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Whistleblower alleges Walmart inflated digital sales numbers (WMT)
BI Intelligence
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A former Walmart executive filed a lawsuit which claims that he was fired after alerting management to issues that inflated the company's e-commerce sales figures, Bloomberg reports.
If the allegations — which Walmart denies — hold water, that would mean Walmart cut corners in the rush to gain ground in digital commerce against its rival, Amazon.
Walmart is under pressure to grow e-commerce sales. The retailer’s digital sales growth has been dropping since it peaked following the acquisition of Jet.com in late 2016, which more than doubled year-over-year (YoY) digital sales growth to 63% in the quarter ending April 2017, up from 29% growth in the prior quarter. Now, in Walmart’s latest earnings for the quarter ending January 2018, its e-commerce sales growth has once again slowed to only 23% YoY.
The whistleblower alleges that Walmart uses questionable practices to sustain its digital growth.
The company’s online catalog size is allegedly inflated. The suit claims that the size of Walmart’s large online catalog, which the company boasts about as a differentiator, owes some of its scale to underhanded practices, Recode reports. For example, items that aren’t actually available for purchase are listed due to lax controls, and many items originate from low-rated sellers hawking inappropriate or offensive goods.
Sellers are allegedly frequently overcharged. The whistleblower claims that items for sale on Walmart’s online marketplace are often incorrectly categorized, which results in Walmart receiving higher commission.
Millions in returns are allegedly unprocessed. The lawsuit also claims that Walmart did not process $7 million in returned items bought online.
The lawsuit will be an unwelcome distraction from growing online sales. Walmart’s efforts to catch up to Amazon will be complicated by the increased scrutiny into its online sales figures that's likely to result from this lawsuit, whether or not the allegations are true. The company will likely need to closely review its internal controls to ensure that its product catalog, seller pricing, and returns processes are above reproach. As Walmart seeks to grow quickly online — the company is expanding its online grocery delivery from six to 100 markets by the end of 2018, for example — this lawsuit is likely to make the company’s task more difficult.
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