuous, collaborative forecasting methods can help retailers avoid the need to cancel orders and disrupt suppliers.

Melissa Minkow

Order cancellations should certainly not become a habit. The cancellations that occurred over the last month or so were extraordinary circumstances as inflationary pressures peaked. Merchandise planning teams, buyer forecasts, and demand forecasting tools exist to avoid these types of major cancellations, and they’re a system retail should be utilizing optimally. The whole goal should be to make retail less hyper-reactive and more predictive so that we don’t end up in these scenarios.

DeAnn Campbell

Supply chains are a partnership, and since partnerships are, above all, based on trust and mutual support, this move could cause damage to all parties involved. Fallout from manufacturers scrambling to find ways to last minute buyers, or simply having to landfill unused raw materials, design or ad agencies losing contracts for content around new products, and consumers ultimately paying higher prices across the board because future supply prices are higher to offset the damage and contingency clauses resulting from order cancellations. And all of this could have been avoided with better use of data analytics and more agile business structures to allow retailers to make incremental adjustments more quickly.

Ken Morris

When just-in-time was the order of the day order cancellations were rare but the pandemic and the associated supply chain disruptions clearly changed everything. We need to protect our supply chain with investments in transportation management systems (TMS), yard management systems (YMS) and warehouse management systems (WMS) that give us real-time KPIs to manage a still volatile environment.

Lee Peterson

After the latest macro financial news, this was to be expected; they’re hedging their bets that Holiday is not going to be as strong as they thought. I’m not sure I agree. Although the consumer has been somewhat hesitant from a confidence perspective, these are much different times than in years past, especially with work from home and the easing of energy prices. Worst case scenario for these behemoth retailers though is that if forced to slow things down due to better than expected sales, they won’t take markdowns and roll out some impressive profit numbers in January. So at the end of the day today the CFO wins, but we shall see what the consumer says in short order.

Andrew Blatherwick

This is an industry wide problem with retailers being the bad guys because they are the ones cancelling orders. If demand has fallen sharply retailers cannot simply continue to take inventory that is not selling, the end result of that strategy is that they have way too much stock of what is not selling and an inability to find space for inventory of items that are selling. If that happens it takes a long time to get it right again and re-balance inventories. What retailers should be doing is working with their suppliers to communicate likely future demand based on re-forecasting and in partnership plan promotional and clearance activity as necessary to keep the supply chain moving. There are no winners in this game, the ones who do best are the ones who have good technology helping them manage the huge number of SKUs across the business to get the best balance of inventory and availability for customers.

Jeff Weidauer

For Walmart and Target, canceling orders is easy and vendor backlash is unlikely. For smaller players, it’s a more complex dance. The wild card is a possible rail strike in the U.S. which will create added chaos. Start shopping for Christmas now.

Ron Margulis

I’ve been to three dry and two frozen warehouses in the past month, all third party, and they were each stocked to the rafters. The move from just-in-time inventory to expanded safety stock has played havoc on the industry that will take months, maybe even a year or more, to straighten out. Forecasting, especially in fast moving goods, is improving, but not fast enough. When combined with the uncertainty caused by inflation and other market issues, it’s likely that retailers will still be using cancellations as a tactic through the end of the 2023 holiday season.

David Spear

Cancellations are not good for any player in the value chain. It ought to be a last resort option but, even then, rarely used. Instead, retailers ought to leverage their data and analytic platforms to uncover insights that can create pockets of differentiation. To be fair, COVID-19 has wreaked havoc on retailers, distributors and manufacturers and has upended most of the traditional forecasting models like no other time in modern history. And it’s not going to get any easier into 2023 with my prediction that inflation will increase to double digits.

Joan Treistman

Even before moving to balance inventory, stores such as Walmart, TJMaxx, and Target have the feel of major out-of-stocks on their shelves. Going into Bed Bath & Beyond the out-of-stock level seems in line with news coverage of store closures and the demise of the chain. The perception created by the many empty shelves and store sections is another sense of what the COVID-19 pandemic has brought us. Consumers have to survive inflation and they’re changing buying behavior to accommodate it. Retailers have to do the same. There has always been a strategy regarding inventory. That strategy has to shift with the times. The downside for retailers encompasses revenue loss and relationships with their vendors as well as their customers. And for the shoppers it’s about navigating a complex reality imposed upon them. In these circumstances they might have the upper hand with choices in their control.

Brandon Rael

The post-pandemic consumer demand surges have decreased somewhat due to the economic downturns and the significant impacts of inflation. Retailers on the transformation journey towards inventory, merchandise, and assortment optimization strategies have, in the interim, attempted to stay ahead of the demand curve by over-ordering contingency stock.

Mass cancellation of orders has a significant downstream impact and disruption on vendor partners and suppliers. By being increasingly more predictive and leveraging a comprehensive data and analytics approach to assortment and merchandise planning, retailers will have the ability to shift their forecasting to meet shifting consumer demands. Additionally, changing consumer demands require a more collaborative operating model between retailers and vendor partners to share data and insights and meet the challenges ahead.

Gene Detroyer

Yes, cancellations should be rare because forecasting should be better.

The ability to cancel orders gives the buyer permission to over-buy.

The process is simply moving the problem from the retailer to the supplier.

Dick Seesel

Despite inflationary pressures, demand forecasting should not be this hard 2 1/2 years after the start of the pandemic — especially in non-perishable goods. And yet, here we are with supply chain problems and labor shortages adding to the uncertainty.

Order cancellations are undesirable but not unprecedented. They beat the alternative of collateral damage to companies’ earnings caused by excess markdowns.

Paula Rosenblum

Macy’s apparently canceled a boatload (no pun intended). It’s hard to talk about “rare” occurrences when we’ve just been through a 100-year rare occurrence, but what else can a retailer do at this point? Even TJX is loaded with goods, so there is nowhere to send it.

Now, do I wish retailers and brand managers sourced closer to point of demand so orders could be placed later? Yes, I do. But it’s very hard for businesses to change their ways — so this is the next best option.

I really don’t think this is going to become a trend, so I don’t worry a lot about it. Once in a lifetime…

Steve Montgomery

It makes a great deal of sense for retailers to cancel orders when they are already overstocked. However retailers should not assume that the manufacturers will soon forget their doing so. It may have not only damaged their relationship but the ripple effect throughout the supply chain may also have damaged the manufacturers’ relationship with their suppliers.

The advent of COVID-19 created an almost impossible scenario for retailers to forecast their inventory needs. Hopefully having gone through it will mean they and their suppliers will find better ways to forecast demand.

Gary Sankary

Merchandisers are on the hook to deliver margin and sales performance. During the pandemic, forecasts went out the window as consumer demand became extraordinarily volatile. In some cases, buyers overreacted. Not surprisingly, they built new forecasts based on the increased demand but missed their forecasts as demand returned to more “normal” levels. Now they need to make cuts to get inventory back in line. Not surprisingly, it’s happened before and will happen again. Even the best forecast models have difficulty forecasting sales at the item/store level. Delivering an accurate forecast to buy, too, is important. Maintaining flexibility in the supply chain to react when things don’t happen as forecasted is even more important.

Rich Kizer

GMROI is going to be miserable for many. When we expect a real downturn, it is natural to have all eyes on inventories and planning who and what to cut and cancel. With that in mind, understanding what to cut is of paramount concern. First of all, even in a downturn period the floor has to look like the store is in business, which dictates who and what vendors products are most demanded by the stores customer base. Then, the store must be aggressive about re-merchandising as appropriately as possible, and must be ready to re-merchandise the store as much as possible to reflect a sense of new arrivals. In this case, rotation means literally everyday.

Dion Kenney
13 days 21 hours ago

For years, e-tailers have been talking about “industry disruption.” While this is probably not what most had envisioned, it demonstrates that there are real consequences to industry disruption. Outsized industry influence combined with disruptive operations models will inevitably lead to unforeseen pain for some in the value chain.

Peter Charness

What a mess. Well, excess inventory all around should help keep prices lower. Owning a lot of product during times of inflation isn’t all bad — since replacing it with “new” comes with higher costs. Retailers have resorted to order cancellations for plenty of reasons in the past. Ross and TJMaxx seem to be the beneficiaries.

David Slavick

Between mentioning recession on investor calls and sharing that order cancellations are happening these are clear signals that retailers are seeing the future and it is not a happy view. Cautionary tales indeed. But at the same time no slowing down efforts to capture share of market and do it profitably. Customers who are members in paid/subscription programs and loyalty program members should be getting special treatment by these very same retailers to secure spend and do it with solid margins on goods sold.

Natalie Walkley

Forecasting over the last three years has been nothing shy of a nightmare for brands and retailers. Everyone is weighing the risk of stockouts (missed sales) against the risk of excess (high holding costs). Cancellations won’t help the industry, but seem like a necessary evil that just gets passed upstream from retailers and brands. The key may lie in more machine learning and business intelligence to more accurately predict and balance inventory available to promise to consumers.

Brad Halverson

Order cancellations should be held for unforeseen events and tough circumstances to maintain good long-term business relationships. This time period naturally is one of those moments. Phone calls and in-person conversations to explain the moves and sharing a commitment to the long-haul will go a long way in diffusing such bad news with manufacturers and distributors.

Tech tools for inventory and forecasting can and should be used to help smooth ordering going forward.

Jeff Sward

Sounds like the factories shot themselves in the foot when they extended order placement lead times. And then retailers piled on and magnified the problem by overbuying … again. And are now further magnifying the problem with cancelations. The solution lies on shortening order placement lead times, not lengthening them. But then an order is an order. It’s not cancellable … period. The raw materials are ordered and the factory is locked and loaded.

Factories rely on predictability and continuity in order to operate. Those words sound almost quaint these days. But that doesn’t change the dynamics on the factory floor. Factories thought longer order lead times provided that predictability and continuity. It backfired.

Retail figured out how to execute fashion and seasonal change while demand was fairly predictable. Throw in unpredictable demand change and the whole process collapses. How about retailers start with a DNA change and stop overbuying as a default mindset?

Oliver Guy

Fascinating. Getting control of inventory is key to retail survival. It is tying up working capital that retailers need to develop new revenue streams.

Cancellations may well be the result of careful — but too late — planning. Or they could be a panic move in relation to perceived consumer confidence. Either way, it is worrying. Getting control is key and the first step is visibility and time-phased planning. Something that still needs a lot of work.

Heidi Sax

Order cancellations should be a last-resort. And as much as cancellations raise the risk of straining vendor relationships, the truth is that inventory overages are just as bad for the brands as they are for the retailers. If anything was learned at the top of the pandemic, I’d say it’s understanding the importance (and shortcomings) of inventory optimization and demand forecasting solutions.

Anil Patel

Market dynamics are changing, therefore, to make better decisions retailers must work on the basis of data evaluation instead of relying on their “gut feeling”. I believe, cancellations cannot be completely eliminated, but the key takeaway lessons here are:

1. Merchants must rethink their buying cycles.

2. Before bulk ordering, they must analyze new patterns.

Additionally, for non-discretionary items, instead of physically stocking the items, retailers can implement a “Pre-Order” strategy, and test the customer demand.

"Using continuous, collaborative forecasting methods can help retailers avoid the need to cancel orders and disrupt suppliers."
"If anything was learned at the top of the pandemic, I’d say it’s understanding the importance (and shortcomings) of inventory optimization and demand forecasting solutions."
"The solution lies on shortening order placement lead times, not lengthening them. But then an order is an order. It’s not cancellable … period."

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