Walmart expects recent merchandising changes to produce improved sales by the fourth quarter, according to Bill Simon, president and chief executive officer of Walmart U.S.


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Walmart focusing on brands and price

September 17th, 2010

NEW YORK – Walmart expects recent merchandising changes to produce improved sales by the fourth quarter, according to Bill Simon, president and chief executive officer of Walmart U.S.

In a presentation to investors and analysts at the annual Goldman Sachs Global Retailing Conference here, Simon explained in detail what has misfired for the retailer’s flagship domestic division and what is being done to correct its course. He also described his outlook for the holidays, based in part on the results of the recently completed back-to-school (B-T-S) season.

"We expect a very, very competitive and aggressive Christmas and holiday selling season, price-focused," he said. "Driven by needs, needs and practicality, except for kids, who will be focused on toys and electronics."

B-T-S shopping kicked in later and closer to the start of school than in the past, he added. Much of that shopping actually occurred after the start of classes as customers waited to find out what they really needed.

Simon went on to analyze what has led to stalled sales growth in the Walmart U.S. division, which encompasses the retailer’s domestic supercenters, discount stores, Neighborhood Markets and less than a dozen small format stores. The chain has not, as some analysts have speculated, suffered a major loss of customers, particularly the higher-income customers it gained during the depths of the recession. Rather, it has suffered a reduction of shopping trips, which Simon attributed to shoppers’ inability to complete a one-stop-shop as a result of sharply edited assortments, compounded by economic pressure.

As he pointed out during Walmart’s recent second-quarter conference call, Simon said that the intense price rollback program that the company had been executing failed to drive customer traffic or sales as intended, but did heighten price perception.

The rollback campaign, he explained, meant concentrating on items rather than on the whole market basket, which traditionally has been the focus of Walmart’s everyday low-price (EDLP) approach. "When you reduce your assortment, which we did, and then focus on items, which we did, it is really difficult to win on the basket, because competitors can choose to match you, and many of them did," he said.

Simon’s response after his promotion in June was to return the chain to its traditional EDLP strategy. In addition, some of the most significant aspects of Walmart’s Project Impact, a broad-based effort to improve the Walmart shopping experience and boost profitability and sales productivity, have been modified.

For example, product displays are being returned to the front cross aisle, or “action alley” in Walmart parlance, in about 80% of the stores. Moreover, store managers and field-based merchants will be able to determine between 10% to 15% of the items in those displays to meet local needs and preferences.

In addition, the win-play-show strategy that lay behind Walmart’s draconian SKU-reduction program appears to have been sidelined, at least to a degree. The greatly expanded private-label offering that accompanied that initiative also appears to be undergoing revision.

"We are a house of brands," Simon emphasized. "We prefer to sell national brands: They show our value better. Private brands are still important to us. They will fill holes or gaps in our offering."

Simon also elaborated on his efforts to mend supplier relations that have suffered over the last two years, noting that Walmart built its business on supplier relationships.

"The message that I’m delivering is that we are open for business, and we want to sell your product, that assortment is important to us and that new products are our engine, as well as yours," he said. "We can launch a new product for a supplier better than anybody in retail. And from a supplier’s perspective, you can get your product out there and get market share and trial and penetration much faster through our system than you can anywhere else. It is something that our customers have come to rely on, and it is something that we can do for our suppliers and we are having those discussions again."

While he vowed that Walmart will not carry unprofitable products, Simon pointed out that the chain is reviewing “literally billions of items” in terms of combinations of SKUs and specific stores. Walmart will offer full assortments once again, he said, and let customers determine what those assortments contain based on what they buy.

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