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As most apparel retailers announce job cuts and store closures because of sluggish sales, it is a precarious time for any of them to launch a new brand. But on Feb. 15 Wal-Mart Stores (WMT) will roll out a new line of men's clothing designed by hip-hop entrepreneur Russell Simmons in 350 stores, about 10% of its U.S. outlets, and on its Web site. The launch will come less than a week after the world's largest retailer announced that it will move buyers in the apparel division from its Bentonville (Ark.) headquarters to New York to increase the focus on fashion.
For a company whose financial performance has trounced rivals such as Target (TGT) in recent months by focusing on lower-price essentials rather than more expensive discretionary items, the move seems surprising, especially as Wal-Mart flopped famously in its previous efforts to sell more fashionable, pricier clothing. One such effort was a women's line designed by Mark Eisen, which alienated the store's core customers. "Fashion is tricky," says retail consultant David Lockwood of Mintel Research. "This is not macaroni and cheese or over-the-counter vitamins, which they know really well." But as Wal-Mart slows its store expansion, it needs to sell higher-profit items to continue generating growth—and apparel is one segment that can still draw new customers.
This time around Wal-Mart is keeping a tighter rein on the price and the trendiness of new clothing items. Simmons' American Classics line will be priced between $9.99 and $29, with about 80% of the clothes at $15 or less. Simmons, who launched the Phat Farm clothing label in 1992 and another brand in 2008 called Argyle Culture, sold in Macy's (M), says his new focus is the "urban graduate," whom he describes as 25-to-50-year-old men such as Will Smith, Adam Sandler, and Barack Obama, who grew up with hip-hop clothes but as professionals can no longer don baggy pants and shirts sporting oversize logos. American Classics' first season has a heavy focus on purple, navy, and white and includes jeans, sweater vests, casual sports shoes, and woven and knit shirts.
Wal-Mart made a bigger push into trendier clothing this past fall when designer Norma Kamali, known for her jersey dresses, launched a line for women. With American Classics, Wal-Mart is not only launching a new line but pursuing an audience it has not targeted as specifically before. It is also changing apparel displays in stores. Full outfits will be hung together in racks, so that a mother shopping for her son or husband can get ideas for which shoes go with which sweater and find them in the same area instead of having to pick out the shoes in one section and then rifling through piles of sweaters in another division to find a match. The chain is also installing flat-screen televisions in many stores showing Simmons describing the brand. (Simmons says it took months of haggling to get the TVs because the retailer frowns on pricey frills.)
Still, the new line's timing could not be worse, some analysts say, since Americans have chopped discretionary spending so dramatically. Yet others such as Kelly Tackett from retail research firm TNS Retail Forward contend that Wal-Mart has a chance to attract shoppers from rivals such as Target, which became the "cheap chic" pioneer when it signed flamboyant designer Isaac Mizrahi in 2003. "It is a great time for Wal-Mart to take advantage of the weakness of other retailers, lure first-time or first-in-a-long-time customers, and get their current customers to spend more," Tackett says. In 2008, nearly a quarter of American households spent the majority of their clothing budget at Wal-Mart, according to Columbus (Ohio)-based TNS.
While Wal-Mart took out ads in Vogue the last time it waded into fashion, it is moving much more quietly now and won't discuss the changes. Consultants say Wal-Mart has learned from its previous errors and won't broadcast a strategy unless it's successful. "If Simmons doesn't work, they will try something else," says Lockwood.
McConnon is a staff editor for BusinessWeek in New York.