NEW YORK — Mass merchants are recognizing that low prices can no longer make up for dirty stores and messy merchandise displays.
The country's largest mass stores are revamping their apparel departments to appeal to an ever more discerning clientele. The moves come as the chains are aiming to capture a wealthier demographic and as they step up their expansion programs in urban areas of the Northeast and West.
Target, which already sells blue chenille cloud chairs and Isaac Mizrahi mercury glass vases to fans of smart design, has admitted that there's room for improvement in its execution and display of women's apparel.
Wal-Mart also has acknowledged it needs to do better with the design and presentation of soft goods. If the world's largest company wants to attract wealthier and more sophisticated shoppers, retail experts said, it will have to retool more than just its product offerings, however: The $285 billion retailer will need to upgrade its shopping environment and, to some extent, redefine its image.
Even Kmart, now part of Sears Holdings, is tweaking some of its displays to make it look less like a mass merchant and more like a moderate department store.
Wal-Mart traditionally hasn't been interested in the niceties of product presentation, preferring to focus on its Everyday Low Prices mantra. Unlike Target, which has clever ad campaigns and a cute canine mascot with a bull's-eye logo over one eye, Wal-Mart is neither hip nor cool. In fact, it's the opposite, projecting a down-home sensibility firmly entrenched in Middle America. But for Wal-Mart to move beyond its rural and suburban roots and open stores in regional malls and cosmopolitan cities such as Chicago and New York, it will have to embrace the "d" word, as in design, experts said.
"Design will become a competitive and powerful and better-understood tool by the mass retailers," predicted Kevin Roche, a partner in RYA, a retail design consultancy. "As mass merchants move into urban areas, they're not dealing with visually unsophisticated people. They're dealing with young professionals on budgets or people who just like saving money."
And even as it is buffeted by controversy over labor practices and expansion plans, Wal-Mart is recognizing that it needs to upgrade its products and stores. Lee Scott, the company's president and chief executive officer, acknowledged the challenge at Wal-Mart's annual general meeting earlier this month. "We don't think we're doing a very good job on 'high-end' apparel, or home fashions, or electronics or other items," he said. "[Shoppers] may bypass some of these departments completely on the assumption that our competitors are doing a better job."Target has raised consumers' design sensitivity by endowing utilitarian objects with handsome shapes and finishes, hiring designers such as Mizrahi, Cynthia Rowley and Michael Graves to create apparel and home collections and keeping its stores clean and well-lit.
"Target has given consumers access to a design sensibility," said Mandy Putnam, a vice president of Retail Forward. "Wal-Mart has given consumers access to products."
Wal-Mart, however, is not ignoring the shopping experience. A new prototype for the apparel department was recently introduced in Algonquin, Ill., and includes upgrades such as simulated wood flooring to define the clothing area.
Cluttered racks are gone, replaced by a few key items for the season displayed on upgraded fixtures under the heading "Gotta Have It!" The prototype also features slightly wider aisles, carpeting, new signage and a graphics package that clearly communicates the message behind private label brands and national brands.
"It's supposed to create a distinctly higher ambience," said Don Delzell, a partner in Retail Advantage, a Redondo Beach, Calif., consultancy specializing in business development and merchandising. "The new design uses more mannequins and outpostings — selected fixtures that group related items together."
Wal-Mart has opened a New York-based trend office, is sourcing better-quality fabrics and is putting more design muscle behind its George label, with the hope of attracting more upscale consumers. George's charmeuse camisole tops and beaded tunics from White Stag are examples of some of the trends Wal-Mart is hitting. The company is making efforts in other areas of the store as well, including home decor, where 400-thread-count sheets are now on display.
The mass market is beginning to understand the power of the shopping environment, as well as low prices. But the likes of Wal-Mart must come to grips with the fact that consumers don't make their purchases solely based on price any longer.
Bill Dreher, an analyst at Deutsche Bank Securities, said Wal-Mart is better at keeping costs low than responding to customer tastes.
The new prototype for the apparel department of Target is replete with department store-style changing rooms, neon signage, lifestyle vignettes and special mannequins the company calls "flatequins," which are essentially mannequins sliced lengthwise so that they can be hung flush against the wall. Experts compare the new Target prototype to a specialty store rather than a mass merchant."It's fun, exciting and cool," said Dreher. "It's nice, high-quality stuff. Target's roots are in the department store world. They really understand merchandising."
But RYA's Roche said, "I've always been disappointed with the level of visual sophistication of Target in comparison to Almacenes Paris [a Chilean mass merchant his company works for] or Old Navy."
Kmart is testing a new store design where partial-height accent walls are painted bright orange and used to highlight clothes. Mannequins are being used for the first time to feature complete looks, and products are displayed on three-tiered wooden tables. Lifestyle graphics decorate the walls. Even the dressing rooms have been redesigned.
Wal-Mart wants to reach upscale shoppers for obvious reasons. Its financial performance has been sagging. For the last year, Wal-Mart's same-store sales have trailed those of Target, which has a wealthier customer base. Wal-Mart stock on Friday closed at $47.93, up 0.11, in New York Stock Exchange trading, close to its 52-week low of $47.64. The company on June 2 reported its same-store sales increased 2.5 percent in May, at the low end of its forecast of a 2 to 4 percent boost. Chief rival Target, in contrast, said sales went up 5.1 percent, ahead of the 3 to 5 percent estimate.
The two chains are geographical opposites. According to Retail Forward, Wal-Mart's Wal-Mart and SuperCenter stores are 23 percent more likely to be located in small markets with populations of 500,000 or less. Target's 1,300 stores are 22 percent more likely to be in large markets with 2 million or more residents.
Target shoppers have higher disposable incomes than Wal-Mart shoppers and reportedly spend more money at the stores. A Retail Forward study found that Wal-Mart customers are 5 percent more likely to have incomes below $25,000, while Target shoppers are 33 percent less likely to have incomes below $25,000. In addition, Wal-Mart customers are 17 percent less likely to earn $100,000 or more. Target customers are 43 percent more likely to earn $100,000.
Wal-Mart is falling short of its own goal of achieving a 30 percent share of preference, defined as the percentage of shoppers spending the most on a given category, in several areas. Women's casual clothing in March had a 19 percent share of preference, according to Retail Forward, leaving considerable room for growth.Wal-Mart's historic advantage — low prices — is now being threatened by dollar stores, which are aggressively expanding and undercutting the giant retailer's prices. Both Wal-Mart and Target are testing or have tested dollar store concepts within their big boxes. Dollar stores, which appeal to high- and low-income shoppers, are opening units at a faster clip than Wal-Mart. For example, Dollar General and Family Dollar are each planning to open about 600 stores this year. By contrast, Wal-Mart will open about 300 new stores.
In a report, "Merchandising: Nipping at Wal-Mart's Achilles' Heel," Putnam said, "Despite Wal-Mart's Achilles' heel in visual merchandising, it must figure out a way to engage more female shoppers."
Fashion, an emotional purchase, requires a certain degree of finesse to sell. "If you want to merchandise apparel or home products, you have to romance the merchandise," said Howard Davidowitz, chairman of Davidowitz & Associates, a retail consulting firm here. "It requires a totally different type of signage and fixtures. Right now, Wal-Mart stands for commodities."
"Fashion is one of the rare businesses where price is not the only thing that motivates a consumer to buy," said Marshall Cohen, chief industry analyst at NPD Group, based in Port Washington, N.Y. "Wal-Mart's going to have to learn how to raise the bar."
Wal-Mart now finds itself in an unfamiliar position. The retail giant wrote the rules by which other mass merchants must compete, wielding its considerable power to cut favorable deals, asking vendors to speed up delivery times and going offshore to cut production costs. Now those rules have changed, said Robert Buchanan, a retail analyst at A.G. Edwards.
"Wal-Mart was on a productivity loop with a low expense structure," he said. "Wal-Mart was able to charge less and sell more than its competitors. Then, a few years ago, Wal-Mart came off the loop. The expense ratio stopped going down, and they didn't get the dynamic sales gains they used to get. It wasn't because they were raising prices. There's an element of the total package that they don't have: aesthetics. They need to pay attention to brand-building and display. Merchandising creativity is sorely lacking at Wal-Mart. They need to reestablish creativity and originality in their assortments."To those who say that Wal-Mart's core customers like the stores just fine, Davidowitz replied: "The Wal-Mart shopper appreciates the upgrades. The customer doesn't have a tremendous amount of additional money to spend, but the customer is very aspirational."
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