The new boss of Wal-Mart Stores’ US unit has again reiterated the need for improvement in the retail giant’s apparel business after admitting that “overall apparel comps remain negative.”
Speaking earlier this week after the world’s largest retailer filed its second quarter results, Bill Simon president and CEO of Walmart US said: “We are focused on improvement in our apparel business and believe we will see better comps by the fourth quarter.”
He added: “Our team is re-emphasising offerings for our core shopper and including more relevant size offerings in our core brands, Faded Glory, Danskin Now and Just My Size.”
This move is likely to involve going back to basics, by focusing on products like socks, underwear, jeans and T-shirts that meet everyday needs for customers that include the poorest American consumers, who continue to be battered by ongoing economic pressures.
The US boss also said its approach extends to the up-coming back-to-school season, noting: “We are very focused on delivering basics in back-to-school apparel, such as socks, underwear, tees, and school uniforms.
“More than 1,000 stores have merchandise specific to college areas, and all stores carry merchandise with logos from local high schools.”
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By GlobalDataThe retailer has already admitted that the more affluent shoppers who traded down to it during the recession are now returning to traditional department stores for their discretionary spending.
Simon’s comments also echo the sentiments of former US chief Eduardo Castro-Wright earlier this year, who not only described its apparel business as “a work in progress,” but also downplayed its importance by saying “it is not a significant part of our total business.”
Executive shuffle
Since taking up his new post at the end of June, Simon has already instigated a number of changes to the retailer’s US team.
These have included the exit of chief merchandising officer John Fleming after ten years, in a move that has split merchandising roles between two executives: John Westling, EVP, planning, pricing and replenishment, who will lead the general merchandising and replenishment teams; and Jack Sinclair as EVP and general manager, grocery, to lead the food and health and wellness merchandising teams.
And specifically in apparel, the retailer has lost Dottie Mattison, senior vice president and general manager of apparel, who was responsible for the Apparel Global Merchandising Center, including brand merchandising, product development and sourcing.
The moves are widely seen as an admission of the company’s previous strategies, which included trying to be more trendy with a focus on fashion items rather than basics, including collaborations with teen pop star Miley Cyrus and fashion designer Max Azria. It also moved its entire clothing team to New York, to be closer to the heart of fashion.
George bright spot
Unfortunately Wal-Mart hasn’t been able to replicate in the US the success of its huge and fashionable George brand, which is sold at its Asda supermarket chain in the UK. This is one of the few bright spots in the retailer’s apparel portfolio.
Although like-for-like sales at Asda fell 0.4% in the second quarter, total sales grew in the low single digits, according to Doug McMillon, president and CEO of Walmart International.
But he added: “Asda’s gross margin as a percentage of sales increased in the second quarter on a mix shift towards higher margin George clothing and general merchandise.
“George had a particularly strong quarter, with strong sales of World Cup related merchandise and our 100 day quality guarantee. Customers continue to respond well to our guarantee, and we continue to see this as a unique competitive advantage in the market.”
Poor performance
While apparel accounts for just 10% of Wal-Mart’s annual US revenues (down from 12% a year earlier), its poor performance will have contributed to a 1.8% drop in same-store sales at the Walmart chain in the US during the second quarter.
Worryingly, this is the fifth consecutive quarterly drop in same-store sales, with domestic sales hit by higher gasoline prices and unemployment, as well as competition from other retailers who have cut their prices to appeal to cash-strapped shoppers.
Despite the challenges facing the retailer’s US business, it still managed to file a 3.6% rise in second quarter earnings, with profit up to $3.60bn or $0.97 a share, in the three months to 31 July. This compares with a profit of $3.48bn or $0.89 per share, a year earlier.
Revenues also rose 2.8% to $103.73bn – including an 11% jump in international sales – prompting the retailer to raise its full-year its full-year profit target to US$3.95-4.05 per share, up from an earlier forecast of $3.90-4.00 per share.
But most of these gains have been achieved through cost cutting throughout its supply chain and stores – raising questions about the sustainability of this strategy in the long term.
