Walmart’s strategy to launch apparel, house brands is put to the test

Scoop is one of Walmart’s exclusive fashion brands. It has also struck deals with national brands like BCBG Paris.

Melissa Repko | CNBC

SPRINGDALE, Arkansas — Dressed mannequins. Eye-catching displays of stylish furniture and colorful swimwear. And store signs that promote exclusive, nationally recognized brands.

Walmart’s redesigned SuperCenter, located just 16 miles from its northwest Arkansas headquarters, reflects the retailer’s ambitions to entice more customers to turn to its stores and website to fill their closets and living rooms, as well as their refrigerators.

It’s the new model from the retailer, and it’s going to roll out nationwide soon. Walmart plans to open 30 more redesigned stores by the end of January and hundreds more in the following fiscal year, said merchandising director Charles Redfield.

He said the locations will vary slightly and have different elements from the pilot store. They will be used to test and learn before Walmart rolls out the look more widely, he said.

Walmart is the nation’s largest grocery store by revenue, but it wants to generate more sales of higher-margin items such as clothing. Over the past five years, the retailer has launched new brands and entered into partnerships with companies such as Reebok, Gap and Justice to expand its offering in apparel, home and other discretionary categories. These brands often have a higher price tag and an emphasis on style. Many are expanding to more big box stores from Walmart.

The retailer’s strategy has taken on added urgency, after Walmart’s first-quarter results disappointed Wall Street last month and lowered profit expectations. Walmart’s merchandise mix during the period contributed to its earnings loss. As customers spent more on groceries and gas due to inflation, some opted out of purchasing other more profitable items like clothing and televisions – the very purchases that tend to increase profits.

A changing consumer

A pullback in discretionary spending is hitting retailers in general, especially as businesses passed the period a year ago when shoppers had extra dollars from stimulus checks. For Walmart, U.S. general merchandise sales fell in the first quarter, attracting fewer dollars than a year ago, even as overall U.S. net sales hit $96.9 billion, according to documents filed by Walmart.

Compounding the problems, retailers — including Target, Kohl’s and American Eagle Outfitters — have been hoarding excess inventory, as consumers snub some popular pandemic items, watch the budget and decide to spend on travel or restaurants instead of merchandise. .

Walmart reported it also had excess merchandise, with inventory levels up about 33% from a year earlier. US CEO John Furner told an Investor Day last week that it would take “a few quarters” to get back to where the retailer wants to be. He estimated that about 20% of this surplus is made up of goods that the company would like to “just get rid of”. The company declined to comment further on its strategy for selling through its merchandise, after Target shared its aggressive inventory plans.

About 32% of Walmart’s U.S. net sales have come from general merchandise in recent years, according to company filings. This figure fell to 28% in the last quarter. At Target, 54% of sales come from general merchandise, according to its latest annual report.

There’s a big opportunity for Walmart if it can use the frequency of in-store grocery shopping and the popularity of online options like curbside pickup to boost general merchandise sales, Robby Ohmes said, retail analyst for Bank of America.

Plus, he said, creeping prices can encourage a new or infrequent Walmart shopper to give the discounter a shot.

“Everyone sort of manages inflation,” Ohmes said. “There will be groups of people who end up at Walmart who normally wouldn’t – so they might get a better flow of customers as people become more value-conscious.”

Walmart is expanding the prices of its beauty department. It recently added a “Beauty finds” display with makeup, skincare, hair, and other items for $3, $5, or $9 each. It also sells prestige brands under a new deal with British beauty retailer SpaceNK.

Melissa Repko | CNBC

The lure of falling prices

On its website and in a growing number of its stores, Walmart has expanded its styles and prices. In addition to inexpensive basics, it sells sundresses and tops from exclusive brands, Scoop and Free Assembly, which customers can pack for the holidays or wear to a party. He wears jeans that a customer might wear to dinner from Sofia Jeans, an exclusive brand developed with actress Sofia Vergara.

And at home, Walmart is also selling more ambitious styles, including a collection developed with Clea Shearer and Joanna Teplin, the stars behind Netflix’s “The Home Edit.”

In Walmart’s redesigned store in Arkansas, a display shows Thyme & True, one of the retailer’s exclusive house brands. Shoppers can scan a QR code to learn more about items or order them online.

CEO Doug McMillon said Walmart’s lineup will help it weather a period of inflation better.

At an investor day earlier this month, he and other Walmart executives stressed that the retailer would continue to offer entry-level prices for customers living on a tight budget. He’ll have those low prices not only on key food items like rice, cans of tuna, and mac and cheese, but also on general merchandise like t-shirts and tennis balls.

But it can also attract customers who have more money to spend, McMillon said.

“As you move up the income ladder, how many of those customers can you attract in areas that you might not have dealt with as often?” he said. “Can we move some volume into apparel and home and maybe even some of the consumables categories as people become even more value conscious?”

Walmart attracted consumers for basics and groceries, but lost them when buying other items, Redfield said.

“They had to go elsewhere to get what they wanted from a style and quality perspective, so we said, ‘We have to fix this,'” he said in an interview.

Walmart launched exclusive apparel brands, including the Love & Sports activewear and swimwear line, to entice customers to buy more general merchandise. These brands are at the forefront of a new store in Springdale, Arkansas, which is near Walmart’s headquarters.

Melissa Repko | CNBC

Silk scrunchies, craft beer and sundresses

Inside the redesigned Northwest Arkansas store, the clothing department has fewer lockers and wider aisles to encourage browsing. It has dedicated areas that look like mini-shops for national brands, such as Reebok and children’s clothing brand Justice. And it puts Walmart’s own fashion and home brands front and center with mannequins and displays that suggest how to put an outfit or room together.

Walmart is also giving consumer-facing brands that resonate with younger, social media-savvy shoppers more square footage in stores, including shaving company Billie and dog food company Jinx.

One of the other big changes? Price panels are smaller near national clothing brands and Walmart’s premium clothing brands – a big break from the retailer’s tendency to make big, bold numbers.

“We sell clothes in a grocery store, but that doesn’t mean we have to sell clothes like it’s groceries,” said Alvis Washington, vice president of marketing, store design, innovation and experience at Walmart. “Clothing is a discretionary category. It’s emotional. You want them to fall in love with fashion.”

“This is where you actually want them to look, smell, touch the item, and then validate the choice by looking at the price,” Washington said. “We let the product be the hero and set the tone.”

Even in the grocery department, the store has a different look. The wine aisle is larger and includes expensive red wines and high-end champagnes. Also important is the craft beer section. Both changes are geared toward a more hip millennial customer, Redfield said.

“We’re going to sell a lot of underwear and socks,” he said. “We sell a lot of underwear and socks. We will continue to sell them, but we are not going to force our customers to go elsewhere when they want something special.”

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