Wal-Mart Gets the Fashion Bug

With slower growth chilling investors' enthusiasm, the retailer is following Target's lead and launching a cheap chic line. Will that be enough to stop its slip showing?

By Pallavi Gogoi

Can Wal-Mart (WMT ), the purveyor of merchandise at "everyday low prices," be a destination for hip urban fashionistas? It's the billion-dollar -- or more -- question: The world's largest retailer announced Oct. 6 the birth of Metro 7, its new brand of urban women's apparel that has started rolling out in 500 stores in an around urban areas.

Wal-Mart started creating this brand in February, 2005, when it discovered that many of its upscale customers would come into its stores for vegetables, cereal, detergent, and the like -- and turn up their noses at higher-margin items like apparel and electronics, says John Fleming, Wal-Mart's chief marketing officer. It was a classic case of missed opportunity, and that realization chafed executives at company headquarters in Bentonville, Ark. "Metro 7 is an important step in the strategy to fill the gap in our customers' needs," Fleming said in an interview with BusinessWeek.


  Wal-Mart is also going upscale in its Metro 7 marketing efforts. It has been running multipage ads in Vogue featuring the face of the brand: former Miss Universe Dayanara Torres, ex-wife of pop star Marc Anthony.

Still, showing clothes in paid-for advertising pages isn't the same as being featured in photo spreads put together by Vogue's editorial staffers. And it will be a challenge for Wal-Mart to convince customers that the new brand is really trendy, even though it's positioning Metro 7 as "a distinct line of women's apparel designed specifically for the fashion-savvy customer." That's quite a change from the cheap, dowdy clothes now spilling off hangers at Wal-Mart stores. "Fashion is scary," Fleming concedes.

Little surprise that Wal-Mart has also been beefing up its marketing staff, which will have to convince customers that the chain can deliver a fashion-forward product. In April, it promoted Fleming, former president and CEO of walmart.com, to chief marketing officer of Wal-Mart.


  Before joining Wal-Mart in 2000, Fleming spent 19 years at archrival Target (TGT ), where his responsibilities included the company's famed fashion divisions. And on Aug. 31, Wal-Mart hired Stephen Quinn, former chief marketing officer of PepsiCo's (PEP ) Frito-Lay division, to develop Wal-Mart's marketing strategy and brand development.

But the time might just be right for Wal-Mart to field its own fashion brand and ride the wave of the "masstige" -- prestige for the masses -- movement, which is about cheap chic. H&M (HMRZF ), the Sweden-based global retailer, has recruited haute couture designer Stella McCartney to design a line of apparel that is slated for launch Nov. 10. This follows the success of last year's Karl Lagerfeld line, which sold out hours after it appeared in H&M stores. And discount retailer Target features such high-end designers as Isaac Mizrahi and Cynthia Rowley.

"It's difficult, but in these times, when the customer is willing to look around for fashion, it's certainly not impossible for Wal-Mart's new brand to succeed," says Robert Passikoff, president of strategic brand consulting firm Brand Keys.


  And offering more fashionable apparel has clearly helped Target streak ahead of Wal-Mart when it comes to attracting customers who spend more. Target's same-store sales -- sales at stores open at least one year -- have outpaced Wal-Mart's every month this year.

In September, Target's same-store numbers were up 5.6%, vs. a 3.8% increase for Wal-Mart. And even though Wal-Mart is attracting customers with fatter wallets, the average annual salary of a Wal-Mart customer is still $35,000, vs. $50,000 for Target's typical shopper.

There's no doubt Wal-Mart is under pressure. In August, the chain reported its smallest quarterly increase in income in four years, saying that higher oil prices not only drove up costs but also cramped consumer spending. And for a second straight quarter, it missed U.S. sales target. Investors have taken notice: Wal-Mart's stock is down 17% for the year, to $44.03. By contrast, the Street has rewarded Target, sending its stock up 6%, to $51.75.


  The fact that Wal-Mart is putting plenty of marketing muscle and money behind a brand it created and launched in just eight months shows how serious it is about its strategy to attract upscale customers.

Given the debilitating effect that Wal-Mart has had on supermarkets around the country after expanding into the grocery business, it may not be long before Target and H&M go back to their drawing boards to craft fresh tactics for fighting this behemoth.

Gogoi is a New York-based writer for BusinessWeek Online

Edited by Patricia O'Connell

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