Retail watchers say Walmart U.S. needs to improve apparel offerings, sales

Analysts and retail experts say Wal-Mart, while focused on fresh grocery, customer service and employee relations, could also do better with its stagnant apparel division that represents about 7% of the U.S. annual sales, or $20.16 billion last year. 

Apparel sales rose by 3% from the prior year while still averaging just 7% of the company’s overall U.S. sales. Moving the needle just 1% percentage point would have meant an additional $3 billion in annual revenue last year, according to the company’s financial reports.
 
Two retail analysts recently asked Walmart U.S. CEO Greg Foran about the “status quo” apparel agenda, noting that there has been little mention of plans to better merchandise this high margin category under his leadership. Walter Loeb, analyst with Loeb Associates, said fashion retailing has become important internationally. 

“Particularly companies like Uniqlo and H&M have been very important competitors to Walmart and to everybody. We're soon going to see another entry with London-based Primark coming into the Northeast. I was wondering how Wal-Mart is going to address that competitor and all of fashion competitors because I think that it has lost share of market in fashion and lost it to other retailers,” Loeb asked Foran at the U.S. Stores Update meeting held in New York City on April 1. 

Foran acknowledged that Primark is a “very, very good competitor.” He told the analysts that Wal-Mart is well aware that Primark is coming to the U.S.

“We have had teams over there looking at their business. … We know where they are coming and when they are coming. We have been leveraging off the (Esther) team and George brand and you can assume that we're going to compete very, very aggressively,” Foran said.

Foran also said the merchant team, who now reports directly to him, “is not frightened to lean in and have a go,” looking at jeans that might be on sale at Primark or a fashionable T-shirt. Foran said the merchants are “pulling in all the pieces.” He said they understand sourcing requirements and differences in tariffs and Wal-Mart will compete aggressively with Primark and anyone else in apparel.

“We won’t back away from having great prices,” he added.

Ernie Salsner, analyst with Gilford Securities, appreciated Foran’s focus on more attention to detail in the massive retail operation, but he told Foran that there’s another important element that has not been adequately discussed — the excitement of merchandising. 

“I really don't hear much of that (from this management team),” Salsner said.

Foran wasted no time in firing back by saying he’s plenty excited about merchandising sharing one of the items he’s most proud of this year which is a tank top that retails for $1.68.

“Assortment is absolutely the key to running our business. You've got to have the store operating discipline, but actually that is secondary to getting the assortment right. You can run the cleanest, tidiest nicest store that you've ever seen, but if the product in there isn't right, it actually doesn't matter. If you get the product right and the store isn't clean and nice and tidy, you'll still have a business. So merchandise is absolutely critical,” Foran answered.

OTHER INSIGHT
Carol Spieckerman, CEO of newmarketbuilders.com, applauds Wal-Mart for “battening down the hatches in grocery as threats” continue from all side.

“Family Dollar and Dollar Tree are already plotting their combined efficiencies and Aldi, and soon, Lidl, are pushing pedal to the metal on U.S. expansion,” she told The City Wire.

She said even apparel-savvy Target is taking a hard right turn toward grocery so Wal-Mart is right to gird its grocery business. That said, Wal-Mart is a multi-category retailer and apparel remains a high-margin opportunity area.

“Wal-Mart’s approach to apparel has been lopsided as of late. Active wear may be the new casual wear but not to the degree that focusing on it should come at the expense of better basics and true fashion, both from a brand partnership and space allocation perspective,” Spieckerman said.

Under the merchandising management of Duncan Mac Naughton, who left the company in November, the retail giant had been content with offering basic underwear, T-shirts, socks and licensed logo apparel. In the past two years the retailer signed new deals with Avia, Russell and Starter and expanded the lines of Danskin and OP which offer active wear, one of the fast growing categories within apparel.

Foran has given little insight into the apparel category since he took charge of Wal-Mart U.S. in October outside of his prized $1.69 tank top which he has mentioned on at least three prior occasions.

“Well-priced basics are Wal-Mart’s bread and butter, but it isn’t making a compelling statement in ‘better’ and ‘best’ apparel outside of active wear,” Spieckerman said. “Apparel does staggering numbers at Wal-Mart, of course, simply by virtue of its scale, yet asking how much better it could be should be keeping someone awake at night.” 

She said there are opportunities in the apparel category and as Foran plans to introduce an element of surprise in the grocery business it could also be parlayed into apparel.

“Suppliers can’t drive this strategic shift, but no doubt many will be more than happy to gear up once it happens,” Spieckerman said.

Jason Long, CEO of Shift Marketing Group, said Wal-Mart could and should do better with its apparel offerings. He noted that the “Win, Show, Place” agenda used in recent years has not played out well in apparel. He said there are niche opportunities that other retailers are taking in apparel, something Wal-Mart could definitely tweak to fit their low price model.

“Dick’s Sporting Goods recently unveiled a line of trendy, active wear inspired by Carrie Underwood under the ‘Calia’ brand. It’s doing quite well at a price point much higher that would likely work at Wal-Mart. But Carrie Underwood would have also appealed to the Wal-Mart demographic,” Long said. 

He said Target’s recent launch of Liv and Ava for curvy women was a great move for that retailer. He said there is “plenty of demand” for trendy clothes for women of all sizes.

Laura Heller, executive editor of Fierce Retail, told The City Wire that Target’s new line of plus-sized clothing made absolute sense for a retailer that is known for trendy fashion.

“Wal-Mart has never been known for its fashion,” Heller said.