Walmart struggles with apparel sales

Apparel has been a weak spot for retail low-cost leader Walmart for several years. Consumers who appreciate private-label discounts on a gallon of milk or loaf of bread have been largely unwilling to walk across the aisle to purchase clothing, outside of socks and tee-shirts.

Bentonville-based Wal-Mart Stores Inc. recently posted weaker same-store sales in its apparel division amid the busiest shopping season of the year. The company blamed the lackluster results on a mild winter that crimped demand for items such as coats and sweaters.

However; other discount apparel retailers like TJX, parent of T.J.Maxx, posted 7% gains in same-store sales over the identical period and say they are off to a great start in 2012.

Analysts say “back to basics” makes Walmart apparel a misfit of sorts, among other discount apparel retailers.

“Walmart is ever becoming a commodity retailer with food and consumables accounting for 56% of sales. While they have the scale to play in the fashion arena, it looks like they have opted to be a very good grocery store with a TV, apparel and hardware caboose,” said Brian Johnson, president of Customer Growth Partners.

The “back to basics” initiative announced last year meant Walmart would focus on core apparel basics like tee shirts, socks, underwear and jeans.

Johnson said this is a tricky market given its low profit margins in comparison to other fashion segments.

“Walmart certainly has the scale to play here and be king of a very small pond,” he said.

It remains to be seen if “back to basics” will help the retail giant drive higher apparel sales this year and solve its ongoing fashion identity crisis. Walmart’s apparel revenues accounted for about 6% of the chain’s total volume last year, down from the low-double-digit levels just a decade ago.

Johnson said as Walmart has moved from rural areas in the larger metro market it has found intense competition for fashion dollars among consumers with lots of choices. He believes Walmart could compete well in the high-margin arena of performance apparel — one the hottest categories in fashion today, with brands like Under Armour.

“There is a large margin umbrella here and only a few retailers in this market. But it would take an investment on Walmart’s part,” Johnson said.

He said better fashion garners higher margins and Target has shown large retailers can succeed in apparel. Johnson said it takes investment and time.

Meanwhile, Walmart’s efforts to relocate its apparel division back to Bentonville after a three-year experiment in New York were to be completed this month. The company has not said if the relocation of its employees is complete, but the target set in October was Feb. 1.

Roughly 40% of Walmart’s apparel planning, replenishment and modular execution associates remained in Bentonville. 

Walmart said uniting its apparel efforts into one location made sense. Some 250 employees were effected with the closing of the New York office, but not all of them returned.

Chief Merchandising Officer Duncan Mac Naughton said at an analyst conference five months ago, "We're very focused, very focused, on winning and basics, on socks, underwear, jeans and basic tops. It's who we are, that's what we stand for."

Johnson said you don’t need a New York office in the fashion district if your focus is socks and tee shirts.

LOCAL IMPACT
Ed Clifford, CEO of the Bentonville Chamber of Commerce, estimates a dozen to 15 apparel vendors have recently set up local offices. Some of the vendors making it back include:The North Face, Wrangler and Hanesbrands.

Butch Gurganus, commercial agent with Colliers International in Bentonville, said he’s helped about 12 companies find office space so far, with several more still looking.

“Most of the apparel vendors want an office location in northeast Bentonville near Walmart’s layout center,” he said.

Gurganus said vendors are finding property owners want a 5-year lease and rates range from $14.50 to $15.50 per square foot in most cases. He said vendorville is growing again, not only because of Walmart’s apparel move, but also from the company’s pledge to restock its shelves since “project impact” was abandoned.

“A number of vendors pulled out and the larger ones reduced local staff numbers when they lost shelf space. But since the company vowed to restock more products last year we have seen some offices grow and others return with a sales team of two or three people,” Gurganus said.