Wal-Mart Revamps Its Merchandising Leadership

ELLIOT ZWIEBACH

BENTONVILLE, Ark. — Wal-Mart Stores here shuffled top-level management last week, leaving observers to ponder whether the changes signal an effort to continue to go after more affluent consumers or to revert to a more aggressive pricing position.

Observers said they expect Wal-Mart to possibly shed more light on its long-term direction this week when it meets with vendors in Kansas City, Mo., at its annual managers meeting.

Among the changes:

One industry observer, who asked not to be named, said Fleming's new position in merchandising has supplanted Degn's role. “There was apparently a pitched turf battle between marketing and merchandising, and I suspect Degn's decision to retire after 24 years indicates he lost that battle and that Fleming is essentially taking his job.”

Decisions on putting together Wal-Mart's promotional calendar had been the sole responsibility of Degn and his staff, the observer told SN, “until the marketing function began to strengthen about 18-24 months ago — shortly after Fleming moved into marketing. That caused confusion among suppliers because it meant they could no longer make their calls unilaterally but instead had to bring marketing in, and slowly marketing took over control of the merchandising calendar.”

With merchandising now set to play a larger role at Wal-Mart, it's possible different criteria will be used to identify what items Wal-Mart promotes, and different tactics may be used, including a possible change in emphasis to appeal to a more upscale shopper rather than the chain's core base, the observer said.

Wal-Mart said last week the management changes are designed to align its merchants with key product areas, “each with clearly identified customer segments.”

The company said merchandise initiatives will be focused on five divisions, four of which will report to Fleming: grocery, entertainment, apparel and home. Fleming will also have responsibilities for two new divisions: customer experience, and planning, pricing and replenishment.

The fifth division Wal-Mart will focus on, pharmacy and optical, will continue reporting to Bill Simon, executive vice president of professional services.

Wal-Mart said the changes are occurring in the second year of a three-year plan to be more relevant to diverse consumer segments. “As we enter year two, our focus will extend to merchandise assortment and marketing execution of findings we identified in consumer research,” said Eduardo Castro-Wright, president and chief executive officer of Wal-Mart Stores U.S.

That research, conducted during 2006 to determine what mattered most to Wal-Mart customers, resulted in the implementation of a field organizational structure to facilitate execution of new merchandising initiatives.

According to Adrianne Shapiro, an analyst with Goldman Sachs, New York, uncertainties at Wal-Mart over which way it should go — pursuing its core customer or more upscale shoppers — is a negative for the chain. Either way, she said, “We continue to believe Wal-Mart presents a dampened headwind for the retail sector, which means more market share up for grabs.

“The reshuffling of roles tell us Wal-Mart remains committed to the customer segmentation initiatives set in motion in 2006, despite disappointing results from extensive changes across merchandising, marketing and store remodels in the turnaround's first year.

“Clarity across management ranks is a positive, given weeks of speculation, but the changes do not address what went wrong [last year]. We expect the new team to address vendors in Kansas City, potentially shedding some light on strategic direction — will they continue to seek greater share-of-wallet from a more affluent set or revert to a more aggressive pricing posture?”

Art Turock, a Seattle-based consultant, also said it remained unclear in what direction Wal-Mart might be headed after last week's executive changes.

“I see Wal-Mart at a strategic crossroads where it really has to decide whether it wants to keep its core customer energized at the same time it's considering broadening its appeal to become more relevant and attractive to other groups of potential customers.

“The old formula is not providing the same returns it used to, and Wal-Mart will have to tread very carefully as it tries to come up with a new formula — and that will require a lot of smart decisions.

Separately, Julie Roehm, the former Wal-Mart marketing executive who was fired in December, filed suit against the retailer last week.

She alleged that Wal-Mart violated terms of her contract by refusing to pay her a year's salary following her termination, and that the retailer made “false and malicious statements to the media,” according to court papers filed in Michigan.

Roehm was hired by Wal-Mart last February to oversee advertising. She was fired amid reports that she had an inappropriate relationship with a co-worker and had accepted gifts from suppliers.

Roehm is seeking the money she claims to be owed, as well as unspecified damages and other compensation.

Wal-Mart denied the allegations, and noted, “any recovery by the plaintiff is barred by her own improper conduct or ‘unclean hands.’”