Can Walmart Finally Crack Fashion?

Secaucus, NEW JERSEY –– Inside Walmart’s “store of the future,” the space devoted to apparel looks more like a department store than a big-box chain.

Gone are the giant “Everyday Low Prices” signs advertising $4.99 shirts, replaced with tasteful campaign imagery and mannequin displays — though prices remain enticingly low. Instead of only fluorescent lighting, the corridor is illuminated by softer, focal lights that accentuate the product offering, inviting shoppers to linger at the racks and peruse through blouses, blazers and printed dresses.

In the past couple of years, the world’s biggest retailer has added over 1,000 new brands to its apparel roster, including Reebok and Levi’s, and overhauled its in-house offering. Walmart is working with the designer Brandon Maxwell on two private labels and selling more trendy, seasonal pieces like fleece jackets and ankle boots alongside the usual assortment of plain T-shirts and sweatpants.

None of these additions are particularly revolutionary. But for Walmart, which is one of the world’s biggest apparel sellers thanks to cheap basics but has struggled for decades to be seen as a fashion destination, these changes count as groundbreaking.

The goal is to attract younger, fashion-forward customers who already shop at Walmart for eggs, laundry detergent and underwear, but would never previously have thought about putting clothes for the office or a night out in the same cart.

“We have 100 million people who visit our stores every week, and 40 million online,” said Denise Incandela, executive vice president of apparel and private brands at Walmart. “Historically, we’ve supported her basic needs and the goal here is to support more of her closet needs.”

Whether Walmart can truly transform its apparel category is an open question. While archrival Target successfully rebranded as a budget fashion shop with its designer collaborations and affordable but trendy offerings, Walmart has a long history of failed attempts to make over its clothing assortment dating back decades.

Various private labels have come and gone. In the early 2000s, The retailer built a 100-person product development team that scoured Europe for fresh trends, most of which fell flat with customers. Walmart acquired Bonobos and a slew of other hip direct-to-consumer labels in the 2010s, but never figured out how to pitch those clothes to its utilitarian shoppers. It sold Bonobos last year for $75 million, less than a quarter of what it paid to acquire the brand.

So far, shoppers have been receptive to the latest effort. Walmart does not break out apparel sales in its earnings reports, but has indicated the category has seen growth in recent months. Online, third-party marketplace sales in the apparel category saw double-digit growth during the second quarter of 2023, compared with 5.7 percent growth overall.

But past rebrands saw an initial bump in sales, too. And the fashion marketplace has only gotten more cutthroat.

“It’s hard to be a real fashion destination while still maintaining affordable price points,” said Sonia Lapinsky, fashion lead at consultancy AlixPartners. “At the same time, there are so many pressures and competitors in the fashion space — not only Amazon, where people are now very comfortable buying fashion, but also the digital players offering extremely affordable prices.”

For Incandela, a luxury brand veteran who took over Walmart’s fashion division in 2021, those shifts represent an opportunity rather than a threat.

“If you think about Millennials and Gen-Z, our research shows that people care more about great value, great items at an extraordinary price point than they do where they bought the item,” Incandela said. “And so I think consumer behaviour has changed and there’s an openness to shopping in many different places that didn’t exist before.”

A Difficult Category

Walmart was the biggest US apparel retailer for many years until it was unseated by Amazon in 2021. But capital-F Fashion — clothes you want, rather than clothes you need — has always been its white whale.

Since at least the 1990s, the Arkansas-based chain has invested again and again in revamping its apparel assortment, tapping a revolving door of designers and retail executives. Norma Komali and Max Azria were among the talent who passed through.

A lucrative private label licensed from talk show host Kathie Lee Gifford landed Walmart in controversy in 1996, when a human rights activist accused the TV star of using sweatshop labour. That line was phased out in 2003.

The retailer received positive headlines in 2002 when it introduced UK-based contemporary fashion line George, but the brand’s international recognition never translated to sales in the US. The private label was eventually retired, and then relaunched as a men’s brand in 2018. That same year, Walmart shuttered its White Stag and Faded Glory private labels to make room for a new slate of in-house brands, including Time and Tru, Wonder Nation and Terra & Sky.

Time and Tru is now a $2 billion-plus enterprise, the company said. But that counts as a minor success for Walmart, which reported $573 billion in revenue last year. By contrast, Cat & Jack, a children’s line launched by the much smaller Target in 2016, hit $2 billion in annual sales within a year.

Walmart also tried to buy its way into being cool, acquiring the digital upstarts Bonobos, ModCloth and Eloquii between 2016 and 2018. The retailer did not actually stock the brands, which more closely followed trends and sold at higher price points. Bonobos was never available in Walmart stores, though some briefly offered Bonobos Fielder, a more affordable “streetleisure” sub-brand. ModCloth was sold in 2019; Eloquii and the outdoor apparel brand Moosejaw were offloaded this year, shortly after Bonobos. (Walmart said it intended for the portfolio of digital brands to bring expertise into the company, informing the growth of Walmart.com and helping hire design talent).

For its latest fashion refresh, Walmart is going back to private labels. In womenswear, there are Scoop and Free Assembly designed by Brandon Maxwell, as well as a denim-forward fashion line in partnership with Sofia Vergara and activewear line Love & Sports, created by former Milly designer Michele Smith and well-known SoulCycle instructor Stacey Griffith.

The retailer is in a great place to kickstart a new initiative into fashion, according to Cowen analyst Oliver Chen, because it’s only grown bigger and more profitable after the pandemic. Fashion products, especially those designed and manufactured in house, have far higher margins than produce and everyday home goods. And as inflation continues to squeeze consumer spending, Walmart has an opportunity to capture more share with its low prices and consistent in-store traffic.

“They have outstanding cash flow and a customer that’s already coming in for basics,” Chen said. “Fashion has always been a big opportunity, but it’s now or never.”

The Opportunity

Incandela, who joined Walmart in 2017 to oversee fashion e-commerce, is in a special position to succeed, Chen added. Among her biggest contributions as head of digital fashion was introducing a more robust third-party marketplace, which now stocks thousands of different brands, including Coach, Lands End and Michael Kors.

Incandela’s background in the luxury space — she previously served as chief marketing officer at Saks Fifth Avenue — means she has expertise in elevating brands (Incandela was also president of global digital for Ralph Lauren).

“Part of their secret weapon now is Denise,” said Chen. “She comes from a really broad and powerful background, and she brings both magic and logic. She has a deep understanding of merchandising and brands, and at the same time, she’s an operator too.”

Under Incandela’s watchful eye, for example, the fashion selling floor stocks 10 percent fewer products and fixtures to make featured items more appealing. The aisles are also wider, and each store has its own visual merchandiser to dress up new mannequins and keep the assortment fresh. Online, Incandela has incorporated virtual try-on and fit predictor tools.

But Walmart’s biggest strength is the egalitarian nature of Gen-Z consumers when it comes to buying clothes — a trend that both heightens competition for Walmart as well as allows it to enter the arena in a way it hasn’t been before.

Whereas older shoppers may have a certain impression of Walmart, said Chen, “younger customers might be more receptive to Walmart’s current makeover.”

“Gen-Z likes to mix and match, and for them it’s fashionable to get something for great value,” he added. “Being chic right now has a lot to do with your personal style rather than how much you paid for it.”

Under Walmart’s store of the future plan, 700 out of its 10,500 locations will be renovated, with 300 to be remodelled by the end of the year, the company said.

Even in these modernised, fashion-forward stores, about 65 percent of apparel assortment will still be the retailer’s bread-and-butter: basics. Six of Walmart’s private label brands already generate $1 billion or more in annual sales. Many Walmart shoppers are rural and suburban Americans, and are far less interested in TikTok or runway trends than their urban counterparts. Creating a stylish offering that won’t alienate that core customer is tricky.

The retailer won’t be suddenly stocking sequined gowns or cut-out bodysuits, nor chasing internet trends at hyperspeed, Incandela said.

For that, there’s Shein. Or even TJ Maxx.

“The highly fashion-forward assortment — that’s not our goal,” said Incandela. “We’re focused on the majority of her closet, bringing on quality clothes that will last for years.”