NEW YORK - Call it a strategic rollback.
The new head of Wal-Mart's U.S. operations last week said Wal-Mart would seek to restore sales momentum behind variety and everyday low prices rather than assortment reductions and temporary price promotions.
Bill Simon's new agenda for Bentonville, Ark.-based Wal-Mart represents a reversal of tactics employed by previous leadership at the company whose “Project Impact” program advocated tighter selections, more private brands and a merchandising strategy built around product categories that showed the most growth. Speaking at the Goldman Sachs Retail Conference here last week, Simon said a return to Wal-Mart's EDLP, one-stop-shopping roots could reverse negative sales trends by year-end.
“Our customers will decide what we carry based on what they buy,” said Simon, who was named to succeed Eduardo Castro-Wright as president and chief operating officer at Wal-Mart U.S. in June. “We will win in every category in which we are competing. Every four-foot section of our business will attempt to grow. We won't direct the customer to certain categories in the future, they will decide that.”
Price competitiveness, Simon added, would be measured on a basket basis, rather than an item basis, as the retailer works to re-establish its EDLP positioning. An aggressive program of temporary price promotions at Wal-Mart this spring failed to drive store traffic, he said.
“Sam Walton had a very basic philosophy about how items should be priced, and we need to focus on that: That's everyday low-cost and low price. That's what we are. That's what we need to be very, very good at, and that means we will have the lowest price on basket of goods, that's the EDLP promise,” he said.
Simon said changes at Wal-Mart over the past two years were successful in some aspects but ultimately eroded Wal-Mart's reputation for providing one-stop shopping and value.
“When you have reduced your assortment in certain categories by 20%, it's not a shock that you are seeing negative sales in that area, and we are,” he admitted. He said the company was returning items to store shelves as quickly as possible - including product displays in the “Action Alley” aisles of its stores. “I'm very impatient,” he added.
Simon said the retailer would look to smaller store formats as a means of penetrating urban markets such as Chicago, where it plans to operate a variety of formats including smaller versions of its supercenter as well as its Neighborhood Market format.
He also said Wal-Mart would “beg, borrow and steal” format ideas from its sister chains in Latin America that operate profitable small formats. He said he would provide further details of that program during a meeting of financial analysts in Bentonville next month.
“We have to be a little more creative with formats than we've been in the past,” he said, speaking of the company's Chicago expansion. “There's not lot of big, empty lots that we can build 200,00-square-foot supercenters in, nor do we want to anymore. So we'll have a mix — a healthy mix of supercenters and small formats.”
Some sources said they expect the company will roll out of small grocery stores that resemble Wal-Mart's Bodega stores in Mexico and Central America.
“Supercenters still deliver the best [return on investment],” Simon said. “They will be smaller than we've done in the past, but we'll mix them out with some new formats.”
Simon said Wal-Mart was currently in the process of restoring “anything and everything” that was profitable and previously culled in the merchandise resets as part of Project Impact. He said he believes unavailability of items cost the retailer shopping trips.
“We didn't ever see a major loss of actual customers. But what we saw was a loss of trips, and the trips we believe were driven by inability to fill the order completely with the one-stop shop. So as we bring back assortment, we believe that we'll first start to see a little bit of an uptick in our sales and then eventually traffic will follow as customers that are in the building at the time will realize, ‘Oh, you have that item that I was looking for,’ and that will generate traffic velocity.”
Displays of sale merchandise on pallets in the main aisles of stores known as “Action Alleys” have returned at around 80% of Wal-Mart's stores, many stocked for now with easy-to-get items like direct-store-delivery snacks and soft drinks.
“We'll have a much more coordinated approach to Action Alley beginning next month,” he said. “I've met with most of our large suppliers personally and many of our medium and small suppliers. The message I'm delivering is that we're open for business and we want to sell your product.”
To that end Simon said Wal-Mart would embrace branded goods and de-emphasize the Great Value private label program that was central to Project Impact. “We are a house of brands. We prefer to sell national brands. They show our value better. When the price of Oreos in my store is less than the price of Oreos in a competitor's store, there's no doubt who the price leader is and where the basket win is,” he said.
Simon also predicted a “very competitive and aggressive” holiday shopping season, saying Wal-Mart would focus on toys and electronics for children and modest gift-giving elsewhere.
“For all you adults out there, I think you should plan on socks and underwear for Christmas,” he said.