Who would have thought consumers could grow to love a plastic bag? Wal-Mart Stores, Inc. found out the hard way. Early this year the mega-retailer pulled Hefty Bags, made by Pactiv Corp., from its shelves. The move was part of a program to streamline its assortment of national brands and pump up its private label, Great Value.

Other retailers have taken similar actions. But within a matter of months, Walmart announced that it was putting Hefty One-Zip food bags back in the stores, along with at least 300 other previously eliminated items. So much for "Project Impact," a massive store-remodeling program which was supposed to create a cleaner, friendlier and less cluttered shopping experience.

Addressing a Merrill Lynch investor conference in March of this year, Walmart's then-chief operating officer Bill Simon (who was subsequently elevated to the position of president and chief executive officer of Walmart U.S.) acknowledged that some of the retailer's moves had "aggravated" customers. They were more likely to shop elsewhere if they couldn't find their favorite brands at Walmart, Simon said - even if they didn't end up buying the item in question.

What's going on here? Did the behemoth of Bentonville trip up? Clearly the company was responding to some less-than-stellar financial results. Recently it reported the fifth consecutive quarter of falling same-store sales. There were reports of consumers abandoning Walmart as the economy improved, and price became less of an issue. Selection, or lack of it, had to be a factor in their decision.

One might interpret Walmart's actions as a reversal of the trend toward SKU rationalization. Are retailers reconsidering plans to cut down on those brain-numbing variations of toothpaste, laundry detergent and sandwich cookies? Not exactly. In this case, Wal-Mart wasn't reducing the choices between types of Hefty food bags; it was eliminating the Hefty brand altogether.

Consumers want low prices, but they also want a decent selection of brands from which to choose. And no retailer wants to tick off customers who have other options. "A number of more affluent customers traded themselves down to Walmart during the recession," says John Long, retail strategist with Kurt Salmon Associates. "Now, as things have stabilized, those customers are likely going to start returning to some of their old shopping patterns."

Ironically, it was that very class of shopper whom Walmart was targeting with the failed Project Impact. Now, to keep them from jumping ship, it needs to make sure it has the brands they expect to see. What's the point of big-box retailing if you don't offer variety?

Long sees Walmart's recent actions as less of a reversal of policy than a "refinement," and a "response to the fact that customers may be trading back [to rival retailers]." He says the company has always been keenly focused on market share, and will do what it takes to protect itself in that area. Along with bringing back possibly thousands of discontinued items, Walmart has revived its "Action Alley" concept, consisting of vendor-supplied pallet displays at the center of the stores. In other words, clutter.

But don't expect a shift away from low-priced private labels, at Walmart or anywhere else. "I would expect continued emphasis on that," says Long. "That's a very meaningful part of the business, and also represents strong value."

"My impression is that private brands continue to grow in share in almost every category," agrees Bob Houk, an industry consultant with Houk TPM (Trade Promotion Management). Still, he says, "it does appear that there's more brand loyalty than some retailers thought there was." Walmart might have been willing to part with the small percentage of sales represented by Hefty One-Zip food bags, but not the customer who turns to Kroger or Safeway because they happen to stock that particular brand.

So selection at Walmart is back. But what about price? The company's dominance in retailing was built on the strategy of underselling the competition. The implications of that obsession with low prices have been felt all the way up the supply chain. Now we hear of Walmart quietly raising prices on selected items.

Is the company rolling back the rollback? Houk points out that Walmart is caught in a squeeze between traditional grocery chains, which charge more but tend to offer a wider selection, and the dollar stores with their rock-bottom pricing. If Walmart ventures too far in one direction, it loses customers that favor the other. That's a dangerously narrow strait to navigate, when you can't be sure where the economy is going and how much the consumer has to spend. And if mighty Walmart can't get the balance right, who can?

Note: Walmart didn't respond to a request for comment on this post.

- Robert J. Bowman, SupplyChainBrain

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