On June 15, Walmart Supercenters are witnessing a surge of price-conscious customers seeking out affordable items like $1 potato chips and $3 gallons of milk. However, the retail giant has decided to expand its offerings to include higher-priced products such as cozy swivel chairs priced at $298 and Wrangler jeans priced at $50. While the company has traditionally attracted shoppers with its low-cost and low-margin groceries, it is now introducing over a dozen new product lines that are more expensive but also more profitable. This expansion includes six collaborations with popular celebrities like Drew Barrymore and Sofia Vergara.
The company aims to transform its reputation from being solely a deep-discount retailer to becoming a destination where customers can also find stylish home goods and clothing.
In its revamped “Stores of the Future,” Walmart is showcasing national brands such as Reebok for t-shirts, Justice for accessories, and Chaps for men’s dress shirts. During a conference with investors on June 6, Denise Incandela, the vice president of apparel and private brands, revealed that most of these products are priced between $15 and $50.
Traditionally, Walmart has mainly promoted its own brand of clothing, featuring basic George t-shirts, shorts, and pants, typically priced at $15 or less. However, Incandela, a former executive at Saks and Ralph Lauren, explained that Walmart’s research indicated that 80% of its customers were buying higher-priced clothing from other retailers.a
During the investor conference, she informed Walmart shareholders that the company’s strategy is centered around “democratizing fashion” or transforming their core customer base of price-conscious shoppers into individuals who prioritize style in their purchases.
“It is a huge transformation on the apparel side,” she said.
Market Dynamics and Competitor Analysis
According to analysts, Americans regularly purchase clothing, footwear, chairs, and lights from a multitude of mom-and-pop stores, regional chains, and online platforms. This daily activity contributes to a highly fragmented market for home decor and apparel, where no single retailer holds significant dominance.
However, smaller retailers face significant challenges when competing against Walmart due to its vast scale and size, as well as its well-established reputation for pressuring suppliers into offering lower prices in exchange for high-volume sales.
Dean Rosenblum, a senior research analyst for retail at Bernstein, believes that Walmart’s strategy poses a certain level of risk to the market, but not disproportionately higher risks to larger retailers like Target or Gap. He suggests that it is more likely the remaining portion of the market, particularly apparel retailers such as Carhartt, that should be concerned about the impact of Walmart’s strategy.
Carhartt, a privately held company, does not publicly disclose its revenues. However, other retailers that do disclose their financials, such as Tilly’s Inc, Abercrombie & Fitch, and Lands’ End, reported declining revenues in the most recent year, as stated by Refinitiv IBES.
In the U.S. apparel market, Walmart holds a 4.6% share of the $560.4 billion market, making it the leading retailer. Following closely are TJX, Target, and Ross with market shares of 4.4%, 4.1%, and 2.8%, respectively, according to GlobalData.
Within the home decor and furnishing industry, bankrupt Bed Bath and Beyond, along with furniture chains Ikea and Wayfair, were prominent players. In 2019, this market in the U.S. was valued at $169 billion, and it is projected to reach $194.9 billion by 2023, as reported by Statista.
The concept of “Stores of the Future.”
As part of its ambitious $17 capital expenditure plan, Walmart is undertaking the renovation of 700 stores under its “Stores of the Future” initiative. By the end of the year, the revamped facilities will feature upgraded displays to showcase the retailer’s new clothing and home decor offerings.
Taking a cue from its competitor Target, Walmart has adopted a celebrity collaboration strategy. This includes collaborations with Brandon Maxwell, a designer from the Bravo show “Project Runway,” who is creating women’s clothing for Walmart. Additionally, Walmart has partnered with Clea Shearer and Joanna Teplin, known for their Netflix series “The Home Edit,” to develop home organization products.
In one of the remodeled stores, Walmart has prominently placed a $79 Beautiful by Drew Barrymore air fryer near the entrance. Adjacent to it, customers can find a display featuring $27.50 Sofia Jeans for women, a collaboration with Sofia Vergara, as well as Reebok shorts and pullovers.
Sales and Lessons from Past Fashion Ventures
According to Arun Sundaram, a research analyst at CFRA, Walmart has the potential to capture home decor sales in the wake of Bed Bath and Beyond’s bankruptcy. Additionally, Sundaram believes that Walmart could gain market share from clothing chains dealing with excess inventory.
Sundaram anticipates that Walmart will allocate $5.7 billion toward store renovations this year, marking an increase from $5 billion in 2022 and $3.3 billion in 2021.
Furthermore, Sundaram notes that Walmart’s strategic move to focus on clothing and home goods is opportune during an economic slowdown rather than when consumer spending is high and diverse.
Walmart’s previous attempt to expand into the fashion industry proved unsuccessful. Back in 2017, the company aimed to rival online retailer Amazon by acquiring Bonobos, ModCloth, and Moosejaw—upmarket brands. However, Walmart eventually sold off some of these units at significantly reduced prices, encountering difficulties. Moreover, Walmart faced setbacks with its Metro 7 fashion brand in 2005, as well as designer collaborations with Max Azria and Norma Kamali, which failed to thrive.
This strategy of branching into fashion has also experienced failures in other retail companies. JCPenney, for instance, sought to attract wealthier shoppers and reduce reliance on coupons. However, this approach ended up alienating its core customer base, ultimately leading the long-standing retailer to file for bankruptcy in 2020 after over a century of operation. Although J.C. Penney emerged from bankruptcy a few months later, it did so as a considerably smaller entity.
