Walmart strategy to launch apparel, home brands is being 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-up mannequins. Eye-catching displays of sleek furniture and colorful swimsuits. And store signs that promote exclusive brands and nationally recognized ones.

Walmart‘s redesigned SuperCenter, located just 16 miles from its Northwest Arkansas headquarters, reflects the retailer’s ambitions to get more customers to turn to its stores and website to fill their closets and living rooms, along with their fridges.

It is the retailer’s new model, and it will soon spread across the country. Walmart plans to open 30 more redesigned stores by late January and and hundreds more in the following fiscal year, Chief Merchandising Officer Charles Redfield said.

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

Walmart is the nation’s largest grocery by revenue, but it wants to drive more sales of higher-margin items such as apparel. Over the past five years, the retailer has launched new brands and struck partnerships with companies like Reebok, Gap and Justice to expand its offerings in apparel, home and other discretionary categories. Those brands have often come with a higher price point and a focus on style. Many are expanding to more of Walmart’s big-box stores.

The retailer’s strategy has taken on more urgency, after Walmart’s first quarter earnings disappointed Wall Street last month and cut profit expectations. Walmart’s mix of merchandise in the period contributed to its earnings miss. As customers spent more on groceries and gas because of inflation, some decided to not buy other, more-profitable items like clothing and TVs — the very purchases that tend to lift profits.

A changing consumer

To compound troubles, retailers — including Target, Kohl’s and American Eagle Outfitters — have racked up excess inventory, as consumers snub some popular pandemic items, watch the budget and decide to spend on travel or dining out instead of goods.

Walmart reported that it had excess merchandise, too, with inventory levels up about 33% versus a year earlier. U.S. CEO, John Furner, said last week at an investor day that it will take “a couple of quarters” to get back to where the retailer wants to be. He estimated that about 20% of that overage is merchandise that the company would like to “just wish away.” The company declined to comment further on its strategy to sell 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. That dropped to 28% in the most recent quarter. At Target, 54% of sales come from general merchandise, according to its most recent annual report.

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

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

“Everybody is sort of managing inflation,” Ohmes said. “There are going to be groups of people who find themselves at Walmart who normally wouldn’t — so they may get a better flow of customers as people become more value-conscious.”

Walmart is expanding the price points in 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 through a new deal with British beauty retailer SpaceNK.

Melissa Repko | CNBC

The lure of lower prices

Silk scrunchies, craft beer and sundresses

Inside of the redesigned store in Northwest Arkansas, the clothing department has fewer racks and wider aisles to encourage browsing. It has dedicated areas that resemble mini shops for national brands, such as Reebok and kids 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 together an outfit or a room.

Walmart gives direct-to-consumer brands that resonate with younger, social media-savvy customers more square footage in the stores, too, including shaving company Billie and dog food company Jinx.

One of the other big changes? Price signs are smaller near the national apparel brands and Walmart’s elevated clothing brands — a big break from the retailer’s tendency to make the numbers big and bold.

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

“This is where you actually want them to look, feel, touch the item and then validate the choice by looking at the price point on it,” Washington said. “We’re letting the product be hero and setting the tone.”

Even in the grocery department, the store has a different look. The wine aisle is larger and includes expensive red wines and top-shelf champagnes. The craft beer section is also prominent. Both changes are geared toward a more trendy millennial customer, Redfield said.

“We’re going to sell a lot of underwear and socks,” he said. “We do sell a lot of underwear and socks. We’re going to continue to sell that, but we’re not going to force our customer to go somewhere else when they want something special.”

Source: https://www.cnbc.com/2022/06/12/walmart-apparel-home-brands-strategy-tested.html