When Brands Disappear, Shoppers Do Too
WASHINGTON (TheStreet) -- As evidenced by Wal-Mart's (Stock Quote: WMT) attempt to streamline its shelf space, even garbage inspires brand loyalty among American consumers.
Earlier this month, Wal-Mart returned Clorox's Glad bags and Pactiv's Hefty bags to its shelves after cutting them in February and carrying only S.C. Johnson and Sons' Ziploc bags and its Great Value in-house brand. Wal-Mart says the Hefty and Glad bags and hundreds of other items were taken out of the mix as part of a remodeling effort, but the retailer replaced them when it became clear it wasn't losing only a $4.99 single-item sale, but entire shopping excursions by people seeking specific brands.
"What we found is that you can discontinue items that don't sell but get you a trip," said Bill Simon, Wal-Mart's executive vice president and chief operating officer, at the Bank of America Merrill Lynch Consumer Conference last week. "So, we've been through the business and put 300 or so of those items back into the stores that were removed. We believe that that's going to solve some of those issues."
Other retailers including the SuperValu chain and CVS Caremark (Stock Quote: CVS) are pushing ahead and slimming their selection of stock-keeping units. Wal-Mart's recent retreat may not be enough to mollify manufacturers from Pepsi (Stock Quote: PEP) to Kimberly-Clark (Stock Quote: KMB), who have the most to lose when stores slash SKUs.
"They would have to be nervous about it," says Susan Reda, editor of STORES Magazine, which is published by the National Retail Federation. "It's the manufacturer that has more to lose, and if you're not a tier 1 or tier 2 company, you're in a dicey state."
One of the ripple effects of the economic recession was an almost industry-wide reduction of retail inventory. Wal-Mart, for example, trimmed its U.S. inventory by more than 7.5% last year, in part, to prevent the overstock and price plunges that punished the sector in late 2008. The result for manufacturers varied as widely as their products.
For instance, Colgate-Palmolive's sales grew 12% last quarter, including a 5% jump in North America behind the launch of new Colgate products. Procter & Gamble (Stock Quote: PG) and its Bounty paper towels, Duracell batteries, Crest toothpaste and Ivory soap, meanwhile, reported a better-than-expected 6% sales increase last quarter as its gross margins and outlook for the fiscal year improved.