By  on October 25, 2006

In some ways, Wal-Mart is returning to its meat-and-potatoes roots.

Speaking Tuesday to an audience of analysts at the company's annual two-day presentation to Wall Street, H. Lee Scott Jr., president and chief executive officer of Wal-Mart Stores Inc., said the company would go back to basics across several categories, including apparel.

Scott also vowed to maintain price leadership, saying, "The $4 generic prescription program is one of the coolest things we've done in a long time. That's the direction of where we're going. It's a rational approach to disrupting the market. It could happen in toys. In 2003, we had the most aggressive toy program. You'll see a very aggressive toy department at Wal-Mart this year."

The company is reinvigorating its price rollback program, which will be heralded in stores with banners and signs with the retailer's signature yellow smiley faces. Wal-Mart believes rollbacks draw consumers to stores. There are 10,000 rollbacks at Wal-Mart stores and more are on the horizon.

One of the biggest opportunities, according to Scott, is in basics in apparel and domestic products. He pointed out that 675 million pairs of white socks were sold at Wal-Mart's U.S. stores last year. "Some of the numbers we generate are absolutely amazing," he said.

But Wal-Mart's apparel performance has been less than stellar. "We have to get better at fashion basics, not what I would call high fashion," Scott said. "Claire, if you disagree, stand up," he said, referring to Claire Watts, Wal-Mart's executive vice president in charge of product development for apparel and home. "There's a tremendous opportunity without stepping out to the next level, which is so dangerous for anyone to get into unless you're a high fashion company."

During a question-and-answer session, Scott was asked whether the weakness seen in apparel during the last few months could be fixed by tweaking the current strategy or whether the company got too far ahead of what its customers wanted. "I think what happened is we didn't follow our strategy," Scott said, comparing Wal-Mart's apparel model to a pyramid where the base consists of basics, the middle is fashion basics and the top is fashion. "What we did is we overloaded the fashion part. We didn't make it a pyramid, but more of an hourglass."Nor does Scott think Wal-Mart will ever be the place for fashion with a capital F. "The execution moved too far too fast," he said, referring to the plethora of trends referenced in Metro 7 and George ME by Mark Eisen. "I don't mean that we should get there later. We should never be out of balance at the top. That's not who we are and that's not where the money is to be made. We need to have a little bit [of fashion] at the top so our customers know we have a sense of what's happening out there in the world. If we try to do more at the top, we're not going to do well."

Karen Stuckey, senior vice president and general merchandise manager of women's wear and jewelry, "is right on for spring," Scott told the analysts. "You'll see improvements for spring and more improvements for summer."

While much has been made about Wal-Mart's quest for more sophisticated shoppers and those with higher incomes, Scott returned to the theme of Wal-Mart's roots. "We're continuing to remind people we don't want to lose our current base of customers," he said. "We want to create products that allow people to more fully shop our stores. [Customer segmentation] was the missing element. Before, we would put merchandise in a store. It would work and we'd expand it to all stores. You can understand Metro 7 and why it does so well in [a certain number of] stores and doesn't do so well when you expand it by analyzing this information."

Wal-Mart has even created a new position with the touchy-feely title of senior vice president of customer experience, whose role sounds similar to an ombudsman: represent consumers at the store level and develop campaigns to communicate ideas about Wal-Mart's reputation, brand equity, price leadership and value.

While Wal-Mart may be getting back in touch with its inner rural self, there's no doubt its technology remains as sophisticated as that of any retailer. In the supply chain, Wal-Mart is using a new customer responsive network, or CRNet, which allows high-volume consumables to be delivered more frequently on one truck. This provides better delivery and flow and will improve in-stock and turns. The company is using quick response for markdowns in its "store of the community" program, which tailors assortments to the needs of local units."This company is more sophisticated and better able to handle itself than it ever was in its history," Scott said.

Wal-Mart also is using increasingly sophisticated methods to answer its critics. Leslie Dach, a political insider who headed Edelman Public Relations' Washington, D.C. office, was hired last year to manage negative press and craft a new-and-improved image for Wal-Mart. One of Dach's responsibilities as executive vice president of corporate and government relations is "reputation manager."

Dach, who spoke at the analysts' meeting of Wal-Mart's transformation, said, "Our strategy is to play offense every day. We have messages and a story line that's persuasive. Our second strategy is to become part of the solution. When [critics] see the scale and commitment of Wal-Mart" they understand it's what they need to get to a solution. Dach said the company is recognizing its need to convey this message to the public.

Wal-Mart is beginning to test a TV commercial that discusses the contribution the company is making in local communities. A version of the spot played Tuesday sounds like the folksy campaign of a political candidate. "It's been said that when Wal-Mart comes to town, it's like getting a nice pay raise," an announcer says, then he touts the affordable health insurance plan offered to associates.

Scott admitted the company's health care plan does have a high deductible — $1,000 to be exact — but said "people are not good health care consumers. More and more companies are moving to a model more similar to Wal-Mart and are trying to drive good consumer behavior into the purchase of medical services."

Wal-Mart's ceo was optimistic about the company's prospects. "As gas prices level off, we will see stronger sales. It is not our expectation to proceed with 1 percent comps. There's room for growth across almost all of the company."

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