Strategy

Walmart's brand backfire

Walmart finds that many customers prefer name brands, even in a recession.

In the depths of the recession, Walmart tried to increase sales of its Great Value private-label products with more advertising, new packaging and better in-store signs. It also yanked many name-brand equivalents from store shelves. Unfortunately, the company grossly underestimated the power of a strong brand.

Walmart thought that customers would respond well to its private-label products, since they are usually 5% to 20% cheaper than their name-brand alternatives. Plus, research company Nielsen Co. had reported a 10% increase in house-brand sales across the grocery sector in the previous year. So, in March of 2009, Walmart kept top-selling merchandise on shelves, and removed a reported 300 other products to call attention to the private-label substitutes. Glad products, for example, were wiped from shelves.

But the company didn’t see the same kind of results as its grocery store competitors, which were successfully pushing their house brands. Instead, Walmart’s sales fell for the forth quarter in a row, with a 1.4% decrease in its first fiscal quarter of the year. While the company has blamed factors such as unemployment and gas prices as the cause of their low sales, they also recognize that they were too eager to axe name brands, and are quickly restoring many of those products to the shelves.