Analysis: Why Walmart's new bet on fashion brands, home decor threatens specialty chains

Bed Bath & Beyond

15/06/2023 11:00

By Siddharth Cavale
       June 15 (Reuters) - Price-conscious shoppers flock to
Walmart Supercenters to pick up $1 potato chips and $3 gallons
of milk, but the world's biggest retailer will now try to sell
them $298 cozy swivel chairs and $50 Wrangler jeans, too.
    Using low-cost and low-margin groceries as a draw, Walmart
is adding more than a dozen new lines of pricier, more
profitable merchandise including six through partnerships with
celebrities like Drew Barrymore and Sofia Vergara. 
        The company wants to change its image from merely a
steep discounter to a destination where customers can also
purchase fashionable home goods and clothing. 
    T-shirts from Reebok, accessories from Justice and men's
dress shirts from Chaps are among the national brands Walmart is
highlighting in its renovated "Stores of the Future." Most of
the goods are priced between $15 and $50, Denise Incandela, vice
president of apparel and private brands, disclosed at a June 6
conference with investors.
    Walmart historically has marketed mostly its own brand of
clothing: basic George t-shirts, shorts and pants, typically
priced at $15 or less. But Incandela, a former Saks and Ralph
Lauren executive, said Walmart's research showed that 80% of its
customers were purchasing higher-priced clothes elsewhere. 
    She told Walmart investors its strategy is to "democratize
fashion" or convert the company's core, price-conscious shoppers
into style-conscious shoppers. 
    "It is a huge transformation on the apparel side," she said.
    Americans shop for clothing, footwear , chairs and lights
from millions of mom-and-pop stores, regional chains and online
platforms every day, analyst say, giving no one retailer
outsized dominance in the highly fragmented markets for home
decor and apparel. 
    But smaller retailers have a hard time competing with
Walmart because of its scale and size and its well-known history
of squeezing suppliers on prices by promising them volume sales.
    Walmart's strategy "is a risk to the market but not a
disproportionately larger risk" to bigger retailers like Target
or Gap, Rosenblum said. It would probably be the rest of the
market that should be worried," he said pointing to apparel
retailers such as Carhartt. 
    Privately held Carhartt does not disclose revenues.
Retailers that do, including Tilly's Inc  TLYS.N , Abercrombie &
Fitch  ANF.N  and Lands End  LE.O , posted declining revenues in
the latest year, according to Refinitiv IBES.
    Walmart accounts for 4.6% of the $560.4 billion U.S. apparel
market, followed by TJX, Target and Ross at 4.4%, 4.1% and 2.8%,
respectively, according to GlobalData.
    Bankrupt Bed Bath and Beyond was a leader in the home decor
and furnishing industry along with furniture chains Ikea and
Wayfair. This U.S. market stood at $169 billion dollars in
2019 and is forecast to hit $194.9 billion in 2023, according to
Statista.      
    
    STORES OF THE FUTURE
    In its "Stores of the Future" drive, Walmart is renovating
700 stores as part of a record $17 capital expenditure plan. By
year end it will place its new clothing and home decor in
snazzier displays in the revamped facilities.
    Walmart's, celebrity collaboration strategy, which was
pioneered by rival Target, features women's clothing designed by
Brandon Maxwell of the Bravo show "Project Runway" and home
organization products developed by Clea Shearer and Joanna
Teplin from "The Home Edit" series on Netflix.
    Near the front of one remodeled store, Walmart placed a $79
Beautiful by Drew Barrymore air fryer. Close by was a display of
$27.50 Sofia Jeans for women, from its collaboration with
Vergara, along with Reebok shorts and pullovers. 
    CFRA research analyst Arun Sundaram said Walmart could pick
up sales of home decor following the bankruptcy of Bed Bath and
Beyond, and it might gain market share from other clothing
chains with inventory gluts. 
    He expects Walmart to spend $5.7 billion renovating its
stores this year, up from $5 billion in 2022 and $3.3 billion in
2021.
    Sundaram added that Walmart's opportunistic move to double
down on clothing and home goods "made sense" when the economy is
slowing and not "when people are buying everything."
    Walmart's previous effort to branch into fashion met with
failure. In 2017 it challenged online retailer Amazon.com by
acquiring upmarket brands Bonobos, ModCloth and Moosejaw, units
it sold a few years later at fire sale prices in some cases. In
2005, Walmart's Metro 7 fashion brand tanked and later designer
lines with Max Azria and Norma Kamali also withered.
    The strategy has bombed at some other retailers. J.C.
Penney's efforts to attract more affluent shoppers and reduce
dependence on coupons alienated its core shoppers and eventually
forced the more than a century-old
retailer to file for bankruptcy in 2020. The company emerged
from bankruptcy a few months later, but as a much smaller
entity. 

 (Reporting by Siddharth Cavale in New York; Editing by Vanessa
O'Connell and David Gregorio)
 ((siddharth.cavale@thomsonreuters.com; Cell: +1 646-288-4330;))