Wal-Mart Stores' (WMT) decision to consolidate its apparel buying operations in New York could leave big vendors like Hanesbrands and VF in the lurch. That's because those apparel vendors, like most of Wal-Mart's suppliers, maintain sizable operations near the retail giant's headquarters in Bentonville, Ark. Hanesbrands (HBI), for example, opened its office in August 2007 to support its growing business with Wal-Mart, its top customer. VF (VFC), whose brands include Nautica, The North Face, and Wrangler, also sells more merchandise to Wal-Mart than to any other customer, and houses employees in Bentonville.
Sales to Wal-Mart equaled 12% of VF's total revenue of $7.2 billion in 2007, and 13% in 2006. Hanes is even more dependent on sales to Wal-Mart, accounting for 27% of its 2007 sales of $4.5 billion. Target (TGT) came next, with 14% of its total. "Most apparel suppliers with offices in Bentonville do a large business with Wal-Mart or they couldn't afford to staff a team here," says a retail operations consultant.
Layoffs at Headquarters
The Bentonville-based source says there are approximately 100 apparel vendor offices there, most with fewer than 10 employees. A few are larger: Hanes, whose office is in the Bentonville Plaza, has space for up to 200 employees. There are rarely that many staff in Bentonville at one time, though, as most employees rotate in and out.
Wal-Mart disclosed plans on Feb. 10 to terminate 700 to 800 workers at its corporate headquarters. The cuts in merchandising, marketing, and real estate positions reflect the retailer's plans for fewer new stores and more remodels of existing outlets. As part of the restructuring, Wal-Mart said it plans to add an undisclosed number of jobs at its apparel office in New York. The retailer started moving apparel buyers to New York last year. "That is intelligent—and frankly, very late," says retail consultant and investor Howard Davidowitz in New York, who recalls leading Wal-Mart founder Sam Walton around Manhattan to meet with fashion designers. "Can you imagine having a fashion operation in Bentonville? It never made any sense whatsoever."
However, the impact on Hanes and others could be muted, Davidowitz says, since much of the work done by apparel suppliers in Bentonville has more to do with supply-chain issues—in other words, keeping the store shelves full. "It's not all working with the buyers," says Davidowitz. "A big piece of it is distribution and replenishment."
Socks and Underwear Stay in Arkansas
"It is likely that the buying structure will not change for nonfashion items such as socks, underwear, and other basics," adds Sandy Skrovan, senior vice-president at retail consultancy TNS Retail Forward.
According to a Feb. 10 internal Wal-Mart document obtained by BusinessWeek, the only apparel functions that will remain in Bentonvillle are "in-season planning, replenishment, pricing, and modular development," which is industry jargon for store shelving. All the rest will move to New York, including design and development, marketing, buying, preseason planning, and brand merchandising.
Wal-Mart's buying decisions regarding fashion trends are largely made in showrooms in New York, Davidowitz says, with orders immediately sent to factories in Asia. "The people in the fashion business are not residents of Bentonville," he says.
Still, the Bentonville-based consultant, an expert in retail supply chains and logistics, says the need for replenishment staff "will be minimal and may not warrant keeping an office." The vendor could choose to outsource such work, or have those employees work from home, he says.
Spokespeople for Wal-Mart, Hanes, and VF could not be reached for comment.
Boyle is deputy Corporations editor for BusinessWeek.