Walking the apparel and accessories aisles at the Wal-Mart in Secaucus, N.J., Edward Stephens is quick to find fault. Women's is running short on the more upscale George clothing line, and a sales associate has slipped in dissonant items from the trendier Metro7 brand. The strongest department in men's -- printed T-shirts -- faces the back wall, making it hard to see. Women's size 5 1/2 shoes are out of stock. Then there's the swimsuit cover-up that has as much style as a potato sack. Blurts Stephens: "That's horrible!"
Stephens, part business analyst, part fashion expert, part spy on the competition, is one of a 340-strong army of "fashion merchants" at Wal-Mart Stores Inc. (WMT ) Wal-Mart and fashion? It may seem like selling Cheez Whiz at Chanel. But as Wal-Mart moves into heavily stored metropolitan areas, it needs these foot soldiers to apply more analysis to the surprisingly sloppy approach it has taken with its clothing business. "It is one of the most important positions we have created," says Claire Watts, executive vice-president for apparel. It could also be one of the most daunting, since shoppers hardly view Wal-Mart as a fashion mecca. "Perception is an issue," admits Watts.
The new post is key to addressing Wal-Mart's biggest sales problem. Nearly 130 million customers shop its 3,200 U.S. stores a week. Yet just 45% shop the whole store, estimates research firm William Blair & Co. And 40% of regulars stick to low-margin basics, bypassing higher-margin sections such as apparel. But it is apparel, with gross profit margins about double Wal-Mart's 23% average, that could really drive profits, says Citigroup (C ) analyst Deborah Weinswig.
Maria Nissirios is one of the shoppers who buy everyday items. These consumers, with incomes closer to $60,000 than the $35,000 and less of Wal-Mart's traditional customer, tend to buy clothes at Target (TGT ), Kohl's (KSS ), or higher-end stores. At the Secaucus Wal-Mart, Nissirios, a 27-year-old architect, loaded up on items like computer screen cleaner, but ignored apparel. "I guess it's kind of [a] mindset," she says.
To change that, Wal-Mart is trying to make its stores more inviting. TSN Media Intelligence shows that Wal-Mart cut overall ad spending by 6% in the first quarter, including a 23% cut in TV advertising. Analysts say some of that money is instead being used to jazz up store interiors. A year ago, Wal-Mart's primary advertising focus was TV. Now, says Wal-Mart marketing head John Fleming, "the most important media channel is the store."
Stephens oversees five stores in New Jersey, including the one in Secaucus, Wal-Mart's closest to New York City. A former supermarket manager, Stephens, 36, was on the grocery side before becoming an apparel department manager. He leapt at the chance to become a fashion merchant last summer, and even began ordering Vogue under his wife's name to keep up with trends.
Stephens must spend a quarter of his time walking competitors' stores. If he sees something he likes, Wal-Mart's Bentonville (Ark.) headquarters allows him a say in buying decisions. Most important, he and his peers provide a new level of connection with headquarters. Stephens talks to Bentonville buyers some 10 times a week. When he learned that women's size 5 1/2 shoes were out of stock, he concluded that headquarters wasn't aware of the store's large base of Hispanic women, who tend to have small feet -- an insight that could aid buying decisions.
Wal-Mart plans to use such feedback to tailor merchandise floor plans and apparel to different markets, such as those that are affluent, mostly young, or Hispanic. But before it can change consumers' perceptions, it must fine-tune its own. That swimsuit cover-up Stephens found so appalling? It flew off the racks.
By Robert Berner