Wal-Mart Merchandise Strategy: Gambling With CMO?

Wal-Mart decides to hold off on naming a new CMO. Is this the right move?
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(Wal-Mart article updated with additional analysis.)

NEW YORK (

TheStreet

) --

Wal-Mart

(WMT) - Get Report

is opting not to hire a new chief merchandising officer, for now, instead naming four new heads of product to adopt these responsibilities.

The discount behemoth sent around an internal memo to employees earlier this month outlining its strategy for merchandising.

Recently appointed CEO Bill Simon said Wal-Mart has created four core merchandising areas around general merchandise and replenishment, food, softlines, and consumables, health and wellness, as well as Walmart.com. John Westling, Jack Sinclair, Andy Barron and Duncan MacNaughton, will head up those divisions, respectively.

"This structure aligns similar categories and allows us to be even more competitive in each customer channel, improving how we target and localize merchandise," Simon wrote.

The former head of merchandising, John Fleming, stepped down on Aug. 1, after serving the company for 10 years. The move came shortly after Simon was appointed the new CEO of the U.S. division.

The move to hold off on naming a dedicated chief merchandising officer may come as a surprise to some investors, as Wal-Mart has been grappling with its sales. The retail giant has now posted five consecutive quarters of declining U.S. same-store sales, and may continue that downward trend in its third quarter.

"We hoped Walmart would look externally for a new chief merchant given the problems with recent top-line strategies," J.P. Morgan analyst Charles Grom wrote in a note.

For 2010, at least, this decision reflects that Wal-Mart is throwing in the towel, "essentially focusing on price instead of trying to do a sweeping overhaul," Wall Street Strategies analyst Brian Sozzi says.

There is clearly a debate on what exactly to do with some of the discretionary categories, specifically apparel. "Apparel is not where we want it to be, but it is an opportunity for us," chief financial officer Tom Schoewe said on a call with reporters after its second quarter earnings report.

Wal-Mart attempted to boost sales this summer with aggressive price rollbacks, but the company said that initiative did not achieve the desired results. Schoewe blamed the economy, saying customers are under such severe pressure that even dramatic discounts are not enough to entice spending.

"At the end of the day, it is a function of price and assortment," Schoewe said. "When we get the two right, that's when we are successful."

Of course, Wal-Mart also struggled after it decided to remove select merchandise from shelves as part of its "Project Impact." After complaints from customers, the company is in the process of restocking some of these items.

Target

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has also been a growing issue, as shoppers who traded down to Wal-Mart amid the heart of the recession, may now be trading back up to Target's more fashion-forward apparel and home goods.

This is not to say that the heads of the new divisions are not capable, but Wal-Mart is sending a signal of uncertainty by not having someone in charge, says Craig Johnson, president of Customer Growth Partners. With a massive shakeup in management in recent months, investors are in need of some confidence, so it would only make sense that Wal-Mart finds a CMO sooner rather than later, Johnson says.

Still, the decision to hold off a hiring a new CMO might be the right move as Wal-Mart sorts out the mounting questions. "Do they try to relaunch fashionable items? Do they try to recapture the Target customer they gained in 2009 but lost in 2010?" Sozzi says.

Wal-Mart is still searching for its growth strategy, which is bigger than just a question of price or merchandise, Johnson says.

"The decision to refrain from hiring a CMO suggests that they are considering change, and want to pick the right person to lead that change," Sozzi says. "Hopefully, this happens in early 2011 so the CMO could have an impact on the year."

-- Written by Jeanine Poggi in New York.

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