Walmart Rolls Back Rollbacks, Reduces Ad Spending

Walmart will bring back thousands of items previously cut through Project Impact, scrap the deep "Rollbacks" it tried in April and May and reduce ad spending to "historical levels" as new U.S. President William Simon wastes no time reversing much of what his predecessor did.

Moves such as returning merchandise displays to the "Action Alley" aisles of Walmart stores have already resulted in better customer traffic and sales in July than during the prior two months of the just-completed fiscal second quarter, said Mr. Simon on a pre-recorded Aug. 17 earnings call. He assumed his current post in July as his predecessor, Vice Chairman Eduardo Castro-Wright, moved to new duties overseeing global e-commerce and sourcing.

"We plan to win in every category and let customers decide through their purchase decisions what to include in our assortment," Mr. Simon said. The statement was an apparent nod to Project Impact's "Win, Play, Show" strategy, in which the retailer ranked categories based on profitability and strategic importance, as well as in response to complaints from some suppliers about assortment decisions based on factors other than consumer appeal.

Mr. Simon said he's placing an emphasis on strengthening supplier relationships, and that store and regional managers are getting greater leeway to merchandise and manage assortment.

Despite changes after he took over the unit in July, Walmart's same-store sales were down 1.8%, on top of a 1.5% decline in the prior-year quarter. "It will take time to see significant changes in our comps," Mr. Simon said, though he expects improvement by the fourth quarter.

Mr. Simon acknowledged, as many supplier executives have said in recent months, that many of the deep "Rollbacks" on merchandise last quarter were funded out of Walmart's margin, not supplier funds. But he said the company began putting "the emphasis back on our core [Everyday Low Price] model" in July.

Walmart beat profit expectations modestly, despite the Rollback investments and increased inventory costs to restock Action Alley, Mr. Simon said. That result came through reductions in operating expenses, including a reduction in ad spending to "historical levels," after a substantial hike earlier in the year, he said.

Walmart executives, including CEO Mike Duke, didn't fully repudiate the wide-ranging Project Impact initiated by Mr. Castro-Wright and former Chief Merchandising Officer John Fleming, who left the retailer earlier this month. The store-remodeling aspect of Project Impact is continuing as planned this quarter, with thousands of items previously cut being brought back, rather than the hundreds previously indicated. But for the first time in many quarters, executives didn't mention Project Impact by name.

Mr. Simon and his team are "moving rapidly to build on the initiatives that worked and adjusting those that have not worked," Mr. Duke said.