WAL-MART: TO SELL OR NOT TO SELL?
NEW YORK — Moderate apparel manufacturers could soon be faced with a king-size dilemma: whether or not to sell Wal-Mart.
If they do, they get a colossus of a client: one with a solid credit rating, giant volume and huge consumer traffic. But they also risk their business with other retailers, including not inconsequential chains like J.C. Penney and Sears, Roebuck, in addition to department stores.
Doing business with Wal-Mart, said one apparel executive, could be “the kiss of death” as far as his other customers are concerned because “nobody wants to compete with Wal-Mart.”
The news that Wal-Mart is looking for more brands for its apparel departments, as reported here Thursday, is likely to produce new strategies for the manufacturing and retail communities.
“Wal-Mart is sending out a message to brand-name manufacturers that it’s interested in selling more brands,” said Robert Adler, president of Kellwood Co.’s Halmode division, which does about $75 million with mass retailers. “The problem is, if you have a branded department store business, you have a big decision to make, because once you sell to Wal-Mart, you can kiss your department store business goodby.”
It was Donald Soderquist, vice chairman and chief operating officer of the Bentonville, Ark.-based Wal-Mart, who on Wednesday told a group of advertising executives that the company was actively seeking to increase the amount of national apparel brands it carries.
“Wal-Mart is going after everybody” within the discounter price limits, said one competitor. “They would like to have every brand name in the store at any cost. They’re more competitive than most retailers. But they really haven’t done it yet. In sportswear, it’s really just Gitano and Bonjour, and in lingerie, Hanes Her Way.”
Kmart is also after more brands.
“It’s something we are always pursuing,” said Jerry Steinberg, Kmart’s divisional merchandise manager of women’s apparel. “There are people we have approached that did not want to sell us. They wanted to keep brand names in department stores, and when we approached them, they said they would like to sell us but perhaps use another name.”
Kmart’s branded business has been growing mainly by expanding from jeans, innerwear and hosiery, areas where brands are most important at Kmart, into other categories.
Chic, Sasson and Bonjour, major jeans labels for many years at Kmart, have become major sportswear resources at the chain in the last two years, Steinberg said. Chic, Sasson and Brittania are the three top jeans brands at Kmart, followed by Bonjour and Gitano.
Hanes Her Way and Mickey Unlimited are two brands that have branched into sportswear, and have been successful at Kmart. This fall, Kmart has been testing Fruit of the Loom sportswear, hoping to capitalize on its success with FTL lingerie.
“Where we have success in brands is where we’re giving more real estate,” Steinberg said. “But at the same time, private label is also very important. We must offer customers a choice of both.”
Reportedly, Wal-Mart’s apparel sales rose 29 percent in the first half of this year — several points higher than its overall sales gain of about 25 percent. Hard goods are still Wal-Mart’s strength, and many analysts said the rise in apparel was fueled by women’s foundations.
Nevertheless, Marie Beninati, director of retail market strategy for Kurt Salmon Associates, a research firm, said the improved apparel results show that Wal-Mart is already reevaluating its approach to clothes and is implementing tactics to build that business.
“Wal-Mart’s agreement with Dillard’s is another indication that Wal-Mart is making a move to more moderate-priced apparel,” she said.
Three weeks ago, Wal-Mart and its Arkansas neighbor, Dillard Department Stores, announced a joint venture to open Dillard’s units in Mexico. Wal-Mart is already a partner with Mexico’s largest retailer, Cifra, in 47 discount stores, supercenters and warehouse clubs south of the border.
“This has to cause other retailers to reassess their own apparel strategies and to find ways for customers to differentiate between them and Wal-Mart,” Beninati added. “And the other retailers will certainly consider dropping their more marginal vendors that sell to Wal-Mart.”
She noted that Wal-Mart should not have a problem attracting national brands because of the volume it commands. Wal-Mart will push for and most likely get better prices because of that volume.
“Some major manufacturers might be able to develop brands specifically for Wal-Mart,” she speculated.
Other observers said a more likely scenario would be that Wal-Mart would be able to get brands that have been lackluster performers in department stores, but still have retained their cachet.
Wal-Mart is the world’s largest retailer, with 1993 sales of $67.3 billion and projections of $83 billion this year. The company operates more than 2,500 stores and is expanding, with the addition of 100 discount stores and 100 supercenters — units that combine general merchandise and groceries — domestically next year. Besides its Mexican and Canadian operations, it is opening new international markets, including South America, Hong Kong and China.
It is not unprecedented for department stores to drop a brand that suddenly appears in a mass chain. R.H. Macy & Co. stopped buying Levi Strauss products when the sportswear and jeans maker began supplying Penney’s and Sears. Levi’s apparently left too big a hole in Macy’s assortments, however, and the chain brought the brand back last year, after an 11-year absence.
Dillard’s buyers reportedly have orders not to shop vendors that sell to Penney’s. There was speculation that when Leslie Fay began selling its signature label to Penney’s this year, Dillard’s would drop the brand. That, however, has not happened.
Retail consultant Kurt Barnard said he’s been expecting this move by Wal-Mart for some time.
“Wal-Mart has been eyeing Target’s success in apparel and it wants to capture market share wherever it can,” he said. “Wal-Mart also realizes that many Americans want good value in a pleasant environment, and they don’t mind going to stores like Wal-Mart for apparel.”
Barnard added that this move will give Wal-Mart one more dimension of strength and will allow the retailer to gain significant market share.
“A lot of people have been bringing more and more of their dollars to stores like Wal-Mart, so we mustn’t prejudge what they’d be willing to spend on apparel there,” he continued.
Kurt Salmon’s Beninati said there is a limit to how much the Wal-Mart customer will pay for clothes, but said the limit is only a function of where Wal-Mart wants to focus.
“Who’s to say Wal-Mart won’t reinvent itself in a few years, and spin off a new format?” she asked. “They certainly have the capital to do so.”
“If Wal-Mart says they are going to do it, they’ll do it,” said Steve Louis, partner in Andersen Consulting. “They’re too smart. They don’t do things on a whim. The bigger issue is what manufacturers are going to do. They’ll have to figure out how to maintain market share in department stores, but how can anyone turn down a $70 billion outlet?”
He said manufacturers could end up making “subtle product changes” to sportswear lines to differentiate what they sell to department stores and discounters, as they currently do in hard goods.
Wal-Mart and other discounters sell plenty of brands, particularly in denim, innerwear, and activewear, but he noted there are opportunities in more casualwear brands.
Some apparel executives said Wal-Mart is not easy to do business with because of the many strict requirements the firm places on vendors and its hard-bargaining tactics.
“Wal-Mart didn’t used to be so demanding, but they are becoming tougher in terms of deliveries and service,” said one denim supplier. “If you give them something for $10 one season, they want it for $9.50 the next.”
Those difficulties are discounted by Linda J. Wachner, president, chief executive officer and chairman of The Warnaco Group and president of Authentic Fitness Corp., whose White Stag sportswear and Catalina swimwear brands are on Wal-Mart’s shelves.
“It is a pleasure doing business with them,” Wachner said, declining to elaborate.
Many manufacturers concurred that Wal-Mart is making the right move to add more brands.
Halmode’s Adler said his firm has been making Bobbie Brooks sportswear and dresses for Wal-Mart for several seasons. Bobbie Brooks, once a huge independent brand, is owned by Wal-Mart and distributed only in its stores.
Adler, whose company does about half of its $150 million in volume with mass chains like Sears and Kmart, said he sees Wal-Mart’s strategy as reviving existing brands, as it has with White Stag, as well as developing and creating more store brands, such as Bobbie Brooks.
“They don’t want to start selling brands that are already widely distributed at Kmart or Target,” Adler said.”
Robert Luehrs, president of Chic jeans, which does not sell to Wal-Mart, said he thinks the store is on the right track to emphasize branded apparel, which he feels is as much of a draw for customers as price.
“Every Sunday, in every paper in this country, there’s a circular,” he said. “They all look the same, whether it’s Venture, Kmart or Caldor. All they emphasize is price, price, price. I feel the discounter does not do a good job selling brands. There’s no display, no effective signage.
“We don’t sell Wal-Mart because we believe, rightly or wrongly, that our accounts buy more from us because we don’t sell Wal-Mart,” Luehrs said.
Tropic-Tex International, a misses’ and junior resource, sells to Wal-Mart under private label. Its own brands are Croquet Club and Airplane.
“Wal-Mart has been very successful in creating its own brands or building labels like Gitano and White Stag,” said Jennifer Mead, vice president of sales and marketing. “It has tremendous internal brand development already, so I don’t think it will affect us.”
She added that Wal-Mart’s quest for brands should not affect the junior market that much.
“The junior customer is not so brand-driven. She wants the latest look and the best price,” Mead said. “It may have more impact on other markets, like misses’, where the customer is more brand-conscious.”
Because of the sensitive nature of dealing with Wal-Mart, several prominent manufacturers declined to speak for attribution.
“There’s a reason Leslie Fay went into J.C. Penney and risked its business with Dillard’s — 1,100 stores versus 200 stores,” said one moderate-price vendor. “I have department store accounts that are angry because I sell to Sears. And Sears asks me outright if I sell to Wal-Mart, and that if I do, they won’t do business with me. But the bottom line is, if you’re hot, everyone wants you.”
The source said he wants to increase the amount of business he does with stores like Wal-Mart because “they are very creditworthy, in a market that is seeing fewer retailers with good credit.”
“Would I give them my brand, or go under a different label?” he asked. “It would all depend on the kind of volume we would do.”
Not all manufacturers are enamored of the idea of selling to Wal-Mart.
“We have absolutely no plan to increase our distribution by going into the mass chains with any of our brands,” said Gary Wolkowitz, president of Hot Sox Inc., which manufactures its own brand of socks and tights, as well as its licensed Ralph Lauren Hosiery and Ralph by Ralph Lauren hosiery.
“If my competitors choose to, that would only strengthen my position in department stores,” Wolkowitz added. “As more brands jump over the line into mass distribution, the more we have to gain.”