Powerful technology, the industry's most envied logistics and even last month's executive shuffles can go only so far toward getting Wal-Mart Stores Inc.'s fashion mix right.
So say industry sources, who claim there's more at play than merchandise that was too pricy, too soon — namely, the company's insular culture. Wal-Mart is known for superior technology — proprietary and internally developed — that has delivered great efficiency in the supply chain. However, fashion can't be scripted the same way as commodity items. Relying more on external trend data, the sort that helped Target Corp. and Kohl's Corp. get their formulas right, could also help Wal-Mart, but that would represent a shift for the world's largest retailer.
"They don't have strong knowledge about what happens with the competition and with consumers' mind-set," said Marshal Cohen, chief industry analyst at The NPD Group. "They rely solely on their internal information and logistical fortitude and that is two-thirds of their equation.
"They have to learn how to share [their data] and learn how to seek outside input and understand how to use that information to make calculated business decisions," he added.
While Wal-Mart has great volumes of information at its disposal — its database is said to be retail's largest — "The data only takes you so far," said Kathryn Cullen, vice president of Kurt Salmon Associates. "Then, the merchants have to translate that into: What is it we can effectively offer to the consumer, based on what we know they want?"
It's here, she said, that external sources of trend analysis should be brought into the equation to forecast demand and lift sales. Apparel and home sales lagged in Wal-Mart's namesake stores through July, when comparable-store sales rose 1.3 percent, and are expected to remain soft through the third quarter.
In June, Wal-Mart Stores Inc. president and chief executive officer H. Lee Scott Jr. told analysts that plans and new systems are in place to improve merchandising, particularly in apparel. Pressed for details, he declined to elaborate and a spokesman declined comment. "Combined with our expanding customer insights, we will improve our merchandising, community by community," Scott said. "You will also see better timing on our seasonal items, better depth of our products in apparel and greater clarity of offering in home."A month after Scott's pronouncement, Claire Watts, the top executive heading up apparel and, until recently, also home, resigned and her duties were divided between two executives. Although Watts had been based in Bentonville, Ark., one of her successors, Dottie Mattison, will be based at Wal-Mart's trend office in New York, which could bring the retailer closer to changing fashions.
Wal-Mart's July price-slashing campaign on back-to-school merchandise and apparel is generating traffic but affecting gross margins, Eduardo Castro-Wright, Wal-Mart Stores U.S. president and ceo, said in a statement.
At the June analysts meeting, Scott blamed fashion missteps and resulting markdowns on the speed with which Wal-Mart introduced higher-priced apparel.
"We just got up one morning and decided that we can move that customer there. Because they trusted us at $13.88, they were going to trust us at $39," Scott said. He did not find fault with the fashion offerings, however: "We had a $39 sweater on the rack that was the right color, the right fabrication, the right silhouette, but we hadn't earned the right to put a $39 sweater there."
Though software can help retailers make educated merchandising decisions by analyzing historical sales data, that tactic works best for basic items like socks, paper goods and other commodities that have established selling patterns. The next season's fashion sleeper sellout has no such pattern of sales history.
"The fashion business, which I call 'short-life cycle product,' does present different challenges than more basic commodities that are replenishable across time," said Edward Wong, executive vice president and chief supply chain officer at Charlotte Russe Holding Corp. "That's why I think demand forecasting [software] works well for basic replenishment products."
Dale Achabal, director of the Retail Management Institute at Santa Clara University, agreed.
"There are things you can do with technology that help you test new products before you place major orders, but if you are in the fashion area, it is much more difficult," Achabal said. "It gets down to one's ability to forecast demand and then, given that forecast, being able to allocate and then when in fact there are issues between the plan and actual sales, to figure out the best way to optimize your clearance."Wal-Mart recently invested in new software to optimize clearance, sources say, though the retailer declined to confirm it. The company is reportedly beginning to use markdown optimization software from Oracle and is ramping up quickly to have it fully implemented in time for the holiday season.
The software, formerly known as Profitlogic, uses mathematical algorithms and data analysis to determine optimum markdown price and timing, item by item, to return the best possible margin. That the software is commercial — and not Wal-Mart's own homegrown solution — could suggest greater openness to other packaged software in the future.
More investments in data analysis technology came to light this month, when Wal-Mart said it would use data warehousing technology from Hewlett-Packard. The retailer will use HP's new Neoview technology to advance "our next-generation business intelligence needs," Jim Scantlin, Wal-Mart director of enterprise information management, said in a statement.
But Wal-Mart's challenges with forecasting fashion are not uniquely its own.
"Big fashion companies still struggle with assortment plans and allocation strategies with fashion," said Dan Smith, former executive vice president and chief information officer at Saks Inc. "They have years of experience and the people driving it are not stupid. Wal-Mart can dictate fashion performance to vendors as they have done with commodities, but it is harder."
Smith, who is a principal at RetailWise Consulting Inc. of Alpharetta, Ga., remains optimistic Wal-Mart will overcome its fashion challenges. "Wal-Mart may not have the tools or experience to assort and allocate fashion right away," he said, "but they will get it."
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