• by Sarah Mahoney  @mahoney_sarah, September 15, 2010

Wal-Mart Stores has been candid about its mistakes in the way it pared back assortment in recent months -- and in a presentation for investors, Bill Simon, CEO of its U.S. division, shed some light on how the retailer is hoping to win back the shoppers it sent away.

While the higher-income shoppers who discovered Walmart during the recession are still roaming its aisles, "the traffic loss is in the middle and toward the lower end of the business, and that's primarily from the assortment issues," he told those attending the Goldman Sachs Seventeenth Annual Retailing Conference, noting that high gas prices are still a concern for consumers.

"If you're not sure we have an item, then our one-stop-shopping promise can't be fulfilled and gas prices are important. But if we have everything shoppers want, as we have in the past, gas prices might work in our favor."

The chain's error, he says, was focusing on the value of a single product rather than the savings achieved in the entire shopping trip. "When you reduce the assortment, which we did, and focus on the item, which we did, it is really hard to win -- our competitors can match us on items. Our promise needs to be around the entire basket. No one can beat us on breadth."

Simon, whose remarks were also webcast, told attendees that Walmart's core customer is continuing to struggle. "I say this not to use it as an excuse. But we have a responsibility to serve that customer -- they need us now more than ever."

The paycheck cycle continues to be extreme, he adds. "If you were to go to one of our stores on the last of the month, you'll see shoppers start to come in at 11 p.m., filling their carts with diapers and baby formula, waiting for the electronic forms of assistance to transfer at midnight," he says. "The only reason someone goes out for formula at that hour is because they really need it."

In that vein, he says, the Bentonville, Ark.-based chain is forecasting a "very competitive Christmas and holiday selling season. Kids may be getting toys," he says, "but all you adults should be planning on socks and underwear -- that's what you're going to get."