Apparel is a renewed focus at Wal-Mart (updated)

It’s been two years since Wal-Mart announced it would bring its apparel division back to Bentonville from New York City as part of an effort to rekindle its focus on basics and fashion basics.

Wal-Mart has said its comp sales in apparel rose 3.6% in the second quarter, while overall store comp sales inched backward. The higher-margin apparel items are helping the retailer combat near-zero inflation in grocery and price deflation in electronics – categories that make the majority of the retail giant’s total sales.

Apparel only comprises 7% of Walmart U.S. sales annually, but that totaled $19.215 billion in fiscal 2013. These sales rose 3.89% from 2012, but lagged the $20.824 billion in apparel sales recorded in 2011.

Chief merchandising officer Duncan Mac Naughton said last week the apparel merchandise mix would be 50% basic, 40% fashion basic and 10% trend with new brands such as Russell, And-1,Avia and Ben Hogan on store shelves this fall. He said these brands would help add $500 million in sales in a year’s time.

Andy Barron, executive vice president of softlines at Walmart U.S., told analysts last week another area the retailer was focusing on is women’s activewear. He said merchandisers want to give more space to performance wear, but they have not decided what to remove.

Carol Spieckerman, CEO of New Market Builders, said Wal-Mart is poised to ride the wave created from global retailers like Uniqlo, that have made basic apparel fashion trendy.

She said Wal-Mart’s stick-to-the-basics agenda has been a good bet this past year as the retailer’s improved sales speak for themselves.

In the meantime, she said Uniqlo and some high-end brands like lululemon and have made basics seem like fashion as many garments like leggings and fitted jackets once considered active wear are now deemed casual wear among a broad range of consumers.

“Wal-Mart has a real opportunity to capitalize on the popularity of women’s activewear and democratize it for the masses in an extreme value proposition,” Spieckerman said.
Why not high margin activewear, they have done it with technology time and time again.”

PRODUCT EXCLUSIVITY

Mac Naughton also said mixing basics with popular brands has been a winning formula, as the Duck Dynasty brand has been the best selling t-shirt at Wal-Mart for some time.

Spieckerman applauds Wal-Mart’s effective use of licensing with popular brands like Duck Dynasty in basic apparel. She said layering on licensing is a great way to differentiate its basic apparel and borrow celebrity without making  a long-term commitment.

Barron said Wal-Mart is working with key suppliers providing three-year contracts, over the typical one-year deals.

“Suppliers know they can get $300 million annually / for three years when they give us better costs and access to better exclusive product,” he said in a breakfast meeting with analysts Oct. 15.

Jason Long, CEO of Shift Marketing Group, said Wal-Mart traditionally has not been as focused on product exclusivity as other retailers, happy to undercut like products at their competition on price. 

“Exclusivity for three years seems excessive compared to what I’ve seen with other retailers,” he said. “Retailers are often more hyper-sensitive to a few close competitors when it comes to exclusivity. For example, Home Depot requests exclusivity specific to Lowe’s and Wal-Mart but isn’t as concerned with product in the rest of the hardware channel. It will be interesting to see how flexible Wal-Mart is with their exclusivity push.”

APPAREL OPPORTUNITY
The one category that has notoriously plagued Wal-Mart executives is apparel. Spieckerman said it’s what has kept them up at night for some time. She sees two real opportunities for Wal-Mart to cash in with its apparel strategy. Suppliers that help make that happen are also poised to win, she added.

First, Spieckerman said Wal-Mart has the ability to drive even greater efficiencies by fully leveraging their brick and mortar scale, logistics network and omni-channel capabilities. Doing so will allow Walmart to sell more apparel at full price by getting the right product to the right customer at the right time, even if unit sales remain stable.

“It they don’t add another product there is still room for growth online at higher margins,” she said.

Secondly, Spieckerman said Wal-Mart has suffered for too long as the retailer with predictable apparel.

“It’s time Wal-Mart step out a bit on a brand perspective and add one or two collections, something to create a buzz around fashion and give shoppers a reason to walk across the aisle,” Speickerman said.


One area she believes Wal-Mart could dominant and democratize for the sought after millennial generation is technical-based fashion also known as wearable technology.

‘Uniqlo is a great study in technical fashion, they are expanding here in the U.S. peppering both coasts with stores with plans to serve the interior states largely through online sales,” Spieckerman said. “Think about buying the latest tech gadget that comes inside a coat, it’s a win for both categories, higher margin apparel offsetting ongoing deflation in electronics."

She argues that a retailer of Wal-Mart’s scale and reach could take a leadership role in the emerging apparel/technology convergence by making wearable technology available to everyday consumers.

“We know millennials shop anywhere they can find what they want, when they want it, and Wal-Mart has the scale to meet those demands in emerging technology,” Spieckerman said.