Wal-Mart's Fashion Fade

By ANN ZIMMERMAN and SALLY BEATTY
Staff Reporters of THE WALL STREET JOURNAL
July 2, 2004

Two years ago, Wal-Mart Stores Inc. set out to do what was once unthinkable: get serious about fashion.

The world's largest retailer -- known for being cheap but never chic -- had bulked up its fledgling product-design team and dispatched buyers and designers to Europe for inspiration. Most importantly, Wal-Mart announced it would roll out the contemporary apparel line George, which already had enjoyed a decade of success in the United Kingdom.

Stateside, nervous fashion retailers bristled. With apparel sales already stalled, the industry worried it would be the next victim of the so-called Wal-Mart effect. The Bentonville, Ark., retailing chain is known for dominating nearly every consumer product category it sets its sights on -- from toilet paper to toys -- forcing down prices and flattening competition along the way . As the largest seller of clothing basics, such as jeans, sweats and underwear, Wal-Mart sales already accounted for roughly 25% of the U.S. apparel market.

Four seasons out, George, which is targeted to women 30 to 50 years old, is hardly the megahit industry denizens feared. Although Wal-Mart insists sales of the George line are ahead of plan this year, apparel suppliers, analysts and observers say sales have been far below what the fashion world was expecting.

"[George] is not flying off the shelves," says Marshal Cohen, senior analyst with NPD Group, a Port Washington, N.Y., market-research firm that tracks apparel sales.

Not that the merchandise is drab or costly. Sharply-priced George offers Chanel-inspired tweed jackets and flouncy floral skirts, with most items less than $20. The problem, rather, appears to be with Wal-Mart's execution. In-store displays are small and often hard to find. Some feel it has suffered from a lack of advertising in a heavily promotional industry. Others perceive George as less a fashion collection than a gaggle of basics in better colors and fabrics.

"When you launch a fashion brand you should do it with 360-degree support in terms of how it is merchandised and placed in stores and you need to talk about it -- difficult issues for Wal-Mart," says Mandy Putnam, an analyst with Retail Forward, a marketing research and consulting firm based in Columbus, Ohio.

George's wobbly start raises the larger question of whether Wal-Mart's low-price, commodity approach is too restricting for a fashion brand. "Wal-Mart is really known for price," says Todd Slater, an analyst with Lazard, a New York investment bank. "But that is not the primary goal in buying fashion apparel."

Wal-Mart's late entry into fashion apparel follows the lead of other discount retailers, whose efforts have met with varying degrees of success. Sears, Roebuck & Co.'s 1993 foray into the softer side faltered, and it is trying again, this time with established brands such as Lands' End, whose preppy styles have seen mixed sales results. Target Corp., meanwhile, has become the style leader in the discount sector, relying on big-name designers such as Isaac Mizrahi and Liz Lange. Though not all Target's designer clothes have been hits, the company recently said apparel sales are improving.

Wal-Mart stresses that George sales were on plan last year -- a tough one for apparel in general -- and are ahead of expectations this year. "We're very pleased with our profit levels and George is growing," says Celia Clancy, Wal-Mart's general merchandise manager for women's apparel.

Wal-Mart's vast size, with about 3,000 U.S. stores , appears to be a bigger obstacle to George than the company had expected. "There is an inherent conflict between creating a fashion item and doing it in on a mass scale," Mr. Slater says.

Wal-Mart's Ms. Clancy disagrees, but concedes that one of the retailer's biggest challenges has been editing the collection for the diverse demographics and extensive store base of the U.S. market. "The trends in the metro U.S., don't always cut it in more rural areas," explains Ms. Clancy. Among shoppers -- even loyalists -- Wal-Mart suffers from the nagging perception it sells only commodity clothing .

Shopping recently at a store in Riverhead, N.Y., Ilene Benison, a 65-year-old retired school secretary, noticed the George line out of a corner of her eye. Having already purchased some exercise clothes from Wal-Mart, she wasn't tempted by the dressier offerings. "I am not being snobby, but I'm not really looking to expand my wardrobe there," she says.

Orit Neustadt, a 29-year-old college student and mother of two young girls, said she would consider buying fashion looks at Wal-Mart. But shopping in Valley Stream, N.Y., she hasn't seen anything close to stylish. "I looked a couple times, but they only had basics," Ms. Neustadt says.

Created by George Davies, the former owner of a successful chain of British apparel stores, George was part of the Asda supermarket chain in the U.K. that Wal-Mart acquired in 1999. The sleek but inexpensive clothes for women and men helped bring Asda back from the brink of insolvency in the early 1990s. As it expanded into accessories, undergarments and trendier styles, it grew to become the second-biggest selling apparel brand in the U.K., behind only Marks & Spencer. To make George a successful global brand, as Wal-Mart intends, the company must adapt to a more demanding production cycle. Stores in the U.S. operate on longer lead times, since every step of the process, from manufacturing to store delivery, takes longer than in the U.K., where Wal-Mart has just 200 stores. New industry brainpower may help. Wal-Mart recently hired an outside consultancy to help tackle its fashion problems, including the George line. Wal-Mart also recently hired Sara Lee Corp.'s casualwear executive Karen Stuckey as vice president of product development in the U.S. She is seen as someone who will help the company address logistical issues and speed product into stores at the right time.

Acknowledging that looks really do matter, Wal-Mart is rolling out new apparel displays, with brighter lighting, wooden floors, and special signs designating each brand. Don't expect to see flashy TV ads for George or any of Wal-Mart's private-label apparel. Wal-Mart still spends less than 1% of sales on advertising, which rarely focuses on anything but price, compared with 3% for Target Corp. " We fortunately don't have the problem of having to drive customers to the stores ," Ms. Clancy says. "What we have to do is hook them once they're inside."