Wal-Mart Adds Stores, Style

NEW YORK — Wal-Mart Stores plans to marry value and trend in its apparel.<br><br>"We can do both. We can walk and chew gum," declared Thomas Coughlin, president and chief executive of the Wal-Mart division to attendees at its annual analyst...

NEW YORK — Wal-Mart Stores plans to marry value and trend in its apparel.

This story first appeared in the October 2, 2002 issue of WWD.  Subscribe Today.

“We can do both. We can walk and chew gum,” declared Thomas Coughlin, president and chief executive of the Wal-Mart division to attendees at its annual analyst meeting. Though he spoke about the firm’s namesake division, Coughlin also heads up Sam’s Club.

“Our customers, we understand who they are and what they’re looking for in apparel — it’s value and we have to stay focused on that.” He asserted that being on trend doesn’t contradict Wal-Mart’s low-cost philosophy.

Recently, the company has been making inroads into fashion with its George apparel line, which completed its rollout into all the firm’s flagships last month.

Wal-Mart’s steady rollout of new stores will give George even more room to stretch its legs.

The firm laid out plans for about 45 to 55 new discount stores next year and 200 to 210 SuperCenter food-hybrid stores. Relocations and expansions of existing discount stores account for approximately 140 of the new SuperCenters. Wal-Mart has 1,603 discount stores and 1,179 SuperCenters. Roughly 85 to 90 percent of next year’s expansion will be completed by the end of the fiscal 2004 third quarter.

Coughlin noted SuperCenters, which already produce the largest portion of sales, are expected to outnumber the discount stores in fiscal 2004. Previously, Wal-Mart hoped to hit that mark by 2005.

Sam’s Club will open 40 to 45 domestic units next year, about two-thirds of which will be relocations or expansions. The Neighborhood Market concept will add about 20 to 25 new units.

Internationally, Wal-Mart plans to open 120 to 130 new units in existing markets, including specialty apparel retail stores (under its Suburbia nameplate) and two restaurants and supermarkets in Mexico.

John Menzer, president and chief executive officer of the international division, said Wal-Mart will also focus on apparel internationally with a program of lifestyle branding and accelerated product development.

“Demographics and statistics just aren’t enough,” Menzer said. “You have to understand lifestyles and segmentation. As we look at lifestyle segmentation we look at what people look like and how their lifestyles influence what they purchase.”

He identified three lifestyles: traditional (perceived as elegant), neo-traditional (mix and match) and contemporary (less is more). Wal-Mart will speed up the product development in its international division by identifying key trends in apparel, reserving a portion of the purchase plan to respond to those trends and by partnering with designers and manufactures to enable six- to eight-week lead times.

“Being the biggest is no longer the key,” he said. With trend and demand shifting so quickly, he said, the retailer must also be fast.

All told, the firm will add about 48 million square feet of retail space, a more than 8 percent increase, in fiscal 2004. This comes on top of growth of 46 million square feet, or 9 percent, planned for this year.

Lee Scott, president and chief executive of the corporation, said the retailer will focus on organic growth and acquisitions with businesses that can grow, show improved productivity and adapt offerings to meet the changing needs of the customer. “Wal-Mart is like a train,” said Scott, with its cars — or businesses — lined up and speeding down the track.

The ceo’s appraisal of the company he heads, as usual, looked toward areas for improvement. “We feel comfortable that we met your expectations; we didn’t exceed ours.” Customer service and distribution costs were two areas he said could be enhanced.

Also holding back Wal-Mart’s results since it last updated Wall Street was the flagging economy. “What we’re seeing is that it was a shallow recession,” Scott said. Consumers now, he said, are lacking confidence more than liquidity.

As for the rest of the year, Scott said he couldn’t promise when comparable-store sales would rebound, but only that Wal-Mart would take market share. When the economy does improve, the firm expects to be positioned to accelerate comps. “Right now, for this short period of time, comp-store sales are slightly disappointing,” he said.

As reported, Wal-Mart, on Monday, pulled down its same-store sales projections for September to an increase of 3 to 4 percent. The firm had been looking for a 4 to 6 percent uptick.

Wal-Mart’s expanding presence continues to affect the broader retail market, including its closest competitor, Target Corp. On Tuesday, Salomon Smith Barney analyst Deborah Weinswig downgraded Target to “2M,” indicating an in-line performance with medium risk, from “1M.” She also pulled down her target price for its stock to $32 from $40.

“We had previously thought of Target as being differentiated from both Wal-Mart and Kohl’s [Corp.] due to its upscale focus and designer brands. However, we now believe that Target may be ‘stuck in the middle,’” she said. “Our fear is that consumers are shopping Wal-Mart for food and basics and Kohl’s for apparel and home — in markets where they overlap — making Target less of a destination.”

Weinswig also noted that Wal-Mart’s low prices, improved offerings and more upscale store appearance is bringing in food shoppers new to its stores, particularly from the more upscale demographics Target counts as its base.