Former Walmart Exec Accuses Walmart Of Massive Inventory Manipulation

A onetime senior Army officer, Sylvester Johnson, who had a distinguished career managing logistics at Walmart (NYSE:WMT) HQ in Bentonville has sued the world's largest retailer, accusing the chain of engaging in widespread inventory manipulation along with some racial discrimination. In 2009, Walmart fired Johnson for the opposite reason, saying that there was in fact inventory manipulation and it was done on Johnson's order.

In an interview with The Nation as well as in a federal discrimination lawsuit, Johnson said he was fired because he was African American and also to cover that it was Walmart itself that was engaged in extensive stock manipulations. "We're talking about hiding tens or hundreds of millions of dollars in losses here—inflating the profits of a store, a district, a region, a division and ultimately the entire company," Johnson told The Nation. "In theory, such a practice could have artificially inflated the company's profit margins and stock price, amounting to a form of federal securities fraud," the story said.

Johnson claimed that during his tenure as a Walmart district manager he was pressured by senior Walmart executives to hide shrink losses in order for stores to appear more profitable than they really were. Johnson maintained that top management set shrinkage targets for Walmart Supercenter stores under his supervision that were "not ethically attainable" and then used methods of "fear and intimidation" against him in an attempt to compel him to meet those targets.

A key part of Johnson's racial argument is that while white district managers were manipulating inventory counts to make their stores appear more profitable, he refused to engage in such a practice and was fired on false charges of doing so.

Johnson's case is slated to go to trial April 22 in a North Carolina federal district court.

Walmart disputes his allegations and said it will try to prove it in court. "We conducted a thorough investigation and have detailed information outlining his misconduct, and, based on the facts, he was terminated for violating company policy," company spokesperson Randy Hargrove is quoted as saying in the story. "Walmart does not condone or tolerate discrimination of any type and that played no role in his dismissal. Additionally, we have strict policies around inventory accounting, and the allegations Mr. Johnson have raised are completely false and unsubstantiated. In addition to Mr. Johnson, more than a dozen associates in his market were disciplined for failing to report the direction he gave them."

Johnson maintains that the practice of manipulating inventory counts extended chainwide. According to the story: "Johnson says he reviewed the shrinkage rates of more than 400 Walmart stores around the country and was astonished at what he saw: impossibly low inventory loss rates to the point that stores would commonly display a negative rate of shrinkage, known as on overage. An overage occurs when records show quantities of inventory on hand greater than what was shipped to the store—a sign of either accounting or shipping errors, or deliberate fraud. 'It was a standard practice to look at [the shrink rates of] other stores because everyone competes with each other,' Johnson said. 'When you see these overages in there that clearly should be investigated but the regional VP is saying "this is exactly what we're looking for," or "outstanding job," it is a point of concern,' Johnson said. 'I think there is an unspoken culture at Walmart that a store is allowed to have excessive overages if it makes that store and the company look more profitable.' "

For more:
- Read The Nation story

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